Item 1. Financial Statements
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(US$ 000’s, except share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
ASSETS
|
|
|
|
Current assets
|
|
|
|
Cash and cash equivalents
|
$
|
80,032
|
|
|
$
|
62,031
|
|
Accounts receivable, net (Note 6)
|
153,822
|
|
|
193,371
|
|
Program rights, net (Note 5)
|
74,648
|
|
|
77,624
|
|
Other current assets (Note 7)
|
34,628
|
|
|
41,067
|
|
Total current assets
|
343,130
|
|
|
374,093
|
|
Non-current assets
|
|
|
|
|
|
Property, plant and equipment, net (Note 8)
|
110,347
|
|
|
117,604
|
|
Program rights, net (Note 5)
|
175,993
|
|
|
171,871
|
|
Goodwill (Note 3)
|
660,461
|
|
|
676,333
|
|
Other intangible assets, net (Note 3)
|
131,771
|
|
|
136,052
|
|
Other non-current assets (Note 7)
|
23,967
|
|
|
12,408
|
|
Total non-current assets
|
1,102,539
|
|
|
1,114,268
|
|
Total assets
|
$
|
1,445,669
|
|
|
$
|
1,488,361
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
Current liabilities
|
|
|
|
Accounts payable and accrued liabilities (Note 9)
|
$
|
127,222
|
|
|
$
|
120,468
|
|
Current portion of long-term debt and other financing arrangements (Note 4)
|
5,802
|
|
|
5,545
|
|
Other current liabilities (Note 10)
|
38,453
|
|
|
13,679
|
|
Total current liabilities
|
171,477
|
|
|
139,692
|
|
Non-current liabilities
|
|
|
|
|
|
Long-term debt and other financing arrangements (Note 4)
|
700,694
|
|
|
782,685
|
|
Other non-current liabilities (Note 10)
|
81,526
|
|
|
67,293
|
|
Total non-current liabilities
|
782,220
|
|
|
849,978
|
|
Commitments and contingencies (Note 20)
|
|
|
|
|
|
TEMPORARY EQUITY
|
|
|
|
200,000 shares of Series B Convertible Redeemable Preferred Stock of $0.08 each (December 31, 2018 - 200,000) (Note 13)
|
269,370
|
|
|
269,370
|
|
EQUITY
|
|
|
|
|
CME Ltd. shareholders’ equity (Note 14):
|
|
|
|
|
One share of Series A Convertible Preferred Stock of $0.08 each (December 31, 2018 – one)
|
—
|
|
|
—
|
|
253,279,975 shares of Class A Common Stock of $0.08 each (December 31, 2018 – 252,853,554)
|
20,262
|
|
|
20,228
|
|
Nil shares of Class B Common Stock of $0.08 each (December 31, 2018 – nil)
|
—
|
|
|
—
|
|
Additional paid-in capital
|
2,004,188
|
|
|
2,003,518
|
|
Accumulated deficit
|
(1,566,318
|
)
|
|
(1,578,076
|
)
|
Accumulated other comprehensive loss
|
(235,961
|
)
|
|
(216,650
|
)
|
Total CME Ltd. shareholders’ equity
|
222,171
|
|
|
229,020
|
|
Noncontrolling interests
|
431
|
|
|
301
|
|
Total equity
|
222,602
|
|
|
229,321
|
|
Total liabilities and equity
|
$
|
1,445,669
|
|
|
$
|
1,488,361
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME / LOSS
(US$ 000’s, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
2019
|
|
|
2018
|
|
Net revenues
|
$
|
146,559
|
|
|
$
|
156,709
|
|
Operating expenses:
|
|
|
|
Content costs
|
70,360
|
|
|
78,460
|
|
Other operating costs
|
13,248
|
|
|
14,467
|
|
Depreciation of property, plant and equipment
|
8,226
|
|
|
8,387
|
|
Amortization of broadcast licenses and other intangibles
|
2,194
|
|
|
2,356
|
|
Cost of revenues
|
94,028
|
|
|
103,670
|
|
Selling, general and administrative expenses
|
24,894
|
|
|
28,458
|
|
Operating income
|
27,637
|
|
|
24,581
|
|
Interest expense (Note 15)
|
(8,242
|
)
|
|
(17,818
|
)
|
Other non-operating (expense) / income, net (Note 16)
|
(3,097
|
)
|
|
4,208
|
|
Income before tax
|
16,298
|
|
|
10,971
|
|
Provision for income taxes
|
(4,547
|
)
|
|
(4,215
|
)
|
Income from continuing operations
|
11,751
|
|
|
6,756
|
|
Income from discontinued operations, net of tax
|
—
|
|
|
316
|
|
Net income
|
11,751
|
|
|
7,072
|
|
Net loss attributable to noncontrolling interests
|
7
|
|
|
178
|
|
Net income attributable to CME Ltd.
