Item 1. Financial Statements
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(US$ 000’s, except share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
ASSETS
|
|
|
|
Current assets
|
|
|
|
Cash and cash equivalents
|
$
|
56,003
|
|
|
$
|
54,903
|
|
Accounts receivable, net (Note 7)
|
129,562
|
|
|
158,903
|
|
Program rights, net (Note 6)
|
70,661
|
|
|
69,706
|
|
Other current assets (Note 8)
|
35,166
|
|
|
33,106
|
|
Assets held for sale (Note 3)
|
80,193
|
|
|
148,156
|
|
Total current assets
|
371,585
|
|
|
464,774
|
|
Non-current assets
|
|
|
|
|
|
Property, plant and equipment, net (Note 9)
|
99,362
|
|
|
103,648
|
|
Program rights, net (Note 6)
|
160,344
|
|
|
182,170
|
|
Goodwill (Note 4)
|
690,016
|
|
|
712,359
|
|
Other intangible assets, net (Note 4)
|
136,797
|
|
|
148,235
|
|
Other non-current assets (Note 8)
|
13,352
|
|
|
16,869
|
|
Total non-current assets
|
1,099,871
|
|
|
1,163,281
|
|
Total assets
|
$
|
1,471,456
|
|
|
$
|
1,628,055
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
Current liabilities
|
|
|
|
Accounts payable and accrued liabilities (Note 10)
|
$
|
121,701
|
|
|
$
|
143,893
|
|
Current portion of long-term debt and other financing arrangements (Note 5)
|
4,392
|
|
|
2,960
|
|
Other current liabilities (Note 11)
|
23,122
|
|
|
9,280
|
|
Liabilities held for sale (Note 3)
|
13,522
|
|
|
32,131
|
|
Total current liabilities
|
162,737
|
|
|
188,264
|
|
Non-current liabilities
|
|
|
|
|
|
Long-term debt and other financing arrangements (Note 5)
|
789,161
|
|
|
1,085,714
|
|
Other non-current liabilities (Note 11)
|
61,589
|
|
|
95,254
|
|
Total non-current liabilities
|
850,750
|
|
|
1,180,968
|
|
Commitments and contingencies (Note 20)
|
|
|
|
|
|
TEMPORARY EQUITY
|
|
|
|
200,000 shares of Series B Convertible Redeemable Preferred Stock of $0.08 each (December 31, 2017 - 200,000) (Note 13)
|
269,370
|
|
|
264,593
|
|
EQUITY
|
|
|
|
|
CME Ltd. shareholders’ equity (Note 14):
|
|
|
|
|
One share of Series A Convertible Preferred Stock of $0.08 each (December 31, 2017 – one)
|
—
|
|
|
—
|
|
252,835,615 shares of Class A Common Stock of $0.08 each (December 31, 2017 – 145,486,497)
|
20,227
|
|
|
11,639
|
|
Nil shares of Class B Common Stock of $0.08 each (December 31, 2017 – nil)
|
—
|
|
|
—
|
|
Additional paid-in capital
|
2,002,574
|
|
|
1,905,779
|
|
Accumulated deficit
|
(1,633,906
|
)
|
|
(1,735,768
|
)
|
Accumulated other comprehensive loss
|
(200,318
|
)
|
|
(187,438
|
)
|
Total CME Ltd. shareholders’ equity / (deficit)
|
188,577
|
|
|
(5,788
|
)
|
Noncontrolling interests
|
22
|
|
|
18
|
|
Total equity / (deficit)
|
188,599
|
|
|
(5,770
|
)
|
Total liabilities and equity
|
$
|
1,471,456
|
|
|
$
|
1,628,055
|
|
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 September 30,
|
|
For the Nine Months Ended September 30,
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Net revenues
|
$
|
123,522
|
|
|
$
|
119,431
|
|
|
$
|
422,259
|
|
|
$
|
378,058
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Content costs
|
53,214
|
|
|
55,871
|
|
|
189,925
|
|
|
174,214
|
|
Other operating costs
|
11,789
|
|
|
12,612
|
|
|
36,873
|
|
|
35,747
|
|
Depreciation of property, plant and equipment
|
7,265
|
|
|
6,936
|
|
|
22,179
|
|
|
19,345
|
|
Amortization of broadcast licenses and other intangibles
|
2,216
|
|
|
2,187
|
|
|
6,839
|
|
|
6,349
|
|
Cost of revenues
|
74,484
|
|
|
77,606
|
|
|
255,816
|
|
|
235,655
|
|
Selling, general and administrative expenses
|
28,072
|
|
|
25,803
|
|
|
78,690
|
|
|
70,204
|
|
Operating income
|
20,966
|
|
|
16,022
|
|
|
87,753
|
|
|
72,199
|
|
Interest expense (Note 15)
|
(8,437
|
)
|
|
(18,352
|
)
|
|
(33,890
|
)
|
|
(54,773
|
)
|
Other non-operating income / (expense), net (Note 16)
|
1,571
|
|
|
3,542
|
|
|
(1,317
|
)
|
|
12,682
|
|
Income before tax
|
14,100
|
|
|
1,212
|
|
|
52,546
|
|
|
30,108
|
|
Provision for income taxes
|
(3,190
|
)
|
|
(3,157
|
)
|
|
(14,227
|
)
|
|
(12,770
|
)
|
Income / (loss) from continuing operations
|
10,910
|
|
|
(1,945
|
)
|
|
38,319
|
|
|
17,338
|
|
Income / (loss) from discontinued operations, net of tax (Note 3)
|
57,581
|
|
|
(5,988
|
)
|
|
63,269
|
|
|
(8,747
|
)
|
Net income / (loss)
|
68,491
|
|
|
(7,933
|
)
|
|
101,588
|
|
|
8,591
|
|
Net loss attributable to noncontrolling interests
|
80
|
|
|
188
|
|
|
274
|
|
|
534
|
|
Net income / (loss) attributable to CME Ltd.
|
$
|
68,571
|
|
|
$
|
(7,745
|
)
|
|
$
|
101,862
|
|
|
$
|
9,125
|
|
|
|
|
|
|
|
|
|
Net income / (loss)
|
$
|
68,491
|
|
|
$
|
(7,933
|
)
|
|
$
|
101,588
|
|
|
$
|
8,591
|
|
Other comprehensive income / (loss)
|
|
|
|
|
|
|
|
Currency translation adjustment
|
12,137
|
|
|
9,227
|
|
|
(10,707
|
)
|
|
42,203
|
|
Unrealized gain / (loss) on derivative instruments (Note 12)
|
1,033
|
|
|
(135
|
)
|
|
(1,895
|
)
|
|
1,083
|
|
Total other comprehensive income / (loss)
|
13,170
|
|
|
9,092
|
|
|
(12,602
|
)
|
|
43,286
|
|
Comprehensive income
|
81,661
|
|
|
1,159
|
|
|
88,986
|
|
|
51,877
|
|
Comprehensive loss / (income) attributable to noncontrolling interests
|
26
|
|
|
439
|
|
|
(4
|
)
|
|
1,330
|
|
Comprehensive income attributable to CME Ltd.
|
$
|
81,687
|
|
|
$
|
1,598
|
|
|
$
|
88,982
|
|
|
$
|
53,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PER SHARE DATA (Note 18):
|
|
|
|
|
|
|
|
Net income / (loss) per share:
|
|
|
|
|
|
|
|
Continuing operations — basic
|
$
|
0.03
|
|
|
$
|
(0.03
|
)
|
|
$
|
0.10
|
|
|
$
|
0.04
|
|
Continuing operations — diluted
|
0.03
|
|
|
(0.03
|
)
|
|
0.09
|
|
|
0.03
|
|
Discontinued operations — basic
|
0.15
|
|
|
(0.04
|
)
|
|
0.19
|
|
|
(0.03
|
)
|
Discontinued operations — diluted
|
0.15
|
|
|
(0.04
|
)
|
|
0.18
|
|
|
(0.02
|
)
|
Net income / (loss) attributable to CME Ltd. — basic
|
0.18
|
|
|
(0.07
|
)
|
|
0.29
|
|
|
0.01
|
|
Net income / (loss) attributable to CME Ltd. — diluted
|
0.18
|
|
|
(0.07
|
)
|
|
0.27
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
Weighted average common shares used in computing per share amounts (000’s):
|
|
|
|
|
|
|
|
Basic
|
263,829
|
|
|
156,189
|
|
|
219,267
|
|
|
155,579
|
|
Diluted
|
264,940
|
|
|
156,189
|
|
|
255,265
|
|
|
233,761
|
|
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) / Equity
|
|
BALANCE
December 31, 2017
|
1
|
|
$
|
—
|
|
|
145,486,497
|
|
$
|
11,639
|
|
|
—
|
|
$
|
—
|
|
$
|
1,905,779
|
|
$
|
(1,735,768
|
)
|
$
|
(187,438
|
)
|
|
$
|
18
|
|
|
$
|
(5,770
|
)
|
Stock-based compensation
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
6,138
|
|
—
|
|
—
|
|
|
—
|
|
|
6,138
|
|
Exercise of warrants (Note 14)
|
—
|
|
—
|
|
|
105,652,401
|
|
8,452
|
|
|
—
|
|
—
|
|
97,200
|
|
—
|
|
—
|
|
|
—
|
|
|
105,652
|
|
Share issuance, stock-based compensation
|
—
|
|
—
|
|
|
1,696,717
|
|
136
|
|
|
—
|
|
—
|
|
(136
|
)
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
Withholding tax on net share settlement of stock-based compensation
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
(1,630
|
)
|
—
|
|
—
|
|
|
—
|
|
|
(1,630
|
)
|
Preferred dividend paid in kind
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
(4,777
|
)
|
—
|
|
—
|
|
|
—
|
|
|
(4,777
|
)
|
Net income / (loss)
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
101,862
|
|
—
|
|
|
(274
|
)
|
|
101,588
|
|
Unrealized loss on derivative instruments
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(1,895
|
)
|
|
—
|
|
|
(1,895
|
)
|
Currency translation adjustment
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(10,985
|
)
|
|
278
|
|
|
(10,707
|
)
|
BALANCE
September 30, 2018
|
1
|
|
$
|
—
|
|
|
252,835,615
|
|
$
|
20,227
|
|
|
—
|
|
$
|
—
|
|
$
|
2,002,574
|
|
$
|
(1,633,906
|
)
|
$
|
(200,318
|
)
|
|
$
|
22
|
|
|
$
|
188,599
|
|
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 Nine Months Ended September 30,
|
|
2018
|
|
|
2017
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
Net income
|
$
|
101,588
|
|
|
$
|
8,591
|
|
Adjustments to reconcile net income to net cash generated from continuing operating activities:
|
|
|
|
|
(Income) / loss from discontinued operations, net of tax (Note 3)
|
(63,269
|
)
|
|
8,747
|
|
Amortization of program rights
|
189,925
|
|
|
174,214
|
|
Depreciation and other amortization
|
32,515
|
|
|
29,976
|
|
Interest and related Guarantee Fees paid in kind
|
2,934
|
|
|
14,733
|
|
Loss on extinguishment of debt (Note 16)
|
415
|
|
|
101
|
|
Loss / (gain) on disposal of fixed assets
|
7
|
|
|
(68
|
)
|
Deferred income taxes
|
(249
|
)
|
|
(1,300
|
)
|
Stock-based compensation (Note 17)
|
6,026
|
|
|
2,044
|
|
Change in fair value of derivatives
|
869
|
|
|
1,204
|
|
Foreign currency exchange loss / (gain), net
|
2,404
|
|
|
(12,459
|
)
|
Changes in assets and liabilities:
|
|
|
|
Accounts receivable, net
|
24,735
|
|
|
35,280
|
|
Accounts payable and accrued liabilities
|
(945
|
)
|
|
(5,435
|
)
|
Program rights
|
(190,277
|
)
|
|
(183,625
|
)
|
Other assets and liabilities
|
(70
|
)
|
|
(1,559
|
)
|
Accrued interest
|
(27,764
|
)
|
|
10,668
|
|
Income taxes payable
|
(9,230
|
)
|
|
991
|
|
Deferred revenue
|
16,240
|
|
|
11,645
|
|
VAT and other taxes payable
|
(920
|
)
|
|
(3,110
|
)
|
Net cash generated from continuing operating activities
|
$
|
84,934
|
|
|
$
|
90,638
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
Purchase of property, plant and equipment
|
$
|
(12,098
|
)
|
|
$
|
(16,389
|
)
|
Disposal of property, plant and equipment
|
20
|
|
|
139
|
|
Net cash used in continuing investing activities
|
$
|
(12,078
|
)
|
|
$
|
(16,250
|
)
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
Repayment of debt
|
$
|
(270,780
|
)
|
|
$
|
(59,060
|
)
|
Debt transaction costs
|
(10,746
|
)
|
|
(106
|
)
|
Payment of credit facilities and capital leases
|
(3,016
|
)
|
|
(1,757
|
)
|
Proceeds from exercise of warrants
|
105,652
|
|
|
563
|
|
Proceeds from sale-leaseback transactions
|
—
|
|
|
2,746
|
|
Payments of withholding tax on net share settlement of share-based compensation
|
(1,630
|
)
|
|
(168
|
)
|
Net cash used in continuing financing activities
|
$
|
(180,520
|
)
|
|
$
|
(57,782
|
)
|
|
|
|
|
Net cash provided by discontinued operations - operating activities
|
13,253
|
|
|
3,273
|
|
Net cash provided by / (used in) discontinued operations - investing activities
|
97,774
|
|
|
(3,125
|
)
|
Net cash used in discontinued operations - financing activities
|
(231
|
)
|
|
(210
|
)
|
|
|
|
|
Impact of exchange rate fluctuations on cash and cash equivalents
|
(2,032
|
)
|
|
9,884
|
|
Net increase in cash and cash equivalents
|
$
|
1,100
|
|
|
$
|
26,428
|
|
CASH AND CASH EQUIVALENTS, beginning of period
|
54,903
|
|
|
40,606
|
|
CASH AND CASH EQUIVALENTS, end of period
|
$
|
56,003
|
|
|
$
|
67,034
|
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(US$ 000’s)
(Unaudited)
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
Cash paid for interest (including mandatory cash-pay Guarantee Fees)
|
$
|
24,907
|
|
|
$
|
22,206
|
|
Cash paid for Guarantee Fees previously paid in kind
|
28,066
|
|
|
—
|
|
Cash paid for Guarantee Fees that may be paid in kind
|
—
|
|
|
1,411
|
|
Cash paid for income taxes, net of refunds
|
23,739
|
|
|
12,380
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
|
|
|
|
Accretion on Series B Convertible Redeemable Preferred Stock
|
$
|
4,777
|
|
|
$
|
7,216
|
|
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
four
operating segments; Bulgaria, the Czech Republic, Romania and the Slovak Republic, which are also our reportable segments and our main operating countries. See
Note 19, "Segment Data"
for financial information by segment.
We are the market-leading broadcasters in each of our
four
operating countries with a combined portfolio of
26
television channels. Each country also 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 internet protocol television ("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, BTV ACTION, BTV LADY and RING. We own
94.0%
of CME Bulgaria B.V. ("CME Bulgaria"), the subsidiary that owns our Bulgaria operations.
Czech Republic
We operate
one
general entertainment channel, TV NOVA, and
seven
other channels, NOVA 2, NOVA CINEMA, NOVA SPORT 1, NOVA SPORT 2, NOVA ACTION, NOVA GOLD and NOVA INTERNATIONAL, a general entertainment channel broadcasting in the Slovak Republic.
Romania
We operate
one
general entertainment channel, PRO TV, and
seven
other channels, PRO 2, PRO X, PRO GOLD, PRO CINEMA, PRO TV INTERNATIONAL, MTV ROMANIA, as well as PRO TV CHISINAU, a general entertainment channel broadcasting in Moldova.
Slovak Republic
We operate
one
general entertainment channel, TV MARKIZA, and
three
other channels, DOMA, DAJTO, and MARKIZA INTERNATIONAL, a general entertainment channel broadcasting in the Czech Republic.
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 our various businesses are conducted. 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 the Bulgarian leva, all references to “CZK” are to the 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. Where applicable, prior period presentation has been modified to conform to current year presentation.
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, 2017
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, 2017
filed with the Securities and Exchange Commission on
February 8, 2018
. Our significant accounting policies have not changed since
December 31, 2017
, 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 and changes in US GAAP, 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.
Revenue Recognition
Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services, net of taxes assessed by a government authority that are both imposed on and concurrent with the specific revenue-producing transaction and collected from the customer. The timing of revenue recognition may differ from the timing of invoicing to customers. We defer the recognition of revenues when cash payments are received or due in advance of our performance, including amounts which are refundable. We record a receivable when revenue is recognized prior to invoicing, or deferred revenue when revenue is recognized subsequent to invoicing. Invoicing typically occurs on a monthly basis and customers are obliged to pay within 30 to 60 days of issuance. For certain services and customer types, we require payment before the services are provided.
In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined our contracts do not include a significant financing component. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our products and services, not to receive financing from our customers or to provide customers with financing.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
Our principal revenue streams and their respective accounting treatments are discussed below:
Television advertising revenues
primarily result from the sale of advertising time. Television advertising revenues are earned as the commercials are aired. In many countries, we commit to provide advertisers with certain rating levels in connection with their advertising. Revenue is recorded based on a charge per Gross Rating Point ("GRP") ordered during the month, net of estimated shortfalls. Discounts and agency commissions on television advertising revenue are recognized on a monthly basis and are reflected as a reduction to gross revenue. These amounts are known in advance or can be reasonably estimated based on historical practice.
