Item 1. Financial Statements
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(US$ 000’s, except share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
ASSETS
|
|
|
|
Current assets
|
|
|
|
Cash and cash equivalents
|
$
|
90,959
|
|
|
$
|
43,459
|
|
Accounts receivable, net (Note 6)
|
149,145
|
|
|
178,339
|
|
Program rights, net (Note 5)
|
87,145
|
|
|
86,151
|
|
Other current assets (Note 7)
|
30,725
|
|
|
32,471
|
|
Total current assets
|
357,974
|
|
|
340,420
|
|
Non-current assets
|
|
|
|
|
|
Property, plant and equipment, net (Note 8)
|
108,977
|
|
|
109,089
|
|
Program rights, net (Note 5)
|
184,363
|
|
|
179,356
|
|
Goodwill (Note 3)
|
610,282
|
|
|
602,069
|
|
Other intangible assets, net (Note 3)
|
138,114
|
|
|
138,340
|
|
Other non-current assets (Note 7)
|
20,570
|
|
|
21,443
|
|
Total non-current assets
|
1,062,306
|
|
|
1,050,297
|
|
Total assets
|
$
|
1,420,280
|
|
|
$
|
1,390,717
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
Current liabilities
|
|
|
|
Accounts payable and accrued liabilities (Note 9)
|
$
|
163,699
|
|
|
$
|
160,981
|
|
Current portion of long-term debt and other financing arrangements (Note 4)
|
1,576
|
|
|
1,494
|
|
Other current liabilities (Note 10)
|
29,145
|
|
|
9,089
|
|
Total current liabilities
|
194,420
|
|
|
171,564
|
|
Non-current liabilities
|
|
|
|
|
|
Long-term debt and other financing arrangements (Note 4)
|
1,016,728
|
|
|
1,002,028
|
|
Other non-current liabilities (Note 10)
|
67,612
|
|
|
68,758
|
|
Total non-current liabilities
|
1,084,340
|
|
|
1,070,786
|
|
Commitments and contingencies (Note 19)
|
|
|
|
|
|
TEMPORARY EQUITY
|
|
|
|
200,000 shares of Series B Convertible Redeemable Preferred Stock of $0.08 each (December 31, 2016 - 200,000) (Note 12)
|
257,256
|
|
|
254,899
|
|
EQUITY
|
|
|
|
|
CME Ltd. shareholders’ equity (Note 13):
|
|
|
|
|
One share of Series A Convertible Preferred Stock of $0.08 each (December 31, 2016 – one)
|
—
|
|
|
—
|
|
144,181,567 shares of Class A Common Stock of $0.08 each (December 31, 2016 – 143,449,913)
|
11,534
|
|
|
11,476
|
|
Nil shares of Class B Common Stock of $0.08 each (December 31, 2016 – nil)
|
—
|
|
|
—
|
|
Additional paid-in capital
|
1,908,926
|
|
|
1,910,244
|
|
Accumulated deficit
|
(1,796,601
|
)
|
|
(1,785,536
|
)
|
Accumulated other comprehensive loss
|
(240,566
|
)
|
|
(243,988
|
)
|
Total CME Ltd. shareholders’ deficit
|
(116,707
|
)
|
|
(107,804
|
)
|
Noncontrolling interests
|
971
|
|
|
1,272
|
|
Total deficit
|
(115,736
|
)
|
|
(106,532
|
)
|
Total liabilities and equity
|
$
|
1,420,280
|
|
|
$
|
1,390,717
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME / LOSS
(US$ 000’s, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
2017
|
|
|
2016
|
|
Net revenues
|
$
|
135,002
|
|
|
$
|
129,000
|
|
Operating expenses:
|
|
|
|
Content costs
|
73,402
|
|
|
71,978
|
|
Other operating costs
|
14,556
|
|
|
16,454
|
|
Depreciation of property, plant and equipment
|
7,759
|
|
|
7,285
|
|
Amortization of broadcast licenses and other intangibles
|
2,109
|
|
|
2,060
|
|
Cost of revenues
|
97,826
|
|
|
97,777
|
|
Selling, general and administrative expenses
|
24,908
|
|
|
23,460
|
|
Operating income
|
12,268
|
|
|
7,763
|
|
Interest expense (Note 14)
|
(23,755
|
)
|
|
(49,154
|
)
|
Non-operating income, net (Note 15)
|
2,325
|
|
|
1,416
|
|
Loss before tax
|
(9,162
|
)
|
|
(39,975
|
)
|
Provision for income taxes
|
(2,112
|
)
|
|
(719
|
)
|
Net loss
|
(11,274
|
)
|
|
(40,694
|
)
|
Net loss attributable to noncontrolling interests
|
209
|
|
|
259
|
|
Net loss attributable to CME Ltd.
|
$
|
(11,065
|
)
|
|
$
|
(40,435
|
)
|
|
|
|
|
Net loss
|
$
|
(11,274
|
)
|
|
$
|
(40,694
|
)
|
Other comprehensive income
|
|
|
|
Currency translation adjustment
|
2,072
|
|
|
19,058
|
|
Gain / (loss) on derivative instruments (Note 11)
|
1,258
|
|
|
(1,248
|
)
|
Total other comprehensive income
|
3,330
|
|
|
17,810
|
|
Comprehensive loss
|
(7,944
|
)
|
|
(22,884
|
)
|
Comprehensive loss attributable to noncontrolling interests
|
301
|
|
|
573
|
|
Comprehensive loss attributable to CME Ltd.
|
$
|
(7,643
|
)
|
|
$
|
(22,311
|
)
|
|
|
|
|
|
|
|
|
|
PER SHARE DATA (Note 17):
|
|
|
|
Net loss per share:
|
|
|
|
Net loss attributable to CME Ltd. — basic and diluted
|
$
|
(0.09
|
)
|
|
$
|
(0.31
|
)
|
|
|
|
|
Weighted average common shares used in computing per share amounts (000’s):
|
|
|
|
Basic and diluted
|
154,795
|
|
|
147,078
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
(US$ 000’s, except share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CME Ltd.
|
|
|
|
|
|
|
|
Series A Convertible Preferred Stock
|
|
Class A
Common Stock
|
|
Class B
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares
|
Par value
|
|
Number
of shares
|
Par value
|
|
Number of shares
|
Par value
|
Additional Paid-In Capital
|
|
Accumulated Deficit
|
|
Accumulated Other Comprehensive Loss
|
|
|
Noncontrolling Interest
|
|
|
Total Deficit
|
|
BALANCE
December 31, 2016
|
1
|
|
$
|
—
|
|
|
143,449,913
|
|
$
|
11,476
|
|
|
—
|
|
$
|
—
|
|
$
|
1,910,244
|
|
$
|
(1,785,536
|
)
|
$
|
(243,988
|
)
|
|
$
|
1,272
|
|
|
$
|
(106,532
|
)
|
Stock-based compensation
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
796
|
|
—
|
|
—
|
|
|
—
|
|
|
796
|
|
Exercise of warrants (Note 13)
|
—
|
|
—
|
|
|
301,308
|
|
24
|
|
|
—
|
|
—
|
|
277
|
|
—
|
|
—
|
|
|
—
|
|
|
301
|
|
Share issuance, stock-based compensation
|
—
|
|
—
|
|
|
430,346
|
|
34
|
|
|
—
|
|
—
|
|
(34
|
)
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
Preferred dividend paid in kind
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
(2,357
|
)
|
—
|
|
—
|
|
|
—
|
|
|
(2,357
|
)
|
Net loss
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
(11,065
|
)
|
—
|
|
|
(209
|
)
|
|
(11,274
|
)
|
Gain on derivative instruments
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1,258
|
|
|
—
|
|
|
1,258
|
|
Currency translation adjustment
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
2,164
|
|
|
(92
|
)
|
|
2,072
|
|
BALANCE
March 31, 2017
|
1
|
|
$
|
—
|
|
|
144,181,567
|
|
$
|
11,534
|
|
|
—
|
|
$
|
—
|
|
$
|
1,908,926
|
|
$
|
(1,796,601
|
)
|
$
|
(240,566
|
)
|
|
$
|
971
|
|
|
$
|
(115,736
|
)
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(US$ 000’s)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
2017
|
|
|
2016
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
Net loss
|
$
|
(11,274
|
)
|
|
$
|
(40,694
|
)
|
Adjustments to reconcile net loss to net cash generated from continuing operating activities:
|
|
|
|
|
Amortization of program rights
|
73,402
|
|
|
71,978
|
|
Depreciation and other amortization
|
11,302
|
|
|
25,847
|
|
(Gain) / loss on disposal of fixed assets
|
(32
|
)
|
|
32
|
|
Deferred income taxes
|
(793
|
)
|
|
904
|
|
Stock-based compensation (Note 16)
|
796
|
|
|
838
|
|
Change in fair value of derivatives
|
(265
|
)
|
|
13,868
|
|
Foreign currency exchange gain, net
|
(2,100
|
)
|
|
(15,438
|
)
|
Changes in assets and liabilities:
|
|
|
|
Accounts receivable, net
|
31,831
|
|
|
30,904
|
|
Accounts payable and accrued liabilities
|
(13,770
|
)
|
|
(15,132
|
)
|
Program rights
|
(67,362
|
)
|
|
(69,956
|
)
|
Other assets and liabilities
|
(105
|
)
|
|
(1,582
|
)
|
Accrued interest
|
16,970
|
|
|
19,830
|
|
Income taxes payable
|
(241
|
)
|
|
(245
|
)
|
Deferred revenue
|
20,274
|
|
|
20,121
|
|
VAT and other taxes payable
|
(3,681
|
)
|
|
(1,617
|
)
|
Net cash generated from continuing operating activities
|
$
|
54,952
|
|
|
$
|
39,658
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
Purchase of property, plant and equipment
|
$
|
(7,707
|
)
|
|
$
|
(6,076
|
)
|
Disposal of property, plant and equipment
|
106
|
|
|
—
|
|
Net cash used in continuing investing activities
|
$
|
(7,601
|
)
|
|
$
|
(6,076
|
)
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
Debt transaction costs
|
$
|
—
|
|
|
$
|
(341
|
)
|
Payment of credit facilities and capital leases
|
(394
|
)
|
|
(341
|
)
|
Proceeds from exercise of warrants
|
301
|
|
|
—
|
|
Net cash used in continuing financing activities
|
$
|
(93
|
)
|
|
$
|
(682
|
)
|
|
|
|
|
Net cash provided by discontinued operations - investing activities
|
160
|
|
|
328
|
|
Impact of exchange rate fluctuations on cash and cash equivalents
|
82
|
|
|
3,512
|
|
Net increase in cash and cash equivalents
|
$
|
47,500
|
|
|
$
|
36,740
|
|
CASH AND CASH EQUIVALENTS, beginning of period
|
43,459
|
|
|
61,679
|
|
CASH AND CASH EQUIVALENTS, end of period
|
$
|
90,959
|
|
|
$
|
98,419
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
Cash paid for interest (including mandatory cash-pay Guarantee Fees)
|
$
|
4,948
|
|
|
$
|
2,640
|
|
Cash paid for Guarantee Fees that may be paid in kind
|
—
|
|
|
10,000
|
|
Cash paid for income taxes, net of refunds
|
2,390
|
|
|
46
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
|
|
|
|
Accretion on Series B Convertible Redeemable Preferred Stock
|
$
|
2,357
|
|
|
$
|
4,510
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
1. ORGANIZATION AND BUSINESS
Central European Media Enterprises Ltd., a Bermuda company limited by shares, is a media and entertainment company operating in Central and Eastern Europe. Our assets are held through a series of Dutch and Curaçao holding companies. We manage our business on a geographical basis, with
six
operating segments; Bulgaria, Croatia, the Czech Republic, Romania, the Slovak Republic and Slovenia, which are also our reportable segments and our main operating countries. See
Note 18, "Segment Data"
for financial information by segment.
We are the market-leading broadcasters in each of our operating counties with a combined portfolio of
36
television channels. Each of our broadcast operations develops and produces content for their television channels. We generate advertising revenues in our country operations primarily through entering into agreements with advertisers, advertising agencies and sponsors to place advertising on the television channels that we operate. We generate additional revenues by collecting fees from cable and direct-to-home (“DTH”) and IPTV operators for carriage of our channels. Unless otherwise indicated, we own
100%
of our broadcast operating and license companies in each country.
Bulgaria
We operate
one
general entertainment channel, BTV, and
five
other channels, BTV CINEMA, BTV COMEDY, RING, BTV ACTION and BTV LADY. We own
94.0%
of CME Bulgaria B.V. ("CME Bulgaria"), the subsidiary that owns our Bulgaria operations.
Croatia
We operate
one
general entertainment channel, NOVA TV (Croatia), and
three
other channels, DOMA (Croatia), NOVA WORLD and MINI TV.
Czech Republic
We operate
one
general entertainment channel, TV NOVA (Czech Republic), and
seven
other channels, NOVA CINEMA, NOVA SPORT 1, NOVA SPORT 2, NOVA ACTION, NOVA 2 , NOVA GOLD and NOVA INTERNATIONAL, a general entertainment channel broadcasting in the Slovak Republic.
Romania
We operate
one
general entertainment channel, PRO TV, and
eight
other channels, ACASA, ACASA GOLD, PRO CINEMA, SPORT.RO, MTV ROMANIA, PRO TV INTERNATIONAL, PRO TV CHISINAU, a general entertainment channel broadcasting in Moldova, and ACASA IN MOLDOVA.
Slovak Republic
We operate
one
general entertainment channel, TV MARKIZA, and
three
other channels, DOMA (Slovak Republic), DAJTO, and MARKIZA INTERNATIONAL, a general entertainment channel broadcasting in the Czech Republic.
Slovenia
We operate
two
general entertainment channels, POP TV and KANAL A, and
three
other channels, KINO, BRIO, and OTO.
2. BASIS OF PRESENTATION
The terms the “Company”, “we”, “us”, and “our” are used in this Form 10-Q to refer collectively to the parent company, Central European Media Enterprises Ltd. (“CME Ltd.”), and the subsidiaries through which we operate. Unless otherwise noted, all statistical and financial information presented in this report has been converted into U.S. dollars using period-end exchange rates. All references to “US$”, “USD” or “dollars” are to U.S. dollars; all references to “BGN” are to Bulgarian leva; all references to “HRK” are to Croatian kuna; all references to “CZK” are to Czech koruna; all references to “RON” are to the New Romanian lei; and all references to “Euro” or “EUR” are to the European Union Euro.
Interim Financial Statements
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Quarterly Report on Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles in the United States of America (“US GAAP”). Amounts as of
December 31, 2016
included in the unaudited condensed consolidated financial statements have been derived from audited consolidated financial statements as of that date. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended
December 31, 2016
filed with the Securities and Exchange Commission ("SEC") on
February 9, 2017
. Our significant accounting policies have not changed since
December 31, 2016
, except as noted below.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring items, necessary for their fair presentation in conformity with US GAAP for complete financial statements. The results of operations for interim periods are not necessarily indicative of the results to be expected for a full year.
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates and assumptions.
Basis of Consolidation
The unaudited condensed consolidated financial statements include the accounts of CME Ltd. and our subsidiaries, after the elimination of intercompany accounts and transactions. Entities in which we hold less than a majority voting interest but over which we have the ability to exercise significant influence are accounted for using the equity method. Other investments are accounted for using the cost method.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
Seasonality
We experience seasonality, with advertising sales tending to be lowest during the third quarter of each calendar year due to the summer holiday period (typically July and August), and highest during the fourth quarter of each calendar year due to the holiday season.
Recent Accounting Pronouncements
Accounting Pronouncements Adopted
On January 1, 2017 we adopted guidance issued by the Financial Accounting Standards Board (the “FASB”) which is intended to improve the accounting for the income tax consequences of intercompany transfers of assets other than inventory. The guidance requires an entity to recognize the income tax consequences of such transfers in the period in which the transfer occurs, rather than defer recognition of current and deferred income taxes for the transfer until the asset is sold to a third party. The early adoption of this guidance did not have a material impact on our condensed consolidated financial statements.
Recent Accounting Pronouncements Issued
In May 2014, the FASB issued guidance which is intended to improve the comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets. The guidance supersedes existing revenue recognition guidance and requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance is effective for our fiscal year beginning January 1, 2018. While we are still in the process of evaluating the impact of the adoption of this guidance on our condensed consolidated financial statements, we currently do not expect the impact of this new guidance to be material.
In February 2016, the FASB issued guidance to increase transparency and comparability among organizations by recognizing leasing assets and liabilities on the balance sheet and requiring additional disclosures about an entity's leasing arrangements. The guidance requires that a lessee recognize a liability to make lease payments and a right-of-use asset, with an available exception for leases shorter than twelve months. The guidance is effective for our fiscal year beginning January 1, 2019. We are currently in the process of evaluating the impact of the adoption of this guidance on our condensed consolidated financial statements.