|
$
|
11,758
|
|
|
$
|
7,250
|
|
|
|
|
|
Net income
|
$
|
11,751
|
|
|
$
|
7,072
|
|
Other comprehensive (loss) / income
|
|
|
|
Currency translation adjustment
|
(15,843
|
)
|
|
11,785
|
|
Unrealized (loss) / gain on derivative instruments (Note 12)
|
(3,331
|
)
|
|
191
|
|
Total other comprehensive (loss) / income
|
(19,174
|
)
|
|
11,976
|
|
Comprehensive (loss) / income
|
(7,423
|
)
|
|
19,048
|
|
Comprehensive (income) / loss attributable to noncontrolling interests
|
(130
|
)
|
|
386
|
|
Comprehensive (loss) / income attributable to CME Ltd.
|
$
|
(7,553
|
)
|
|
$
|
19,434
|
|
|
|
|
|
|
|
|
|
|
PER SHARE DATA (Note 18):
|
|
|
|
Net income per share:
|
|
|
|
Continuing operations — basic
|
$
|
0.03
|
|
|
$
|
0.02
|
|
Continuing operations — diluted
|
0.03
|
|
|
0.01
|
|
Discontinued operations — basic
|
—
|
|
|
0.00
|
|
Discontinued operations — diluted
|
—
|
|
|
0.00
|
|
Attributable to CME Ltd. — basic
|
0.03
|
|
|
0.02
|
|
Attributable to CME Ltd. — diluted
|
$
|
0.03
|
|
|
$
|
0.01
|
|
|
|
|
|
Weighted average common shares used in computing per share amounts (000’s):
|
|
|
|
Basic
|
264,199
|
|
|
158,039
|
|
Diluted
|
265,211
|
|
|
241,905
|
|
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 Equity
|
|
BALANCE
December 31, 2018
|
1
|
|
$
|
—
|
|
|
252,853,554
|
|
$
|
20,228
|
|
|
—
|
|
$
|
—
|
|
$
|
2,003,518
|
|
$
|
(1,578,076
|
)
|
$
|
(216,650
|
)
|
|
$
|
301
|
|
|
$
|
229,321
|
|
Stock-based compensation
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
1,003
|
|
—
|
|
—
|
|
|
—
|
|
|
1,003
|
|
Share issuance, stock-based compensation
|
—
|
|
—
|
|
|
426,421
|
|
34
|
|
|
—
|
|
—
|
|
(34
|
)
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
Withholding tax on net share settlement of stock-based compensation
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
(299
|
)
|
—
|
|
—
|
|
|
—
|
|
|
(299
|
)
|
Net income / (loss)
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
11,758
|
|
—
|
|
|
(7
|
)
|
|
11,751
|
|
Unrealized loss on derivative instruments
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(3,331
|
)
|
|
—
|
|
|
(3,331
|
)
|
Currency translation adjustment
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(15,980
|
)
|
|
137
|
|
|
(15,843
|
)
|
BALANCE
March 31, 2019
|
1
|
|
$
|
—
|
|
|
253,279,975
|
|
$
|
20,262
|
|
|
—
|
|
$
|
—
|
|
$
|
2,004,188
|
|
$
|
(1,566,318
|
)
|
$
|
(235,961
|
)
|
|
$
|
431
|
|
|
$
|
222,602
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(US$ 000’s)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
2019
|
|
|
2018
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
Net income
|
$
|
11,751
|
|
|
$
|
7,072
|
|
Adjustments to reconcile net income to net cash generated from continuing operating activities:
|
|
|
|
|
Income from discontinued operations, net of tax
|
—
|
|
|
(316
|
)
|
Amortization of program rights
|
70,360
|
|
|
78,460
|
|
Depreciation and other amortization
|
11,294
|
|
|
12,352
|
|
Loss on extinguishment of debt (Note 16)
|
151
|
|
|
109
|
|
Gain on disposal of fixed assets
|
(6
|
)
|
|
(37
|
)
|
Deferred income taxes
|
373
|
|
|
(90
|
)
|
Stock-based compensation (Note 17)
|
1,003
|
|
|
1,112
|
|
Change in fair value of derivatives
|
62
|
|
|
162
|
|
Foreign currency exchange loss / (gain), net
|
2,681
|
|
|
(3,617
|
)
|
Changes in assets and liabilities:
|
|
|
|
Accounts receivable, net
|
35,220
|
|
|