Carriage fees and subscription revenues
includes revenues from cable operators and direct-to-home broadcasters and fees from subscriptions to our streaming services. Revenues from cable operators and direct-to-home broadcasters are recognized as revenue over the period for which the channels are provided and to which the fees relate. A portion of this fee revenue is based on the number of subscribers to our channels and recognized during the period, based upon the number of subscribers. The impacts of future changes in subscriber levels are recognized when they occur as estimates of future subscribers are constrained. Revenues from subscriptions to our streaming services are recognized over the period of the subscription.
Other revenues
primarily includes revenues from our internet display advertising, as well as revenues from the licensing of our content. Internet display advertising revenues are recognized on a cost-per-impression basis based on the number of times a customer's advertisement is displayed on our websites. Revenues from the licensing of our content are recognized over the license period beginning from delivery or reasonable access to the content.
Our revenue streams involve significant judgment with respect to the discounts and agency commissions we provide to certain customers based on the amount of advertising purchased. Such discounts are based on estimates of the total amount expected to be earned and reduce revenue based on a systematic and rational allocation of the cost of honoring the discounts earned and claimed to each of the underlying revenue transactions that result in progress by the customer towards earning the discount. Due to timing of the information provided by the rating agencies, significant judgment may be necessary to estimate the total volume of GRPs delivered within the contract period.
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.
Discontinued Operations and Assets Held for Sale
We present our results of operations, financial position and cash flows of operations that have either been sold or that meet the criteria for "held-for-sale accounting" as discontinued operations if the disposal represents a strategic shift that will have a major effect on our operations and financial results. At the time an operation qualifies for held-for-sale accounting, the operation is evaluated to determine whether or not the carrying amount exceeds its fair value less cost to sell. Any loss as a result of carrying amounts in excess of fair value less cost to sell is recorded in the period the operation qualifies for held-for-sale accounting. Management judgment is required to (1) assess the criteria required to qualify for held-for-sale accounting, and (2) estimate fair value. Both our Croatia operations and Slovenia operations are presented as discontinued operations for all periods in this report. Following the sale of our Croatia operations on July 31, 2018, only the Slovenia operations are classified as held for sale for the period ended
September 30, 2018
. See
Note 3, "Discontinued Operations and Assets Held for Sale"
.
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.
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 winter holiday season.
Recent Accounting Pronouncements
Accounting Pronouncements Adopted
On January 1, 2018, we adopted Financial Accounting Standards Board ("FASB") Accounting Standards Codification Topic 606, Revenue from Contracts with Customers ("ASC 606") using the modified retrospective method applied to those contracts which were not completed as of the adoption date. Results for
reporting
periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under legacy guidance
. Based on our assessment of the guidance in ASC 606, our method of recognizing revenue did not change. Furthermore, we did not record an adjustment to opening retained earnings as of January 1, 2018 and there was no impact to revenues for the three and nine months ended
September 30, 2018
.
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. We adopted this guidance as of January 1, 2018 which did not impact our net cash flows generated from continuing operating activities in 2017 or 2018.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
Recent Accounting Pronouncements Issued
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 have completed our primary assessment of the impact the guidance is anticipated to have on our operating segments, controls and related IT systems and are in the process of making changes to ensure effective application and disclosure by the transition date.
In June 2016, the FASB issued new guidance to provide financial statement users with more information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendments replace the incurred loss impairment methodology in the current guidance with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The guidance is effective for our fiscal year beginning January 1, 2020 with early adoption permitted for our fiscal year beginning January 1, 2019. We are in the process of assessing the potential impacts of this guidance.
In August 2018, the FASB issued guidance to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software as well as hosting arrangements that include an internal use software license. We expect to early adopt this guidance in the fourth quarter of 2018 with minimal immediate impact anticipated.
3. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
On July 9, 2017, we entered into a framework agreement with Slovenia Broadband S.à r.l. (the "Purchaser"), a wholly owned subsidiary of United Group B.V., relating to the sale of our Croatia and Slovenia operations for cash consideration of EUR
230.0 million
(the "Divestment Transaction"), subject to customary working capital adjustments.
On July 5, 2018 we signed an amended and restated framework agreement (the “Restated Framework Agreement”), which bifurcated the Divestment Transaction into individual transactions for our Croatia operations (the "Croatian Transaction") and our Slovenia operations (the "Slovenian Transaction"). On July 31, 2018, we completed the Croatian Transaction for proceeds of EUR
86.4 million
(approximately US$
101.4 million
at July 31, 2018 rates), resulting in a gain on sale of US$
58.4 million
. Under the Restated Framework Agreement, cash consideration of EUR
145.0 million
(approximately US$
167.9 million
) has been allocated to the closing of the Slovenian Transaction which is expected to close subject to obtaining the remaining regulatory approvals from the Competition Protection Agency in Slovenia as well as the satisfaction of other customary closing conditions. If the Restated Framework Agreement is terminated by either party because closing of the Slovenian Transaction has not occurred as of October 31, 2018 (extended from September 13, 2018), we would receive a termination fee of approximately EUR
4.4 million
(approximately US$
5.1 million
), subject to certain exceptions, including if any requisite regulatory approval has not been obtained as a result of the Purchaser being required to make a specified material divestiture as a condition to such regulatory approval.
The carrying amounts of the major classes of assets and liabilities of our discontinued operations that are classified as held for sale in the condensed consolidated balance sheets at
September 30, 2018
and
December 31, 2017
were:
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
Assets held for sale
|
|
|
|
Cash and cash equivalents
|
$
|
3,475
|
|
|
$
|
8,784
|
|
Accounts receivable, net
|
15,973
|
|
|
43,540
|
|
Program rights, net
|
36,879
|
|
|
62,017
|
|
Property, plant and equipment, net
|
14,832
|
|
|
22,870
|
|
Other assets
|
9,034
|
|
|
10,945
|
|
Total assets held for sale
|
$
|
80,193
|
|
|
$
|
148,156
|
|
|
|
|
|
Liabilities held for sale
|
|
|
|
Accounts payable and accrued liabilities
|
$
|
12,097
|
|
|
$
|
30,073
|
|
Other liabilities
|
1,425
|
|
|
2,058
|
|
Total liabilities held for sale
|
$
|
13,522
|
|
|
$
|
32,131
|
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
Income / (loss) from discontinued operations, net of tax
, comprised the following for the
three and nine months
ended
September 30, 2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Net revenues
|
$
|
16,899
|
|
|
$
|
22,742
|
|
|
$
|
90,281
|
|
|
$
|
80,973
|
|
Cost of revenues
|
12,804
|
|
|
18,893
|
|
|
61,302
|
|
|
61,120
|
|
Selling, general and administrative expenses
|
3,007
|
|
|
5,394
|
|
|
13,768
|
|
|
14,484
|
|
Operating income / (loss)
|
1,088
|
|
|
(1,545
|
)
|
|
15,211
|
|
|
5,369
|
|
Interest expense
(1)
|
(1,848
|
)
|
|
(4,913
|
)
|
|
(9,082
|
)
|
|
(14,220
|
)
|
Other non-operating income, net
|
21
|
|
|
294
|
|
|
298
|
|
|
621
|
|
(Loss) / income from discontinued operations, before tax, before gain on sale
|
(739
|
)
|
|
(6,164
|
)
|
|
6,427
|
|
|
(8,230
|
)
|
Gain on sale of divested businesses
|
58,442
|
|
|
—
|
|
|
58,442
|
|
|
—
|
|
Income / (loss) from discontinued operations, before tax
|
57,703
|
|
|
(6,164
|
)
|
|
64,869
|
|
|
(8,230
|
)
|
(Provision) / credit for income taxes
|
(122
|
)
|
|
176
|
|
|
(1,600
|
)
|
|
(517
|
)
|
Income / (loss) from discontinued operations, net of tax
|
$
|
57,581
|
|
|
$
|
(5,988
|
)
|
|
$
|
63,269
|
|
|
$
|
(8,747
|
)
|
|
|
(1)
|
For the
nine months
ended
September 30, 2018
and
2017
, we paid US$
12.0 million
and US$
9.6 million
, respectively, of interest and Guarantee Fees associated with the 2019 Euro Loan and the 2021 Euro Loan (each as defined in
Note 5, "Long-term Debt and Other Financing Arrangements"
). These payments were allocated to
Net cash provided by discontinued operations - operating activities
in our condensed consolidated statements of cash flows as we are required to apply the proceeds from the Divestment Transaction towards the repayment of debt and related obligations.
|
4. GOODWILL AND INTANGIBLE ASSETS
Goodwill:
Goodwill by reporting unit as at
September 30, 2018
and
December 31, 2017
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bulgaria
|
|
Czech Republic
|
|
Romania
|
|
Slovak Republic
|
|
Total
|
Gross Balance, December 31, 2017
|
$
|
175,071
|
|
|
$
|
837,732
|
|
|
$
|
90,305
|
|
|
$
|
52,463
|
|
|
$
|
1,155,571
|
|
Accumulated impairment losses
|
(144,639
|
)
|
|
(287,545
|
)
|
|
(11,028
|
)
|
|
—
|
|
|
(443,212
|
)
|
Balance, December 31, 2017
|
30,432
|
|
|
550,187
|
|
|
79,277
|
|
|
52,463
|
|
|
712,359
|
|
Foreign currency
|
(1,057
|
)
|
|
(16,931
|
)
|
|
(2,527
|
)
|
|
(1,828
|
)
|
|
(22,343
|
)
|
Balance, September 30, 2018
|
29,375
|
|
|
533,256
|
|
|
76,750
|
|
|
50,635
|
|
|
690,016
|
|
Accumulated impairment losses
|
(144,639
|
)
|
|
(287,545
|
)
|
|
(11,028
|
)
|
|
—
|
|
|
(443,212
|
)
|
Gross Balance, September 30, 2018
|
$
|
174,014
|
|
|
$
|
820,801
|
|
|
$
|
87,778
|
|
|
$
|
50,635
|
|
|
$
|
1,133,228
|
|
Other intangible assets:
The net book values of our other intangible assets as at
September 30, 2018
and
December 31, 2017
are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
Indefinite-lived:
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
$
|
84,977
|
|
|
$
|
—
|
|
|
$
|
84,977
|
|
|
$
|
87,900
|
|
|
$
|
—
|
|
|
$
|
87,900
|
|
Amortized:
|
|
|
|
|
|
|
|
|
|
|
|
Broadcast licenses
|
213,308
|
|
|
(162,721
|
)
|
|
50,587
|
|
|
220,194
|
|
|
(161,820
|
)
|
|
58,374
|
|
Trademarks
|
407
|
|
|
(407
|
)
|
|
—
|
|
|
421
|
|
|
(421
|
)
|
|
—
|
|
Customer relationships
|
56,815
|
|
|
(55,725
|
)
|
|
1,090
|
|
|
58,771
|
|
|
(56,996
|
)
|
|
1,775
|
|
Other
|
1,690
|
|
|
(1,547
|
)
|
|
143
|
|
|
1,753
|
|
|
(1,567
|
)
|
|
186
|
|
Total
|
$
|
357,197
|
|
|
$
|
(220,400
|
)
|
|
$
|
136,797
|
|
|
$
|
369,039
|
|
|
$
|
(220,804
|
)
|
|
$
|
148,235
|
|
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
.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
5. LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS
Summary
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
Long-term debt
|
$
|
780,510
|
|
|
$
|
1,079,187
|
|
Other credit facilities and capital leases
|
13,043
|
|
|
9,487
|
|
Total long-term debt and other financing arrangements
|
793,553
|
|
|
1,088,674
|
|
Less: current maturities
|
(4,392
|
)
|
|
(2,960
|
)
|
Total non-current long-term debt and other financing arrangements
|
$
|
789,161
|
|
|
$
|
1,085,714
|
|
Financing Transactions
On February 5, 2018, we entered into an amendment to extend the maturity date of the 2019 Euro Loan (formerly the 2018 Euro Term Loan) from November 1, 2018 to May 1, 2019. On February 6, 2018, we paid EUR
50.0 million
(approximately US$
61.6 million
at February 6, 2018 rates) of the outstanding principal balance of the 2019 Euro Loan.
On April 25, 2018, we entered into a series of amendments (effective on April 26, 2018) which modified certain terms of our 2021 Euro Loan (formerly the 2019 Euro Term Loan), the 2023 Euro Loan (formerly the 2021 Euro Term Loan), the 2023 Revolving Credit Facility (formerly the 2021 Revolving Credit Facility) (each as defined below) and the Reimbursement Agreement (as defined below) (collectively, the "Financing Transactions"). The Financing Transactions reduced the rates payable under the pricing grid under the Reimbursement Agreement and the 2023 Revolving Credit Facility as well as extended the maturity dates of the 2021 Euro Loan, the 2023 Euro Loan and the 2023 Revolving Credit Facility. The amount available to us under the 2023 Revolving Credit Facility increased to US$
75.0 million
from April 26, 2018.
On May 3, 2018, we paid EUR
110.0 million
(approximately US$
132.0 million
at May 3, 2018 rates) of the outstanding principal balance of the 2019 Euro Loan.
On July 31, 2018, we used the proceeds from the completion of the Croatian Transaction together with cash from operations to repay (1) the outstanding principal amount of EUR
40.8 million
(approximately US$
47.9 million
at July 31, 2018 rates) of the 2019 Euro Loan and accrued interest thereon and (2) EUR
25.0 million
(approximately US$
29.3 million
at July 31, 2018 rates) of the 2021 Euro Loan plus accrued interest thereon. In addition, we paid US$
41.2 million
to Warner Media, LLC ("Warner Media") to repay (1) all Guarantee Fees payable to Warner Media as of the date of repayment under the 2019 Euro Loan and (2) all outstanding Guarantee Fees and the Commitment Fee, together with accrued interest thereon, previously paid in kind which were payable to Warner Media prior to repayment of the portion of the 2021 Euro Loan.
Following the above repayments, we expect to apply the proceeds from the Slovenian Transaction (see
Note 3, "Discontinued Operations and Assets Held for Sale"
) towards the partial repayment of the 2021 Euro Loan.
Overview
Total long-term debt and credit facilities comprised the following at
September 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Amount of Liability Component
|
|
|
Debt Issuance
Costs
(1)
|
|
|
Net Carrying Amount
|
|
2021 Euro Loan
|
243,484
|
|
|
(592
|
)
|
|
242,892
|
|
2023 Euro Loan
|
542,683
|
|
|
(5,065
|
)
|
|
537,618
|
|
2023 Revolving Credit Facility
|
—
|
|
|
—
|
|
|
—
|
|
Total long-term debt and credit facilities
|
$
|
786,167
|
|
|
$
|
(5,657
|
)
|
|
$
|
780,510
|
|
|
|
(1)
|
Debt issuance costs related to the 2021 Euro Loan and 2023 Euro 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 2023 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 2023 Revolving Credit Facility.
|
Long-term Debt
Our long-term debt comprised the following at
September 30, 2018
and
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount
|
|
Fair Value
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
2019 Euro Loan
|
$
|
—
|
|
|
$
|
240,545
|
|
|
$
|
—
|
|
|
$
|
236,337
|
|
2021 Euro Loan
|
242,892
|
|
|
281,871
|
|
|
235,042
|
|
|
268,858
|
|
2023 Euro Loan
|
537,618
|
|
|
556,771
|
|
|
504,597
|
|
|
510,882
|
|
|
$
|
780,510
|
|
|
$
|
1,079,187
|
|
|
$
|
739,639
|
|
|
$
|
1,016,077
|
|
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 Euro Loans (as defined below) as at
September 30, 2018
and
December 31, 2017
were determined based on comparable instruments that trade in active markets. This measurement of estimated fair value uses Level 2 inputs as described in
Note 12, "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 each of the Euro Loans. The embedded derivatives are considered clearly and closely related to their respective Euro Loan, and as such are not required to be accounted for separately.
2021 Euro Loan
As at
September 30, 2018
, the principal amount of our floating rate senior unsecured term credit facility (the "2021 Euro Loan") outstanding was EUR
210.3 million
(approximately US$
243.5 million
). The 2021 Euro Loan bears interest at three-month EURIBOR (fixed pursuant to customary hedging arrangements (see
Note 12, "Financial Instruments and Fair Value Measurements"
)) plus a margin of between
1.1%
and
1.9%
depending on the credit rating of Warner Media. As at
September 30, 2018
, the all-in borrowing rate on amounts outstanding under the 2021 Euro Loan was
3.75%
, the components of which are shown in the table below under the heading "Interest Rate Summary".
Interest on the 2021 Euro Loan is payable quarterly in arrears on each February 13, May 13, August 13 and November 13. The 2021 Euro Loan matures on November 1, 2021 and may currently be prepaid at our option, in whole or in part, without premium or penalty from cash generated from our operations. From April 26, 2020, the 2021 Euro Loan may be refinanced at our option. The 2021 Euro Loan is a senior unsecured obligation of CME Ltd. and is unconditionally guaranteed by CME BV and by Warner Media and certain of its subsidiaries.
2023 Euro Loan
As at
September 30, 2018
, the principal amount of our floating rate senior unsecured term credit facility (the "2023 Euro Loan") outstanding was EUR
468.8 million
(approximately US$
542.7 million
). The 2023 Euro Loan bears interest at three-month EURIBOR (fixed pursuant to customary hedging arrangements (see
Note 12, "Financial Instruments and Fair Value Measurements"
)) plus a margin of between
1.1%
and
1.9%
depending on the credit rating of Warner Media. As at
September 30, 2018
, the all-in borrowing rate on amounts outstanding under the 2023 Euro Loan was
4.25%
, the components of which are shown in the table below under the heading "Interest Rate Summary".