In August 2016, the FASB issued guidance which is intended to reduce the existing diversity in practice related to specific cash flow issues. As applicable to us, the guidance requires that cash flows at the settlement of zero-coupon debt instruments or debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing be bifurcated between cash outflows for operating activities for the portion attributable to accrued interest, and cash outflows for financing activities for the portion attributable to the principal. The guidance requires a retrospective transition method and is effective for our fiscal year beginning January 1, 2018, with early adoption permitted. We expect to adopt this guidance as of January 1, 2018. Upon adoption, our net cash flows generated from / used in continuing operating activities will decrease by US$
110.7 million
for the year ended
December 31, 2016
with a corresponding increase in net cash used in / provided by continuing financing activities.
In January 2017, the FASB issued guidance which is intended to simplify goodwill impairment testing by eliminating Step 2, and instead recognize an impairment charge for the amount by which the carrying amount of the reporting unit exceeds the fair value of the reporting unit. The guidance also eliminates the requirement to perform a qualitative analysis for reporting units with a negative carrying value. The guidance is effective for annual and interim impairment tests after January 1, 2020, with early adoption permitted for interim and annual impairment tests performed from January 1, 2017. We are currently in the process of determining when we will adopt the guidance.
3. GOODWILL AND INTANGIBLE ASSETS
Goodwill:
Goodwill by reporting unit as at
March 31, 2017
and
December 31, 2016
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bulgaria
|
|
Croatia
|
|
Czech Republic
|
|
Romania
|
|
Slovak Republic
|
|
Slovenia
|
|
Total
|
Gross Balance, December 31, 2016
|
$
|
171,389
|
|
|
$
|
10,988
|
|
|
$
|
744,483
|
|
|
$
|
82,786
|
|
|
$
|
46,089
|
|
|
$
|
19,400
|
|
|
$
|
1,075,135
|
|
Accumulated impairment losses
|
(144,639
|
)
|
|
(10,454
|
)
|
|
(287,545
|
)
|
|
(11,028
|
)
|
|
—
|
|
|
(19,400
|
)
|
|
(473,066
|
)
|
Balance, December 31, 2016
|
26,750
|
|
|
534
|
|
|
456,938
|
|
|
71,758
|
|
|
46,089
|
|
|
—
|
|
|
602,069
|
|
Foreign currency
|
380
|
|
|
22
|
|
|
6,455
|
|
|
698
|
|
|
658
|
|
|
—
|
|
|
8,213
|
|
Balance, March 31, 2017
|
27,130
|
|
|
556
|
|
|
463,393
|
|
|
72,456
|
|
|
46,747
|
|
|
—
|
|
|
610,282
|
|
Accumulated impairment losses
|
(144,639
|
)
|
|
(10,454
|
)
|
|
(287,545
|
)
|
|
(11,028
|
)
|
|
—
|
|
|
(19,400
|
)
|
|
(473,066
|
)
|
Gross Balance, March 31, 2017
|
$
|
171,769
|
|
|
$
|
11,010
|
|
|
$
|
750,938
|
|
|
$
|
83,484
|
|
|
$
|
46,747
|
|
|
$
|
19,400
|
|
|
$
|
1,083,348
|
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
Other intangible assets:
Changes in the net book value of our other intangible assets as at
March 31, 2017
and
December 31, 2016
is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
Indefinite-lived:
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
$
|
81,396
|
|
|
$
|
—
|
|
|
$
|
81,396
|
|
|
$
|
80,324
|
|
|
$
|
—
|
|
|
$
|
80,324
|
|
Amortized:
|
|
|
|
|
|
|
|
|
|
|
|
Broadcast licenses
|
188,313
|
|
|
(133,905
|
)
|
|
54,408
|
|
|
185,686
|
|
|
(130,325
|
)
|
|
55,361
|
|
Trademarks
|
598
|
|
|
(598
|
)
|
|
—
|
|
|
591
|
|
|
(591
|
)
|
|
—
|
|
Customer relationships
|
52,015
|
|
|
(49,895
|
)
|
|
2,120
|
|
|
51,338
|
|
|
(48,997
|
)
|
|
2,341
|
|
Other
|
1,544
|
|
|
(1,354
|
)
|
|
190
|
|
|
1,522
|
|
|
(1,208
|
)
|
|
314
|
|
Total
|
$
|
323,866
|
|
|
$
|
(185,752
|
)
|
|
$
|
138,114
|
|
|
$
|
319,461
|
|
|
$
|
(181,121
|
)
|
|
$
|
138,340
|
|
Broadcast licenses consist of our TV NOVA license in the Czech Republic, which is amortized on a straight-line basis through the expiration date of the license in 2025. Our customer relationships are deemed to have an economic useful life of, and are amortized on a straight-line basis over,
five years
to
fifteen years
.
4. LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS
Summary
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Long-term debt
|
$
|
1,013,944
|
|
|
$
|
999,209
|
|
Other credit facilities and capital leases
|
4,360
|
|
|
4,313
|
|
Total long-term debt and other financing arrangements
|
1,018,304
|
|
|
1,003,522
|
|
Less: current maturities
|
(1,576
|
)
|
|
(1,494
|
)
|
Total non-current long-term debt and other financing arrangements
|
$
|
1,016,728
|
|
|
$
|
1,002,028
|
|
Financing Transactions
In March 2017, we reduced our average borrowing costs across all of our long-term debt by
150
basis points. Pursuant to an amendment to the Reimbursement Agreement (as defined below) with Time Warner inc. ("Time Warner"), as guarantor of our obligations under the Euro Term Loans, the grid pricing structure on the all-in rate that initially applied only to the 2021 Euro Term Loan (as defined below) was extended to the 2018 Euro Term Loan (as defined below) and the 2019 Euro Term Loan (as defined below), with a reduction in the pricing under the grid for each of the Euro Term Loans resulting in an all-in rate ranging from
8.5%
if our net leverage is greater than or equal to
seven
times to
5.0%
if our net leverage is less than
five
times. As with the 2021 Euro Term Loan, we are now required to pay the first
5.0%
of the all-in rate (including the base rate and the rate paid pursuant to customary hedging arrangements) on the 2018 Euro Term Loan and the 2019 Euro Term Loan in cash and the remainder may be paid in cash or in kind, at our option. In addition, we can achieve a further
50
basis point reduction in the all-in rate if we reduce our long-term debt to less than EUR
815.0 million
, subject to certain adjustments in respect of specified debt repayments, on or prior to September 30, 2018. As a result of this amendment to the Reimbursement Agreement, our cost of borrowing across all of our long-term debt will automatically decrease upon the achievement of certain net leverage ratios. For details, see the table below under the heading "Reimbursement Agreement and Guarantee Fees".
Overview
Total long-term debt and credit facilities comprised the following at
March 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Amount of Liability Component
|
|
|
Debt Issuance Costs
(1)
|
|
|
Net Carrying Amount
|
|
2018 Euro Term Loan
|
$
|
268,130
|
|
|
$
|
(555
|
)
|
|
$
|
267,575
|
|
2019 Euro Term Loan
|
251,597
|
|
|
(437
|
)
|
|
251,160
|
|
2021 Euro Term Loan
|
501,194
|
|
|
(5,985
|
)
|
|
495,209
|
|
2021 Revolving Credit Facility
|
—
|
|
|
—
|
|
|
—
|
|
Total long-term debt and credit facilities
|
$
|
1,020,921
|
|
|
$
|
(6,977
|
)
|
|
$
|
1,013,944
|
|
|
|
(1)
|
Debt issuance costs related to the 2018 Euro Term Loan, 2019 Euro Term Loan and 2021 Euro Term Loan are being amortized on a straight-line basis, which approximates the effective interest method, over the life of the respective instruments. Debt issuance costs related to the 2021 Revolving Credit Facility are classified as non-current assets in our condensed consolidated balance sheet and are being amortized on a straight-line basis over the life of the 2021 Revolving Credit Facility.
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
Long-term Debt
Our long-term debt comprised the following at
March 31, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount
|
|
Fair Value
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
2018 Euro Term Loan
|
$
|
267,575
|
|
|
$
|
263,734
|
|
|
$
|
250,805
|
|
|
$
|
233,297
|
|
2019 Euro Term Loan
|
251,160
|
|
|
247,594
|
|
|
224,034
|
|
|
203,314
|
|
2021 Euro Term Loan
|
495,209
|
|
|
487,881
|
|
|
416,617
|
|
|
369,738
|
|
|
$
|
1,013,944
|
|
|
$
|
999,209
|
|
|
$
|
891,456
|
|
|
$
|
806,349
|
|
2018 Euro Term Loan
As at
March 31, 2017
, the principal amount of our floating rate senior unsecured term credit facility (as amended, the "2018 Euro Term Loan") outstanding was EUR
250.8 million
(approximately US$
268.1 million
). The 2018 Euro Term Loan bears interest at three-month EURIBOR (fixed pursuant to customary hedging arrangements (see
Note 11, "Financial Instruments and Fair Value Measurements"
)) plus a margin of between
1.1%
and
1.9%
depending on the credit rating of Time Warner. The all-in borrowing rate including the Guarantee Fee ranges from
8.5%
to
5.0%
per annum based on our net leverage (see the table below under the heading "Reimbursement Agreement and Guarantee Fees"). As at
March 31, 2017
, the all-in borrowing rate on amounts outstanding under the 2018 Euro Term Loan was
7.25%
(the components of which are shown in the table below under the heading "Interest Rate Summary").
Interest on the 2018 Euro Term Loan is payable quarterly in arrears on each March 12, June 12, September 12 and December 12. The 2018 Euro Term Loan matures on November 1, 2018 and may be prepaid at our option, in whole or in part, without premium or penalty, upon the occurrence of certain events, including if our net leverage (as defined in the Reimbursement Agreement) decreases to below
five
times for two consecutive quarters, or at any time from November 1, 2017. The 2018 Euro Term Loan is a senior unsecured obligation of CME Ltd., and is unconditionally guaranteed by our
100%
owned subsidiary CME Media Enterprises B.V. ("CME BV") and by Time Warner and certain of its subsidiaries.
The fair values of the 2018 Euro Term Loan as at
March 31, 2017
and
December 31, 2016
were determined based on comparable instruments that trade in active markets, plus an applicable spread. This measurement of estimated fair value uses Level 2 inputs as described in
Note 11, "Financial Instruments and Fair Value Measurements"
. Certain derivative instruments, including contingent event of default and change of control put options, have been identified as being embedded in the 2018 Euro Term Loan. The embedded derivatives are considered clearly and closely related to the 2018 Euro Term Loan, and as such are not required to be accounted for separately.
2019 Euro Term Loan
As at
March 31, 2017
, the principal amount of our floating rate senior unsecured term credit facility (the "2019 Euro Term Loan") outstanding was EUR
235.3 million
(approximately US$
251.6 million
). The 2019 Euro Term Loan bears interest at three-month EURIBOR (fixed pursuant to customary hedging arrangements (see
Note 11, "Financial Instruments and Fair Value Measurements"
)) plus a margin of between
1.1%
and
1.9%
depending on the credit rating of Time Warner. The all-in borrowing rate including the Guarantee Fee ranges from
8.5%
to
5.0%
per annum based on our net leverage (see the table below under the heading "Reimbursement Agreement and Guarantee Fees"). As at
March 31, 2017
, the all-in borrowing rate on amounts outstanding under the 2019 Euro Term Loan was
7.25%
(the components of which are shown in the table below under the heading "Interest Rate Summary").
Interest on the 2019 Euro Term Loan is payable quarterly in arrears on each February 13, May 13, August 13 and November 13. The 2019 Euro Term Loan matures on November 1, 2019 and may currently be prepaid at our option, in whole or in part, without premium or penalty. The 2019 Euro Term Loan is a senior unsecured obligation of CME Ltd., and is unconditionally guaranteed by CME BV and by Time Warner and certain of its subsidiaries.
The fair values of the 2019 Euro Term Loan as at
March 31, 2017
and
December 31, 2016
were determined based on comparable instruments that trade in active markets, plus an applicable spread. This measurement of estimated fair value uses Level 2 inputs as described in
Note 11, "Financial Instruments and Fair Value Measurements"
. Certain derivative instruments, including contingent event of default and change of control put options, have been identified as being embedded in the 2019 Euro Term Loan. The embedded derivatives are considered clearly and closely related to the 2019 Euro Term Loan, and as such are not required to be accounted for separately.
2021 Euro Term Loan
As at
March 31, 2017
, the principal amount of our floating rate senior unsecured term credit facility (the "2021 Euro Term Loan") outstanding was EUR
468.8 million
(approximately US$
501.2 million
). The 2021 Euro Term Loan bears interest at three-month EURIBOR (fixed pursuant to customary hedging arrangements (see
Note 11, "Financial Instruments and Fair Value Measurements"
)) plus a margin of between
1.1%
and
1.9%
depending on the credit rating of Time Warner. The all-in borrowing rate including the Guarantee Fee ranges from
8.5%
to
5.0%
per annum based on our net leverage (see the table below under the heading "Reimbursement Agreement and Guarantee Fees"). As at
March 31, 2017
, the all-in borrowing rate on amounts outstanding under the 2021 Euro Term Loan was
7.25%
(the components of which are shown in the table below under the heading "Interest Rate Summary").
Interest on the 2021 Euro Term Loan is payable quarterly in arrears on each April 7, July 7, October 7 and January 7. The 2021 Euro Term Loan matures on February 19, 2021 and may be prepaid at our option, in whole or in part, without premium or penalty, upon the earlier of the occurrence of certain events, including if our net leverage (as defined in the Reimbursement Agreement) decreases to below
five
times for two consecutive quarters, or at any time from February 19, 2020. The 2021 Euro Term Loan is a senior unsecured obligation of CME BV, and is unconditionally guaranteed by CME Ltd. and by Time Warner and certain of its subsidiaries.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
The fair values of the 2021 Euro Term Loan as at
March 31, 2017
and
December 31, 2016
were determined based on comparable instruments that trade in active markets, plus an applicable spread. This measurement of estimated fair value uses Level 2 inputs as described in
Note 11, "Financial Instruments and Fair Value Measurements"
. Certain derivative instruments, including contingent event of default and change of control put options, have been identified as being embedded in the 2021 Euro Term Loan. The embedded derivatives are considered clearly and closely related to the 2021 Euro Term Loan, and as such are not required to be accounted for separately.
Reimbursement Agreement and Guarantee Fees
In connection with Time Warner’s guarantees of the 2018 Euro Term Loan, 2019 Euro Term Loan and 2021 Euro Term Loan (collectively, the “Euro Term Loans”), we entered into a reimbursement agreement (as amended, the “Reimbursement Agreement") with Time Warner which provides for the payment of guarantee fees (collectively, the "Guarantee Fees") to Time Warner as consideration for those guarantees, and that we will reimburse Time Warner for any amounts paid by them under any guarantee or through any loan purchase right exercised by Time Warner. The loan purchase right allows Time Warner to purchase any amount outstanding under the Euro Term Loans from the lenders following an event of default under the Euro Term Loans or the Reimbursement Agreement. The Reimbursement Agreement is jointly and severally guaranteed by both our
100%
owned subsidiary Central European Media Enterprises N.V. ("CME NV") and CME BV and is secured by a pledge over
100%
of the outstanding shares of each of CME NV and CME BV. The covenants and events of default under the Reimbursement Agreement are substantially the same as under the 2021 Revolving Credit Facility (described below).
We pay Guarantee Fees to Time Warner based on the amounts outstanding on the Euro Term Loans calculated on a per annum basis and on our consolidated net leverage (as defined in the Reimbursement Agreement) as shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Net Leverage
|
Cash Rate
(1)
|
|
|
PIK Fee Rate
|
|
|
Total Rate
|
|
≥
|
7.0x
|
|
|
|
5.00
|
%
|
|
3.50
|
%
|
|
8.50
|
%
|
<
|
7.0x
|
-
|
6.0x
|
|
5.00
|
%
|
|
2.25
|
%
|
|
7.25
|
%
|
<
|
6.0x
|
-
|
5.0x
|
|
5.00
|
%
|
|
1.00
|
%
|
|
6.00
|
%
|
<
|
5.0x
|
|
|
|
5.00
|
%
|
|
—
|
%
|
|
5.00
|
%
|
|
|
(1)
|
Includes cash paid for interest for the Euro Term Loans and the related customary hedging arrangements.
|
Our consolidated net leverage as at
March 31, 2017
and
December 31, 2016
was
6.3x
and
6.9x
, respectively. For the
three months
ended
March 31, 2017
and
2016
, we recognized US$
16.4 million
and US$
9.1 million
, respectively, of Guarantee Fees as interest expense in our condensed consolidated statements of operations and comprehensive income / loss.
The Guarantee Fees relating to the 2018 Euro Term Loan and the 2019 Euro Term Loan are payable semi-annually in arrears on each May 1 and November 1, in cash or in kind (by adding such semi-annual Guarantee Fees to any such amount then outstanding). The Guarantee Fees relating to the 2021 Euro Term Loan are payable semi-annually in arrears on each June 1 and December 1. The first
5.0%
of the all-in rate for each facility (including the base rate and the rate paid pursuant to the hedging arrangements) must be paid in cash and the remainder is payable at our election in cash or in kind.