27,574
|
|
Accounts payable and accrued liabilities
|
(5,138
|
)
|
|
(9,452
|
)
|
Program rights
|
(57,978
|
)
|
|
(76,104
|
)
|
Other assets and liabilities
|
(1,560
|
)
|
|
(1,239
|
)
|
Accrued interest
|
3,833
|
|
|
10,911
|
|
Income taxes payable
|
(2,118
|
)
|
|
180
|
|
Deferred revenue
|
24,186
|
|
|
23,728
|
|
VAT and other taxes payable
|
1,895
|
|
|
690
|
|
Net cash generated from continuing operating activities
|
$
|
96,009
|
|
|
$
|
71,495
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
Purchase of property, plant and equipment
|
$
|
(4,365
|
)
|
|
$
|
(5,369
|
)
|
Disposal of property, plant and equipment
|
6
|
|
|
16
|
|
Net cash used in continuing investing activities
|
$
|
(4,359
|
)
|
|
$
|
(5,353
|
)
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
Repayment of debt
|
$
|
(68,928
|
)
|
|
$
|
(61,645
|
)
|
Debt transaction costs
|
—
|
|
|
(173
|
)
|
Settlement of derivative instruments
|
(740
|
)
|
|
—
|
|
Payment of credit facilities and finance leases
|
(1,769
|
)
|
|
(989
|
)
|
Proceeds from exercise of warrants
|
—
|
|
|
2,281
|
|
Payments of withholding tax on net share settlement of share-based compensation
|
(299
|
)
|
|
—
|
|
Net cash used in continuing financing activities
|
$
|
(71,736
|
)
|
|
$
|
(60,526
|
)
|
|
|
|
|
Net cash provided by discontinued operations - operating activities
|
—
|
|
|
9,930
|
|
Net cash used in discontinued operations - investing activities
|
—
|
|
|
(376
|
)
|
Net cash used in discontinued operations - financing activities
|
—
|
|
|
—
|
|
|
|
|
|
Impact of exchange rate fluctuations on cash and cash equivalents
|
(1,913
|
)
|
|
2,515
|
|
Net increase in cash and cash equivalents
|
$
|
18,001
|
|
|
$
|
17,685
|
|
CASH AND CASH EQUIVALENTS, beginning of period
|
62,031
|
|
|
58,748
|
|
CASH AND CASH EQUIVALENTS, end of period
|
$
|
80,032
|
|
|
$
|
76,433
|
|
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 Guarantee Fees)
|
$
|
3,093
|
|
|
$
|
4,883
|
|
Cash paid for income taxes, net of refunds
|
6,318
|
|
|
4,120
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
|
|
|
|
Accretion on Series B Convertible Redeemable Preferred Stock
|
$
|
—
|
|
|
$
|
2,447
|
|
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
five
operating segments; Bulgaria, the Czech Republic, Romania, the Slovak Republic and Slovenia, which are also our reportable segments and our main operating countries. See
Note 19, "Segment Data"
for financial information by segment. Our previously held Croatian operations, which were sold on July 31, 2018, are classified as discontinued operations in our condensed consolidated statement of operations for the period ended March 31, 2018.
We are the market-leading broadcasters in each of our
five
operating countries with a combined portfolio of
30
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 and internet protocol television ("IPTV") operators for carriage of our channels as well as from advertising related to our digital initiatives. 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%
of CME Bulgaria B.V., 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
six
other channels, PRO 2, PRO X, PRO GOLD, PRO CINEMA, PRO TV INTERNATIONAL, 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.
Slovenia
We operate
two
general entertainment channels, POP TV and KANAL A, and
three
other channels, KINO, BRIO and OTO.