Interest on the 2023 Euro Loan is payable quarterly in arrears on each January 7, April 7, July 7 and October 7. The 2023 Euro Loan matures on April 26, 2023 and may be prepaid at our option, in whole or in part, without premium or penalty from cash generated from our operations. From April 26, 2020, the 2023 Euro Loan may be refinanced at our option. The 2023 Euro Loan is a senior unsecured obligation of CME BV and is unconditionally guaranteed by CME Ltd. and by Warner Media and certain of its subsidiaries.
Reimbursement Agreement and Guarantee Fees
In connection with Warner Media’s guarantees of the 2019 Euro Loan, the 2021 Euro Loan and 2023 Euro Loan (collectively, the "Euro Loans"), we entered into a reimbursement agreement (as amended, the “Reimbursement Agreement") with Warner Media. The Reimbursement Agreement provides for the payment of guarantee fees (collectively, the "Guarantee Fees") to Warner Media as consideration for those guarantees, and the reimbursement to Warner Media of any amounts paid by them under any guarantee or through any loan purchase right exercised by it. The loan purchase right allows Warner Media to purchase any amount outstanding under the Euro Loans from the lenders following an event of default under the Euro 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 2023 Revolving Credit Facility (described below).
We pay Guarantee Fees to Warner Media based on the amounts outstanding on the Euro Loans calculated on a per annum basis and on our consolidated net leverage (as defined in the Reimbursement Agreement) as shown in the tables below:
All-in Rate
|
|
|
|
|
|
|
|
|
|
|
Consolidated Net Leverage
|
2021 Euro Loan
|
|
|
2023 Euro Loan
|
|
≥
|
7.0x
|
|
|
|
6.00
|
%
|
|
6.50
|
%
|
<
|
7.0x
|
-
|
6.0x
|
|
5.00
|
%
|
|
5.50
|
%
|
<
|
6.0x
|
-
|
5.0x
|
|
4.25
|
%
|
|
4.75
|
%
|
<
|
5.0x
|
-
|
4.0x
|
|
3.75
|
%
|
|
4.25
|
%
|
<
|
4.0x
|
-
|
3.0x
|
|
3.25
|
%
|
|
3.75
|
%
|
<
|
3.0x
|
|
|
|
3.25
|
%
|
|
3.50
|
%
|
Our consolidated net leverage as at
September 30, 2018
and
December 31, 2017
was
3.8x
and
5.4x
, respectively. For the
three and nine months
ended
September 30, 2018
and
2017
, we recognized US$
4.3 million
and US$
18.2 million
; and US$
11.8 million
and US$
36.3 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 2021 Euro Loan are payable semi-annually in arrears on each May 1 and November 1. The Guarantee Fees relating to the 2023 Euro Loan are payable semi-annually in arrears on each June 1 and December 1.
The Guarantee Fees on the 2023 Euro Loan that were previously paid in kind are presented as a component of other non-current liabilities (see
Note 11, "Other Liabilities"
) and bear interest per annum at the applicable Guarantee Fee rate (as set forth in the table below). Guarantee Fees 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
|
|
2021 Euro Loan
|
1.28
|
%
|
|
0.31
|
%
|
(1)
|
2.16
|
%
|
|
3.75
|
%
|
2023 Euro Loan
|
1.28
|
%
|
|
0.28
|
%
|
(2)
|
2.69
|
%
|
|
4.25
|
%
|
2023 Revolving Credit Facility (if drawn)
|
6.40
|
%
|
(3)
|
—
|
%
|
|
—
|
%
|
|
6.40
|
%
|
|
|
(1)
|
Effective until November 1, 2019. From November 1, 2019 through maturity on November 1, 2021, the rate fixed pursuant to interest rate hedges will increase to
0.47%
, with a corresponding decrease in the Guarantee Fee rate, such that the all-in borrowing rate remains
3.75%
if our net leverage ratio remains unchanged.
|
|
|
(2)
|
Effective until February 19, 2021. From February 19, 2021 through maturity on April 26, 2023, the rate fixed pursuant to interest rate hedges will increase to
0.97%
, with a corresponding decrease in the Guarantee Fee rate, such that the all-in borrowing rate remains
4.25%
if our net leverage ratio remains unchanged.
|
|
|
(3)
|
Based on the three month LIBOR of
2.40%
as at
September 30, 2018
.
|
2023 Revolving Credit Facility
We had
no
balance outstanding under the US$
75.0 million
revolving credit facility (the "2023 Revolving Credit Facility") as at
September 30, 2018
.
The 2023 Revolving Credit Facility bears interest at a rate per annum based on, at our option, an alternate base rate ("ABR Loans" as defined in the 2023 Revolving Credit Facility Agreement) plus the spread applicable to ABR Loans based on our consolidated net leverage or an amount equal to the greater of (i) an adjusted LIBO rate and (ii)
1.0%
, plus the spread applicable to the Eurodollar Loans (as defined in the 2023 Revolving Credit Facility Agreement) based on our consolidated net leverage ratio (as defined in the Reimbursement Agreement), with all amounts payable in cash. The maturity date of the 2023 Revolving Credit Facility is April 26, 2023. When drawn, the 2023 Revolving Credit Facility permits prepayment at our option in whole or in part without penalty.
Pursuant to the Financing Transactions, the following spreads are applicable:
|
|
|
|
|
|
|
|
|
|
|
Consolidated Net Leverage
|
Alternate Base Rate Loans
|
|
|
Eurodollar Loans
|
|
≥
|
7.0x
|
|
|
|
5.25
|
%
|
|
6.25
|
%
|
<
|
7.0x
|
-
|
6.0x
|
|
4.25
|
%
|
|
5.25
|
%
|
<
|
6.0x
|
-
|
5.0x
|
|
3.50
|
%
|
|
4.50
|
%
|
<
|
5.0x
|
-
|
4.0x
|
|
3.00
|
%
|
|
4.00
|
%
|
<
|
4.0x
|
-
|
3.0x
|
|
2.50
|
%
|
|
3.50
|
%
|
<
|
3.0x
|
|
|
|
2.25
|
%
|
|
3.25
|
%
|
The 2023 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 2023 Revolving Credit Facility agreement contains limitations on CME’s 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 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.
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 Credit Facilities and Capital Lease Obligations
Other credit facilities and capital lease obligations comprised the following at
September 30, 2018
and
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
Credit facilities
(1) – (3)
|
$
|
—
|
|
|
$
|
—
|
|
Capital leases
|
13,043
|
|
|
9,487
|
|
Total credit facilities and capital leases
|
13,043
|
|
|
9,487
|
|
Less: current maturities
|
(4,392
|
)
|
|
(2,960
|
)
|
Total non-current credit facilities and capital leases
|
$
|
8,651
|
|
|
$
|
6,527
|
|
|
|
(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 throughout the group in respect of cash balances which our subsidiaries deposit 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
September 30, 2018
, we had deposits of US$
21.4 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, 2017
, we had deposits of US$
12.4 million
in and
no
drawings on the BMG cash pool.
|
|
(2)
|
Under a factoring framework agreement with Factoring Česka spořitelna a.s., up to CZK
575.0 million
(approximately US$
26.2 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
0.19%
of any factored receivable and bears interest at one-month PRIBOR plus
0.95%
per annum for the period that receivables are factored and outstanding.
|
|
|
(3)
|
Under a factoring framework agreement with Global Funds IFN S.A., 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.
|
Total Group
At
September 30, 2018
, the maturity of our long-term debt and credit facilities was as follows:
|
|
|
|
|
2018
|
$
|
—
|
|
2019
|
—
|
|
2020
|
—
|
|
2021
|
243,484
|
|
2022
|
—
|
|
2023 and thereafter
|
542,683
|
|
Total long-term debt and credit facilities
|
786,167
|
|
Debt issuance costs
|
(5,657
|
)
|
Carrying amount of long-term debt and credit facilities
|
$
|
780,510
|
|
Capital Lease Commitments
We lease 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
September 30, 2018
:
|
|
|
|
|
2018
|
$
|
1,219
|
|
2019
|
4,506
|
|
2020
|
4,201
|
|
2021
|
2,916
|
|
2022
|
603
|
|
2023 and thereafter
|
—
|
|
Total undiscounted payments
|
13,445
|
|
Less: amount representing interest
|
(402
|
)
|
Present value of net minimum lease payments
|
$
|
13,043
|
|
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. PROGRAM RIGHTS
Program rights comprised the following at
September 30, 2018
and
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
Program rights:
|
|
|
|
Acquired program rights, net of amortization
|
$
|
138,344
|
|
|
$
|
161,929
|
|
Less: current portion of acquired program rights
|
(70,661
|
)
|
|
(69,706
|
)
|
Total non-current acquired program rights
|
67,683
|
|
|
92,223
|
|
Produced program rights – Feature Films:
|
|
|
|
|
Released, net of amortization
|
715
|
|
|
939
|
|
Produced program rights – Television Programs:
|
|
|
|
|
|
Released, net of amortization
|
54,029
|
|
|
49,888
|
|
Completed and not released
|
8,384
|
|
|
9,987
|
|
In production
|
29,243
|
|
|
28,971
|
|
Development and pre-production
|
290
|
|
|
162
|
|
Total produced program rights
|
92,661
|
|
|
89,947
|
|
Total non-current acquired program rights and produced program rights
|
$
|
160,344
|
|
|
$
|
182,170
|
|
7. ACCOUNTS RECEIVABLE
Accounts receivable comprised the following at
September 30, 2018
and
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
Third-party customers
|
$
|
139,386
|
|
|
$
|
168,805
|
|
Less: allowance for bad debts and credit notes
|
(9,824
|
)
|
|
(9,902
|
)
|
Total accounts receivable
|
$
|
129,562
|
|
|
$
|
158,903
|
|
8. OTHER ASSETS
Other current and non-current assets comprised the following at
September 30, 2018
and
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
Current:
|
|
|
|
Prepaid acquired programming
|
$
|
24,883
|
|
|
$
|
22,579
|
|
Other prepaid expenses
|
7,448
|
|
|
7,616
|
|
VAT recoverable
|
733
|
|
|
650
|
|
Income taxes recoverable
|
978
|
|
|
109
|
|
Other
|
1,124
|
|
|
2,152
|
|
Total other current assets
|
$
|
35,166
|
|
|
$
|
33,106
|
|
|
|
|
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
Non-current:
|
|
|
|
|
|
Capitalized debt costs
|
$
|
10,333
|
|
|
$
|
12,947
|
|
Deferred tax
|
2,726
|
|
|
2,964
|
|
Other
|
293
|
|
|
958
|
|
Total other non-current assets
|
$
|
13,352
|
|
|
$
|
16,869
|
|
Capitalized debt costs are being amortized over the term of the 2023 Revolving Credit Facility using the straight-line method, which approximates the effective interest 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)
9. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment comprised the following at
September 30, 2018
and
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
Land and buildings
|
$
|
84,401
|
|
|
$
|
86,480
|
|
Machinery, fixtures and equipment
|
198,667
|
|
|
195,682
|
|
Other equipment
|
15,848
|
|
|
16,121
|
|
Software
|
54,172
|
|
|
53,143
|
|
Construction in progress
|
5,644
|
|
|
3,026
|
|
Total cost
|
358,732
|
|
|
354,452
|
|
Less: accumulated depreciation
|
(259,370
|
)
|
|
(250,804
|
)
|
Total net book value
|
$
|
99,362
|
|
|
$
|
103,648
|
|
|
|
|
|
Assets held under capital leases (included in the above)
|
|
|
|
|
|
Machinery, fixtures and equipment
|
$
|
19,582
|
|
|
$
|
14,193
|
|
Total cost
|
19,582
|
|
|
14,193
|
|
Less: accumulated depreciation
|
(7,521
|
)
|
|
(5,151
|
)
|
Total net book value
|
$
|
12,061
|
|
|
$
|
9,042
|
|
The movement in the net book value of property, plant and equipment during the
nine months
ended
September 30, 2018
and
2017
was comprised of:
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
|
2018
|
|
|
2017
|
|
Opening balance
|
$
|
103,648
|
|
|
$
|
89,080
|
|
Additions
(1)
|
21,147
|
|
|
18,547
|
|
Disposals
|
(27
|
)
|
|
(71
|
)
|
Depreciation
|
(22,179
|
)
|
|
(19,345
|
)
|
Foreign currency movements
|
(3,227
|
)
|
|
12,097
|
|
Ending balance
|
$
|
99,362
|
|
|
$
|
100,308
|
|
|
|
(1)
|
Includes assets acquired under capital leases of US$
9.2 million
and US$
5.5 million
for the
nine months
ended
September 30, 2018
and
2017
, respectively.
|
10. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities comprised the following at
September 30, 2018
and
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
Accounts payable and accrued expenses
|
$
|
55,382
|
|
|
$
|
53,408
|
|
Related party accounts payable
|
123
|
|
|
252
|
|
Programming liabilities
|
13,079
|
|
|
16,923
|
|
Related party programming liabilities
|
11,274
|
|
|
20,027
|
|
Duties and other taxes payable
|
7,681
|
|
|
8,769
|
|
Accrued staff costs
|
15,832
|
|
|
18,430
|
|
Accrued interest payable
|
2,404
|
|
|
3,326
|
|
Related party accrued interest payable (including Guarantee Fees)
|
7,689
|
|
|
6,273
|
|
Income taxes payable
|
5,898
|
|
|
14,018
|
|
Other accrued liabilities
|
2,339
|
|
|
2,467
|
|
Total accounts payable and accrued liabilities
|
$
|
121,701
|
|
|
$
|
143,893
|
|
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. OTHER LIABILITIES
Other current and non-current liabilities comprised the following at
September 30, 2018
and
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
Current:
|
|
|
|
Deferred revenue
|
$
|
20,245
|
|
|
$
|
5,675
|
|
Legal provisions
|
1,979
|
|
|
2,907
|
|
Other
|
898
|
|
|
698
|
|
Total other current liabilities
|
$
|
23,122
|
|
|
$
|
9,280
|
|
|
|
|
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
Non-current:
|
|
|
|
|
|
Deferred tax
|
$
|
19,544
|
|
|
$
|
20,569
|
|
Related party commitment fee payable
(1)
|
—
|
|
|
10,765
|
|
Related party Guarantee Fee payable (Note 5)
|
33,465
|
|
|
58,855
|
|
Other
|
8,580
|
|
|
5,065
|
|
Total other non-current liabilities
|
$
|
61,589
|
|
|
$
|
95,254
|
|
|
|
(1)
|
The Commitment Fee was paid on July 31, 2018, see
Note 5, "Long-term Debt and Other Financing Arrangements"
.
|
During the
three and nine months
ended
September 30, 2018
and
2017
, we recognized revenue of US$
1.1 million
and US$
5.2 million
; and US$
1.0 million
; and US$
4.7 million
which we had deferred as at December 31, 2017 and 2016, respectively.
12. 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 5, "Long-term Debt and Other Financing Arrangements"
.
Hedging 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 the Euro Loans. These interest rate swaps 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.
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.
The effective portion of the changes in the fair value of the designated instruments 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 other non-operating income / expense, net in our condensed consolidated statements of operations and comprehensive income / loss. For the
three and nine months
ended
September 30, 2018
and
2017
, we did not recognize any charges related to hedge ineffectiveness. All changes in fair value are recorded in other non-operating income / expense, net 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)
Information relating to interest rates swaps is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade Date
|
|
Number of Contracts
|
|
|
Aggregate Notional Amount
|
|
|
Designated Portion
|
|
|
Maturity Date
|
|
Objective
|
|
Fair Value as at September 30, 2018
|
|
November 10,
2015
|
|
3
|
|
|
EUR
|
210,335
|
|
|
EUR
|
65,204
|
|
|
November 1,
2019
|
|
Interest rate hedge underlying 2021 Euro Loan
|
|
$
|
(830
|
)
|
April 26,
2018
|
|
3
|
|
|
EUR
|
210,335
|
|
|
EUR
|
65,204
|
|
|
November 1,
2021
|
|
Interest rate hedge underlying 2021 Euro Loan, forward starting on November 1, 2019
|
|
$
|
(773
|
)
|
April 5,
2016
|
|
5
|
|
|
EUR
|
468,800
|
|
|
EUR
|
468,800
|
|
|
February 19,
2021
|
|
Interest rate hedge underlying 2023 Euro Loan
|
|
$
|
(2,197
|
)
|
April 26,
2018
|
|
4
|
|
|
EUR
|
468,800
|
|
|
EUR
|
468,800
|
|
|
April 26,
2023
|
|
Interest rate hedge underlying 2023 Euro Loan, forward starting on February 19, 2021
|
|
$
|
(2,344
|
)
|
As a part of the Financing Transactions (see
Note 5, "Long-term Debt and Other Financing Arrangements"
), we entered into forward starting interest rate swap agreements to mitigate our exposure to interest rate fluctuations on the outstanding principal amount of the 2021 Euro Loan and the 2023 Euro Loan for the period from maturity of the current instruments until the prolonged maturity date of the related Euro Loan.
The expected proceeds from the Slovenian Transaction will be used to satisfy amounts owing in respect of the 2021 Euro Loan (see
Note 5, "Long-term Debt and Other Financing Arrangements"
). The anticipated reduction of principal amounts owing in respect of the 2021 Euro Loan will reduce future interest payments that the interest rate swaps maturing on November 1, 2019 and November 1, 2021, respectively, are designed to hedge. To maintain the effectiveness of these interest rate swaps, only a portion of each instrument is designated to effectively align the notional amount of the instruments with the 2021 Euro Loan principal that will remain after the application of the Slovenian Transaction proceeds. For the portions that are not designated as hedging instruments, all related fair value adjustments, including those previously recognized in accumulated other comprehensive income / loss, are recognized in other non-operating income / expense, net in our condensed consolidated statements of operations and comprehensive income / loss (see
Note 14, "Equity"
).