The Guarantee Fees paid in kind are presented as a component of other non-current liabilities (see
Note 10, "Other Liabilities"
) and bear interest per annum at their respective Guarantee Fee rate (as set forth in the table below). Guarantee Fees paid in cash are included in cash flows from operating activities in our condensed consolidated statements of cash flows.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
Interest Rate Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Rate
|
|
|
Rate Fixed Pursuant to Interest Rate Hedges
|
|
|
Guarantee Fee Rate
|
|
|
All-in Borrowing Rate
|
|
2018 Euro Term Loan
|
1.50
|
%
|
|
0.21
|
%
|
(1)
|
5.54
|
%
|
|
7.25
|
%
|
2019 Euro Term Loan
|
1.50
|
%
|
|
0.31
|
%
|
|
5.44
|
%
|
|
7.25
|
%
|
2021 Euro Term Loan
|
1.50
|
%
|
|
0.28
|
%
|
|
5.47
|
%
|
|
7.25
|
%
|
2021 Revolving Credit Facility
(2)
|
9.15
|
%
|
(3)
|
—
|
%
|
|
—
|
%
|
|
9.15
|
%
|
|
|
(1)
|
Effective until November 1, 2017. From November 1, 2017 through maturity on November 1, 2018, the rate fixed pursuant to interest rate hedges will decrease to
0.14%
, with a corresponding increase in the guarantee fee rate, such that the all-in borrowing rate remains
7.25%
if our net leverage ratio remains unchanged.
|
|
|
(2)
|
As at
March 31, 2017
, the aggregate principal amount available under the 2021 Revolving Credit Facility was undrawn.
|
|
|
(3)
|
Based on the three month LIBOR of
1.15%
as at
March 31, 2017
.
|
2021 Revolving Credit Facility
We had
no
balance outstanding under the US$
115.0 million
revolving credit facility (the “2021 Revolving Credit Facility”), all of which was available to be drawn, as at
March 31, 2017
. The aggregate principal amount available decreases to US$
50.0 million
with effect from January 1, 2018.
The 2021 Revolving Credit Facility bears interest at a rate per annum based on, at our option, an alternative base rate plus
7.0%
or an amount equal to the greater of (i) an adjusted LIBO rate and (ii)
1.0%
, plus, in each case,
8.0%
, with the first
5.0%
payable in cash and the remainder payable at our election in cash or in kind by adding such accrued interest to the applicable principal amount outstanding under the 2021 Revolving Credit Facility. The interest rate on the 2021 Revolving Credit Facility is determined on the basis of our net leverage ratio (as defined in the Reimbursement Agreement) and ranges from LIBOR (subject to a floor of
1.0%
) plus
9.0%
(if our net leverage is greater than or equal to
seven
times) to
7.0%
per annum (if our net leverage ratio is less than
five
times). The maturity date of the 2021 Revolving Credit Facility is February 19, 2021. When drawn, the 2021 Revolving Credit Facility permits prepayment at our option in whole or in part without penalty.
The 2021 Revolving Credit Facility is jointly and severally guaranteed by CME NV and CME BV and is secured by a pledge over
100%
of the outstanding shares of each of CME NV and CME BV. The 2021 Revolving Credit Facility agreement contains limitations on our ability to incur indebtedness, incur guarantees, grant liens, pay dividends or make other distributions, enter into certain affiliate transactions, consolidate, merge or effect a corporate reconstruction, make certain investments acquisitions and loans, and conduct certain asset sales. The agreement also contains maintenance covenants in respect of interest cover, cash flow cover and total leverage ratios, and has covenants in respect of incurring indebtedness, the provision of guarantees, making investments and disposals, granting security and certain events of defaults.
Other Credit Facilities and Capital Lease Obligations
Other credit facilities and capital lease obligations comprised the following at
March 31, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Credit facilities
(1) – (3)
|
$
|
—
|
|
|
$
|
—
|
|
Capital leases
|
4,360
|
|
|
4,313
|
|
Total credit facilities and capital leases
|
4,360
|
|
|
4,313
|
|
Less: current maturities
|
(1,576
|
)
|
|
(1,494
|
)
|
Total non-current credit facilities and capital leases
|
$
|
2,784
|
|
|
$
|
2,819
|
|
|
|
(1)
|
We have a cash pooling arrangement with Bank Mendes Gans (“BMG”), a subsidiary of ING Bank N.V. (“ING”), which enables us to receive credit across the group in respect of cash balances deposited with BMG. Cash deposited by our subsidiaries with BMG is pledged as security against the drawings of other subsidiaries up to the amount deposited.
|
As at
March 31, 2017
, we had deposits of US$
28.7 million
in and
no
drawings on the BMG cash pool. Interest is earned on deposits at the relevant money market rate. As at
December 31, 2016
, we had deposits of US$
16.4 million
in and
no
drawings on the BMG cash pool.
|
|
(2)
|
As at
March 31, 2017
and
December 31, 2016
, there were
no
drawings outstanding under a CZK
675.0 million
(approximately US$
26.7 million
) factoring framework agreement with Factoring České spořitelny, a.s. Under this facility, up to CZK
675.0 million
(approximately US$
26.7 million
) of receivables from certain customers in the Czech Republic may be factored on a recourse or non-recourse basis. The facility has a factoring fee of
0.3%
of any factored receivable and bears interest at one-month PRIBOR plus
2.5%
per annum for the period that receivables are factored and outstanding.
|
|
|
(3)
|
As at
March 31, 2017
and
December 31, 2016
, there were RON
156.3 million
(approximately US$
36.7 million
) and RON
105.7 million
(approximately US$
24.6 million
), respectively, of receivables factored under a factoring framework agreement with Global Funds IFN S.A. Under this facility, receivables from certain customers in Romania may be factored on a non-recourse basis. The facility has a factoring fee of
4.0%
of any factored receivable and bears interest at
6.0%
per annum from the date the receivables are factored to the due date of the factored receivable.
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
Total Group
At
March 31, 2017
, the maturity of our long-term debt and credit facilities, excluding any future elections to pay interest in kind, was as follows:
|
|
|
|
|
2017
|
$
|
—
|
|
2018
|
268,130
|
|
2019
|
251,597
|
|
2020
|
—
|
|
2021
|
501,194
|
|
2022 and thereafter
|
—
|
|
Total long-term debt and credit facilities
|
1,020,921
|
|
Debt issuance costs
|
(6,977
|
)
|
Carrying amount of long-term debt and credit facilities
|
$
|
1,013,944
|
|
Capital Lease Commitments
We lease certain of our office and broadcast facilities as well as machinery and equipment under various leasing arrangements. The future minimum lease payments, by year and in the aggregate, under capital leases with initial or remaining non-cancellable lease terms in excess of one year, consisted of the following at
March 31, 2017
:
|
|
|
|
|
2017
|
$
|
1,274
|
|
2018
|
1,437
|
|
2019
|
1,114
|
|
2020
|
636
|
|
2021
|
31
|
|
2022 and thereafter
|
—
|
|
Total undiscounted payments
|
4,492
|
|
Less: amount representing interest
|
(132
|
)
|
Present value of net minimum lease payments
|
$
|
4,360
|
|
5. PROGRAM RIGHTS
Program rights comprised the following at
March 31, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Program rights:
|
|
|
|
Acquired program rights, net of amortization
|
$
|
186,727
|
|
|
$
|
183,303
|
|
Less: current portion of acquired program rights
|
(87,145
|
)
|
|
(86,151
|
)
|
Total non-current acquired program rights
|
99,582
|
|
|
97,152
|
|
Produced program rights – Feature Films:
|
|
|
|
|
Released, net of amortization
|
1,014
|
|
|
1,039
|
|
Produced program rights – Television Programs:
|
|
|
|
|
|
Released, net of amortization
|
56,865
|
|
|
54,149
|
|
Completed and not released
|
3,576
|
|
|
2,593
|
|
In production
|
22,404
|
|
|
23,712
|
|
Development and pre-production
|
922
|
|
|
711
|
|
Total produced program rights
|
84,781
|
|
|
82,204
|
|
Total non-current acquired program rights and produced program rights
|
$
|
184,363
|
|
|
$
|
179,356
|
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
6. ACCOUNTS RECEIVABLE
Accounts receivable comprised the following at
March 31, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Unrelated customers
|
$
|
157,728
|
|
|
$
|
187,937
|
|
Less: allowance for bad debts and credit notes
|
(8,583
|
)
|
|
(9,598
|
)
|
Total accounts receivable
|
$
|
149,145
|
|
|
$
|
178,339
|
|
7. OTHER ASSETS
Other current and non-current assets comprised the following at
March 31, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Current:
|
|
|
|
Prepaid acquired programming
|
$
|
18,436
|
|
|
$
|
22,511
|
|
Other prepaid expenses
|
6,905
|
|
|
5,270
|
|
VAT recoverable
|
1,655
|
|
|
713
|
|
Income taxes recoverable
|
209
|
|
|
206
|
|
Other
|
3,520
|
|
|
3,771
|
|
Total other current assets
|
$
|
30,725
|
|
|
$
|
32,471
|
|
|
|
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Non-current:
|
|
|
|
|
|
Capitalized debt costs
|
$
|
14,310
|
|
|
$
|
15,018
|
|
Deferred tax
|
5,101
|
|
|
4,570
|
|
Other
|
1,159
|
|
|
1,855
|
|
Total other non-current assets
|
$
|
20,570
|
|
|
$
|
21,443
|
|
Capitalized debt costs are being amortized over the term of the 2021 Revolving Credit Facility using the straight-line method.
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment comprised the following at
March 31, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Land and buildings
|
$
|
92,469
|
|
|
$
|
90,988
|
|
Machinery, fixtures and equipment
|
210,198
|
|
|
202,110
|
|
Other equipment
|
34,566
|
|
|
33,752
|
|
Software licenses
|
57,160
|
|
|
55,542
|
|
Construction in progress
|
4,988
|
|
|
5,316
|
|
Total cost
|
399,381
|
|
|
387,708
|
|
Less: accumulated depreciation
|
(290,404
|
)
|
|
(278,619
|
)
|
Total net book value
|
$
|
108,977
|
|
|
$
|
109,089
|
|
|
|
|
|
Assets held under capital leases (included in the above)
|
|
|
|
|
|
Land and buildings
|
$
|
3,737
|
|
|
$
|
3,684
|
|
Machinery, fixtures and equipment
|
6,712
|
|
|
6,338
|
|
Total cost
|
10,449
|
|
|
10,022
|
|
Less: accumulated depreciation
|
(4,802
|
)
|
|
(4,316
|
)
|
Total net book value
|
$
|
5,647
|
|
|
$
|
5,706
|
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
The movement in the net book value of property, plant and equipment during the
three months
ended
March 31, 2017
and
2016
was comprised of:
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
2017
|
|
|
2016
|
|
Opening balance
|
$
|
109,089
|
|
|
$
|
108,522
|
|
Additions
|
6,123
|
|
|
5,536
|
|
Disposals
|
(74
|
)
|
|
(50
|
)
|
Depreciation
|
(7,759
|
)
|
|
(7,285
|
)
|
Foreign currency movements
|
1,598
|
|
|
5,025
|
|
Ending balance
|
$
|
108,977
|
|
|
$
|
111,748
|
|
9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities comprised the following at
March 31, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Accounts payable and accrued expenses
|
$
|
53,568
|
|
|
$
|
59,522
|
|
Related party accounts payable
|
173
|
|
|
192
|
|
Programming liabilities
|
29,939
|
|
|
29,249
|
|
Related party programming liabilities
|
18,522
|
|
|
18,959
|
|
Duties and other taxes payable
|
10,879
|
|
|
13,446
|
|
Accrued staff costs
|
14,513
|
|
|
20,565
|
|
Accrued interest payable
|
2,860
|
|
|
2,941
|
|
Related party accrued interest payable (including Guarantee Fees)
|
26,499
|
|
|
9,588
|
|
Income taxes payable
|
5,346
|
|
|
5,514
|
|
Other accrued liabilities
|
1,400
|
|
|
1,005
|
|
Total accounts payable and accrued liabilities
|
$
|
163,699
|
|
|
$
|
160,981
|
|
10. OTHER LIABILITIES
Other current and non-current liabilities comprised the following at
March 31, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Current:
|
|
|
|
Deferred revenue
|
$
|
25,798
|
|
|
$
|
5,333
|
|
Legal provision
|
2,817
|
|
|
2,680
|
|
Other
|
530
|
|
|
1,076
|
|
Total other current liabilities
|
$
|
29,145
|
|
|
$
|
9,089
|
|
|
|
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Non-current:
|
|
|
|
|
|
Deferred tax
|
$
|
20,278
|
|
|
$
|
20,335
|
|
Related party Commitment Fee payable
(1)
|
9,905
|
|
|
9,905
|
|
Related party Guarantee Fee payable (Note 4)
|
34,492
|
|
|
34,492
|
|
Other
|
2,937
|
|
|
4,026
|
|
Total other non-current liabilities
|
$
|
67,612
|
|
|
$
|
68,758
|
|
|
|
(1)
|
Represents the commitment fee (the "Commitment Fee") payable to Time Warner, including accrued interest, in respect of its obligation under a commitment letter dated November 14, 2014 between Time Warner and us whereby Time Warner agreed to provide or assist with arranging a loan facility to repay our
5.0%
senior convertible notes at maturity in November 2015. The Commitment Fee is payable by November 1, 2019, the maturity date of the 2019 Euro Term Loan, or earlier if the repayment of the 2019 Euro Term Loan is accelerated. The Commitment Fee bears interest at
8.5%
per annum and such interest is payable in arrears on each May 1 and November 1, and may be paid in cash or in kind, at our election.
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
11. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
ASC 820, “Fair Value Measurements and Disclosure”, establishes a hierarchy that prioritizes the inputs to those valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are:
Basis of Fair Value Measurement
|
|
Level 1
|
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted instruments.
|
|
|
Level 2
|
Quoted prices in markets that are not considered to be active or financial instruments for which all significant inputs are observable, either directly or indirectly.
|
|
|
Level 3
|
Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
|
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
We evaluate the position of each financial instrument measured at fair value in the hierarchy individually based on the valuation methodology we apply. The carrying amount of financial instruments, including cash and cash equivalents, accounts receivable, and accounts payable and accrued liabilities, approximate their fair value due to the short-term nature of these items. The fair value of our long-term debt is included in
Note 4, "Long-term Debt and Other Financing Arrangements"
.
Hedge Accounting Activities
Cash Flow Hedges of Interest Rate Risk
We are party to interest rate swap agreements to mitigate our exposure to interest rate fluctuations on the outstanding principal amount of our Euro Term Loans. These interest rate swaps, designated as cash flow hedges, provide us with variable-rate cash receipts in exchange for fixed-rate payments over the lives of the agreements, with no exchange of the underlying notional amount. These instruments are carried at fair value on our condensed consolidated balance sheets as other current and other non-current liabilities based on their maturity, and the effective portion of the changes in the fair value is recorded in accumulated other comprehensive income / loss and subsequently reclassified to interest expense when the hedged item affects earnings. The ineffective portion of changes in the fair value is recognized immediately in the change in fair value of derivatives in our condensed consolidated statements of operations and comprehensive income / loss. For the
three months
ended
March 31, 2017
and
2016
, we did not recognize any charges related to hedge ineffectiveness.
Information relating to financial instruments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade Date
|
|
Number of Contracts
|
|
|
Description
|
|
Aggregate Notional Amount
|
|
|
Maturity Date
|
|
Objective
|
|
Fair Value as at March 31, 2017
|
|
April 5, 2016
|
|
5
|
|
|
Interest rate swap
|
|
€
|
468,800
|
|
|
February 21, 2021
|
|
Interest rate hedge underlying 2021 Euro Term Loan
|
|
$
|
(893,887
|
)
|
April 5, 2016
|
|
4
|
|
|
Interest rate swap
|
|
€
|
250,800
|
|
|
November 1, 2018
|
|
Interest rate hedge underlying 2018 Euro Term Loan, forward starting on November 1, 2017
|
|
$
|
(282,719
|
)
|
November 10, 2015
|
|
3
|
|
|
Interest rate swap
|
|
€
|
235,335
|
|
|
November 1, 2019
|
|
Interest rate hedge underlying 2019 Euro Term Loan
|
|
$
|
(1,409,599
|
)
|
November 14, 2014
|
|
2
|
|
|
Interest rate swap
|
|
€
|
250,800
|
|
|
November 1, 2017
|
|
Interest rate hedge underlying 2018 Euro Term Loan
|
|
$
|
(336,167
|
)
|
We value the interest rate swap agreements using a valuation model which calculates the fair value on the basis of the net present value of the estimated future cash flows. The most significant input used in the valuation model is the expected EURIBOR-based yield curve. These instruments were allocated to Level 2 of the fair value hierarchy because the critical inputs to this model, including current interest rates, relevant yield curves and the known contractual terms of the instruments, were readily observable.
|
|
|
|
|
|
Accumulated Other Comprehensive Loss
|
|
BALANCE December 31, 2016
|
$
|
(4,451
|
)
|
Unrealized gain on interest rate swaps
|
573
|
|
Reclassified to interest expense
|
685
|
|
BALANCE March 31, 2017
|
$
|
(3,193
|
)
|
Non-Hedge Accounting Activities
The change in fair value of derivatives not designated as hedging instruments comprised the following for the
three months
ended
March 31, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
2017
|
|
|
2016
|
|
Currency swaps
|
$
|
368
|
|
|
$
|
(14,050
|
)
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
Foreign Currency Risk
We have entered into the below forward foreign exchange contract to reduce our exposure to movements in foreign exchange rates related to contractual payments under certain dollar-denominated agreements. Information relating to financial instruments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade Date
|
|
Number of Contracts
|
|
Description
|
|
Aggregate Notional Amount
|
|
|
Maturity Date
|
|
Objective
|
|
Fair Value as at March 31, 2017
|
|
January 31, 2017
|
|
1
|
|
EUR / USD forward
|
|
$
|
19,270
|
|
|
December 21, 2017
|
|
USD-denominated operating payments
|
|
$
|
266
|
|
These forward foreign exchange contracts are considered economic hedges but were not designated as hedging instruments, so changes in the fair value of the derivatives were recorded as changes in fair value of derivatives in the condensed consolidated statements of operations and comprehensive income / loss and in the condensed consolidated balance sheet in other current assets. We valued these contracts using an industry-standard pricing model which calculated the fair value on the basis of the net present value of the estimated future cash flows receivable or payable. These instruments were allocated to Level 2 of the fair value hierarchy because the critical inputs to this model, including foreign exchange forward rates and the known contractual terms of the instruments, were readily observable.