2. BASIS OF PRESENTATION
The terms the "Company", "we", "us", and “our” are used in this Form 10-Q to refer collectively to the parent company, Central European Media Enterprises Ltd. (“CME Ltd.”), and the subsidiaries through which 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, 2018
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, 2018
filed with the Securities and Exchange Commission on
February 6, 2019
. Our significant accounting policies have not changed since
December 31, 2018
, 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.
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates and assumptions.
Basis of Consolidation
The unaudited condensed consolidated financial statements include the accounts of CME Ltd. and our subsidiaries, after the elimination of intercompany accounts and transactions. Entities in which we hold less than a majority voting interest but over which we have the ability to exercise significant influence are accounted for using the equity method. Other investments are accounted for using the cost method.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
Seasonality
We experience seasonality, with advertising sales tending to be lowest during the third quarter of each calendar year due to the summer holiday period (typically July and August), and highest during the fourth quarter of each calendar year due to the winter holiday season.
Recent Accounting Pronouncements
Accounting Pronouncements Adopted
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 ("ROU"), with an available exception for leases with an initial term shorter than twelve months. Adoption of the guidance significantly changes the accounting for our operating leases while the accounting for our finance leases (previously called capital leases) remains substantially unchanged.
We determine if an arrangement includes a lease at inception. An ROU represents our right to use an underlying asset for the lease term and the corresponding lease liability represents our obligation to make periodic payments arising from that lease. Operating lease ROUs and liabilities are recognized at their commencement date based on the present value of the lease payments over the lease term. As most of our leases do not provide an implicit rate, we use an incremental borrowing rate based on the information available at the commencement date of a lease in determining the present value of the lease payments. The operating lease ROU also includes any lease payments made prior to commencement and excludes any lease incentives received or to be received under the agreement. Our determination of the lease term may include options to extend or terminate the lease when it is reasonably certain that we will exercise such option.
Where lease agreements include both lease and non-lease components, we generally account for each separately. For certain equipment leases, such as vehicles, we account for the lease and non-lease components as a single lease component. We consider operating leases that are for a period less than 12 months, inclusive of options to extend that we are reasonably certain to exercise, as short-term. Short-term leases are not recognized on the balance sheet. Short-term lease cost is recognized on a straight-line basis over the lease term.
ROUs and related operating lease liabilities are included in other non-current assets, other current liabilities and other non-current liabilities, respectively on our condensed consolidated balance sheets. Operating lease costs are recognized on a straight-line basis over the lease term within content costs, other operating costs or sales, general and administrative expenses based on the use of the related ROU. ROUs and related finance lease liabilities are included in property and equipment, and long-term debt and other financing arrangements, respectively, on our condensed consolidated balance sheets. Depreciation of an asset held under a finance lease is recognized in depreciation of property, plant and equipment.
We adopted this guidance as of the transition date of January 1, 2019, using the modified retrospective approach and have elected the transition option which allows us to continue to apply the legacy guidance for comparative periods, including disclosure requirements, in the year of adoption. We have elected to use the package of practical expedients available to us, including the short-term lease exception, however we have not elected the use of hindsight and have not elected to combine lease and non-lease components for our main classes of assets.
On transition, we recorded approximately US$
11.9 million
in operating lease liabilities and right of use assets while our accounting for finance leases remains substantially unchanged.
Recent Accounting Pronouncements Issued
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 still in the preliminary stages of our assessment and expect to adopt this guidance on January 1, 2020.
In March 2019, the FASB issued new guidance that aligns the accounting for production costs of an episodic television series with the accounting for production costs of films. The guidance further requires that an entity test a film or license agreement for program material for impairment at a film group level and under a fair value model when the film or license agreement is predominantly monetized with other films and/or license agreements. The guidance is effective for our fiscal year beginning January 1, 2020 with early adoption permitted. We are still in the preliminary stages of our assessment.