Foreign Currency Risk
From time to time, we have entered into forward foreign exchange contracts to reduce our exposure to movements in foreign exchange rates related to contractual payments under certain dollar-denominated agreements. As at
September 30, 2018
, we had no such forward foreign exchange contracts outstanding.
Fair Value of Derivatives
The change in fair value of derivatives not recognized within accumulated other comprehensive income / loss comprised the following for the
three and nine months
ended
September 30, 2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Loss on currency swaps
|
$
|
—
|
|
|
$
|
(696
|
)
|
|
$
|
—
|
|
|
$
|
(1,428
|
)
|
Gain / (loss) on interest rate swaps
|
67
|
|
|
(454
|
)
|
|
(1,262
|
)
|
|
(454
|
)
|
Change in fair value of derivatives
|
$
|
67
|
|
|
$
|
(1,150
|
)
|
|
$
|
(1,262
|
)
|
|
$
|
(1,882
|
)
|
13. 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
September 30, 2018
and
December 31, 2017
. As at
September 30, 2018
and
December 31, 2017
, the accreted value of the Series B Preferred Shares was US$
269.4 million
and US$
264.6 million
, respectively. The Series B Preferred Shares are held by Time Warner Media Holdings B.V. ("TW Investor"), a wholly owned subsidiary of AT&T. As of
September 30, 2018
, the
200,000
shares of Series B preferred stock were convertible into approximately
111.1 million
shares of Class A common stock.
The stated value of the Series B Preferred Shares of US$
1,000
per share accreted at an annual rate of
3.75%
, compounded quarterly, from June 25, 2016 until June 24, 2018. The Series B Preferred Shares will not accrete further. 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
September 30, 2018
, 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 will 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.
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 Series B Preferred Shares are not considered a liability and the embedded conversion feature does not require bifurcation. The Series B Preferred Shares are classified outside of permanent equity at redemption value. For the three months ended
September 30, 2018
, there was
no
accretion on the Series B Preferred Shares. For the nine months ended September 30, 2018, we recognized accretion on the Series B Preferred Shares of US$
4.8 million
, with a corresponding decrease in additional paid-in capital. For the three and nine months ended September 30, 2017, we recognized accretion on the Series B Preferred Shares of US$
2.5 million
and US$
7.2 million
, respectively, with corresponding decreases in additional paid-in capital.
14. EQUITY
Preferred Stock
5,000,000
shares of Preferred Stock were authorized as at
September 30, 2018
and
December 31, 2017
.
One
share of Series A Convertible Preferred Stock (the "Series A Preferred Share") was issued and outstanding as at
September 30, 2018
and
December 31, 2017
. 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
September 30, 2018
and
December 31, 2017
(see
Note 13, "Convertible Redeemable Preferred Shares"
). As of
September 30, 2018
, the Series B Preferred Shares were convertible into approximately
111.1 million
shares of Class A common stock.
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
September 30, 2018
and
December 31, 2017
. 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 and automatically convert into shares of Class A common stock on a one-for-one basis when the number of shares of Class B common stock is less than 10% of the total number of shares of common stock outstanding. 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
252.8 million
and
145.5 million
shares of Class A common stock outstanding at
September 30, 2018
and
December 31, 2017
, respectively, and
no
shares of Class B common stock outstanding at
September 30, 2018
or
December 31, 2017
.
As at
September 30, 2018
, TW Investor owns
64.2%
of the outstanding shares of Class A common stock. In connection with the exercise of warrants by Warner Media and TW Investor (described below), each of them issued standing proxies to the independent directors of the Company, pursuant to which they granted the right to vote the shares received on the exercise of those warrants (the “Warrant Shares”) on all matters other than a change in control. In accordance with these proxies, the Warrant Shares will be voted in proportion to votes cast at a general meeting of the Company, excluding such Warrant Shares. Warner Media and TW Investor have undertaken to maintain this proxy arrangement in effect until April 2020 and may at their option extend it for an additional year. As a result of the standing proxies, after giving effect to its ownership of the Series A Preferred Share, TW Investor has a
44.5%
voting interest in the Company.
Warrants
On May 2, 2014, we issued
114,000,000
warrants in connection with a rights offering. Each warrant was exercisable until May 2, 2018 and entitled 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 2018,
105,652,401
warrants were exercised, including
100,926,996
by Warner Media (Time Warner, Inc. at date of exercise) and TW Investor, resulting in net proceeds to us of approximately US$
105.7 million
. Of the
114,000,000
issued warrants,
202,175
expired unexercised.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
Accumulated Other Comprehensive Loss
The movement in accumulated other comprehensive loss during the
nine months
ended
September 30, 2018
comprised the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment, net
|
|
|
Unrealized (loss) / gain on derivative instruments designated as hedging instruments
|
|
|
TOTAL
Accumulated Other Comprehensive Loss
|
|
BALANCE December 31, 2017
|
$
|
(184,256
|
)
|
|
$
|
(3,182
|
)
|
|
$
|
(187,438
|
)
|
Other comprehensive (loss) / income before reclassifications:
|
|
|
|
|
|
Foreign exchange gain on intercompany loans
(1)
|
1,370
|
|
|
—
|
|
|
1,370
|
|
Foreign exchange loss on the Series B Preferred Shares
|
(9,579
|
)
|
|
—
|
|
|
(9,579
|
)
|
Currency translation adjustment
|
(2,776
|
)
|
|
—
|
|
|
(2,776
|
)
|
Change in the fair value of hedging instruments
|
—
|
|
|
(5,115
|
)
|
|
(5,115
|
)
|
Amounts reclassified from accumulated other comprehensive loss:
|
|
|
|
|
|
|
Changes in fair value reclassified to interest expense
|
—
|
|
|
1,784
|
|
|
1,784
|
|
Changes in fair value reclassified to other non-operating income / expense, net
(2)
|
—
|
|
|
1,436
|
|
|
1,436
|
|
Net other comprehensive loss
|
(10,985
|
)
|
|
(1,895
|
)
|
|
(12,880
|
)
|
BALANCE September 30, 2018
|
$
|
(195,241
|
)
|
|
$
|
(5,077
|
)
|
|
$
|
(200,318
|
)
|
|
|
(1)
|
Represents foreign exchange losses on intercompany loans that are of a long-term investment nature which are reported in the same manner as translation adjustments.
|
|
|
(2)
|
We expect to repay a portion of the 2021 Euro Loan with the expected proceeds from the Slovenian Transaction (see
Note 5, "Long-term Debt and Other Financing Arrangements"
). This anticipated reduction of principal amounts owing in respect of the 2021 Euro Loan will reduce future interest payments that the interest rate swaps maturing on November 1, 2019 and November 1, 2021, are designed to hedge (see
Note 12, "Financial Instruments and Fair Value Measurements"
).
|
15. INTEREST EXPENSE
Interest expense comprised the following for the
three and nine months
ended
September 30, 2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Interest on long-term debt and other financing arrangements
|
$
|
7,564
|
|
|
$
|
16,850
|
|
|
$
|
30,393
|
|
|
$
|
50,491
|
|
Amortization of capitalized debt issuance costs
|
873
|
|
|
1,502
|
|
|
3,497
|
|
|
4,282
|
|
Total interest expense
|
$
|
8,437
|
|
|
$
|
18,352
|
|
|
$
|
33,890
|
|
|
$
|
54,773
|
|
We paid cash interest (including mandatory cash-pay Guarantee Fees) of US$
24.9 million
and US$
22.2 million
during the
nine months
ended
September 30, 2018
and
2017
, respectively. In addition, we paid US$
28.1 million
of accrued Guarantee Fees during the nine months ended
September 30, 2018
, which we had previously elected to pay in kind. Interest expense related to the 2019 Euro Loan and 2021 Euro Loan has been allocated to results from discontinued operations relative to the proportion of those principal balances expected to be repaid from the proceeds of the Divestment Transaction (see
Note 3, "Discontinued Operations and Assets Held for Sale"
).
16. OTHER NON-OPERATING INCOME / EXPENSE, NET
Other non-operating income / expense, net comprised the following for the
three and nine months
ended
September 30, 2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Interest income
|
$
|
141
|
|
|
$
|
139
|
|
|
$
|
487
|
|
|
$
|
326
|
|
Foreign currency exchange gain / (loss), net
|
1,387
|
|
|
4,609
|
|
|
(401
|
)
|
|
14,085
|
|
Change in fair value of derivatives (Note 12)
|
67
|
|
|
(1,150
|
)
|
|
(1,262
|
)
|
|
(1,882
|
)
|
Loss on extinguishment of debt
|
(127
|
)
|
|
(101
|
)
|
|
(415
|
)
|
|
(101
|
)
|
Other income, net
|
103
|
|
|
45
|
|
|
274
|
|
|
254
|
|
Total other non-operating income / (expense), net
|
$
|
1,571
|
|
|
$
|
3,542
|
|
|
$
|
(1,317
|
)
|
|
$
|
12,682
|
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
17. 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, are forfeited or withheld, 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.
The charge for stock-based compensation in our condensed consolidated statement of operations and comprehensive income / loss was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Stock-based compensation expense from continuing operations
|
$
|
3,864
|
|
|
$
|
431
|
|
|
$
|
6,026
|
|
|
$
|
2,044
|
|
Stock-based compensation expense from discontinued operations
|
34
|
|
|
34
|
|
|
112
|
|
|
96
|
|
Stock Options
Grants of options allow the holders to purchase shares of Class A common stock at an exercise price, which is generally the market price prevailing at the date of the grant, with vesting between
one
and
four
years after the awards are granted. There was no option activity during the
nine months
ended
September 30, 2018
. The summary of stock options outstanding as at
September 30, 2018
and
December 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, 2017
|
2,011,392
|
|
|
$
|
2.32
|
|
|
7.58
|
|
$
|
4,677
|
|
Outstanding at September 30, 2018
|
2,011,392
|
|
|
2.32
|
|
|
6.83
|
|
2,867
|
|
Vested and expected to vest
|
2,011,392
|
|
|
2.32
|
|
|
6.83
|
|
2,867
|
|
Exercisable at September 30, 2018
|
1,405,696
|
|
|
$
|
2.31
|
|
|
6.79
|
|
$
|
2,017
|
|
When options are vested, holders may exercise them at any time up to the maximum contractual life of the instrument which is specified in the option agreement. At
September 30, 2018
, the maximum life of options that were issued under the 2015 Plan was
ten years
. Upon providing the appropriate written notification, holders pay the exercise price and receive shares. Shares delivered in respect of stock option exercises are newly issued shares.
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 as a component of selling, general and administrative expenses. The aggregate intrinsic value (the difference between the stock price on the last day of trading of the
third quarter
of
September 30, 2018
and the exercise prices multiplied by the number of in-the-money options) represents the total intrinsic value that would have been received by the option holders had they exercised all in-the-money options as at
September 30, 2018
. This amount changes based on the fair value of our Class A common stock. As at
September 30, 2018
, there was US$
0.6 million
of unrecognized compensation expense related to stock options which is expected to be recognized over a weighted-average period of
0.9 years
.
Restricted Stock Units
Each RSU represents a right to receive
one
share of Class A common stock of the Company for each RSU that vests in accordance with a time-based vesting schedule, generally between
one
to
four
years from the date of grant. Upon vesting, shares of Class A common stock are issued from authorized but unissued shares. Holders of RSU awards are not entitled to receive cash dividend equivalents and are not entitled to vote. The grant date fair value of RSUs is calculated as the closing price of our Class A common shares on the date of grant and presented as a component of selling, general and administrative expenses.
The following table summarizes information about unvested RSU as at
September 30, 2018
and
December 31, 2017
:
|
|
|
|
|
|
|
|
|
Number of
Shares / Units
|
|
|
Weighted Average
Grant Date
Fair Value
|
|
Unvested at December 31, 2017
|
2,694,063
|
|
|
$
|
3.07
|
|
Granted
|
1,423,557
|
|
|
4.15
|
|
Vested
|
(2,121,265
|
)
|
|
3.49
|
|
Unvested at September 30, 2018
|
1,996,355
|
|
|
$
|
3.68
|
|
As at
December 31, 2017
, there were
719,109
of unvested RSUs with performance conditions of which
239,703
RSUs vested in March 2018. Following the completion of the sale of the Company's Croatian operations, and in accordance with the terms of the corresponding award agreements, the remaining RSUs with performance conditions vested along with an additional
461,188
RSUs that were granted and immediately vested. See
Note 3, "Discontinued Operations and Assets Held for Sale"
. There were no unvested RSUs with performance conditions as at
September 30, 2018
. The intrinsic value of unvested RSUs was US$
7.5 million
as at
September 30, 2018
. Total unrecognized compensation cost related to unvested RSUs as at
September 30, 2018
was US$
5.9 million
and is expected to be recognized over a weighted-average period of
2.7 years
.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
18. 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 and the income allocated to these 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.
The Company identified an error in the calculation of earnings per share disclosed in its financial statements for the nine months ended September 30, 2017. The error arose due to the misallocation of the results of discontinued operations to the Series B Preferred Shares. The error is not considered to be either quantitatively or qualitatively material to the nine months ended September 30, 2017, and has been corrected in the information disclosed below. The error did not impact net income, the condensed consolidated balance sheet, the condensed consolidated statements of equity or the condensed consolidated statements of cash flows.
The components of basic and diluted earnings per share are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
(As adjusted)
|
|
Income / (loss) from continuing operations
|
$
|
10,910
|
|
|
$
|
(1,945
|
)
|
|
$
|
38,319
|
|
|
$
|
17,338
|
|
Net loss attributable to noncontrolling interests
|
80
|
|
|
188
|
|
|
274
|
|
|
534
|
|
Less: preferred share accretion paid in kind (Note 13)
|
—
|
|
|
(2,454
|
)
|
|
(4,777
|
)
|
|
(7,216
|
)
|
Less: income allocated to Series B Preferred Shares
|
(3,257
|
)
|
|
—
|
|
|
(11,332
|
)
|
|
(4,334
|
)
|
Income / (loss) from continuing operations available to common shareholders, net of noncontrolling interest
|
7,733
|
|
|
(4,211
|
)
|
|
22,484
|
|
|
6,322
|
|
Income / (loss) from discontinued operations, net of tax (Note 3)
|
57,581
|
|
|
(5,988
|
)
|
|
63,269
|
|
|
(8,747
|
)
|
Less: (income) / loss allocated to Series B Preferred Shares
|
(17,067
|
)
|
|
—
|
|
|
(21,201
|
)
|
|
3,558
|
|
Net income / (loss) attributable to CME Ltd. available to common shareholders — basic
|
48,247
|
|
|
(10,199
|
)
|
|
64,552
|
|
|
1,133
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
Dilutive effect of Series B Preferred Shares
|
60
|
|
|
—
|
|
|
3,202
|
|
|
178
|
|
Net income / (loss) attributable to CME Ltd. available to common shareholders — diluted
|
$
|
48,307
|
|
|
$
|
(10,199
|
)
|
|
$
|
67,754
|
|
|
$
|
1,311
|
|
|
|
|
|
|
|
|
|
Weighted average outstanding shares of common stock — basic
(1)
|
263,829
|
|
|
156,189
|
|
|
219,267
|
|
|
155,579
|
|
Dilutive effect of common stock warrants, employee stock options and RSUs
|
1,111
|
|
|
—
|
|
|
35,998
|
|
|
78,182
|
|
Weighted average outstanding shares of common stock — diluted
|
264,940
|
|
|
156,189
|
|
|
255,265
|
|
|
233,761
|
|
|
|
|
|
|
|
|
|
Net income / (loss) per share:
|
|
|
|
|
|
|
|
Continuing operations — basic
|
$
|
0.03
|
|
|
$
|
(0.03
|
)
|
|
$
|
0.10
|
|
|
$
|
0.04
|
|
Continuing operations — diluted
|
0.03
|
|
|
(0.03
|
)
|
|
0.09
|
|
|
0.03
|
|
Discontinued operations — basic
|
0.15
|
|
|
(0.04
|
)
|
|
0.19
|
|
|
(0.03
|
)
|
Discontinued operations — diluted
|
0.15
|
|
|
(0.04
|
)
|
|
0.18
|
|
|
(0.02
|
)
|
Net income / (loss) attributable to CME Ltd. — basic
|
0.18
|
|
|
(0.07
|
)
|
|
0.29
|
|
|
0.01
|
|
Net income / (loss) attributable to CME Ltd. — diluted
|
0.18
|
|
|
(0.07
|
)
|
|
0.27
|
|
|
0.01
|
|
|
|
(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 the 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)
The following weighted-average, equity awards and convertible shares were excluded from the calculation of diluted earnings per share because their effect would have been anti-dilutive for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
RSUs
|
1,004
|
|
|
719
|
|
|
1,004
|
|
|
719
|
|
Series B Preferred Shares
|
—
|
|
|
107,643
|
|
|
—
|
|
|
—
|
|
Total
|
1,004
|
|
|
108,362
|
|
|
1,004
|
|
|
719
|
|
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.
19. SEGMENT DATA
We manage our business on a geographical basis, with
four
operating segments: Bulgaria, the Czech Republic, Romania and the Slovak Republic, 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 that carry our channels on their platforms and from revenues through the sale of distribution rights to third parties. We do not rely on any single major customer or group of major customers. 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. From January 1, 2018, stock-based compensation and certain operating costs incurred on behalf of our segments at the corporate level have been allocated to our segments for purposes of evaluating their performance. Prior period information has been recast to conform to the current period presentation.