12. CONVERTIBLE REDEEMABLE PREFERRED SHARES
200,000
shares of our Series B Convertible Redeemable Preferred Stock, par value US$
0.08
per share (the “Series B Preferred Shares”), were issued and outstanding as at
March 31, 2017
and
December 31, 2016
. As at
March 31, 2017
and
December 31, 2016
, the carrying value of the Series B Preferred Shares was US$
257.3 million
and US$
254.9 million
, respectively. The Series B Preferred Shares are held by Time Warner Media Holdings B.V. ("TW Investor"). As of
March 31, 2017
, the
200,000
Series B Preferred Shares were convertible into approximately
106.1 million
shares of Class A common stock.
The initial stated value of the Series B Preferred Shares of US$
1,000
per share accretes at an annual rate of
3.75%
, compounded quarterly, from June 25, 2016 to June 24, 2018. We have the right to pay cash to the holder in lieu of any further accretion. Each Series B Preferred Share may, at the holder's option, be converted into the number of shares of our Class A common stock determined by dividing (i) the accreted stated value plus accrued but unpaid dividends, if any, in each case as of the conversion date, by (ii) the conversion price, which was approximately US$
2.42
at
March 31, 2017
, but is subject to adjustment from time to time pursuant to customary weighted-average anti-dilution provisions with respect to our issuances of equity or equity-linked securities at a price below the then-applicable conversion price (excluding any securities issued under our benefit plans at or above fair market value). We have the right to redeem the Series B Preferred Shares in whole or in part upon
30 days
' written notice. The redemption price of each outstanding Series B Preferred Share is equal to its accreted stated value plus accrued but unpaid dividends, if any, in each case as of the redemption date specified in the redemption notice. After receipt of a redemption notice, each holder of Series B Preferred Shares will have the right to convert, prior to the date of redemption, all or part of such Series B Preferred Shares to be redeemed by us into shares of our Class A common stock in accordance with the terms of conversion described above.
Holders of the Series B Preferred Shares have no voting rights on any matter presented to holders of any class of our capital stock, with the exception that they may vote with holders of shares of our Class A common stock (i) with respect to a change of control event or (ii) as provided by our Bye-laws or applicable Bermuda law. Holders of Series B Preferred Shares will participate in any dividends declared or paid on our Class A common stock on an as-converted basis. The Series B Preferred Shares rank pari passu with our Series A Convertible Preferred Stock and senior to all other equity securities of the Company in respect of payment of dividends and distribution of assets upon liquidation. The Series B Preferred Shares have such other rights, powers and preferences as are set forth in the Certificate of Designation for the Series B Preferred Shares.
We concluded that the Series B Preferred Shares were not considered a liability and that the embedded conversion feature in the Series B Preferred Shares was clearly and closely related to the host contract and therefore did not need to be bifurcated. The Series B Preferred Shares are required to be classified outside of permanent equity because such shares can be redeemed for cash in certain circumstances. The Series B Preferred Shares are carried on the balance sheet at redemption value. As the Series B Preferred Shares are redeemable, we have accreted changes in the redemption value since issuance. For the
three months
ended
March 31, 2017
and
2016
, we recognized accretion on the Series B Preferred Shares of US$
2.4 million
and US$
4.5 million
, respectively, with corresponding decreases in additional paid-in capital.
13. EQUITY
Preferred Stock
5,000,000
shares of Preferred Stock were authorized as at
March 31, 2017
and
December 31, 2016
.
One
share of Series A Convertible Preferred Stock (the "Series A Preferred Share") was issued and outstanding as at
March 31, 2017
and
December 31, 2016
. The Series A Preferred Share is convertible into
11,211,449
shares of Class A common stock on the date that is
61 days
after the date on which the ownership of our outstanding shares of Class A common stock by a group that includes TW Investor and its affiliates would not be greater than
49.9%
. The Series A Preferred Share is entitled to
one
vote per each share of Class A common stock into which it is convertible and has such other rights, powers and preferences, including potential adjustments to the number of shares of Class A common stock to be issued upon conversion, as are set forth in the Certificate of Designation for the Series A Preferred Share.
200,000
shares of Series B Preferred Shares were issued and outstanding as at
March 31, 2017
and
December 31, 2016
(see
Note 12, "Convertible Redeemable Preferred Shares"
). As of
March 31, 2017
, the
200,000
Series B Preferred Shares were convertible into approximately
106.1 million
shares of Class A common stock.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
Class A and Class B Common Stock
440,000,000
shares of Class A common stock and
15,000,000
shares of Class B common stock were authorized as at
March 31, 2017
and
December 31, 2016
. The rights of the holders of Class A common stock and Class B common stock are identical except for voting rights. The shares of Class A common stock are entitled to
one
vote per share and the shares of Class B common stock are entitled to
ten
votes per share. Shares of Class B common stock are convertible into shares of Class A common stock on a
one
-for-
one
basis for no additional consideration. Holders of each class of shares are entitled to receive dividends and upon liquidation or dissolution are entitled to receive all assets available for distribution to holders of our common stock. Under our Bye-laws, the holders of each class have no preemptive or other subscription rights and there are no redemption or sinking fund provisions with respect to such shares.
There were
144.2 million
and
143.4 million
shares of Class A common stock outstanding at
March 31, 2017
and
December 31, 2016
, respectively, and
no
shares of Class B common stock outstanding at
March 31, 2017
or
December 31, 2016
.
As at
March 31, 2017
, TW Investor owns
42.6%
of the outstanding shares of Class A common stock and has a
46.7%
voting interest in the Company due to its ownership of the Series A Preferred Share.
Warrants
On May 2, 2014, we issued
114,000,000
warrants in connection with a rights offering. Each warrant may be exercised until May 2, 2018 and entitles the holder thereof to receive
one
share of our Class A common stock at an exercise price of US$
1.00
per share in cash. During the three months ended March 31,
2017
,
301,308
warrants were exercised resulting in net proceeds to us of approximately US$
0.3 million
. As at
March 31, 2017
,
106,701,737
warrants remained outstanding. Time Warner and TW Investor collectively hold
100,926,996
of these warrants. The warrants are classified in additional paid-in capital, a component of equity, and are not subject to subsequent revaluation.
14. INTEREST EXPENSE
Interest expense comprised the following for the
three months
ended
March 31, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
2017
|
|
|
2016
|
|
Interest on long-term debt and other financing arrangements
|
$
|
22,321
|
|
|
$
|
32,652
|
|
Amortization of capitalized debt issuance costs
|
1,434
|
|
|
3,899
|
|
Amortization of debt issuance discount
|
—
|
|
|
12,603
|
|
Total interest expense
|
$
|
23,755
|
|
|
$
|
49,154
|
|
We paid cash interest (including mandatory cash-pay Guarantee Fees) of US$
4.9 million
and US$
2.6 million
during the
three months
ended
March 31, 2017
and
2016
, respectively. In addition, we paid US$
10.0 million
of accrued Guarantee Fees during the
three months
ended
March 31, 2016
, for which we had the option to pay in kind.
15. OTHER NON-OPERATING INCOME / EXPENSE
Other non-operating income / expense comprised the following for the
three months
ended
March 31, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
2017
|
|
|
2016
|
|
Interest income
|
$
|
79
|
|
|
$
|
108
|
|
Foreign currency exchange gain, net
|
1,681
|
|
|
15,422
|
|
Change in fair value of derivatives (Note 11)
|
368
|
|
|
(14,050
|
)
|
Other income / (expense), net
|
197
|
|
|
(64
|
)
|
Total other non-operating income
|
$
|
2,325
|
|
|
$
|
1,416
|
|
16. STOCK-BASED COMPENSATION
Under our 2015 Stock Incentive Plan (the "2015 Plan"),
6,000,000
shares of Class A common stock are authorized for grants of stock options, restricted stock units ("RSU"), restricted stock and stock appreciation rights to employees and non-employee directors. In addition, any shares available under our Amended and Restated Stock Incentive Plan (which expired on June 1, 2015), including in respect of any awards that expire, terminate or are forfeited, will be available for awards under the 2015 Plan. Under the 2015 Plan, awards are made to employees and directors at the discretion of the Compensation Committee. Any awards previously issued under the Amended and Restated Stock Incentive Plan will continue to be governed by the terms of that plan.
For the
three months
ended
March 31, 2017
and
2016
, we recognized charges for stock-based compensation of US$
0.8 million
and US$
0.8 million
, respectively, presented as a component of selling, general and administrative expenses in our condensed consolidated statements of operations and comprehensive income / loss.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
Stock Options
A summary of option activity for the
three months
ended
March 31, 2017
is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted Average Exercise Price per Share
|
|
|
Weighted Average Remaining Contractual Term (years)
|
|
Aggregate Intrinsic Value
|
|
Outstanding at December 31, 2016
|
2,011,392
|
|
|
$
|
2.32
|
|
|
8.58
|
|
$
|
453
|
|
Granted
|
—
|
|
|
—
|
|
|
|
|
|
Expired
|
—
|
|
|
—
|
|
|
|
|
|
Outstanding at March 31, 2017
|
2,011,392
|
|
|
$
|
2.32
|
|
|
8.33
|
|
$
|
1,559
|
|
Vested and expected to vest
|
2,011,392
|
|
|
2.32
|
|
|
8.33
|
|
1,559
|
|
Exercisable at March 31, 2017
|
502,848
|
|
|
$
|
2.32
|
|
|
8.33
|
|
$
|
390
|
|
The fair value of stock options is estimated on the grant date using the Black-Scholes option-pricing model and recognized ratably over the requisite service period. The aggregate intrinsic value (the difference between the stock price on the last day of trading of the
first quarter
of
March 31, 2017
and the exercise prices multiplied by the number of in-the-money options) represents the value that would have been received by the option holders had they exercised all in-the-money options as at
March 31, 2017
. This amount changes based on the fair value of our Class A common stock. As at
March 31, 2017
, there was US$
1.8 million
of unrecognized compensation expense related to stock options which is expected to be recognized over a weighted-average period of
2.3 years
.
Restricted Stock Units
Each RSU represents a right to receive
one
share of Class A common stock according to its vesting conditions. The majority of RSU issued have time-based vesting conditions and vest ratably over
one
to
four
years from the date of grant. Vesting of RSU with performance-based vesting conditions ("PRSU") is contingent on the achievement of cumulative OIBDA and unlevered free cash flow targets over a multi-year period. Upon vesting, shares of Class A common stock are issued from authorized but unissued shares. Holders of RSU and PRSU awards are not entitled to receive cash dividend equivalents and are not entitled to vote. The grant date fair values of RSU and PRSU are calculated as the closing price of our Class A common stock on the date of grant.
The following table summarizes information about unvested RSU and PRSU as at
March 31, 2017
:
|
|
|
|
|
|
|
|
|
Number of
Shares / Units
|
|
|
Weighted Average
Grant Date
Fair Value
|
|
Unvested at December 31, 2016
|
2,542,625
|
|
|
$
|
2.61
|
|
Granted
|
600,684
|
|
|
3.10
|
|
Vested
|
(458,436
|
)
|
|
2.73
|
|
Unvested at March 31, 2017
|
2,684,873
|
|
|
$
|
2.70
|
|
As at
March 31, 2017
, the intrinsic value of unvested RSUs was US$
8.3 million
. Total unrecognized compensation cost related to unvested RSUs as at
March 31, 2017
was US$
4.4 million
and is expected to be recognized over a weighted-average period of
2.2 years
.
17. EARNINGS PER SHARE
We determined that the Series B Preferred Shares are a participating security, and accordingly, our basic and diluted net income / loss per share is calculated using the two-class method. Under the two-class method, basic net income / loss per common share is computed by dividing the net income available to common shareholders after deducting contractual amounts of accretion on our Series B Preferred Shares by the weighted-average number of common shares outstanding during the period. Diluted net income / loss per share is computed by dividing the adjusted net income by the weighted-average number of dilutive shares outstanding during the period.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
The components of basic and diluted earnings per share are as follows:
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
2017
|
|
|
2016
|
|
Net loss
|
$
|
(11,274
|
)
|
|
$
|
(40,694
|
)
|
Net loss attributable to noncontrolling interests
|
209
|
|
|
259
|
|
Less: preferred share accretion paid in kind (Note 12)
|
(2,357
|
)
|
|
(4,510
|
)
|
Net loss attributable to CME Ltd. available to common shareholders — basic
|
$
|
(13,422
|
)
|
|
$
|
(44,945
|
)
|
|
|
|
|
Effect of dilutive securities
|
|
|
|
Preferred share accretion paid in kind
|
—
|
|
|
—
|
|
Net loss attributable to CME Ltd. available to common shareholders — diluted
|
$
|
(13,422
|
)
|
|
$
|
(44,945
|
)
|
|
|
|
|
Weighted average outstanding shares of common stock — basic
(1)
|
154,795
|
|
|
147,078
|
|
Dilutive effect of employee stock options and RSUs
|
—
|
|
|
—
|
|
Weighted average outstanding shares of common stock — diluted
|
154,795
|
|
|
147,078
|
|
|
|
|
|
Net loss per share:
|
|
|
|
Net loss attributable to CME Ltd. — basic and diluted
|
(0.09
|
)
|
|
(0.31
|
)
|
|
|
(1)
|
For the purpose of computing basic earnings per share, the
11,211,449
shares of Class A common stock underlying the Series A Preferred Share are included in the weighted average outstanding shares of common stock - basic, because the holder of the Series A Preferred Share is entitled to receive any dividends payable when dividends are declared by the Board of Directors with respect to any shares of common stock.
|
At
March 31, 2017
,
108,844,869
(
March 31, 2016
:
3,122,121
) warrants, stock options, RSUs and shares underlying the Series B Preferred Shares were antidilutive to income from continuing operations and excluded from the calculation of earnings per share. These instruments may become dilutive in the future. As set forth in the Certificate of Designation for the Series B Preferred Shares, the holders of our Series B Preferred Shares are not contractually obligated to share in our losses.
18. SEGMENT DATA
We manage our business on a geographical basis, with
six
operating segments: Bulgaria, Croatia, the Czech Republic, Romania, the Slovak Republic and Slovenia, which are also our reportable segments and our main operating countries. These segments reflect how CME Ltd.’s operating performance is evaluated by our chief operating decision makers, who we have identified as our co-Chief Executive Officers; how operations are managed by segment managers; and the structure of our internal financial reporting.
Our segments generate revenues primarily from the sale of advertising and sponsorship on our channels. This is supplemented by revenues from cable and satellite television service providers to carry our channels on their platforms and from revenues through the sale of distribution rights to third parties. Intersegment revenues and profits have been eliminated in consolidation.
We evaluate our consolidated results and the performance of our segments based on net revenues and OIBDA (as defined below). We believe OIBDA is useful to investors because it provides a meaningful representation of our performance as it excludes certain items that either do not impact our cash flows or the operating results of our operations. OIBDA is also used as a component in determining management bonuses.