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 and nine months
ended
September 30, 2018
and
2017
for condensed consolidated statements of operations and comprehensive income / loss data and condensed consolidated statements of cash flow data; and as at
September 30, 2018
and
December 31, 2017
for condensed consolidated balance sheet data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues:
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Bulgaria
|
$
|
16,348
|
|
|
$
|
16,039
|
|
|
$
|
59,208
|
|
|
$
|
52,118
|
|
Czech Republic
|
45,489
|
|
|
42,681
|
|
|
158,051
|
|
|
135,526
|
|
Romania
|
41,128
|
|
|
40,469
|
|
|
136,683
|
|
|
127,983
|
|
Slovak Republic
|
20,867
|
|
|
20,384
|
|
|
70,590
|
|
|
63,348
|
|
Intersegment revenues
(1)
|
(310
|
)
|
|
(142
|
)
|
|
(2,273
|
)
|
|
(917
|
)
|
Total net revenues
|
$
|
123,522
|
|
|
$
|
119,431
|
|
|
$
|
422,259
|
|
|
$
|
378,058
|
|
|
|
(1)
|
Reflects revenues earned from the sale of content to other country segments in CME Ltd. All other revenues are third party revenues.
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDA:
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Bulgaria
|
$
|
4,481
|
|
|
$
|
2,425
|
|
|
$
|
13,084
|
|
|
$
|
6,668
|
|
Czech Republic
|
15,388
|
|
|
12,397
|
|
|
59,009
|
|
|
48,521
|
|
Romania
|
15,607
|
|
|
15,259
|
|
|
58,696
|
|
|
51,790
|
|
Slovak Republic
|
5,032
|
|
|
2,809
|
|
|
10,041
|
|
|
10,966
|
|
Elimination
|
(25
|
)
|
|
13
|
|
|
15
|
|
|
29
|
|
Total operating segments
|
40,483
|
|
|
32,903
|
|
|
140,845
|
|
|
117,974
|
|
Corporate
|
(6,884
|
)
|
|
(7,758
|
)
|
|
(20,922
|
)
|
|
(20,081
|
)
|
Total OIBDA
|
33,599
|
|
|
25,145
|
|
|
119,923
|
|
|
97,893
|
|
Depreciation of property, plant and equipment
|
(7,265
|
)
|
|
(6,936
|
)
|
|
(22,179
|
)
|
|
(19,345
|
)
|
Amortization of broadcast licenses and other intangibles
|
(2,216
|
)
|
|
(2,187
|
)
|
|
(6,839
|
)
|
|
(6,349
|
)
|
Other items
(1)
|
(3,152
|
)
|
|
—
|
|
|
(3,152
|
)
|
|
—
|
|
Operating income
|
20,966
|
|
|
16,022
|
|
|
87,753
|
|
|
72,199
|
|
Interest expense (Note 15)
|
(8,437
|
)
|
|
(18,352
|
)
|
|
(33,890
|
)
|
|
(54,773
|
)
|
Other non-operating income / (expense), net (Note 16)
|
1,571
|
|
|
3,542
|
|
|
(1,317
|
)
|
|
12,682
|
|
Income before tax
|
$
|
14,100
|
|
|
$
|
1,212
|
|
|
$
|
52,546
|
|
|
$
|
30,108
|
|
|
|
(1)
|
Other items consists solely of expense related to the accelerated vesting of RSUs with performance conditions in accordance with the terms of the corresponding award agreement following the completion of sale of the Company's Croatian operations on such date. See
Note 17, "Stock-based Compensation"
.
|
|
|
|
|
|
|
|
|
|
Total assets:
(1)
|
September 30, 2018
|
|
|
December 31, 2017
|
|
Bulgaria
|
$
|
141,122
|
|
|
$
|
155,885
|
|
Czech Republic
|
777,326
|
|
|
842,716
|
|
Romania
|
291,087
|
|
|
307,286
|
|
Slovak Republic
|
153,198
|
|
|
149,866
|
|
Total operating segments
|
1,362,733
|
|
|
1,455,753
|
|
Corporate
|
28,530
|
|
|
24,146
|
|
Assets held for sale (Note 3)
|
80,193
|
|
|
148,156
|
|
Total assets
|
$
|
1,471,456
|
|
|
$
|
1,628,055
|
|
|
|
(1)
|
Segment assets exclude any intercompany balances.
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
For the Nine Months Ended September 30,
|
|
2018
|
|
|
2017
|
|
Bulgaria
|
$
|
2,939
|
|
|
$
|
2,487
|
|
Czech Republic
|
5,450
|
|
|
6,768
|
|
Romania
|
2,009
|
|
|
4,369
|
|
Slovak Republic
|
1,210
|
|
|
1,520
|
|
Total operating segments
|
11,608
|
|
|
15,144
|
|
Corporate
|
490
|
|
|
1,245
|
|
Total capital expenditures
|
$
|
12,098
|
|
|
$
|
16,389
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets:
(1)
|
September 30, 2018
|
|
|
December 31, 2017
|
|
Bulgaria
|
$
|
10,634
|
|
|
$
|
7,863
|
|
Czech Republic
|
40,228
|
|
|
46,146
|
|
Romania
|
28,929
|
|
|
28,515
|
|
Slovak Republic
|
17,033
|
|
|
17,450
|
|
Total operating segments
|
96,824
|
|
|
99,974
|
|
Corporate
|
2,538
|
|
|
3,674
|
|
Total long-lived assets
|
$
|
99,362
|
|
|
$
|
103,648
|
|
|
|
(1)
|
Reflects property, plant and equipment, net.
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
Revenues from contracts with customers comprised the following for the
three and nine months
ended
September 30, 2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenue by type:
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Television advertising
|
$
|
96,015
|
|
|
$
|
93,830
|
|
|
$
|
338,750
|
|
|
$
|
303,486
|
|
Carriage fees and subscriptions
|
22,813
|
|
|
21,547
|
|
|
68,984
|
|
|
61,597
|
|
Other
|
4,694
|
|
|
4,054
|
|
|
14,525
|
|
|
12,975
|
|
Total net revenues
|
$
|
123,522
|
|
|
$
|
119,431
|
|
|
$
|
422,259
|
|
|
$
|
378,058
|
|
Management reviews the performance of our operations based on the above revenue types as well as on a geographic basis as described above. Management does not review other disaggregations of revenues from contracts with customers.
20. COMMITMENTS AND CONTINGENCIES
Commitments
a) Programming Rights Agreements and Other Commitments
At
September 30, 2018
, we had total commitments of US$
84.8 million
(
December 31, 2017
: US$
99.1 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 (net of any sublease income) and other commitments as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Programming purchase obligations
|
|
|
Other commitments
(1)
|
|
|
Operating leases
|
|
|
Capital expenditures
|
|
2018
|
$
|
10,760
|
|
|
$
|
5,046
|
|
|
$
|
843
|
|
|
$
|
1,295
|
|
2019
|
32,815
|
|
|
4,037
|
|
|
1,564
|
|
|
206
|
|
2020
|
19,417
|
|
|
2,172
|
|
|
1,081
|
|
|
—
|
|
2021
|
14,323
|
|
|
215
|
|
|
546
|
|
|
—
|
|
2022
|
3,986
|
|
|
193
|
|
|
366
|
|
|
—
|
|
2023 and thereafter
|
3,458
|
|
|
148
|
|
|
1,972
|
|
|
—
|
|
Total
|
$
|
84,759
|
|
|
$
|
11,811
|
|
|
$
|
6,372
|
|
|
$
|
1,501
|
|
|
|
(1)
|
Other commitments are primarily comprised of digital transmission commitments.
|
Contingencies
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 that have a collective face value of approximately EUR
69.0
million. 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.
Two
of the notes, each of which purportedly has a face value of approximately EUR
8.3 million
, allegedly matured in 2015; and the other
two
, each of which purportedly has a face value of approximately EUR
26.2 million
, allegedly matured in 2016. The
four
notes accrue interest from their purported maturity dates. Although Mr. Rusko has asserted, both in written responses to active claims filed in respect of
three
of the promissory notes as well as in subsequent oral testimony, that he signed the notes in June 2000, we do not believe that the notes were signed in June 2000 or that any of the notes are authentic.
Despite a random case assignment system in the Slovak Republic, claims in respect of
three
of the notes were initially assigned to the same judge.
One
of those claims, concerning
one
of the promissory notes having a face value of approximately EUR
8.3 million
(the “First PN Case”), was subsequently reassigned. Proceedings on the claim in respect of the fourth promissory note (in the amount of approximately EUR
26.2 million
) were terminated in January 2017 by the presiding judge because the plaintiff failed to pay court fees and were terminated a second time by a different presiding judge in September 2017 after the plaintiff refiled but failed to pay court fees a second time.
During the first quarter of 2018, the court of first instance began to schedule hearings in respect of the First PN Case as well as the claims relating to the second promissory note having a face value of approximately EUR
8.3 million
(the “Second PN Case”) and one of the promissory notes having a face value of approximately EUR
26.2 million
(the “Third PN Case”). On April 26, 2018, the judge in the First PN Case ruled in favor of the plaintiff. Markiza has appealed that decision.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
On May 14, 2018, Markiza filed a criminal complaint with the Office of the Special Prosecutor Office of the Slovak Republic (the “Special Prosecutor’s Office”) alleging that Mr. Kocner and Mr. Rusko committed the offenses of (1) counterfeiting, falsification, and illegal production of money and securities and (2) obstruction or perversion of justice. The Special Prosecutor’s Office opened criminal proceedings in the matter at that time.
On June 20, 2018, the Special Prosecutor’s Office issued a decision to formally charge Mr. Kocner and Mr. Rusko with counterfeiting, falsification, and illegal production of money and securities and with obstruction or perversion of justice. Subsequently, Mr. Kocner has been taken into pre-trial custody by the Slovak authorities.
On October 12, 2018, the court of first instance terminated proceedings in respect of the Second PN Case because the plaintiff failed to continue to pursue the claim. The plaintiff can appeal this decision. There have been no hearings held in respect of the Third PN Case since the initiation of the criminal proceedings.
Markiza is seeking to have the civil proceedings either suspended until the conclusion of the criminal proceedings or dismissed. In the event any of the civil proceedings are not suspended or dismissed, Markiza will continue to vigorously defend the claims.
Based on the facts and circumstances of these cases, we have not accrued any amounts in respect of these claims.
21. 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. On June 14, 2018, AT&T acquired the outstanding shares of Warner Media. We have identified transactions with individuals or entities associated with AT&T, which is represented on our Board of Directors and holds a
44.5%
voting interest in CME Ltd. (see
Note 14, "Equity"
) as at
September 30, 2018
, as material related party transactions.
AT&T
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Cost of revenues
|
$
|
4,989
|
|
|
$
|
4,504
|
|
|
$
|
14,922
|
|
|
$
|
11,696
|
|
Interest expense
|
3,365
|
|
|
14,170
|
|
|
20,346
|
|
|
41,423
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
Programming liabilities
|
$
|
11,274
|
|
|
$
|
20,027
|
|
Other accounts payable and accrued liabilities
|
123
|
|
|
252
|
|
Accrued interest payable
(1)
|
7,689
|
|
|
6,273
|
|
Other non-current liabilities
(2)
|
33,465
|
|
|
69,620
|
|
|
|
(1)
|
Amount represents accrued Guarantee Fees for which we have not yet paid. See
Note 5, "Long-term Debt and Other Financing Arrangements"
.
|
|
|
(2)
|
Amount represents Guarantee Fees for which we had previously made an election to pay in kind. The balance as at December 31, 2017 included the Commitment Fee which was paid on July 31, 2018. See
Note 5, "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:
|
|
•
|
"
2019 Euro Loan
" refers to our floating rate senior unsecured term credit facility guaranteed by Warner Media, dated as of November 14, 2014, as amended on March 9, 2015, February 19, 2016, June 22, 2017 and February 5, 2018 which was repaid in full on July 31, 2018;
|
|
|
•
|
"
2021 Euro Loan
" refers to our floating rate senior unsecured term credit facility due November 1, 2021, guaranteed by Warner Media, dated as of September 30, 2015, as amended on February 19, 2016, June 22, 2017 and April 25, 2018;
|
|
|
•
|
"
2023 Euro Loan
" refers to our floating rate senior unsecured term credit facility due April 26, 2023, entered into by CME BV (as defined below), guaranteed by Warner Media and CME Ltd., dated as of February 19, 2016, as amended on June 22, 2017 and April 25, 2018;
|
|
|
•
|
"
Euro Loans
" refers collectively to the 2019 Euro Loan (when outstanding), 2021 Euro Loan and 2023 Euro Loan;
|
|
|
•
|
"
2023 Revolving Credit Facility
" refers to our revolving credit facility due April 26, 2023, dated as of May 2, 2014, as amended and restated as of February 19, 2016, and as further amended and restated on April 25, 2018;
|
|
|
•
|
"
Divestment Transaction
" refers to the framework agreement dated July 9, 2017 with Slovenia Broadband S.à r.l., as amended on April 10, 2018, amended and restated on July 5, 2018 and as further amended on September 13, 2018 for the sale of our Croatia and Slovenia operations (see Item 1,
Note 3, "Discontinued Operations and Assets Held for Sale"
for further information);
|
|
|
•
|
"
Guarantee Fees
" refers to amounts accrued and payable to Warner Media as consideration for Warner Media's guarantees of the Euro Loans;
|
|
|
•
|
"
Reimbursement Agreement
" refers to our reimbursement agreement with Warner Media which provides that we will reimburse Warner Media for any amounts paid by them under any guarantee or through any loan purchase right exercised by Warner Media, dated as of November 14, 2014, as amended and restated on February 19, 2016, and as further amended and restated on April 25, 2018;
|
|
|
•
|
"
CME BV
" refers to CME Media Enterprises B.V., our 100% owned subsidiary;
|
|
|
•
|
"
CME NV
" refers to Central European Media Enterprises N.V., our 100% owned subsidiary;
|
|
|
•
|
"
AT&T
" refers to AT&T, Inc.
|
|
|
•
|
"
Warner Media
" refers to Warner Media, LLC. (formerly Time Warner, Inc.), a wholly owned subsidiary of AT&T; and
|
|
|
•
|
"
TW Investor
" refers to Time Warner Media Holdings B.V., a wholly owned subsidiary of Warner Media
|
The exchange rates used in this report are as at
September 30, 2018
, 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 changes in global and regional economic conditions and the extent, timing and duration of the recovery in our markets; 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 debt service obligations and covenants may 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; our ability to consummate the sale of our Slovenian operations; 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 four countries in Central and Eastern Europe. We manage our business on a geographical basis, with
four
operating segments: Bulgaria, the Czech Republic, Romania, and the Slovak Republic, 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.
On July 9, 2017, we entered into a framework agreement with Slovenia Broadband S.à r.l., a wholly owned subsidiary of United Group B.V., relating to the sale of our Croatia and Slovenia operations. The sale of our Croatian operations was completed on July 31, 2018. The sale of our Slovenian operations is expected to close subject to obtaining the remaining regulatory approvals from the Competition Protection Agency in Slovenia as well as the satisfaction of other customary closing conditions. Accordingly, the Slovenia operations are classified as held for sale and both businesses are presented as discontinued operations for all periods in this report; and the discussion below relates to our continuing operations in the four remaining operating segments.
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-Chief Executive Officers when evaluating our performance. From January 1, 2018, stock-based compensation and certain operating costs incurred on behalf of our segments at the corporate level have been allocated to our segments for purposes of evaluating their performance. Prior period information has been recast to conform to the current period presentation. 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 a repricing of our Guarantee Fees in March 2017 and April 2018, we now must pay interest and related Guarantee Fees on our outstanding indebtedness in cash. In addition to this obligation to pay Guarantee Fees in cash, we expect to use cash generated by the business as well as proceeds from asset divestitures to pay certain Guarantee Fees that were previously paid 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-Chief Executive Officers when evaluating performance.
For additional information regarding our business segments, including a reconciliation of OIBDA to US GAAP financial measures, see Item 1,
Note 19, "Segment Data"
. For a reconciliation of free cash flow and unlevered free cash flow to US GAAP financial measures, 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 and nine months
ended
September 30, 2018
and
2017
.
Executive Summary
The following table provides a summary of our consolidated results of our continuing operations for the
three and nine months
ended
September 30, 2018
and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, (US$ 000's)
|
|
For the Nine Months Ended September 30, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
|
|
|
|
Movement
|
|
2018
|
|
|
2017
|
|
|
% Act
|
|
|
% Lfl
|
|
|
2018
|
|
|
2017
|
|
|
% Act
|
|
|
% Lfl
|
|
Net revenues
|
$
|
123,522
|
|
|
$
|
119,431
|
|
|
3.4
|
%
|
|
4.1
|
%
|
|
$
|
422,259
|
|
|
$
|
378,058
|
|
|
11.7
|
%
|
|
3.3
|
%
|
Operating income
|
20,966
|
|
|
16,022
|
|
|
30.9
|
%
|
|
34.2
|
%
|
|
87,753
|
|
|
72,199
|
|
|
21.5
|
%
|
|
14.4
|
%
|
Operating margin
|
17.0
|
%
|
|
13.4
|
%
|
|
3.6 p.p.
|
|
|
3.8 p.p.
|
|
|
20.8
|
%
|
|
19.1
|
%
|
|
1.7 p.p.
|
|
|
2.0 p.p.
|
|
OIBDA
|
$
|
33,599
|
|
|
$
|
25,145
|
|
|
33.6
|
%
|
|
35.7
|
%
|
|
$
|
119,923
|
|
|
$
|
97,893
|
|
|
22.5
|
%
|
|
14.4
|
%
|
OIBDA margin
|
27.2
|
%
|
|
21.1
|
%
|
|
6.1 p.p.
|
|
|
6.3 p.p.
|
|
|
28.4
|
%
|
|
25.9
|
%
|
|
2.5 p.p.
|
|
|
2.8 p.p.
|
|
Our consolidated net revenues increased at constant rates in the three and nine months ended
September 30, 2018
compared to the corresponding periods in
2017
due to increases in both television advertising revenues and carriage fees and subscription revenues. Television advertising spending overall in the markets of the countries in which we operate grew an estimated
4%
at constant rates in the first nine months of 2018 compared to 2017. Our television advertising revenues grew
12%
at actual rates and
3%
at constant rates during the same period as more advertising was sold and average prices were higher in certain countries due to increased demand for advertising campaigns. Carriage fees and subscription revenues increased
12%
at actual rates and
5%
at constant rates in the nine months ended September 30, 2018 compared to the corresponding period in 2017 as the subscriber base continued to grow and average prices increased.