OIBDA includes amortization and impairment of program rights and is calculated as operating income / loss before depreciation, amortization of intangible assets, impairments of assets and certain unusual or infrequent items that are not considered by our chief operating decision makers when evaluating our performance. Stock-based compensation and certain other items are not allocated to our segments for purposes of evaluating their performance and therefore are not included in their respective OIBDA.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
Below are tables showing our net revenues, OIBDA, total assets, capital expenditures and long-lived assets for our continuing operations by segment for the
three months
ended
March 31, 2017
and
2016
for condensed consolidated statements of operations and comprehensive income / loss data and condensed consolidated statements of cash flow data; and as at
March 31, 2017
and
December 31, 2016
for condensed consolidated balance sheet data.
|
|
|
|
|
|
|
|
|
Net revenues:
|
For the Three Months Ended March 31,
|
|
2017
|
|
|
2016
|
|
Bulgaria
|
$
|
15,305
|
|
|
$
|
15,859
|
|
Croatia
|
11,068
|
|
|
11,645
|
|
Czech Republic
|
39,474
|
|
|
38,608
|
|
Romania
|
38,944
|
|
|
32,370
|
|
Slovak Republic
|
18,340
|
|
|
19,062
|
|
Slovenia
|
12,217
|
|
|
11,653
|
|
Intersegment revenues
(1)
|
(346
|
)
|
|
(197
|
)
|
Total net revenues
|
$
|
135,002
|
|
|
$
|
129,000
|
|
|
|
(1)
|
Reflects revenues earned from the sale of content to our other segments. All other revenues are third party revenues.
|
|
|
|
|
|
|
|
|
|
OIBDA and reconciliation of OIBDA to condensed consolidated statements of operations and comprehensive income / loss:
|
For the Three Months Ended March 31,
|
2017
|
|
|
2016
|
|
Bulgaria
|
$
|
1,357
|
|
|
$
|
1,069
|
|
Croatia
|
1,086
|
|
|
1,401
|
|
Czech Republic
|
10,959
|
|
|
10,074
|
|
Romania
|
14,686
|
|
|
9,462
|
|
Slovak Republic
|
873
|
|
|
2,393
|
|
Slovenia
|
3
|
|
|
(708
|
)
|
Elimination
|
2
|
|
|
(6
|
)
|
Total operating segments
|
28,966
|
|
|
23,685
|
|
Corporate
|
(6,830
|
)
|
|
(6,577
|
)
|
Total OIBDA
|
22,136
|
|
|
17,108
|
|
Depreciation of property, plant and equipment
|
(7,759
|
)
|
|
(7,285
|
)
|
Amortization of broadcast licenses and other intangibles
|
(2,109
|
)
|
|
(2,060
|
)
|
Operating income
|
12,268
|
|
|
7,763
|
|
Interest expense (Note 14)
|
(23,755
|
)
|
|
(49,154
|
)
|
Non-operating income, net (Note 15)
|
2,325
|
|
|
1,416
|
|
Loss before tax
|
$
|
(9,162
|
)
|
|
$
|
(39,975
|
)
|
|
|
|
|
|
|
|
|
|
Total assets
(1)
:
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Bulgaria
|
$
|
134,424
|
|
|
$
|
130,873
|
|
Croatia
|
51,771
|
|
|
49,135
|
|
Czech Republic
|
718,841
|
|
|
700,190
|
|
Romania
|
279,157
|
|
|
266,132
|
|
Slovak Republic
|
131,790
|
|
|
131,220
|
|
Slovenia
|
71,784
|
|
|
72,381
|
|
Total operating segments
|
1,387,767
|
|
|
1,349,931
|
|
Corporate
|
32,513
|
|
|
40,786
|
|
Total assets
|
$
|
1,420,280
|
|
|
$
|
1,390,717
|
|
|
|
(1)
|
Segment assets exclude any intercompany balances.
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
For the Three Months Ended March 31,
|
|
2017
|
|
|
2016
|
|
Bulgaria
|
$
|
133
|
|
|
$
|
182
|
|
Croatia
|
555
|
|
|
277
|
|
Czech Republic
|
3,198
|
|
|
1,551
|
|
Romania
|
1,709
|
|
|
1,729
|
|
Slovak Republic
|
465
|
|
|
533
|
|
Slovenia
|
1,071
|
|
|
1,260
|
|
Total operating segments
|
7,131
|
|
|
5,532
|
|
Corporate
|
576
|
|
|
544
|
|
Total capital expenditures
|
$
|
7,707
|
|
|
$
|
6,076
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets
(1)
:
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Bulgaria
|
$
|
6,152
|
|
|
$
|
6,280
|
|
Croatia
|
5,825
|
|
|
5,832
|
|
Czech Republic
|
39,056
|
|
|
39,529
|
|
Romania
|
24,111
|
|
|
22,796
|
|
Slovak Republic
|
15,230
|
|
|
15,326
|
|
Slovenia
|
13,819
|
|
|
14,177
|
|
Total operating segments
|
104,193
|
|
|
103,940
|
|
Corporate
|
4,784
|
|
|
5,149
|
|
Total long-lived assets
|
$
|
108,977
|
|
|
$
|
109,089
|
|
|
|
(1)
|
Reflects property, plant and equipment.
|
|
|
|
|
|
|
|
|
|
Consolidated revenue by type:
|
For the Three Months Ended March 31,
|
|
2017
|
|
|
2016
|
|
Television advertising
|
$
|
108,514
|
|
|
$
|
104,171
|
|
Carriage fees and subscriptions
|
21,383
|
|
|
19,209
|
|
Other
|
5,105
|
|
|
5,620
|
|
Total net revenues
|
$
|
135,002
|
|
|
$
|
129,000
|
|
19. COMMITMENTS AND CONTINGENCIES
Commitments
a) Programming Rights Agreements and Other Commitments
At
March 31, 2017
, we had total commitments of US$
121.6 million
(
December 31, 2016
: US$
128.2 million
) in respect of future programming, including contracts signed with license periods starting after the balance sheet date. In addition, we have digital transmission obligations, future minimum operating lease payments for non-cancellable operating leases with remaining terms in excess of one year and other commitments as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Programming purchase obligations
|
|
|
Other
commitments
|
|
|
Operating
leases
|
|
|
Capital
expenditures
|
|
2017
|
$
|
37,213
|
|
|
$
|
15,976
|
|
|
$
|
2,403
|
|
|
$
|
945
|
|
2018
|
36,029
|
|
|
5,372
|
|
|
2,122
|
|
|
—
|
|
2019
|
21,105
|
|
|
10,869
|
|
|
949
|
|
|
—
|
|
2020
|
14,613
|
|
|
375
|
|
|
488
|
|
|
—
|
|
2021
|
8,443
|
|
|
335
|
|
|
333
|
|
|
—
|
|
2022 and thereafter
|
4,182
|
|
|
382
|
|
|
1,453
|
|
|
—
|
|
Total
|
$
|
121,585
|
|
|
$
|
33,309
|
|
|
$
|
7,748
|
|
|
$
|
945
|
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
Contingencies
a) Litigation
We are from time to time party to legal proceedings, arbitrations and regulatory proceedings arising in the normal course of our business operations, including the proceeding described below. We evaluate, on a quarterly basis, developments in such matters and provide accruals for such matters, as appropriate. In making such decisions, we consider the degree of probability of an unfavorable outcome and our ability to make a reasonable estimate of the amount of a loss. An unfavorable outcome in any such proceedings, if material, could have an adverse effect on our business or consolidated financial statements.
In the fourth quarter of 2016, our Slovak subsidiary MARKIZA-SLOVAKIA, spol. s.r.o. (“Markiza”) was notified of claims that were filed in June 2016 in a court of first instance in Bratislava, the Slovak Republic to collect amounts allegedly owing under
four
promissory notes. These
four
promissory notes were purportedly issued in June 2000 by Pavol Rusko in his personal capacity and were purportedly guaranteed by Markiza under the signature of Mr. Rusko, who was an executive director of Markiza at that time as well as one of its shareholders. The notes purport to be issued in favor of Marian Kocner, a controversial Slovak businessman, and to a former associate of Mr. Kocner, and were supposedly assigned several times, ultimately to Sprava a inkaso zmeniek, s.r.o., a company owned by Mr. Kocner that is the plaintiff in these proceedings. The
four
notes purport to be in the aggregate amount of approximately EUR
69.0 million
. A court of first instance in Bratislava has suspended proceedings in respect of
one
of the promissory notes (in the amount of approximately EUR
26.0 million
) because the plaintiff failed to pay court fees. Two of the remaining notes allegedly matured in 2015 and the third in 2016. Despite a random case assignment system in Slovakia, the three cases dealing with the other notes have all been assigned to the same judge. We do not believe that any of the promissory notes are authentic and are vigorously defending the claims. We are currently unable to estimate for what amount, if any, we may be liable if the plaintiff is ultimately successful in pursuing their claims.
b) Other
On April 7, 2017, the largest private company and advertiser in Croatia, Agrokor d.d. ("Agrokor"), entered government administration facing significant liquidity issues. Agrokor has since obtained short-term financing and is in the process of obtaining additional long-term liquidity while the Croatian government-appointed administrator determines Agrokor's restructuring plans. As at March 31, 2017, we had receivables related to Agrokor and its group companies totaling US$
4.3 million
. We are currently unable to estimate the timing or impact such restructuring may have on our receivables from Agrokor and have not provided for any potential loss as a result of any potential restructuring plans.
20. RELATED PARTY TRANSACTIONS
We consider our related parties to be our officers, directors and shareholders who have direct control and/or influence over the Company as well as other parties that can significantly influence management. We have identified transactions with individuals or entities associated with Time Warner, which is represented on our Board of Directors and holds a
46.7%
voting interest in CME Ltd. as at
March 31, 2017
, as material related party transactions.
Time Warner
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
2017
|
|
|
2016
|
|
Cost of revenues
|
$
|
5,737
|
|
|
$
|
6,696
|
|
Interest expense
|
18,254
|
|
|
41,505
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Programming liabilities
|
$
|
18,522
|
|
|
$
|
18,959
|
|
Other accounts payable and accrued liabilities
|
173
|
|
|
192
|
|
Accrued interest payable
(1)
|
26,499
|
|
|
9,588
|
|
Other non-current liabilities
(2)
|
44,397
|
|
|
44,397
|
|
|
|
(1)
|
Amount represents accrued Guarantee Fees for which we have not yet paid in cash or made an election to pay in kind. See
Note 4, "Long-term Debt and Other Financing Arrangements"
.
|
|
|
(2)
|
Amount represents the Commitment Fee, as well as the Guarantee Fees for which we have made an election to pay in kind. See
Note 4, "Long-term Debt and Other Financing Arrangements"
.
|
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following defined terms are used in this Quarterly Report on Form 10-Q:
|
|
•
|
the term "
2017 PIK Notes
" refers to our 15.0% senior secured notes due 2017, redeemed in April 2016;
|
|
|
•
|
the term "
2017 Term Loan
" refers to our 15.0% term loan facility due 2017, dated as of February 28, 2014, as amended and restated on November 14, 2014, repaid in April 2016;
|
|
|
•
|
the term "
2018 Euro Term Loan
" refers to CME Ltd.'s floating rate senior unsecured term credit facility due 2018, guaranteed by CME BV and Time Warner, dated as of November 14, 2014 and amended on March 9, 2015 and February 19, 2016;
|
|
|
•
|
the term "
2019 Euro Term Loan
" refers to CME Ltd.'s floating rate senior unsecured term credit facility due 2019, guaranteed by CME BV and Time Warner, dated as of September 30, 2015 and amended on February 19, 2016;
|
|
|
•
|
the term "
2021 Euro Term Loan
" refers to CME BV's floating rate senior unsecured term credit facility due 2021, guaranteed by Time Warner and CME Ltd., dated as of February 19, 2016;
|
|
|
•
|
the term "
Euro Term Loans
" refers collectively to the 2018 Euro Term Loan, 2019 Euro Term Loan and 2021 Euro Term Loan;
|
|
|
•
|
the term "
2021 Revolving Credit Facility
" refers to our amended and restated revolving credit facility dated as of February 28, 2014, as amended and restated as of November 14, 2014 and further amended and restated on February 19, 2016;
|
|
|
•
|
the term "
Guarantee Fees
" refers to amounts accrued and payable to Time Warner as consideration for Time Warner's guarantees of the Euro Term Loans;
|
|
|
•
|
the term "
Reimbursement Agreement
" refers to an agreement with Time Warner which provides that we will reimburse Time Warner for any amounts paid by them under any guarantee or through any loan purchase right exercised by Time Warner, dated as of November 14, 2014, amended and restated on February 19, 2016 and amended on March 2, 2017;
|
|
|
•
|
the term "
CME BV
" refers to CME Media Enterprises B.V., our 100% owned subsidiary;
|
|
|
•
|
the term "
CME NV
" refers to Central European Media Enterprises N.V., our 100% owned subsidiary;
|
|
|
•
|
the term "
Time Warner
" refers to Time Warner Inc.; and
|
|
|
•
|
the term "
TW Investor
" refers to Time Warner Media Holdings B.V.
|
The exchange rates used in this report are as at
March 31, 2017
, unless otherwise indicated.
Please note that we may announce information using SEC filings, press releases, public conference calls, webcasts and posts to the "Investors" section of our website,
www.cme.net
. We intend to continue to use these channels to communicate important information about CME Ltd. and our operations. We encourage investors, the media, our customers and others interested in the Company to review the information we post at
www.cme.net
.
I. Forward-looking Statements
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 22E of the Securities Exchange Act of 1934 (the "Exchange Act"), including those relating to our capital needs, business strategy, expectations and intentions. Statements that use the terms “believe”, “anticipate”, “trend”, “expect”, “plan”, “estimate”, “forecast”, “should”,“intend” and similar expressions of a future or forward-looking nature identify forward-looking statements for purposes of the U.S. federal securities laws or otherwise. In particular, information appearing under the sections entitled "Business," "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" includes forward looking-statements. For these statements and all other forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy or are otherwise beyond our control and some of which might not even be anticipated. Forward-looking statements reflect our current views with respect to future events and because our business is subject to such risks and uncertainties, actual results, our strategic plan, our financial position, results of operations and cash flows could differ materially from those described in or contemplated by the forward-looking statements contained in this report.
Important factors that contribute to such risks include, but are not limited to, those factors set forth under "Risk Factors” as well as the following: the effect of global economic uncertainty and Eurozone instability in our markets and the extent, timing and duration of any recovery; levels of television advertising spending and the rate of development of the advertising markets in the countries in which we operate; the extent to which our liquidity constraints and debt service obligations restrict our business; our exposure to additional tax liabilities as well as liabilities resulting from regulatory or legal proceedings initiated against us; our ability to refinance our existing indebtedness; our success in continuing our initiatives to diversify and enhance our revenue streams; our ability to make cost-effective investments in our television businesses, including investments in programming; our ability to develop and acquire necessary programming and attract audiences; and changes in the political and regulatory environments where we operate and in the application of relevant laws and regulations. The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included in this report. All forward-looking statements speak only as of the date of this report. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments or otherwise, except as required by law.
II. Overview
Central European Media Enterprises Ltd. ("CME Ltd.") is a media and entertainment company operating mainly in six countries in Central and Eastern Europe. We manage our business on a geographical basis, with
six
operating segments: Bulgaria, Croatia, the Czech Republic, Romania, the Slovak Republic and Slovenia, which are also our reportable segments. These operating segments reflect how CME Ltd.’s operating performance is evaluated by our chief operating decision makers, who we have identified as our co-Chief Executive Officers, how our operations are managed by segment managers, and the structure of our internal financial reporting.
Non-GAAP Financial Measures
In this report we refer to several non-GAAP financial measures, including OIBDA, OIBDA margin, free cash flow and unlevered free cash flow. We believe that each of these metrics is useful to investors for the reasons outlined below. Non-GAAP financial measures may not be comparable to similar measures reported by other companies. Non-GAAP financial measures should be evaluated in conjunction with, and are not a substitute for, US GAAP financial measures.
We evaluate our consolidated results and the performance of our segments based on net revenues and OIBDA. We believe OIBDA is useful to investors because it provides a meaningful representation of our performance, as it excludes certain items that do not impact either our cash flows or the operating results of our operations. OIBDA and unlevered free cash flow are also used as components in determining management bonuses.
OIBDA includes amortization and impairment of program rights and is calculated as operating income / loss before depreciation, amortization of intangible assets and impairments of assets and certain unusual or infrequent items that are not considered by our co-CEOs when evaluating our performance. Stock-based compensation and certain other items are not allocated to our segments for purposes of evaluating their performance and therefore are not included in their respective OIBDA. Our key performance measure of the efficiency of our consolidated operations and our segments is OIBDA margin. We define OIBDA margin as the ratio of OIBDA to net revenues.
Following recent refinancing transactions, the amount of interest and related Guarantee Fees on our outstanding indebtedness that must be paid in cash has increased. In addition to this obligation to pay more interest and related Guarantee Fees in cash, we expect to use cash generated by the business to pay Guarantee Fees that are payable in kind. These cash payments are all reflected in free cash flow; accordingly we believe unlevered free cash flow, defined as free cash flow before cash payments for interest and Guarantee Fees, best illustrates the cash generated by our operations when comparing periods. We define free cash flow as net cash generated from continuing operating activities less purchases of property, plant and equipment, net of disposals of property, plant and equipment and excluding the cash impact of certain unusual or infrequent items that are not included in costs charged in arriving at OIBDA because they are not considered by our co-CEOs when evaluating performance.
For additional information regarding our business segments, including a reconciliation of OIBDA to US GAAP financial measures, see Item 1,
Note 18, "Segment Data"
. For a reconciliation of free cash flow and unlevered free cash flow to a US GAAP financial measure, see "Free Cash Flow and Unlevered Free Cash Flow" below.
While our reporting currency is the dollar, our consolidated revenues and costs are divided across a range of European currencies and CME Ltd.’s functional currency is the Euro. Given the significant movement of the currencies in the markets in which we operate against the dollar, we believe that it is useful to provide percentage movements based on actual percentage movements (“% Act”), which includes the effect of foreign exchange, as well as like-for-like percentage movements (“% Lfl”). The like-for-like percentage movement references reflect the impact of applying the current period average exchange rates to the prior period revenues and costs. Since the difference between like-for-like and actual percentage movements is solely the impact of movements in foreign exchange rates, our discussion in the following analysis is focused on constant currency percentage movements in order to highlight those factors influencing operational performance. The incremental impact of foreign exchange rates is presented in the tables preceding such analysis. Unless otherwise stated, all percentage increases or decreases in the following analysis refer to year-on-year percentage changes between the
three months
ended
March 31, 2017
and
2016
.
Executive Summary
In the first three months of 2017, we improved the competitive positioning of our channel portfolios in nearly all countries and the overall profitability of our operations increased. We also completed a transaction that significantly reduces our debt service obligations, reflecting the continued improvement in the financial results of our operations and underscoring our commitment to reducing leverage in the business.
The following table provides a summary of our consolidated results for the
three months
ended
March 31, 2017
and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
2017
|
|
|
2016
|
|
|
% Act
|
|
|
% Lfl
|
|
Net revenues
|
$
|
135,002
|
|
|
$
|
129,000
|
|
|
4.7
|
%
|
|
8.1
|
%
|
Operating income
|
12,268
|
|
|
7,763
|
|
|
58.0
|
%
|
|
68.1
|
%
|
Operating margin
|
9.1
|
%
|
|
6.0
|
%
|
|
3.1 p.p.
|
|
|
3.3 p.p.
|
|
OIBDA
|
$
|
22,136
|
|
|
$
|
17,108
|
|
|
29.4
|
%
|
|
35.2
|
%
|
OIBDA margin
|
16.4
|
%
|
|
13.3
|
%
|
|
3.1 p.p.
|
|
|
3.3 p.p.
|
|
Our consolidated net revenues improved in the
three months
ended
March 31, 2017
compared to the corresponding period in
2016
due to growth in both television advertising revenues and carriage fees and subscription revenues. Television advertising spending in the markets of the countries in which we operate grew
9%
overall at constant rates in the first three months of 2017 compared to 2016. Our television advertising revenues grew
4%
at actual rates and
8%
at constant rates during the period due to significant year-on-year growth of demand in Romania, as well as higher levels of spending in the Czech Republic, Bulgaria and Slovenia. Carriage fees and subscription revenues increased
11%
at actual rates and
15%
at constant rates in the
three months
ended
March 31, 2017
compared to the corresponding period in
2016
because our channels in the Slovak Republic and Slovenia have been distributed exclusively on cable, satellite and Internet protocol television ("IPTV") platforms since January of this year, and the number of subscribers to those platforms grew across all countries.
Costs charged in arriving at OIBDA increased
1%
at actual rates and
4%
at constant rates in the
three months
ended
March 31, 2017
compared to the corresponding period in
2016
. Content costs increased
5%
at constant rates as we made targeted investments in our programming line-up when additional ratings could be monetized and to support the transition in the way our channels are distributed in the Slovak Republic and Slovenia. A portion of this additional expense was offset by savings from transmission costs, which contributed to a decrease of
9%
in other operating costs at constant rates during the quarter.
Since the growth in revenue outpaced the increase in costs, our OIBDA margin in the
three months
ended
March 31, 2017
increased to
16%
from
13%
in the same period in 2016. This dynamic also drove an increase in operating income, with a similar improvement in the operating margin. We expect revenues to grow at a faster pace than costs in 2017 and for the next few years, leading to continued OIBDA margin expansion year on year although trends quarter to quarter may vary.
We successfully rolled out our spring schedule, which contributed to an increase in prime time and all day audience shares in five out of six countries during the first quarter of 2017 compared to the same period in 2016. As local content continues to attract larger audiences, our focus remains on improving our existing titles and developing new and more attractive formats to provide more variety in our program offering in the most profitable manner. As a reflection of this strategy, we introduced additional local content on one of the niche channels in the Czech Republic during the quarter while rebranding them under the umbrella of our flagship brand, NOVA.
During the quarter, we completed a transaction with Time Warner to reduce, with effect as of March 1, 2017, the Guarantee Fees payable to Time Warner as credit guarantor of our currently outstanding Euro Term Loans. As a result of the transaction:
|
|
•
|
Our weighted average borrowing cost immediately decreased 150 basis points to 7.25%.
|
|
|
◦
|
Immediately reduced the cost of borrowing on the 2018 Euro Term Loan and the 2019 Euro Term Loan each by 125 basis points.
|
|
|
◦
|
Immediately reduced the cost of borrowing on the 2021 Euro Term Loan by 175 basis points.
|
|
|
•
|
The all-in rate now applicable to all currently outstanding senior term credit facilities automatically improves when we achieve specified decreases in our net leverage ratio and can fall as low as 5.0%.
|
|
|
•
|
Our cost of borrowing will decrease 50 basis points if the total of outstanding senior term credit facilities is reduced below €815 million by September 30, 2018, subject to certain adjustments for specified debt repayments.
|
|
|
•
|
There is a minimum level of cash-pay interest and related Guarantee Fees totaling 5% applicable to all Euro Term Loans.
|
|
|
•
|
We expect at least US$ 30 million of savings from debt service obligations by the end of next year, accelerating our deleveraging strategy, which continue to include plans to substantially repay our nearest debt maturity in 2018.
|
|
|
•
|
There were no changes to our existing debt prepayment rights and no changes to the 2021 Revolving Credit Facility.
|
Free Cash Flow and Unlevered Free Cash Flow
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, (US$ 000's)
|
|
2017
|
|
|
2016
|
|
|
Movement
|
|
Net cash generated from continuing operating activities
|
$
|
54,952
|
|
|
$
|
39,658
|
|
|
38.6
|
%
|
Capital expenditures, net
|
(7,601
|
)
|
|
(6,076
|
)
|
|
(25.1
|
)%
|
Free cash flow
|
47,351
|
|
|
33,582
|
|
|
41.0
|
%
|
Cash paid for interest (including mandatory cash-pay Guarantee Fees)
|
4,948
|
|
|
2,640
|
|
|
87.4
|
%
|
Cash paid for Guarantee Fees that may be paid in kind
|
—
|
|
|
10,000
|
|
|
(100.0
|
)%
|
Unlevered free cash flow
|
$
|
52,299
|
|
|
$
|
46,222
|
|
|
13.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
(US$ 000's)
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
Movement
|
|
Cash and cash equivalents
|
$
|
90,959
|
|
|
$
|
43,459
|
|
|
109.3
|
%
|
Our unlevered free cash flow increased during the first three months of 2017 compared to the same period in 2016 reflecting higher cash collections from revenue growth in the fourth quarter of 2016 and lower cash spending on programming. This was partially offset by higher cash paid for income taxes and capital expenditures. A voluntary US$ 10.0 million repayment of accrued Guarantee Fees previously paid in kind in the first quarter of 2016 also reduced free cash flow compared to the first quarter of 2017. This benefit was partially offset by an increase in cash paid for interest as we were required to pay interest related to the 2021 Euro Term Loan in cash in the first quarter of 2017, while the debt service obligation related to the corresponding debt instrument outstanding in the first quarter of 2016 was not payable during the period last year.
Following the March 2017 transaction, we are now required to pay a portion of the Guarantee Fees related to all of the Euro Term Loans in cash. However, the total amount of cash paid for interest and Guarantee Fees is expected to decrease significantly in 2017 due to the lower all-in rate following the repricing transaction completed in March, and non-repeating payments that were made in 2016 when we elected to repay accrued Guarantee Fees related to the 2018 Euro Term Loan that were previously paid in kind as well as accrued interest on the 2017 PIK Notes and 2017 Term Loan redeemed in April 2016. As a result, we expect free cash flow to increase significantly in 2017 compared to 2016, and starting in November 2017 we anticipate using all excess cash to begin making repayments of the principal outstanding on the 2018 Euro Term Loan.
Market Information
The following table sets out our estimates of the year-on-year changes in real GDP, real private consumption and the television advertising market, net of discounts, in our countries for the
three months
ended
March 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2017
|
Country
|
Real GDP Growth
|
|
|
Real Private Consumption Growth
|
|
|
Net TV Ad Market Growth
|
|
Bulgaria
|
3.4
|
%
|
|
3.3
|
%
|
|
6
|
%
|
Croatia
|
3.1
|
%
|
|
3.3
|
%
|
|
(4
|
)%
|
Czech Republic
|
2.5
|
%
|
|
3.1
|
%
|
|
6
|
%
|
Romania*
|
4.0
|
%
|
|
5.4
|
%
|
|
32
|
%
|
Slovak Republic
|
3.2
|
%
|
|
3.1
|
%
|
|
(4
|
)%
|
Slovenia
|
2.5
|
%
|
|
2.5
|
%
|
|
7
|
%
|
Total CME Ltd. Markets
|
3.1
|
%
|
|
3.7
|
%
|
|
9
|
%
|
* Romanian market excludes Moldova.
Sources: Real GDP Growth and Real Private Consumption Growth, CME Ltd. estimates based on market consensus; TV Ad Market Growth, CME Ltd. estimates at constant exchange rates.
After adjusting for inflation, we estimate that during the first three months of 2017, GDP grew in each of the countries in which we operate at a rate that exceeded the average growth rate for Western Europe. Romania was one of the fastest growing economies in the European Union, and is forecast to be the leader for the remainder of 2017. Similar to the last few years, it has been reported that GDP growth in our markets has been less reliant on growth in exports, and domestic demand has played a larger role in economic expansion. This has been particularly true in Romania, where lower income tax rates and increases to the minimum wage have provided continued support for higher disposable income. Consumer confidence remains strong in the Czech and Slovak Republics, reflecting the lowest rates of unemployment in those countries since 2009. We believe the growth in real private consumption forecast for 2017 will support overall growth in the television advertising markets across the six countries where we operate, although growth may not be realized in every market as financial difficulties with the largest advertiser in Croatia may result in less spending there.
On March 29, 2017, the United Kingdom formally initiated the process to leave the European Union, commonly referred to as “Brexit”, which is expected to be completed within the next two years. While the negotiations over the exact terms of Brexit may negatively impact economic growth in the UK and Europe, the contribution of domestic demand as a component of GDP growth has reduced the sensitivity of our markets to external shocks affecting exports. Additionally, we have not seen an appreciable impact on the behavior of advertisers in the countries in which we operate since the UK electorate voted in favor of Brexit in June 2016.
On April 6, 2017, the Czech National Bank determined that the recent increase in inflation in the country was sustainable and its mandate for price stability had been met. As a result, it ended its commitment to intervene in currency markets and withdrew the floor related to the EUR/CZK exchange rate. The Czech Koruna strengthened modestly following the announcement; however, the exchange rate may be volatile in the near term. If the currency continues to appreciate, this will improve the results of our largest operation in dollar terms.
We estimate that the TV advertising markets in the countries in which we operate
increased
by
9%
on average at constant rates in the
three months
ended
March 31, 2017
compared to the same period in
2016
. In Bulgaria, we estimate that all commercial broadcasters increased their average prices, which more than offset fewer gross ratings points ("GRPs") sold. The market in Croatia decreased due to lower average prices and fewer GRPs sold, related to lower spending from the largest private company and advertiser in the country, Agrokor, as it addresses significant issues with its liquidity and associated potential restructuring, as well as market consolidation in the retail segment. Spending from Agrokor in Croatia is now expected to be lower for the full year, which could cause total spending for advertising on television in Croatia to be lower in 2017 than it was in 2016. In the Czech Republic, more advertising was sold while overall ratings increased so the sell-out rate was broadly flat, and average prices increased slightly. In Romania, the market grew because the increase in demand for advertising that started in the second quarter of 2016 led to significant increases in both GRPs sold and average prices in the first three months of 2017 compared to the same period in 2016. The magnitude of the year-on-year growth in television advertising spending in Romania reflected, in part, a flat market in the first quarter of 2016. Due to difficult comparatives for the remainder of the year, especially in the second and third quarters when our main channel aired the European football championship in 2016 and increased inventory available and sold in the market, we expect market growth for the remainder of 2017 to be significantly lower than the growth rate in the first three months of the year. In the Slovak Republic, the market declined following the end of spending on informational and political campaigns that took place from the second half of 2015 through the first half of 2016. If this spending in the first quarter of 2016 is excluded, we estimate the market grew 7%, reflecting continued strong demand by the private sector. In Slovenia, higher spending reflected the anticipation of faster growth in private consumption during the year resulting in higher average prices.
Segment Performance
Our total Net Revenues and OIBDA by segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET REVENUES
|
|
For the Three Months Ended March 31, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
2017
|
|
|
2016
|
|
|
% Act
|
|
|
% Lfl
|
|
Bulgaria
|
$
|
15,305
|
|
|
$
|
15,859
|
|
|
(3.5
|
)%
|
|
(0.4
|
)%
|
Croatia
|
11,068
|
|
|
11,645
|
|
|
(5.0
|
)%
|
|
(3.3
|
)%
|
Czech Republic
|
39,474
|
|
|
38,608
|
|
|
2.2
|
%
|
|
5.5
|
%
|
Romania
|
38,944
|
|
|
32,370
|
|
|
20.3
|
%
|
|
25.1
|
%
|
Slovak Republic
|
18,340
|
|
|
19,062
|
|
|
(3.8
|
)%
|
|
(0.7
|
)%
|
Slovenia
|
12,217
|
|
|
11,653
|
|
|
4.8
|
%
|
|
8.3
|
%
|
Intersegment revenues
|
(346
|
)
|
|
(197
|
)
|
|
NM
(1)
|
|
|
NM
(1)
|
|
Total net revenues
|
$
|
135,002
|
|
|
$
|
129,000
|
|
|
4.7
|
%
|
|
8.1
|
%
|
(1)
Number is not meaningful.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDA
|
|
For the Three Months Ended March 31, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
2017
|
|
|
2016
|
|
|
% Act
|
|
|
% Lfl
|
|
Bulgaria
|
$
|
1,357
|
|
|
$
|
1,069
|
|
|
26.9
|
%
|
|
31.6
|
%
|
Croatia
|
1,086
|
|
|
1,401
|
|
|
(22.5
|
)%
|
|
(21.1
|
)%
|
Czech Republic
|
10,959
|
|
|
10,074
|
|
|
8.8
|
%
|
|
12.7
|
%
|
Romania
|
14,686
|
|
|
9,462
|
|
|
55.2
|
%
|
|
62.0
|
%
|
Slovak Republic
|
873
|
|
|
2,393
|
|
|
(63.5
|
)%
|
|
(62.1
|
)%
|
Slovenia
|
3
|
|
|
(708
|
)
|
|
NM
(1)
|
|
|
NM
(1)
|
|
Eliminations
|
2
|
|
|
(6
|
)
|
|
NM
(1)
|
|
|
NM
(1)
|
|
Total operating segments
|
28,966
|
|
|
23,685
|
|
|
22.3
|
%
|
|
27.0
|
%
|
Corporate
|
(6,830
|
)
|
|
(6,577
|
)
|
|
(3.8
|
)%
|
|
(6.1
|
)%
|
Consolidated OIBDA
|
$
|
22,136
|
|
|
$
|
17,108
|
|
|
29.4
|
%
|
|
35.2
|
%
|
(1)
Number is not meaningful.
Bulgaria
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
2017
|
|
|
2016
|
|
|
% Act
|
|
|
% Lfl
|
|
Television advertising
|
$
|
9,769
|
|
|
$
|
9,964
|
|
|
(2.0
|
)%
|
|
1.3
|
%
|
Carriage fees and subscriptions
|
4,673
|
|
|
4,571
|
|
|
2.2
|
%
|
|
5.4
|
%
|
Other
|
863
|
|
|
1,324
|
|
|
(34.8
|
)%
|
|
(32.8
|
)%
|
Net revenues
|
15,305
|
|
|
15,859
|
|
|
(3.5
|
)%
|
|
(0.4
|
)%
|
Costs charged in arriving at OIBDA
|
13,948
|
|
|
14,790
|
|
|
(5.7
|
)%
|
|
(2.7
|
)%
|
OIBDA
|
$
|
1,357
|
|
|
$
|
1,069
|
|
|
26.9
|
%
|
|
31.6
|
%
|
|
|
|
|
|
|
|
|
OIBDA margin
|
8.9
|
%
|
|
6.7
|
%
|
|
2.2 p.p.
|
|
|
2.2 p.p.
|
|
The television advertising market in Bulgaria
increased
an estimated
6%
at constant rates in the
three months
ended
March 31, 2017
compared to the same period in 2016.
Our television advertising revenues increased at constant rates in the first quarter of 2017 compared to the same period in 2016 due to higher prices in our sales policy for the year, which more than offset a reduction in the volume of GRPs sold. Carriage fees and subscription revenues increased due to an increase in the number of reported subscribers.
On a constant currency basis, costs charged in arriving at OIBDA decreased in the first quarter of 2017 compared to the same period of 2016, as content costs declined
2%
primarily due to savings in foreign fiction since we aired more cost effective titles because our line-up of local content increased ratings during the period and improved both all day and prime time audience share.