Costs charged in arriving at OIBDA in the third quarter decreased
5%
at actual rates and
4%
at constant rates, due primarily to a decrease of
4%
in content costs at constant rates, as we focused on the most efficient spending for summer programming to maintain our leading audience share positions in competitive markets. In the nine months ended
September 30, 2018
, costs increased
8%
at actual rates due to a stronger Euro compared to the dollar in the first half of the year, but were broadly flat at constant rates compared to the first nine months in
2017
. Content costs were broadly flat at constant rates, as the cost savings in the third quarter offset increased investments in popular local content in first half of the year.
Since we continue to focus on controlling costs while revenues increase, our OIBDA margin improved in the three and nine months ended
September 30, 2018
. This dynamic also drove an increase in operating income, with a similar improvement in operating margin. We expect revenues to grow at a faster pace than costs in 2018 and for the next few years, leading to continued OIBDA margin expansion year on year, although trends may vary from quarter to quarter.
We launched the fall season in all countries during the third quarter, and our networks continue to provide the best reach for advertisers in each territory. We are seeing increased competition for audience share in all markets, and the FIFA World Cup also drove increased ratings of the public broadcasters in our territories during the tournament in June and July. We continue to leverage popular content we produce for our prime time schedules, and supplement that with both foreign and locally acquired content to ensure we continue to attract the largest audience in each of our countries in the most profitable manner.
Improved Capital Structure
On February 5, 2018, we entered into an amendment to extend the maturity date of the 2019 Euro Loan from November 1, 2018 to May 1, 2019, and subsequently repaid EUR 50.0 million (approximately US$ 61.6 million at February 6, 2018 rates) of the outstanding principal balance of that loan.
On April 25, 2018, we entered into a series of amendments which modified certain terms of the 2021 Euro Loan, the 2023 Euro Loan, the 2023 Revolving Credit Facility and the Reimbursement Agreement (collectively, the "Financing Transactions"), which were effective on April 26, 2018. The Financing Transactions reduced the rates under the pricing grid in the Reimbursement Agreement used to calculate the Guarantee Fees payable, and extended the maturity dates of each of the 2021 Euro Loan, the 2023 Euro Loan and the 2023 Revolving Credit Facility.
On April 25, 2018, Warner Media exercised 100,926,996 warrants resulting in proceeds of US$ 100.9 million, and an additional 2.4 million warrants were exercised by other shareholders during the second quarter prior to their expiration on May 2, 2018. On May 3, 2018, we used proceeds from the warrant exercises, together with excess cash on hand, to repay EUR
110.0 million
(approximately US$
132.0 million
at May 3, 2018 rates) of the outstanding principal balance of the 2019 Euro Loan.
Divestment Transaction to Accelerate Deleveraging
On July 9, 2017, we agreed to sell our operations in Croatia and Slovenia to Slovenia Broadband S.à r.l. (the "Purchaser"), a subsidiary of United Group B.V. (the "United Group"), subject to obtaining regulatory approvals and other customary closing conditions. On July 5, 2018 the Divestment Transaction was amended to allow the closing of the sale of the Croatia operations (the "Croatian Transaction") and the Slovenia operations (the "Slovenian Transaction") separately.
The Croatian Transaction was completed on July 31, 2018 and we received cash consideration of EUR 86.4 million (approximately US$ 101.4 million at July 31, 2018 rates), inclusive of a EUR 1.4 million (approximately US$ 1.6 million at July 31, 2018 rates) estimated net working capital adjustment. The proceeds from the Croatian Transaction, supplemented by cash flow from continuing operations, were used to repay the outstanding principal amount of EUR
40.8 million
(approximately US$
47.9 million
at July 31, 2018 rates) of the 2019 Euro Loan and accrued interest thereon, and to repay EUR
25.0 million
(approximately US$
29.3 million
at July 31, 2018 rates) of the 2021 Euro Loan plus accrued interest thereon. In addition, we paid US$
41.2 million
to Warner Media, to repay (1) all Guarantee Fees payable to Warner Media as of the date of repayment under the 2019 Euro Loan and (2) all outstanding Guarantee Fees and the Commitment Fee, together with accrued interest thereon, previously paid in kind that were payable to Warner Media prior to repayment of the portion of the 2021 Euro Loan.
Following these repayments, our nearest debt maturity is November 2021, and together with the continued improvement in our operations, our net leverage ratio improved to
3.8x
at the end of the third quarter. With the pricing grids applicable to the Euro Loans, we expect our weighted average cost of borrowing will be 3.5% effective from October 22, 2018, down from 6.00% at the start of the year.
The Slovenian Transaction, with a purchase price of EUR 145.0 million (approximately US$
167.9 million
) plus any working capital adjustment, remains subject to certain closing conditions, including regulatory approvals from the Competition Protection Agency in Slovenia. The long-stop date of the Slovenian Transaction is October 31, 2018, and the parties continue working to satisfy the applicable closing conditions. If the Slovenian Transaction had closed on September 30, 2018, the incremental repayment of debt and related payables would have further reduced our net leverage ratio from
3.8x
to 3.3x at the end of the third quarter.
Free Cash Flow and Unlevered Free Cash Flow
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30, (US$ 000's)
|
|
2018
|
|
|
2017
|
|
|
Movement
|
|
Net cash generated from continuing operating activities
|
$
|
84,934
|
|
|
$
|
90,638
|
|
|
(6.3
|
)%
|
Capital expenditures, net
|
(12,078
|
)
|
|
(16,250
|
)
|
|
25.7
|
%
|
Free cash flow
|
72,856
|
|
|
74,388
|
|
|
(2.1
|
)%
|
Cash paid for interest (including mandatory cash-pay Guarantee Fees)
|
24,907
|
|
|
22,206
|
|
|
12.2
|
%
|
Cash paid for Guarantee Fees previously paid in kind
|
28,066
|
|
|
—
|
|
|
NM
(1)
|
|
Cash paid for Guarantee Fees that may be paid in kind
|
—
|
|
|
1,411
|
|
|
(100.0
|
)%
|
Unlevered free cash flow
|
$
|
125,829
|
|
|
$
|
98,005
|
|
|
28.4
|
%
|
|
|
(1)
|
Number is not meaningful.
|
|
|
|
|
|
|
|
|
|
|
|
|
(US$ 000's)
|
September 30, 2018
|
|
|
December 31, 2017
|
|
|
Movement
|
|
Cash and cash equivalents
|
$
|
56,003
|
|
|
$
|
54,903
|
|
|
2.0
|
%
|
Our unlevered free cash flow increased during the first nine months of 2018 compared to the same period in 2017 reflecting higher collections of cash from receivables generated during the significant improvement in fourth quarter performance in 2017 and first half of 2018 when compared to the respective periods in the prior years, as well as increased prepayments from customers and lower capital expenditures. This was partially offset by higher cash paid for income taxes.
Although our interest expense decreased significantly during the nine months ended September 30, 2018 compared to the corresponding period in 2017, the proportion of interest expense required to be paid in cash increased. In addition to this, we used proceeds from the Croatia Transaction as well as cash generated by the business to repay debt and related payables during the third quarter, which included the repayment of US$
28.1 million
of accrued Guarantee Fees that were paid in kind in prior years. The cash paid for Guarantee Fees previously paid in kind was reflected in both free cash flow and net cash generated from continuing operating activities.
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
nine months
ended
September 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30, 2018
|
Country
|
Real GDP Growth
|
|
|
Real Private Consumption Growth
|
|
|
Net TV Ad Market Growth
|
|
Bulgaria
|
3.5
|
%
|
|
6.7
|
%
|
|
6.6
|
%
|
Czech Republic
|
3.1
|
%
|
|
3.9
|
%
|
|
2.7
|
%
|
Romania*
|
3.8
|
%
|
|
4.9
|
%
|
|
4.3
|
%
|
Slovak Republic
|
3.9
|
%
|
|
3.0
|
%
|
|
3.0
|
%
|
Total CME Ltd. Markets
|
3.5
|
%
|
|
4.3
|
%
|
|
3.7
|
%
|
* 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 nine months of 2018, GDP grew in each of the countries in which we operate at a rate that exceeded the average growth rate for Western Europe. Analysts forecast this trend to continue for the duration of 2018, which would make four consecutive years that growth in these territories outpaces more developed markets. Higher average wages continues to support significant growth in private consumption, and unemployment remains at historically low rates in Bulgaria and the Czech and Slovak Republics, with the Czech Republic seeing the lowest unemployment rate in the European Union. It has been reported that an expansion of consumer credit in Bulgaria is also contributing to growth in private consumption in the country. We believe the growth in real private consumption forecast for 2018 will support overall growth in the television advertising markets across the four countries where we continue to operate.
We estimate that the TV advertising markets in the countries in which we operate
increased
by
4%
on average at constant rates in the
nine months
ended
September 30, 2018
compared to the same period in
2017
. In Bulgaria, we estimate the market grew due to selling more of the gross ratings points ("GRPs") produced, which was partially offset by lower average market prices. In the Czech Republic, estimated market growth was driven primarily by selling more GRPs, with more spending outside peak seasons as well as additional inventory available on competing channels. In Romania, the market grew due to higher average prices, as well as more GRPs sold related to a new prime-time format on a competing channel. In the Slovak Republic, the market growth resulted from higher average prices, which were partially offset by the competition selling fewer GRPs.
Segment Performance
Our total Net Revenues and OIBDA by segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET REVENUES
|
|
For the Three Months Ended September 30, (US$ 000's)
|
|
For the Nine Months Ended September 30, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
|
|
|
|
Movement
|
|
2018
|
|
|
2017
|
|
|
% Act
|
|
|
% Lfl
|
|
|
2018
|
|
|
2017
|
|
|
% Act
|
|
|
% Lfl
|
|
Bulgaria
|
$
|
16,348
|
|
|
$
|
16,039
|
|
|
1.9
|
%
|
|
2.4
|
%
|
|
$
|
59,208
|
|
|
$
|
52,118
|
|
|
13.6
|
%
|
|
5.8
|
%
|
Czech Republic
|
45,489
|
|
|
42,681
|
|
|
6.6
|
%
|
|
5.8
|
%
|
|
158,051
|
|
|
135,526
|
|
|
16.6
|
%
|
|
4.6
|
%
|
Romania
|
41,128
|
|
|
40,469
|
|
|
1.6
|
%
|
|
3.8
|
%
|
|
136,683
|
|
|
127,983
|
|
|
6.8
|
%
|
|
1.5
|
%
|
Slovak Republic
|
20,867
|
|
|
20,384
|
|
|
2.4
|
%
|
|
3.2
|
%
|
|
70,590
|
|
|
63,348
|
|
|
11.4
|
%
|
|
3.8
|
%
|
Intersegment revenues
|
(310
|
)
|
|
(142
|
)
|
|
NM
(1)
|
|
|
NM
(1)
|
|
|
(2,273
|
)
|
|
(917
|
)
|
|
NM
(1)
|
|
|
NM
(1)
|
|
Total net revenues
|
$
|
123,522
|
|
|
$
|
119,431
|
|
|
3.4
|
%
|
|
4.1
|
%
|
|
$
|
422,259
|
|
|
$
|
378,058
|
|
|
11.7
|
%
|
|
3.3
|
%
|
|
|
(1)
|
Number is not meaningful.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDA
|
|
For the Three Months Ended September 30, (US$ 000's)
|
|
For the Nine Months Ended September 30, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
|
|
|
|
Movement
|
|
2018
|
|
|
2017
|
|
|
% Act
|
|
|
% Lfl
|
|
|
2018
|
|
|
2017
|
|
|
% Act
|
|
|
% Lfl
|
|
Bulgaria
|
$
|
4,481
|
|
|
$
|
2,425
|
|
|
84.8
|
%
|
|
84.7
|
%
|
|
$
|
13,084
|
|
|
$
|
6,668
|
|
|
96.2
|
%
|
|
86.5
|
%
|
Czech Republic
|
15,388
|
|
|
12,397
|
|
|
24.1
|
%
|
|
23.8
|
%
|
|
59,009
|
|
|
48,521
|
|
|
21.6
|
%
|
|
9.5
|
%
|
Romania
|
15,607
|
|
|
15,259
|
|
|
2.3
|
%
|
|
4.2
|
%
|
|
58,696
|
|
|
51,790
|
|
|
13.3
|
%
|
|
7.9
|
%
|
Slovak Republic
|
5,032
|
|
|
2,809
|
|
|
79.1
|
%
|
|
81.6
|
%
|
|
10,041
|
|
|
10,966
|
|
|
(8.4
|
)%
|
|
(13.6
|
)%
|
Eliminations
|
(25
|
)
|
|
13
|
|
|
NM
(1)
|
|
|
NM
(1)
|
|
|
15
|
|
|
29
|
|
|
NM
(1)
|
|
|
NM
(1)
|
|
Total operating segments
|
40,483
|
|
|
32,903
|
|
|
23.0
|
%
|
|
24.2
|
%
|
|
140,845
|
|
|
117,974
|
|
|
19.4
|
%
|
|
11.0
|
%
|
Corporate
|
(6,884
|
)
|
|
(7,758
|
)
|
|
11.3
|
%
|
|
12.1
|
%
|
|
(20,922
|
)
|
|
(20,081
|
)
|
|
(4.2
|
)%
|
|
5.4
|
%
|
Consolidated OIBDA
|
$
|
33,599
|
|
|
$
|
25,145
|
|
|
33.6
|
%
|
|
35.7
|
%
|
|
$
|
119,923
|
|
|
$
|
97,893
|
|
|
22.5
|
%
|
|
14.4
|
%
|
|
|
(1)
|
Number is not meaningful.
|
Bulgaria
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, (US$ 000's)
|
|
Nine Months Ended September 30, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
|
|
|
|
Movement
|
|
2018
|
|
|
2017
|
|
|
% Act
|
|
|
% Lfl
|
|
|
2018
|
|
|
2017
|
|
|
% Act
|
|
|
% Lfl
|
|
Television advertising
|
$
|
10,071
|
|
|
$
|
10,239
|
|
|
(1.6
|
)%
|
|
(1.1
|
)%
|
|
$
|
40,051
|
|
|
$
|
34,550
|
|
|
15.9
|
%
|
|
7.9
|
%
|
Carriage fees and subscriptions
|
5,267
|
|
|
4,923
|
|
|
7.0
|
%
|
|
7.4
|
%
|
|
15,775
|
|
|
14,378
|
|
|
9.7
|
%
|
|
2.2
|
%
|
Other
|
1,010
|
|
|
877
|
|
|
15.2
|
%
|
|
15.6
|
%
|
|
3,382
|
|
|
3,190
|
|
|
6.0
|
%
|
|
(1.0
|
)%
|
Net revenues
|
16,348
|
|
|
16,039
|
|
|
1.9
|
%
|
|
2.4
|
%
|
|
59,208
|
|
|
52,118
|
|
|
13.6
|
%
|
|
5.8
|
%
|
Costs charged in arriving at OIBDA
|
11,867
|
|
|
13,614
|
|
|
(12.8
|
)%
|
|
(12.3
|
)%
|
|
46,124
|
|
|
45,450
|
|
|
1.5
|
%
|
|
(5.8
|
)%
|
OIBDA
|
$
|
4,481
|
|
|
$
|
2,425
|
|
|
84.8
|
%
|
|
84.7
|
%
|
|
$
|
13,084
|
|
|
$
|
6,668
|
|
|
96.2
|
%
|
|
86.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDA margin
|
27.4
|
%
|
|
15.1
|
%
|
|
12.3 p.p.
|
|
|
12.2 p.p.
|
|
|
22.1
|
%
|
|
12.8
|
%
|
|
9.3 p.p.
|
|
|
9.6 p.p.
|
|
The television advertising market in Bulgaria
increased
an estimated
7%
at constant rates in the
nine months
ended
September 30, 2018
compared to the same period in 2017.
While growth in our television advertising revenues outpaced growth in the market year-to-date, our television advertising revenues were broadly flat at constant rates in the third quarter of 2018 compared to the same period in 2017, as an increase in GRPs sold was offset by a decrease in average prices reflecting a different mix of advertisers in the quarter. Average prices increased in the first nine months of 2018 compared to 2017, which together with more GRPs sold, contributed to a significant increase in television advertising revenues in the first nine months of this year. Carriage fees and subscription revenues increased in the third quarter of 2018 compared to 2017 due to increases in both prices as well as the overall subscriber base.
On a constant currency basis, costs charged in arriving at OIBDA decreased in the third quarter of 2018 compared to 2017 primarily due to lower content costs, which resulted from both lower sport rights and savings from foreign acquired content, and due to phasing we anticipate content costs will increase year-on-year in the fourth quarter. There was also lower bad debt charges in the third quarter and first nine months of 2018, which more than offset the cost of a new telenovela on our main channel in the access-prime time slot in both the spring and fall seasons.
Czech Republic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, (US$ 000's)
|
|
Nine Months Ended September 30, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
|
|
|
|
Movement
|
|
2018
|
|
|
2017
|
|
|
% Act
|
|
|
% Lfl
|
|
|
2018
|
|
|
2017
|
|
|
% Act
|
|
|
% Lfl
|
|
Television advertising
|
$
|
39,530
|
|
|
$
|
37,792
|
|
|
4.6
|
%
|
|
3.8
|
%
|
|
$
|
138,920
|
|
|
$
|
121,453
|
|
|
14.4
|
%
|
|
2.6
|
%
|
Carriage fees and subscriptions
|
4,004
|
|
|
3,269
|
|
|
22.5
|
%
|
|
21.1
|
%
|
|
11,847
|
|
|
8,790
|
|
|
34.8
|
%
|
|
21.4
|
%
|
Other
|
1,955
|
|
|
1,620
|
|
|
20.7
|
%
|
|
19.8
|
%
|
|
7,284
|
|
|
5,283
|
|
|
37.9
|
%
|
|
23.8
|
%
|
Net revenues
|
45,489
|
|
|
42,681
|
|
|
6.6
|
%
|
|
5.8
|
%
|
|
158,051
|
|
|
135,526
|
|
|
16.6
|
%
|
|
4.6
|
%
|
Costs charged in arriving at OIBDA
|
30,101
|
|
|
30,284
|
|
|
(0.6
|
)%
|
|
(1.6
|
)%
|
|
99,042
|
|
|
87,005
|
|
|
13.8
|
%
|
|
1.9
|
%
|
OIBDA
|
$
|
15,388
|
|
|
$
|
12,397
|
|
|
24.1
|
%
|
|
23.8
|
%
|
|
$
|
59,009
|
|
|
$
|
48,521
|
|
|
21.6
|
%
|
|
9.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDA margin
|
33.8
|
%
|
|
29.0
|
%
|
|
4.8 p.p.
|
|
|
4.9 p.p.
|
|
|
37.3
|
%
|
|
35.8
|
%
|
|
1.5 p.p.
|
|
|
1.6 p.p.
|
|
The television advertising market in the Czech Republic
increased
an estimated
3%
at constant rates in the
nine months
ended
September 30, 2018
compared to the same period in 2017.
Television advertising revenues increased in the third quarter due to higher average prices, and increased in the first nine months of 2018 from selling more GRPs, reflecting overall increased demand for advertising in the market, particularly due to more spending placed outside of peak seasons. Carriage fees and subscription revenues increased on a constant currency basis due to an increase in the number of subscribers as well as new contracts with higher prices.
Costs charged in arriving at OIBDA decreased at constant rates in the third quarter due to a decline in content costs, as the savings from fewer local entertainment titles in the fall schedule this year compared to 2017 more than offset the cost of additional acquired programming. Costs increased at constant rates in the first nine months of 2018 due to higher content costs, which reflected higher quality local fiction productions in the spring schedule compared to 2017.
Romania
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, (US$ 000's)
|
|
Nine Months Ended September 30, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
|
|
|
|
Movement
|
|
2018
|
|
|
2017
|
|
|
% Act
|
|
|
% Lfl
|
|
|
2018
|
|
|
2017
|
|
|
% Act
|
|
|
% Lfl
|
|
Television advertising
|
$
|
28,485
|
|
|
$
|
28,445
|
|
|
0.1
|
%
|
|
2.3
|
%
|
|
$
|
98,712
|
|
|
$
|
92,782
|
|
|
6.4
|
%
|
|
1.1
|
%
|
Carriage fees and subscriptions
|
11,462
|
|
|
11,260
|
|
|
1.8
|
%
|
|
3.9
|
%
|
|
34,846
|
|
|
32,781
|
|
|
6.3
|
%
|
|
1.3
|
%
|
Other
|
1,181
|
|
|
764
|
|
|
54.6
|
%
|
|
57.5
|
%
|
|
3,125
|
|
|
2,420
|
|
|
29.1
|
%
|
|
22.5
|
%
|
Net revenues
|
41,128
|
|
|
40,469
|
|
|
1.6
|
%
|
|
3.8
|
%
|
|
136,683
|
|
|
127,983
|
|
|
6.8
|
%
|
|
1.5
|
%
|
Costs charged in arriving at OIBDA
|
25,521
|
|
|
25,210
|
|
|
1.2
|
%
|
|
3.5
|
%
|
|
77,987
|
|
|
76,193
|
|
|
2.4
|
%
|
|
(2.7
|
)%
|
OIBDA
|
$
|
15,607
|
|
|
$
|
15,259
|
|
|
2.3
|
%
|
|
4.2
|
%
|
|
$
|
58,696
|
|
|
$
|
51,790
|
|
|
13.3
|
%
|
|
7.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDA margin
|
37.9
|
%
|
|
37.7
|
%
|
|
0.2 p.p.
|
|
|
0.1 p.p.
|
|
|
42.9
|
%
|
|
40.5
|
%
|
|
2.4 p.p.
|
|
|
2.5 p.p.
|
|
The television advertising market in Romania
increased
an estimated
4%
at constant rates in the
nine months
ended
September 30, 2018
compared to the same period in 2017.
Our television advertising revenues increased at constant rates in the third quarter from higher average prices, which were partially offset by selling fewer GRPs due to lower ratings. During the first nine months of 2018 we have seen some spending shift to the lower priced competition, which has generated more inventory to sell and the market remains largely sold out. Carriage fees and subscription revenues increased on a constant currency basis during the quarter primarily due to an increase in the average number of subscribers.
Costs charged in arriving at OIBDA increased at constant rates during the third quarter due to higher content costs resulting from new localized versions of entertainment formats in the fall schedule, which was partially offset by savings on foreign acquired program rights. These additional costs in the third quarter were more than offset by savings on production costs for locally produced formats in the spring season when compared to the schedule in 2017, as well as additional savings on acquired programming, resulting in lower costs at constant rates in the first nine months of 2018.
Slovak Republic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, (US$ 000's)
|
|
Nine Months Ended September 30, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
|
|
|
|
Movement
|
|
2018
|
|
|
2017
|
|
|
% Act
|
|
|
% Lfl
|
|
|
2018
|
|
|
2017
|
|
|
% Act
|
|
|
% Lfl
|
|
Television advertising
|
$
|
17,929
|
|
|
$
|
17,354
|
|
|
3.3
|
%
|
|
4.2
|
%
|
|
$
|
61,067
|
|
|
$
|
54,701
|
|
|
11.6
|
%
|
|
4.0
|
%
|
Carriage fees and subscriptions
|
2,080
|
|
|
2,095
|
|
|
(0.7
|
)%
|
|
(0.2
|
)%
|
|
6,516
|
|
|
5,649
|
|
|
15.3
|
%
|
|
8.1
|
%
|
Other
|
858
|
|
|
935
|
|
|
(8.2
|
)%
|
|
(7.6
|
)%
|
|
3,007
|
|
|
2,998
|
|
|
0.3
|
%
|
|
(8.5
|
)%
|
Net revenues
|
20,867
|
|
|
20,384
|
|
|
2.4
|
%
|
|
3.2
|
%
|
|
70,590
|
|
|
63,348
|
|
|
11.4
|
%
|
|
3.8
|
%
|
Costs charged in arriving at OIBDA
|
15,835
|
|
|
17,575
|
|
|
(9.9
|
)%
|
|
(9.3
|
)%
|
|
60,549
|
|
|
52,382
|
|
|
15.6
|
%
|
|
7.4
|
%
|
OIBDA
|
$
|
5,032
|
|
|
$
|
2,809
|
|
|
79.1
|
%
|
|
81.6
|
%
|
|
$
|
10,041
|
|
|
$
|
10,966
|
|
|
(8.4
|
)%
|
|
(13.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDA margin
|
24.1
|
%
|
|
13.8
|
%
|
|
10.3 p.p.
|
|
|
10.4 p.p.
|
|
|
14.2
|
%
|
|
17.3
|
%
|
|
(3.1) p.p.
|
|
|
(2.9) p.p.
|
|
The television advertising market in the Slovak Republic
increased
an estimated
3%
at constant rates in the
nine months
ended
September 30, 2018
compared to the same period in 2017.
Our television advertising revenues increased on a constant currency basis in the third quarter and first nine months of 2018, and we gained market share, due to higher average prices for GRPs. There was also higher spending on sponsorship compared to the corresponding periods of last year, since sellout rates remain elevated. Following our exit from digital terrestrial transmission of our channels at the beginning of last year, carriage fees and subscriptions revenue increased significantly in the first nine months of 2018 from higher prices as certain contracts were signed in the first half of 2017.
On a constant currency basis, costs charged in arriving at OIBDA decreased significantly during the third quarter due to lower content costs as the fall season started later than in 2017 and last year included local fiction and entertainment formats during the summer months. There was also a decrease in personnel costs from reduced headcount. Costs increased in the first nine months of 2018 because the cost savings in the third quarter were more than offset by increased spending on content in the first half of the year, including higher costs associated with a new series launched in 2018 in the access-prime time slot. We also incurred significant legal and professional fees (see Item 1, Note 20 Commitments and Contingencies).
III. Analysis of the Results of Operations and Financial Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
2018
|
|
|
2017
|
|
|
% Act
|
|
|
% Lfl
|
|
Revenue:
|
|
|
|
|
|
|
|
Television advertising
|
$
|
96,015
|
|
|
$
|
93,830
|
|
|
2.3
|
%
|
|
2.9
|
%
|
Carriage fees and subscriptions
|
22,813
|
|
|
21,547
|
|
|
5.9
|
%
|
|
7.0
|
%
|
Other revenue
|
4,694
|
|
|
4,054
|
|
|
15.8
|
%
|
|
16.2
|
%
|
Net Revenues
|
123,522
|
|
|
119,431
|
|
|
3.4
|
%
|
|
4.1
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
Content costs
|
53,214
|
|
|
55,871
|
|
|
(4.8
|
)%
|
|
(4.1
|
)%
|
Other operating costs
|
11,789
|
|
|
12,612
|
|
|
(6.5
|
)%
|
|
(6.5
|
)%
|
Depreciation of property, plant and equipment
|
7,265
|
|
|
6,936
|
|
|
4.7
|
%
|
|
4.8
|
%
|
Amortization of broadcast licenses and other intangibles
|
2,216
|
|
|
2,187
|
|
|
1.3
|
%
|
|
0.2
|
%
|
Cost of revenues
|
74,484
|
|
|
77,606
|
|
|
(4.0
|
)%
|
|
(3.6
|
)%
|
Selling, general and administrative expenses
|
28,072
|
|
|
25,803
|
|
|
8.8
|
%
|
|
8.8
|
%
|
Operating income
|
$
|
20,966
|
|
|
$
|
16,022
|
|
|
30.9
|
%
|
|
34.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
2018
|
|
|
2017
|
|
|
% Act
|
|
|
% Lfl
|
|
Revenue:
|
|
|
|
|
|
|
|
Television advertising
|
$
|
338,750
|
|
|
$
|
303,486
|
|
|
11.6
|
%
|
|
3.0
|
%
|
Carriage fees and subscriptions
|
68,984
|
|
|
61,597
|
|
|
12.0
|
%
|
|
5.1
|
%
|
Other revenue
|
14,525
|
|
|
12,975
|
|
|
11.9
|
%
|
|
3.1
|
%
|
Net Revenues
|
422,259
|
|
|
378,058
|
|
|
11.7
|
%
|
|
3.3
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
Content costs
|
189,925
|
|
|
174,214
|
|
|
9.0
|
%
|
|
0.6
|
%
|
Other operating costs
|
36,873
|
|
|
35,747
|
|
|
3.1
|
%
|
|
(5.2
|
)%
|
Depreciation of property, plant and equipment
|
22,179
|
|
|
19,345
|
|
|
14.6
|
%
|
|
5.4
|
%
|
Amortization of broadcast licenses and other intangibles
|
6,839
|
|
|
6,349
|
|
|
7.7
|
%
|
|
(3.4
|
)%
|
Cost of revenues
|
255,816
|
|
|
235,655
|
|
|
8.6
|
%
|
|
—
|
%
|
Selling, general and administrative expenses
|
78,690
|
|
|
70,204
|
|
|
12.1
|
%
|
|
3.3
|
%
|
Operating income
|
$
|
87,753
|
|
|
$
|
72,199
|
|
|
21.5
|
%
|
|
14.4
|
%
|
Revenue:
Television advertising revenues:
We estimate television advertising spending in our markets grew on average by
4%
at constant rates in the
nine months
ended
September 30, 2018
as compared to the same period in
2017
, 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 revenues during the
three and nine months
ended
September 30, 2018
grew approximately
7%
and
5%
at constant rates, respectively, as compared to the same periods in
2017
primarily due to new contracts with higher prices and an increase in the number of subscribers. 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 increased during the
three and nine months
ended
September 30, 2018
as compared to the same periods in
2017
primarily due to higher online revenues in the Czech Republic.
Operating Expenses:
Content costs:
Content costs (including production costs and amortization and impairment of program rights) decreased during the three months ended
September 30, 2018
compared to the same period in
2017
primarily due to less local production in the Slovak Republic as well as fewer sporting events and cheaper acquired fiction in Bulgaria.
Content costs increased slightly at constant rates during the nine months ended
September 30, 2018
compared to the same period in
2017
primarily due to the inclusion of more hours of local productions in our broadcast schedules.
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
September 30, 2018
compared to the same period in
2017
primarily due to payroll and related cost savings in the Slovak Republic.
Other operating costs decreased at constant rates during the nine months ended
September 30, 2018
compared to the same period in 2017 primarily due to payroll and related cost savings in the Slovak Republic and Bulgaria as well as reductions in transmission costs in the Slovak Republic, which were partially offset by higher amounts paid for authors' rights in Romania.
Depreciation of property, plant and equipment:
Total depreciation of property, plant and equipment increased during the
three and nine months
ended
September 30, 2018
compared to the same periods in
2017
primarily due to depreciation on machinery and equipment placed in service during 2017.
Amortization of broadcast licenses and other intangibles:
Total amortization of broadcast licenses and other intangibles for the three months ended
September 30, 2018
was comparable to the same period in
2017
at constant rates. Total amortization of broadcast licenses and other intangibles decreased at constant rates during the nine months ended
September 30, 2018
compared to the same period in
2017
primarily due to certain intangibles in the Czech Republic and Romania becoming fully amortized in 2017.
Selling, general and administrative expenses:
Selling, general and administrative expenses increased during the three months ended
September 30, 2018
as compared to the same period in
2017
primarily due to higher charges in respect of non-cash stock-based compensation and higher legal fees in the Slovak Republic, partially offset by lower bad debt charges in Bulgaria.
Selling, general and administrative expenses increased during the nine months ended
September 30, 2018
as compared to the same period in
2017
primarily due to higher charges in respect of non-cash stock-based compensation, higher legal fees in the Slovak Republic and higher bad debt charges in Romania, partially offset by lower bad debt charges in Bulgaria and the revision of a legal provision in Romania due to a change in our estimated exposure.
Non-cash stock-based compensation charges for the
three and nine months
ended
September 30, 2018
and
2017
were US$
3.9 million
and US$
6.0 million
; and US$
0.4 million
and US$
2.0 million
, respectively. The increase in non-cash stock-based compensation charges is mainly due to an accelerated vesting of RSUs with performance conditions on July 31, 2018 in accordance with the terms of the corresponding award agreement following the completion of sale of the Company's Croatian operations on such date. See Item 1,
Note 17, "Stock-based Compensation"
.
Operating income:
Operating income during the three months ended
September 30, 2018
increased compared to the same period in
2017
primarily due to increases in television advertising and carriage fee revenues, which outpaced the increase in selling, general and administrative expenses; and due to reductions in content costs and other operating costs.
Operating income during the nine months ended
September 30, 2018
increased compared to the same period in
2017
primarily due to increases in television advertising and carriage fee revenues, which outpaced the increases in content costs and in selling, general and administrative expenses.
Our operating margin, which is determined as operating income divided by net revenues, was
17.0%
and
20.8%
for the
three and nine months
ended
September 30, 2018
compared to
13.4%
and
19.1%
for the
three and nine months
ended
September 30, 2017
.
Other income / (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
September 30, (US$ 000's)
|
|
For the Nine Months Ended
September 30, (US$ 000's)
|
|
2018
|
|
|
2017
|
|
|
% Act
|
|
|
2018
|
|
|
2017
|
|
|
% Act
|
|
Interest expense
|
$
|
(8,437
|
)
|
|
$
|
(18,352
|
)
|
|
54.0
|
%
|
|
$
|
(33,890
|
)
|
|
$
|
(54,773
|
)
|
|
38.1
|
%
|
Other non-operating income / (expense):
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
141
|
|
|
139
|
|
|
1.4
|
%
|
|
487
|
|
|
326
|
|
|
49.4
|
%
|
Foreign currency exchange gain / (loss), net
|
1,387
|
|
|
4,609
|
|
|
(69.9
|
)%
|
|
(401
|
)
|
|
14,085
|
|
|
NM
(1)
|
|
Change in fair value of derivatives
|
67
|
|
|
(1,150
|
)
|
|
NM
(1)
|
|
|
(1,262
|
)
|
|
(1,882
|
)
|
|
32.9
|
%
|
Loss on extinguishment of debt
|
(127
|
)
|
|
(101
|
)
|
|
(25.7
|
)%
|
|
(415
|
)
|
|
(101
|
)
|
|
NM
(1)
|
|
Other income, net
|
103
|
|
|
45
|
|
|
128.9
|
%
|
|
274
|
|
|
254
|
|
|
7.9
|
%
|
Provision for income taxes
|
(3,190
|
)
|
|
(3,157
|
)
|
|
(1.0
|
)%
|
|
(14,227
|
)
|
|
(12,770
|
)
|
|
(11.4
|
)%
|
Income / (loss) from discontinued operations, net of tax
|
57,581
|
|
|
(5,988
|
)
|
|
NM
(1)
|
|
|
63,269
|
|
|
(8,747
|
)
|
|
NM
(1)
|
|
Net loss attributable to noncontrolling interests
|
80
|
|
|
188
|
|
|
(57.4
|
)%
|
|
274
|
|
|
534
|
|
|
(48.7
|
)%
|
|
|
(1)
|
Number is not meaningful.
|
Interest expense:
Interest expense during the
three and nine months
ended
September 30, 2018
decreased compared to the same periods in 2017. This reflects the repricing of our Guarantee Fees in April 2018, the repayment of outstanding amounts of the 2019 Euro Loan, the partial repayment of the 2021 Euro Loan as well as reduced borrowing costs following a reduction in our net leverage ratio as defined within the Reimbursement Agreement. See Item 1,
Note 5, "Long-term Debt and Other Financing Arrangements"
.