Croatia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
2017
|
|
|
2016
|
|
|
% Act
|
|
|
% Lfl
|
|
Television advertising
|
$
|
9,554
|
|
|
$
|
10,072
|
|
|
(5.1
|
)%
|
|
(3.5
|
)%
|
Carriage fees and subscriptions
|
824
|
|
|
624
|
|
|
32.1
|
%
|
|
34.2
|
%
|
Other
|
690
|
|
|
949
|
|
|
(27.3
|
)%
|
|
(25.9
|
)%
|
Net revenues
|
11,068
|
|
|
11,645
|
|
|
(5.0
|
)%
|
|
(3.3
|
)%
|
Costs charged in arriving at OIBDA
|
9,982
|
|
|
10,244
|
|
|
(2.6
|
)%
|
|
(0.8
|
)%
|
OIBDA
|
$
|
1,086
|
|
|
$
|
1,401
|
|
|
(22.5
|
)%
|
|
(21.1
|
)%
|
|
|
|
|
|
|
|
|
OIBDA margin
|
9.8
|
%
|
|
12.0
|
%
|
|
(2.2) p.p.
|
|
|
(2.2) p.p.
|
|
The television advertising market in Croatia
declined
an estimated
4%
at constant rates in the
three months
ended
March 31, 2017
compared to the same period in 2016.
Our television advertising revenues decreased at constant rates during the
three months
ended
March 31, 2017
compared to 2016 due to lower average prices and fewer GRPs sold, related to lower spending from the largest private company and advertiser in the country, Agrokor, as it addresses significant issues with its liquidity and associated potential restructuring, as well as market consolidation in the retail segment.
Costs charged in arriving at OIBDA decreased on a constant currency basis in the first quarter of 2017 due to savings in foreign programming as well as a later start to certain local programming in the spring season compared to 2016.
Czech Republic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
2017
|
|
|
2016
|
|
|
% Act
|
|
|
% Lfl
|
|
Television advertising
|
$
|
35,107
|
|
|
$
|
34,790
|
|
|
0.9
|
%
|
|
4.1
|
%
|
Carriage fees and subscriptions
|
2,639
|
|
|
2,527
|
|
|
4.4
|
%
|
|
7.6
|
%
|
Other
|
1,728
|
|
|
1,291
|
|
|
33.8
|
%
|
|
38.1
|
%
|
Net revenues
|
39,474
|
|
|
38,608
|
|
|
2.2
|
%
|
|
5.5
|
%
|
Costs charged in arriving at OIBDA
|
28,515
|
|
|
28,534
|
|
|
(0.1
|
)%
|
|
2.9
|
%
|
OIBDA
|
$
|
10,959
|
|
|
$
|
10,074
|
|
|
8.8
|
%
|
|
12.7
|
%
|
|
|
|
|
|
|
|
|
OIBDA margin
|
27.8
|
%
|
|
26.1
|
%
|
|
1.7 p.p.
|
|
|
1.8 p.p.
|
|
The television advertising market in the Czech Republic
increased
an estimated
6%
at constant rates in the
three months
ended
March 31, 2017
compared to the same period in 2016.
Television advertising revenues increased at constant rates in the first three months of 2017 compared to the same period in 2016 because lower ratings from our closest competition increased demand for available inventory and we sold more GRPs at slightly higher average prices reflecting the seasonality coefficient adjustment made to our sales policy. Carriage fees and subscription revenues increased on a constant currency basis due to an agreement for high definition versions of our channels that became effective subsequent to the first quarter of 2016.
Costs charged in arriving at OIBDA increased on a constant currency basis in the first quarter primarily due to a
3%
increase in content costs, as the mix of programming shifted to reality and entertainment formats. This was partially offset by a decrease in costs for foreign content and local fiction. During the quarter, we rebranded our niche channels in the Czech Republic to align them under the umbrella of our flagship brand, NOVA, which also resulted in higher costs due to the introduction of additional local content on one of these channels as well as additional marketing activities around this change.
Romania
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
2017
|
|
|
2016
|
|
|
% Act
|
|
|
% Lfl
|
|
Television advertising
|
$
|
28,124
|
|
|
$
|
21,696
|
|
|
29.6
|
%
|
|
35.0
|
%
|
Carriage fees and subscriptions
|
10,063
|
|
|
9,986
|
|
|
0.8
|
%
|
|
4.6
|
%
|
Other
|
757
|
|
|
688
|
|
|
10.0
|
%
|
|
14.4
|
%
|
Net revenues
|
38,944
|
|
|
32,370
|
|
|
20.3
|
%
|
|
25.1
|
%
|
Costs charged in arriving at OIBDA
|
24,258
|
|
|
22,908
|
|
|
5.9
|
%
|
|
10.0
|
%
|
OIBDA
|
$
|
14,686
|
|
|
$
|
9,462
|
|
|
55.2
|
%
|
|
62.0
|
%
|
|
|
|
|
|
|
|
|
OIBDA margin
|
37.7
|
%
|
|
29.2
|
%
|
|
8.5 p.p.
|
|
|
8.6 p.p.
|
|
The television advertising market in Romania
increased
an estimated
32%
at constant rates in the
three months
ended
March 31, 2017
compared to the same period in 2016.
Our television advertising revenues increased in the first quarter of 2017 compared to the same period in 2016 because the increase in demand for advertising that started in the second quarter of 2016 led to significant increases in both the volume of GRPs sold and average prices in the first three months of this year. The magnitude of the year-on-year growth in television advertising spending in Romania reflected, in part, a flat market in the first quarter of 2016. Due to difficult comparatives for the remainder of the year, especially in the second and third quarters when our main channel aired the European football championship in 2016 and increased inventory available and sold, we expect revenue growth for the remainder of 2017 to be significantly lower than the growth rate in the first three months of the year. Carriage fees and subscription revenues grew on a constant currency basis during the quarter due to an increase in the number of subscribers.
Costs charged in arriving at OIBDA increased at constant rates during the first quarter primarily due to a
12%
increase in content costs, as we invested more in local productions of popular entertainment formats, which contributed to record ratings for our main channel in the month of March. There was also an increase in advertising expense due to an earlier start of marketing activities around our spring schedule. These expenses were partially offset by lower transmission costs.
Slovak Republic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
2017
|
|
|
2016
|
|
|
% Act
|
|
|
% Lfl
|
|
Television advertising
|
$
|
16,053
|
|
|
$
|
17,845
|
|
|
(10.0
|
)%
|
|
(7.1
|
)%
|
Carriage fees and subscriptions
|
1,511
|
|
|
317
|
|
|
NM
(1)
|
|
|
NM
(1)
|
|
Other
|
776
|
|
|
900
|
|
|
(13.8
|
)%
|
|
(11.1
|
)%
|
Net revenues
|
18,340
|
|
|
19,062
|
|
|
(3.8
|
)%
|
|
(0.7
|
)%
|
Costs charged in arriving at OIBDA
|
17,467
|
|
|
16,669
|
|
|
4.8
|
%
|
|
8.1
|
%
|
OIBDA
|
$
|
873
|
|
|
$
|
2,393
|
|
|
(63.5
|
)%
|
|
(62.1
|
)%
|
|
|
|
|
|
|
|
|
OIBDA margin
|
4.8
|
%
|
|
12.6
|
%
|
|
(7.8) p.p.
|
|
|
(7.7) p.p.
|
|
(1)
Number is not meaningful.
The television advertising market in the Slovak Republic decreased an estimated
4%
at constant rates in the
three months
ended
March 31, 2017
compared to the same period in 2016.
Our television advertising revenues decreased on a constant currency basis during the first quarter of 2017 compared to the same period in 2016 following the end of spending on informational and political campaigns that took place from the second half of 2015 through the first half of 2016. If this spending in the first quarter of 2016 is excluded, our television advertising revenues increased 1%, which was slower than the market because our channels have been distributed exclusively on cable, satellite and IPTV platforms in the country since January of this year. However, this change in the way our channels are distributed resulted in a significant increase in carriage fees and subscriptions revenue and a cost reduction from significantly lower transmission costs. During the remainder of 2017 we anticipate reduced pressure on our ratings and additional carriage fees and subscriptions revenue relative to the first quarter of 2017 as additional households transition to cable, satellite and IPTV platforms and we agree new distribution contracts with the remaining smaller operators.
On a constant currency basis, costs charged in arriving at OIBDA increased during the first quarter primarily due to a
19%
increase in content costs as we made targeted adjustments in the programming line-up during the change in the way our channels are distributed. There were also additional expenses related to increased marketing activities during this transition.
Slovenia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
2017
|
|
|
2016
|
|
|
% Act
|
|
|
% Lfl
|
|
Television advertising
|
$
|
9,907
|
|
|
$
|
9,804
|
|
|
1.1
|
%
|
|
4.4
|
%
|
Carriage fees and subscriptions
|
1,673
|
|
|
1,184
|
|
|
41.3
|
%
|
|
45.7
|
%
|
Other
|
637
|
|
|
665
|
|
|
(4.2
|
)%
|
|
(1.1
|
)%
|
Net revenues
|
12,217
|
|
|
11,653
|
|
|
4.8
|
%
|
|
8.3
|
%
|
Costs charged in arriving at OIBDA
|
12,214
|
|
|
12,361
|
|
|
(1.2
|
)%
|
|
2.1
|
%
|
OIBDA
|
$
|
3
|
|
|
$
|
(708
|
)
|
|
NM
(1)
|
|
|
NM
(1)
|
|
|
|
|
|
|
|
|
|
OIBDA margin
|
0.0
|
%
|
|
(6.1
|
)%
|
|
6.1 p.p.
|
|
|
6.1 p.p.
|
|
(1)
Number is not meaningful.
The television advertising market in Slovenia
increased
an estimated
7%
at constant rates in the
three months
ended
March 31, 2017
compared to the same period in 2016.
Our television advertising revenues increased at constant rates during the quarter reflecting price inflation from strong demand, which more than offset a decline in the volume of GRPs sold. Carriage fees and subscription revenues increased significantly due to new agreements with cable, satellite and IPTV operators because our channels in the country have been distributed exclusively on those platforms since January of this year. During the remainder of 2017 we anticipate additional carriage fees and subscription revenues relative to the first quarter of 2017 due to growth in subscribers and new contracts with certain platform operators that become effective in the second quarter.
On a constant currency basis, costs charged in arriving at OIBDA increased during the quarter primarily due to an increase in content costs from more popular foreign titles aired during the change in the way our channels are distributed, as well as other costs associated with this transition. This was partially offset by lower costs for entertainment programming.
III. Analysis of the Results of Operations and Financial Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
2017
|
|
|
2016
|
|
|
% Act
|
|
|
% Lfl
|
|
Revenue:
|
|
|
|
|
|
|
|
Television advertising
|
$
|
108,514
|
|
|
$
|
104,171
|
|
|
4.2
|
%
|
|
7.6
|
%
|
Carriage fees and subscriptions
|
21,383
|
|
|
19,209
|
|
|
11.3
|
%
|
|
15.1
|
%
|
Other revenue
|
5,105
|
|
|
5,620
|
|
|
(9.2
|
)%
|
|
(6.4
|
)%
|
Net Revenues
|
135,002
|
|
|
129,000
|
|
|
4.7
|
%
|
|
8.1
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
Content costs
|
73,402
|
|
|
71,978
|
|
|
2.0
|
%
|
|
5.3
|
%
|
Other operating costs
|
14,556
|
|
|
16,454
|
|
|
(11.5
|
)%
|
|
(9.0
|
)%
|
Depreciation of property, plant and equipment
|
7,759
|
|
|
7,285
|
|
|
6.5
|
%
|
|
9.7
|
%
|
Amortization of broadcast licenses and other intangibles
|
2,109
|
|
|
2,060
|
|
|
2.4
|
%
|
|
5.5
|
%
|
Cost of revenues
|
97,826
|
|
|
97,777
|
|
|
0.1
|
%
|
|
3.2
|
%
|
Selling, general and administrative expenses
|
24,908
|
|
|
23,460
|
|
|
6.2
|
%
|
|
9.0
|
%
|
Operating income
|
$
|
12,268
|
|
|
$
|
7,763
|
|
|
58.0
|
%
|
|
68.1
|
%
|
Revenue:
Television advertising revenues:
We estimate television advertising spending in our markets grew on average by
9%
at constant rates in the
three months
ended
March 31, 2017
as compared to the same period in 2016, positively impacting our television advertising revenues. See "Overview - Segment Performance" above for additional information on television advertising revenues for each of our operating countries.
Carriage fees and subscriptions:
Carriage fees and subscriptions revenue increased during the
three months
ended
March 31, 2017
, as compared to the same period in
2016
, primarily in the Slovak Republic and Slovenia as our channels in those countries are exclusively available on cable, satellite and IPTV platforms from January 2017. See "Overview - Segment Performance" above for additional information on carriage fees and subscription revenues for each of our operating countries.
Other revenues:
Other revenues include primarily internet advertising revenues and revenues generated through the licensing of our own productions. Other revenues decreased in the three months ended
March 31, 2017
compared to the same period in 2016 due to lower performance of our theatrical distribution business in Bulgaria.
Operating Expenses:
Content costs:
Content costs (including production costs and amortization and impairment of program rights) increased during the
three months
ended
March 31, 2017
compared to the same period in
2016
. The increase is primarily due to more hours of local productions in our broadcast schedules in the first quarter of 2017 than in the first quarter of 2016, particularly in the Czech Republic and Romania.
Other operating costs:
Other operating costs (excluding content costs, depreciation of property, plant and equipment, amortization of broadcast licenses and other intangibles as well as selling, general and administrative expenses) decreased during the
three months
ended
March 31, 2017
compared to the same period in
2016
, primarily due to cost savings in Slovakia following our decision not to renew our contract for the terrestrial distribution of our channels there.
Depreciation of property, plant and equipment:
Total depreciation of property, plant and equipment increased during the
three months
ended
March 31, 2017
compared to the same period in
2016
primarily due to depreciation on production and technical equipment placed in service.
Amortization of broadcast licenses and other intangibles:
Total amortization of broadcast licenses and other intangibles increased during the
three months
ended
March 31, 2017
compared to the same period in
2016
. The increase is due to higher amortization expense for certain of our trademarks in the Czech Republic.
Selling, general and administrative expenses:
Selling, general and administrative expenses increased during the
three months
ended
March 31, 2017
compared to the same period in
2016
primarily due to increased staff-related costs associated with the replacement of our segment management team in Bulgaria.
Selling, general and administrative expenses for
three months
ended
March 31, 2017
and
2016
also includes charges in respect of non-cash stock-based compensation (see Item 1,
Note 16, "Stock-based Compensation"
). The charge for stock-based compensation expense in 2017 was consistent with the charge in 2016.
Operating income
:
The increase in operating income during the three months ended
March 31, 2017
compared to
2016
resulted from increases from television advertising and carriage fee revenues, which outpaced the increase in cost of revenues. Our operating margin, which is determined as operating income / loss divided by net revenues, was
9%
for the
three months
ended
March 31, 2017
compared to
6%
for the
three months
ended
March 31, 2016
.
Other income / expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, (US$ 000's)
|
|
2017
|
|
|
2016
|
|
|
% Act
|
|
Interest expense
|
$
|
(23,755
|
)
|
|
$
|
(49,154
|
)
|
|
51.7
|
%
|
Non-operating income / (expense):
|
|
|
|
|
|
Interest income
|
79
|
|
|
108
|
|
|
(26.9
|
)%
|
Foreign currency exchange gain, net
|
1,681
|
|
|
15,422
|
|
|
(89.1
|
)%
|
Change in fair value of derivatives
|
368
|
|
|
(14,050
|
)
|
|
NM
(1)
|
|
Other income / (expense), net
|
197
|
|
|
(64
|
)
|
|
NM
(1)
|
|
Provision for income taxes
|
(2,112
|
)
|
|
(719
|
)
|
|
(193.7
|
)%
|
Net loss attributable to noncontrolling interests
|
209
|
|
|
259
|
|
|
(19.3
|
)%
|
Other comprehensive income
|
|
|
|
|
|
Currency translation adjustment, net
|
2,072
|
|
|
19,058
|
|
|
(89.1
|
)%
|
Gain / (loss) on derivative instruments
|
1,258
|
|
|
(1,248
|
)
|
|
NM
(1)
|
|
|
|
(1)
|
Number is not meaningful.
|
Interest expense:
Interest expense during the
three months
ended
March 31, 2017
decreased compared to the
three months
ended
March 31, 2016
primarily due to lower amortization of debt discount and issuance costs following the extinguishment of the 2017 PIK Notes and 2017 Term Loan in April 2016 and due to a lower effective interest rate on the replacement facility. We also realized interest expense savings as a result of the transaction entered into with Time Warner during the first quarter of 2017. See Item 1,
Note 4, "Long-term Debt and Other Financing Arrangements"
.
Interest income:
Interest income primarily reflects earnings on cash balances.
Foreign currency exchange gain, net
:
We are exposed to fluctuations in foreign exchange rates on the revaluation of monetary assets and liabilities denominated in currencies other than the local functional currency of the relevant subsidiary. This includes third party receivables and payables, as well as certain of our intercompany loans which are not considered of a long-term investment nature. Our subsidiaries generally receive funding via loans that are denominated in currencies other than the dollar, and any change in the relevant exchange rate will require us to recognize a transaction gain or loss on revaluation. Certain of our intercompany loans are classified as long-term in nature, and therefore gains or losses on revaluation are not recorded through the statement of operations and comprehensive income / loss. See the discussion under "Currency translation adjustment, net" below.