Interest income:
Interest income primarily reflects earnings on cash balances and was not material.
Foreign currency exchange gain / (loss), 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 functional currency of the lender, therefore 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
nine months
ended
September 30, 2018
, we recognized a net loss of US$
0.4 million
comprised of transaction gains of US$
0.5 million
relating to the revaluation of intercompany loans, transaction losses of approximately US$
2.7 million
on our long-term debt and other financing arrangements and transaction gains of US$
1.8 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
nine months
ended
September 30, 2017
, we recognized a net gain of US$
14.1 million
comprised of transaction gains of US$
7.7 million
relating to the revaluation of intercompany loans, transaction gains of approximately US$
2.4 million
on our long-term debt and other financing arrangements and transaction gains of US$
4.0 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 and nine months ended
September 30, 2018
, we recognized a gain and a loss, respectively, as a result of the change in the fair value of our interest rate swaps that are not designated as hedging instruments. During the
three and nine months
ended
September 30, 2017
, we recognized losses as a result of the change in the fair value of our since settled USD/EUR foreign currency forward contracts. See Item 1,
Note 12, "Financial Instruments and Fair Value Measurements"
.
Loss on extinguishment of debt:
During the
three and nine months
ended
September 30, 2018
, we recognized losses on extinguishment of debt related to our full repayment of the 2019 Euro Loan and partial repayment of the 2021 Euro Loan.
Other income, net
:
Our other income / expense, net during the
three and nine months
ended
September 30, 2018
and 2017 was not material.
Provision for income taxes
:
The provision for income taxes for the three and nine months ended
September 30, 2018
and for the same periods in 2017 reflects income tax charges on profits in the Czech Republic, Romania and the Slovak Republic and the impact of losses on which no tax benefit has been received.
Our operating subsidiaries are subject to income taxes at statutory rates of
10%
in Bulgaria,
16%
in Romania,
19%
in the Czech Republic and
21%
in the Slovak Republic.
Income / (loss) from discontinued operations, net of tax
:
Income from discontinued operations, net of tax for the
three and nine months
ended
September 30, 2018
is comprised of the gain on sale of our Croatia operations, results of the Slovenia operations and the Croatia operations through the date of sale as well as the allocation of interest expense and Guarantee Fees and transaction costs. Loss from discontinued operations, net of tax for the
three and nine months
ended September 30, 2017 is comprised of the results of the Croatia and Slovenia operations as well as the allocation of interest expense and Guarantee Fees and transaction costs. See Item 1,
Note 3, "Discontinued Operations and Assets Held for Sale"
and
Note 5, "Long-term Debt and Other Financing Arrangements"
.
Net loss attributable to noncontrolling interests
:
The results attributable to noncontrolling interests for the
three and nine months
ended
September 30, 2018
and
2017
relate to the noncontrolling interest share of our Bulgaria operations.
Other comprehensive income / (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
September 30, (US$ 000's)
|
|
For the Nine Months Ended
September 30, (US$ 000's)
|
|
2018
|
|
|
2017
|
|
|
% Act
|
|
|
2018
|
|
|
2017
|
|
|
% Act
|
Currency translation adjustment, net
|
$
|
12,137
|
|
|
$
|
9,227
|
|
|
31.5
|
%
|
|
$
|
(10,707
|
)
|
|
$
|
42,203
|
|
|
NM
(1)
|
Unrealized gain / (loss) on derivative instruments
|
1,033
|
|
|
(135
|
)
|
|
NM
(1)
|
|
|
(1,895
|
)
|
|
1,083
|
|
|
NM
(1)
|
|
|
(1)
|
Number is not meaningful.
|
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). Certain of our intercompany loans are denominated in currencies other than the functional currency of the lender and are considered to be of a long-term investment nature as the repayment of these loans is neither planned nor anticipated for the foreseeable future. The foreign exchange gains on the remeasurement of these intercompany loans to the lender's functional currency are treated in the same manner as currency translation adjustments. Other comprehensive income / (loss) due to currency translation adjustment, net comprised the following for the
three and nine months
ended
September 30, 2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
September 30, (US$ 000's)
|
|
For the Nine Months Ended
September 30, (US$ 000's)
|
|
2018
|
|
|
2017
|
|
|
% Act
|
|
|
2018
|
|
|
2017
|
|
|
% Act
|
|
Foreign exchange gain on intercompany transactions
|
$
|
4,894
|
|
|
$
|
1,142
|
|
|
NM
(1)
|
|
|
$
|
1,370
|
|
|
$
|
7,824
|
|
|
(82.5
|
)%
|
Foreign exchange (loss) / gain on the Series B Preferred Shares
|
(1,902
|
)
|
|
8,833
|
|
|
NM
(1)
|
|
|
(9,579
|
)
|
|
29,284
|
|
|
NM
(1)
|
|
Currency translation adjustment
|
9,145
|
|
|
(748
|
)
|
|
NM
(1)
|
|
|
(2,498
|
)
|
|
5,095
|
|
|
NM
(1)
|
|
Currency translation adjustment, net
|
$
|
12,137
|
|
|
$
|
9,227
|
|
|
31.5
|
%
|
|
$
|
(10,707
|
)
|
|
$
|
42,203
|
|
|
NM
(1)
|
|
|
|
(1)
|
Number is not meaningful.
|
The following charts depict the movement of the dollar versus the functional currencies of our operations, based on monthly closing rates, during the
nine months
ended
September 30, 2018
and
September 30, 2017
.
Percent Change During the
Nine Months
Ended
September 30, 2018
Percent Change During the
Nine Months
Ended
September 30, 2017
Unrealized gain / (loss) on derivative instruments
:
The gains / (losses) on derivatives classified as cash flow hedges of the 2021 and 2023 Euro Loans, which are recognized in accumulated other comprehensive income / (loss), for the
three and nine months
ended
September 30, 2018
and
2017
are due to the effective portion of the changes in the fair value of our interest rate swaps on the 2021 and 2023 Euro Loans. See Item 1,
Note 12, "Financial Instruments and Fair Value Measurements"
.
Condensed consolidated balance sheets as at
September 30, 2018
and
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Balance Sheet (US$ 000’s)
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
|
% Act
|
|
|
% Lfl
|
|
Current assets
|
$
|
371,585
|
|
|
$
|
464,774
|
|
|
(20.1
|
)%
|
|
(17.6
|
)%
|
Non-current assets
|
1,099,871
|
|
|
1,163,281
|
|
|
(5.5
|
)%
|
|
(2.3
|
)%
|
Current liabilities
|
162,737
|
|
|
188,264
|
|
|
(13.6
|
)%
|
|
(10.8
|
)%
|
Non-current liabilities
|
850,750
|
|
|
1,180,968
|
|
|
(28.0
|
)%
|
|
(25.5
|
)%
|
Temporary equity
|
269,370
|
|
|
264,593
|
|
|
1.8
|
%
|
|
1.8
|
%
|
CME Ltd. shareholders’ equity / (deficit)
|
188,577
|
|
|
(5,788
|
)
|
|
NM
(1)
|
|
|
NM
(1)
|
|
Noncontrolling interests in consolidated subsidiaries
|
22
|
|
|
18
|
|
|
22.2
|
%
|
|
(92.2
|
)%
|
|
|
(1)
|
Number is not meaningful.
|
Note: The analysis below is intended to highlight the key factors at constant rates that led to the movements from
December 31, 2017
, excluding the impact of foreign currency translation.
Current assets:
Excluding the impact of assets held for sale, current assets at
September 30, 2018
decreased from
December 31, 2017
primarily due to a reduction in accounts receivable caused by seasonality trends of our business as our advertising sales tend to be lowest during the third quarter of each calendar year due to the summer holiday period, and highest during the fourth quarter of each calendar year due to the winter holiday season.
Non-current assets:
Non-current assets at
September 30, 2018
decreased from
December 31, 2017
primarily due to amortization of own produced program rights related to significant projects aired during 2018, as well as depreciation of property, plant and equipment and amortization of broadcast licenses in the Czech Republic, partially offset by additions to property, plant and equipment.
Current liabilities:
Excluding the impact of liabilities held for sale, current liabilities at
September 30, 2018
decreased from
December 31, 2017
primarily due to lower programming and income taxes payables, partially offset by higher deferred revenue from customer prepayments on their fall 2018 advertising campaigns.
Non-current liabilities:
Non-current liabilities at
September 30, 2018
decreased from
December 31, 2017
primarily due to the repayment of amounts outstanding of the 2019 Euro Loan and the partial repayment of the 2021 Euro Loan together with related Guarantee Fees and the Commitment Fee. See Item 1,
Note 5, "Long-term Debt and Other Financing Arrangements"
.
Temporary equity:
Temporary equity at
September 30, 2018
and
December 31, 2017
represents the accreted value of the Series B Preferred Shares.
CME Ltd. shareholders’ equity / (deficit)
:
The increase in shareholders' equity primarily reflects the exercise of warrants and net income attributable to CME Ltd. during the
nine months
ended
September 30, 2018
partially offset by the impact of currency translation adjustments in accumulated other comprehensive loss.
Noncontrolling interests in consolidated subsidiaries:
Noncontrolling interests in consolidated subsidiaries at
September 30, 2018
decreased at constant rates from
December 31, 2017
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$
1.1 million
during the
nine months
ended
September 30, 2018
. The change in cash and cash equivalents for the periods presented below is summarized as follows:
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30, (US$ 000's)
|
|
2018
|
|
|
2017
|
|
Net cash generated from continuing operating activities
|
$
|
84,934
|
|
|
$
|
90,638
|
|
Net cash used in continuing investing activities
|
(12,078
|
)
|
|
(16,250
|
)
|
Net cash used in continuing financing activities
|
(180,520
|
)
|
|
(57,782
|
)
|
Net cash provided by / (used in) discontinued operations
|
110,796
|
|
|
(62
|
)
|
Impact of exchange rate fluctuations on cash and cash equivalents
|
(2,032
|
)
|
|
9,884
|
|
Net increase in cash and cash equivalents
|
$
|
1,100
|
|
|
$
|
26,428
|
|
Operating Activities
Net cash generated from continuing operations declined during the
nine months
ended
September 30, 2018
when compared to the same period in 2017. While we saw an increase in cash collections due to improved operating performance and higher prepayments from customers, we paid a significant amount of Guarantee Fees that we previously paid in kind and we also paid more cash for income taxes. We paid cash interest (including mandatory cash-pay Guarantee Fees) of US$
24.9 million
during the
nine months
ended
September 30, 2018
compared to US$
22.2 million
during the
nine months
ended
September 30, 2017
.
Investing Activities
Our net cash used in continuing investing activities decreased for the
nine months
ended
September 30, 2018
and
2017
primarily due to the timing of capital expenditures for property, plant and equipment and increases in capital leasing.
Financing Activities
Net cash used in continuing financing activities during the
nine months
ended
September 30, 2018
primarily reflects principal repayments made on our obligations under the 2019 and 2021 Euro Loans offset by the proceeds from the issuance of warrants. Cash used by continuing financing activities during the
nine months
ended
September 30, 2017
primarily reflected principal repayments made on our obligations under the 2019 Euro Loan offset by proceeds from a sale-leaseback transaction entered into in Romania.
Discontinued Operations
The increase in net cash provided by discontinued operations during the
nine months
ended
September 30, 2018
primarily reflects the the proceeds from the sale of our Croatia operations as well as cash collections from improved operating performance of our former Slovenia operations. See Item 1,
Note 3, "Discontinued Operations and Assets Held for Sale"
.
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. As at
September 30, 2018
, we also had available the aggregate principal amount under the 2023 Revolving Credit Facility of US$ 75.0 million (see Item 1,
Note 5, "Long-term Debt and Other Financing Arrangements"
). Surplus cash, after funding ongoing operations, may be remitted to us, where appropriate, by our subsidiaries in the form of debt interest payments, principal 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 (if applicable) 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 at least
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
September 30, 2018
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
|
$
|
786,167
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
786,167
|
|
|
$
|
—
|
|
Long-term debt – interest
|
184,884
|
|
|
34,093
|
|
|
68,613
|
|
|
82,178
|
|
|
—
|
|
Unconditional purchase obligations
|
86,260
|
|
|
39,212
|
|
|
35,035
|
|
|
8,818
|
|
|
3,195
|
|
Operating leases
|
6,372
|
|
|
2,078
|
|
|
1,864
|
|
|
725
|
|
|
1,705
|
|
Capital lease obligations
|
13,445
|
|
|
4,605
|
|
|
7,729
|
|
|
1,111
|
|
|
—
|
|
Other long-term obligations
|
11,811
|
|
|
8,254
|
|
|
3,153
|
|
|
388
|
|
|
16
|
|
Total contractual obligations
|
$
|
1,088,939
|
|
|
$
|
88,242
|
|
|
$
|
116,394
|
|
|
$
|
879,387
|
|
|
$
|
4,916
|
|
Long-Term Debt
For more information on our long-term debt, see Item 1,
Note 5, "Long-term Debt and Other Financing Arrangements"
. Interest payable on our long-term debt is calculated using interest rates and exchange rates in effect as at
September 30, 2018
.
Unconditional Purchase Obligations
Unconditional purchase obligations primarily comprise future programming commitments. At
September 30, 2018
, we had commitments in respect of future programming of US$
84.8 million
. This includes contracts signed with license periods starting after
September 30, 2018
.
Operating Leases
For more information on our operating lease commitments, see Item 1,
Note 20, "Commitments and Contingencies"
.
Other Long-Term Obligations
Other long-term obligations are primarily comprised of digital transmission commitments.
Other
Top Tone Media Holdings Limited has exercised its right to acquire additional equity in CME Bulgaria. However, the closing of this transaction has not yet occurred because 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. Since 2015, our cash flow from operating activities has been positive and our cost of borrowing has consistently decreased. For the nine months ending September 30, 2018, net cash generated from continuing operations and unlevered free cash flow were US$
84.9 million
and US$
125.8 million
, respectively, compared to
US$
90.6 million
and US$
98.0 million
for the nine months ended September 30, 2017 (See Section II, Overview). As at
September 30, 2018
, we had US$
56.0 million
in cash and cash equivalents.
On April 25, 2018, Warner Media and TW Investor exercised 100,926,996 warrants at US$ 1.00 per share. We applied the US$ 100.9 million proceeds and together with cash from operations to repay EUR 110.0 million (approximately US$ 132.0 million at May 3, 2018 rates) of the outstanding principal of the 2019 Euro Loan, reducing the outstanding amount to EUR 40.8 million. Following the closing of the Croatian Transaction, we used the proceeds of EUR 86.4 million (approximately US$ 101.4 million at July 31, 2018 rates) and cash from operations to pay down the balance of the 2019 Euro Loan and to repay the accrued Commitment Fee and accrued Guarantee Fees of US$ 41.2 million, as well as EUR 25.0 million (approximately US$ 29.3 million at July 31, 2018 rates) of the principal balance of the 2021 Euro Loan. As a result, our nearest debt maturity is November 1, 2021.
As at
September 30, 2018
, the weighted average all-in rate (comprising interest and Guarantee Fees) applicable to the Euro Loans was approximately 4.1%, all of which is payable in cash. Our net leverage as at September 30, 2018, improved from 4.4x to
3.8x
from the previous quarter. As a result, the weighted average all-in rate applicable to the Euro Loans will decline by 0.5% to approximately 3.5%, effective October 2018. We expect the all-in rates to decline further upon additional deleveraging following further improvements in our operating results and the closing of the Slovenian Transaction.
In addition, while we expect our unlevered free cash flow to grow due to continuous improvement in our operating results, we anticipate the amounts of cash paid for income taxes will continue to increase in 2018 and to further converge with local statutory tax rates as our operating companies in each jurisdiction have returned to generating profits and previous tax losses were utilized.
Credit ratings and future debt issuances
Our corporate credit is rated
B1
by Moody's Investors Service with a positive outlook and
B+
by Standard & Poor's with a positive outlook. Our ratings show each agency's opinion of our financial strength, operating performance and ability to meet our debt obligations as they become due. These ratings take into account the particular emphasis the ratings agencies place on metrics such as leverage ratio and cash flow, which they use as measurements of a company's liquidity and financial strength. They also reflect an emphasis by the ratings agencies on the track record of strong financial support from Warner Media. We may be subject to downgrades if our operating performance deteriorates or we fail to maintain adequate levels of liquidity. In addition, our ratings may be downgraded if the agencies form a view that material support from Warner Media is not as strong, or the strategic importance of CME to Warner Media is not as significant as it has been in the past.
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 Loans. These interest rate swaps, certain of which are 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. We had no such agreements outstanding at
September 30, 2018
.
Cash Deposits
We may deposit cash in the global money markets with a range of bank counterparties and review the counterparties we choose regularly. The maximum period of deposit is three months but we have more recently held amounts on deposit for shorter periods, mainly overnight. 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 investment grade rating. 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, 2017
filed with the Securities and Exchange Commission ("SEC") on
February 8, 2018
. 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.