During the
three months
ended
March 31, 2017
, we recognized a net gain of US$
1.7 million
comprised of transaction gains of US$
0.7 million
relating to the revaluation of intercompany loans, transaction gains of approximately US$
0.1 million
on our long-term debt and other financing arrangements and transaction gains of US$
0.9 million
relating to the revaluation of monetary assets and liabilities denominated in currencies other than the local functional currency of the relevant subsidiary.
During the
three months
ended
March 31, 2016
, we recognized a net gain of US$
15.4 million
comprised of transaction gains of US$
38.1 million
relating to the revaluation of intercompany loans, transaction losses of approximately US$
24.3 million
on our long-term debt and other financing arrangements and transaction gains of US$
1.6 million
relating to the revaluation of monetary assets and liabilities denominated in currencies other than the local functional currency of the relevant subsidiary.
Change in fair value of derivatives:
During the
three months
ended
March 31, 2017
, we recognized gains as a result of the change in the fair value of our USD/EUR foreign currency forward contracts entered into on January 31, 2017. During the
three months
ended
March 31, 2016
, we recognized losses as a result of the change in the fair value of certain USD/EUR foreign currency forward contracts which matured in 2016. See Item 1,
Note 11, "Financial Instruments and Fair Value Measurements"
.
Other income / (expense), net
:
Our other income / expense, net during the
three months
ended
March 31, 2017
and 2016 was not material.
Provision for income taxes
:
The provision for income taxes for the
three months
ended
March 31, 2017
reflects losses on which no tax benefit has been received and an income tax charge on profits in Romania. The provision for income taxes for the three months ended March 31, 2016 reflects losses on which no tax benefit has been received and a deferred tax charge on profits in Romania.
Our subsidiaries are subject to income taxes at statutory rates ranging from
10.0%
in Bulgaria to
21.0%
in the Slovak Republic.
Net loss attributable to noncontrolling interests:
The results attributable to noncontrolling interests for the
three months
ended
March 31, 2017
and
2016
primarily relates to the noncontrolling interest share of our Bulgaria operations.
Currency translation adjustment, net:
The underlying equity value of our investments (which are denominated in the functional currency of the relevant entity) are converted into dollars at each balance sheet date, with any change in value of the underlying assets and liabilities being recorded as a currency translation adjustment to the balance sheet rather than net income / loss.
In the
three months
ended
March 31, 2017
, we recognized other comprehensive income of US$
2.1 million
compared to other comprehensive income of US$
19.1 million
during the
three months
ended
March 31, 2016
. Included in these amounts are foreign exchange gains and losses on the retranslation of certain of our intercompany loans which are considered to be of a long-term investment nature, and as such, are included in accumulated other comprehensive income / loss, a component of shareholders' equity. For the
three months
ended
March 31, 2017
and
2016
, we recognized gains of US$
0.8 million
and US$
9.5 million
, respectively, in accumulated other comprehensive income / loss.
The following charts depict the movement of the dollar versus the functional currencies of our operations, based on monthly closing rates, during the
three months
ended
March 31, 2017
and
March 31, 2016
.
Percent Change During the
Three Months
Ended
March 31, 2017
Percent Change During the
Three Months
Ended
March 31, 2016
Gain / (loss) on derivative instruments:
We recognized a gain on derivatives classified as hedging instruments for the
three months
ended
March 31, 2017
compared to a loss for the same period in
2016
due to the effective portion of changes in the fair value of our interest rate swaps classified as cash flow hedges and recognized in accumulated other comprehensive income / loss. See Item 1,
Note 11, "Financial Instruments and Fair Value Measurements"
.
Condensed consolidated balance sheets as at
March 31, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Balance Sheet (US$ 000’s)
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
% Act
|
|
Current assets
|
$
|
357,974
|
|
|
$
|
340,420
|
|
|
5.2
|
%
|
Non-current assets
|
1,062,306
|
|
|
1,050,297
|
|
|
1.1
|
%
|
Current liabilities
|
194,420
|
|
|
171,564
|
|
|
13.3
|
%
|
Non-current liabilities
|
1,084,340
|
|
|
1,070,786
|
|
|
1.3
|
%
|
Temporary equity
|
257,256
|
|
|
254,899
|
|
|
0.9
|
%
|
CME Ltd. shareholders’ deficit
|
(116,707
|
)
|
|
(107,804
|
)
|
|
(8.3
|
)%
|
Noncontrolling interests in consolidated subsidiaries
|
971
|
|
|
1,272
|
|
|
(23.7
|
)%
|
Note: The analysis below is intended to highlight the key factors that led to the movements from
December 31, 2016
, excluding the impact of foreign currency translation.
Current assets:
Current assets at
March 31, 2017
increased compared to
December 31, 2016
primarily due to higher cash balances from the collection of receivables which was partly offset by lower receivables from the trailing quarter revenues due to seasonality.
Non-current assets:
Excluding the effects of foreign currency translation, non-current assets at
March 31, 2017
decreased compared to
December 31, 2016
primarily due to depreciation on property, plant and equipment as well as amortization of intangible assets and debt issuance costs associated with our 2021 Revolving Credit Facility.
Current liabilities:
Current liabilities at
March 31, 2017
increased compared to
December 31, 2016
. The increase is primarily due customer advances on their 2017 advertising campaigns and accrued Guarantee Fees which are not yet payable, whether in cash or in kind.
Non-current liabilities:
Excluding the effects of foreign currency translation, non-current liabilities at
March 31, 2017
decreased slightly compared to
December 31, 2016
, primarily due to gains on the change in fair value of derivatives that are accounted for as hedging instruments for our 2019 Euro Term Loan and 2021 Euro Term Loan.
Temporary equity:
Temporary equity at
March 31, 2017
increased compared to
December 31, 2016
, due to the accretion on the Series B Preferred Shares.
CME Ltd. shareholders’ deficit
:
CME Ltd. shareholders’ deficit increased compared to
December 31, 2016
. This primarily reflects the net loss attributable to CME Ltd., a decrease in accumulated other comprehensive loss due to currency translation adjustments during the
three months
ended
March 31, 2017
and accretion of the preferred dividend paid in kind on our Series B Preferred Shares.
Noncontrolling interests in consolidated subsidiaries:
Noncontrolling interests in consolidated subsidiaries at
March 31, 2017
decreased compared to
December 31, 2016
, due to the net loss attributable to the noncontrolling interest in Bulgaria.
IV. Liquidity and Capital Resources
IV (a) Summary of Cash Flows
Cash and cash equivalents
increased
by US$
47.5 million
during the
three months
ended
March 31, 2017
. The change in cash and cash equivalents for the periods presented below is summarized as follows:
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, (US$ 000's)
|
|
2017
|
|
|
2016
|
|
Net cash generated from continuing operating activities
|
$
|
54,952
|
|
|
$
|
39,658
|
|
Net cash used in continuing investing activities
|
(7,601
|
)
|
|
(6,076
|
)
|
Net cash used in continuing financing activities
|
(93
|
)
|
|
(682
|
)
|
Net cash provided by discontinued operations
|
160
|
|
|
328
|
|
Impact of exchange rate fluctuations on cash and cash equivalents
|
82
|
|
|
3,512
|
|
Net increase in cash and cash equivalents
|
$
|
47,500
|
|
|
$
|
36,740
|
|
Operating Activities
Cash generated from continuing operations during the
three months
ended
March 31, 2017
was US$
55.0 million
compared to US$
39.7 million
for the
three months
ended
March 31, 2016
. The increase compared to the prior period reflects lower payments in 2017 for accrued Guarantee Fees as we had elected to repay US$ 10.0 million of accrued Guarantee Fees in 2016 which were previously paid in kind. The increase also reflects higher cash collections from revenue growth in the fourth quarter of 2016 (compared to the same period in 2015) and lower spending on programming, which are partly offset by higher cash paid for interest and for taxes in 2017. We paid cash interest (including mandatory cash-pay Guarantee Fees) of US$
4.9 million
during the
three months
ended
March 31, 2017
compared to US$
2.6 million
during the
three months
ended
March 31, 2016
.
Investing Activities
Our net cash used in continuing investing activities of US$
7.6 million
and US$
6.1 million
for the
three months
ended
March 31, 2017
and
2016
, respectively, related to capital expenditures.
Financing Activities
Cash used in continuing financing activities during the
three months
ended
March 31, 2017
was US$
0.1 million
compared to US$
0.7 million
during the
three months
ended
March 31, 2016
. The amount of net cash used in financing activities primarily reflected payments made under capital lease agreements and proceeds from the exercise of stock warrants in respect of 2017 and payments made in the three months in respect of 2016 for debt issuance costs.
Discontinued Operations
The net cash provided by discontinued operations during the
three months
ended
March 31, 2017
and 2016 of US$
0.2 million
and US$
0.3 million
, respectively, is due to the receipt of deferred proceeds from the divestiture of businesses in prior periods.
IV (b) Sources and Uses of Cash
Our ongoing source of cash is primarily the receipt of payments from advertisers, advertising agencies and distributors of our television channels. We also have available the 2021 Revolving Credit Facility (see Item 1,
Note 4, "Long-term Debt and Other Financing Arrangements"
). As at
March 31, 2017
, the aggregate principal amount available under the 2021 Revolving Credit Facility was US$ 115.0 million and was undrawn. The available amount decreases to US$ 50.0 million with effect from January 1, 2018. Surplus cash, after funding ongoing operations, may be remitted to us, where appropriate, by our subsidiaries in the form of debt interest payments and capital repayments, dividends, and other distributions and loans from our subsidiaries.
Corporate law in the Central and Eastern European countries in which we operate stipulates generally that dividends may be declared by the partners or shareholders out of yearly profits subject to the maintenance of registered capital, required reserves and after the recovery of accumulated losses. The reserve requirement restriction generally provides that before dividends may be distributed, a portion of annual net profits (typically
5.0%
) be allocated to a reserve, which is capped at a proportion of the registered capital of a company (ranging from
5.0%
to
20.0%
). There are no third-party restrictions that limit our subsidiaries' ability to transfer amounts to us in the form of loans or advances.
IV (c) Contractual Obligations, Commitments and Off-Balance Sheet Arrangements
Our future contractual obligations as at
March 31, 2017
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period (US$ 000’s)
|
|
Total
|
|
|
Less than 1 year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
More than 5 years
|
|
Long-term debt – principal
|
$
|
1,020,921
|
|
|
$
|
—
|
|
|
$
|
519,727
|
|
|
$
|
501,194
|
|
|
$
|
—
|
|
Long-term debt – interest
|
301,325
|
|
|
47,459
|
|
|
152,475
|
|
|
101,391
|
|
|
—
|
|
Unconditional purchase obligations
|
122,530
|
|
|
50,656
|
|
|
56,280
|
|
|
13,357
|
|
|
2,237
|
|
Operating leases
|
7,748
|
|
|
2,930
|
|
|
2,669
|
|
|
696
|
|
|
1,453
|
|
Capital lease obligations
|
4,492
|
|
|
1,649
|
|
|
2,399
|
|
|
444
|
|
|
—
|
|
Other long-term obligations
|
33,309
|
|
|
17,533
|
|
|
14,786
|
|
|
717
|
|
|
273
|
|
Total contractual obligations
|
$
|
1,490,325
|
|
|
$
|
120,227
|
|
|
$
|
748,336
|
|
|
$
|
617,799
|
|
|
$
|
3,963
|
|
Long-Term Debt
For more information on our long-term debt, see Item 1,
Note 4, "Long-term Debt and Other Financing Arrangements"
. Interest payable on our long-term debt is calculated using exchange rates and interest rates in effect as at
March 31, 2017
. For the purposes of the above table, it is assumed that the Guarantee Fees will be paid in kind at each interest payment date through the maturity dates of the respective Euro Term Loan. However, we intend to allocate excess cash towards paying the Guarantee Fee related to the 2018 Euro Term Loan in cash rather than electing to pay any portion in kind.
Unconditional Purchase Obligations
Unconditional purchase obligations primarily comprise future programming commitments. At
March 31, 2017
, we had commitments in respect of future programming of US$
$121.6 million
. This includes contracts signed with license periods starting after
March 31, 2017
.
Operating Leases
For more information on our operating lease commitments see Item 1,
Note 19, "Commitments and Contingencies"
.
Other Long-Term Obligations
Other long-term obligations are primarily comprised of digital transmission commitments.
Other
Top Tone Holdings has exercised its right to acquire additional equity in CME Bulgaria. However, the closing of this transaction has not yet occurred because the purchaser financing is still pending. If consummated, we would own
90.0%
of our Bulgaria broadcast operations. The option strike price is the fair value of the equity in CME Bulgaria, as determined by an independent valuation.
IV (d) Cash Outlook
Because cash flows from operating activities were negative from 2012 to 2014, we relied on equity and debt financings to ensure adequate funding for our operations. While cash flows from operating activities were positive in 2015 and 2016, our election to pay certain interest and Guarantee Fees in kind increased our leverage. The financing transactions concluded in 2016 and 2017 significantly lowered our cost of borrowing.
Following the repricing transaction in March 2017, we are now required to pay a portion of the Guarantee Fees related to all of the Euro Term Loans in cash. However, the total amount of cash paid for interest and Guarantee Fees is expected to decrease significantly in 2017 due to the lower all-in rate following this repricing transaction, and non-repeating payments that were made in 2016 when we elected to repay accrued Guarantee Fees related to the 2018 Euro Term Loan that were previously paid in kind as well as accrued interest on the 2017 PIK Notes and 2017 Term Loan redeemed in April 2016.
Furthermore, we have repaid previously accrued Guarantee Fees related to the 2018 Euro Term Loan and intend to continue to make payments of such Guarantee Fees in cash when due, rather than electing to pay in kind. However, we expect improvements in cash flows before interest and Guarantee Fees to offset these increases, and therefore expect free cash flow to increase in 2017 compared to 2016.
Beginning in November 2017, we anticipate using excess cash, including expected proceeds from the exercise of warrants, to begin making repayments of the principal outstanding on the 2018 Euro Term Loan with the intention of substantially repaying that loan when it matures in November 2018. We believe we have adequate cash resources to continue operating as a going concern.
Credit ratings and future debt issuances
Our corporate credit is rated
B2
by Moody's Investors Service and
B+
by Standard & Poor's, both with
stable
outlook. Ratings agencies have indicated that retention of these ratings is dependent on maintaining an adequate liquidity profile. If we fail to meet this liquidity parameter, it is likely that the rating agencies will downgrade us. The availability of additional liquidity is dependent upon our continued operating performance, improved financial performance and credit ratings. We are currently able to raise only a limited amount of additional debt (other than refinancing indebtedness) or under the agreement governing the 2021 Revolving Credit Facility and the Reimbursement Agreement.
Credit risk of financial counterparties
We have entered into a number of significant contracts with financial counterparties as follows:
Interest Rate Swaps
We are party to interest rate swap agreements to mitigate our exposure to interest rate fluctuations on our Euro Term Loans. These interest rate swaps, designated as cash flow hedges, provide the Company with variable-rate cash receipts in exchange for fixed-rate payments over the lives of the agreements, with no exchange of the underlying notional amount.
Foreign Exchange Forwards
We are exposed to movements in the USD to EUR exchange rates related to contractual payments under dollar-denominated agreements. To reduce this exposure, from time to time we enter into pay-Euro receive-dollar forward foreign exchange contracts. As at
March 31, 2017
, we had outstanding
one
forward foreign exchange contract with an aggregate notional amount of approximately US$
19.3 million
related to contractual operating payments.
Cash Deposits
We deposit cash in the global money markets with a range of bank counterparties and review the counterparties we choose weekly. The maximum period of deposit is three months but we have more recently held amounts on deposit for shorter periods, from overnight to one month. The credit rating of a bank is a critical factor in determining the size of cash deposits and we will only deposit cash with banks of an investment rating of A or A3 or higher. In addition we also closely monitor the credit default swap spreads and other market information for each of the banks with which we consider depositing or have deposited funds.
IV (e) Off-Balance Sheet Arrangements
None.
V. Critical Accounting Policies and Estimates
Our accounting policies that have a material effect on our financial condition and results of operations are more fully described in Part II, Item 8 of our Annual Report on Form 10-K for the year ended
December 31, 2016
filed with the Securities and Exchange Commission ("SEC") on
February 9, 2017
. The preparation of these financial statements requires us to make judgments in selecting appropriate assumptions for calculating financial estimates, which inherently contain some degree of uncertainty. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable. Using these estimates we make judgments about the carrying values of assets and liabilities and the reported amounts of revenues and expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe our critical accounting policies are as follows: program rights, goodwill and intangible assets, impairment or disposal of long-lived assets, revenue recognition, income taxes, foreign exchange, determination of the fair value of financial instruments, contingencies and discontinued operations. These critical accounting policies affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements. See Item 1,
Note 2, "Basis of Presentation"
for a discussion of accounting standards adopted in the period, and recently issued accounting standards not yet adopted.