3. GOODWILL AND INTANGIBLE ASSETS
Goodwill:
Goodwill by reporting unit as at
March 31, 2019
and
December 31, 2018
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bulgaria
|
|
Czech Republic
|
|
Romania
|
|
Slovak Republic
|
|
Slovenia
|
|
Total
|
Gross Balance, December 31, 2018
|
$
|
173,694
|
|
|
$
|
808,970
|
|
|
$
|
86,800
|
|
|
$
|
50,081
|
|
|
$
|
19,400
|
|
|
$
|
1,138,945
|
|
Accumulated impairment losses
|
(144,639
|
)
|
|
(287,545
|
)
|
|
(11,028
|
)
|
|
—
|
|
|
(19,400
|
)
|
|
(462,612
|
)
|
Balance, December 31, 2018
|
29,055
|
|
|
521,425
|
|
|
75,772
|
|
|
50,081
|
|
|
—
|
|
|
676,333
|
|
Foreign currency
|
(545
|
)
|
|
(11,399
|
)
|
|
(2,986
|
)
|
|
(942
|
)
|
|
—
|
|
|
(15,872
|
)
|
Balance, March 31, 2019
|
28,510
|
|
|
510,026
|
|
|
72,786
|
|
|
49,139
|
|
|
—
|
|
|
660,461
|
|
Accumulated impairment losses
|
(144,639
|
)
|
|
(287,545
|
)
|
|
(11,028
|
)
|
|
—
|
|
|
(19,400
|
)
|
|
(462,612
|
)
|
Gross Balance, March 31, 2019
|
$
|
173,149
|
|
|
$
|
797,571
|
|
|
$
|
83,814
|
|
|
$
|
49,139
|
|
|
$
|
19,400
|
|
|
$
|
1,123,073
|
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
Other intangible assets:
Changes in the net book value of our other intangible assets as at
March 31, 2019
and
December 31, 2018
are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
Indefinite-lived:
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
$
|
85,263
|
|
|
$
|
—
|
|
|
$
|
85,263
|
|
|
$
|
87,356
|
|
|
$
|
—
|
|
|
$
|
87,356
|
|
Amortized:
|
|
|
|
|
|
|
|
|
|
|
|
Broadcast licenses
|
205,934
|
|
|
(161,371
|
)
|
|
44,563
|
|
|
210,447
|
|
|
(162,936
|
)
|
|
47,511
|
|
Trademarks
|
610
|
|
|
(610
|
)
|
|
—
|
|
|
631
|
|
|
(631
|
)
|
|
—
|
|
Customer relationships
|
54,668
|
|
|
(54,032
|
)
|
|
636
|
|
|
56,024
|
|
|
(55,158
|
)
|
|
866
|
|
Other
|
2,867
|
|
|
(1,558
|
)
|
|
1,309
|
|
|
1,868
|
|
|
(1,549
|
)
|
|
319
|
|
Total
|
$
|
349,342
|
|
|
$
|
(217,571
|
)
|
|
$
|
131,771
|
|
|
$
|
356,326
|
|
|
$
|
(220,274
|
)
|
|
$
|
136,052
|
|
Net broadcast licenses consist solely of our TV NOVA license in the Czech Republic, which is amortized on a straight-line basis through the expiration date of the license in 2025. Our customer relationships are deemed to have an economic useful life of, and are amortized on a straight-line basis, over
five years
to
fifteen years
.
4. LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS
Summary
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
Long-term debt
|
$
|
690,883
|
|
|
$
|
772,339
|
|
Other credit facilities and finance leases
|
15,613
|
|
|
15,891
|
|
Total long-term debt and other financing arrangements
|
706,496
|
|
|
788,230
|
|
Less: current maturities
|
(5,802
|
)
|
|
(5,545
|
)
|
Total non-current long-term debt and other financing arrangements
|
$
|
700,694
|
|
|
$
|
782,685
|
|
Overview
Total long-term debt and credit facilities comprised the following at
March 31, 2019
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Amount of Liability Component
|
|
|
Debt Issuance
Costs
(1)
|
|
|
Net Carrying Amount
|
|
2021 Euro Loan
|
$
|
168,902
|
|
|
$
|
(344
|
)
|
|
$
|
168,558
|
|
2023 Euro Loan
|
526,697
|
|
|
(4,372
|
)
|
|
522,325
|
|
2023 Revolving Credit Facility
|
—
|
|
|
—
|
|
|
—
|
|
Total long-term debt and credit facilities
|
$
|
695,599
|
|
|
$
|
(4,716
|
)
|
|
$
|
690,883
|
|
|
|
(1)
|
Debt issuance costs related to the 2021 Euro Loan, the 2023 Euro Loan and the 2023 Revolving Credit Facility (each as defined below) 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.
|
On January 31, 2019, we paid EUR
60.0 million
(approximately US$
68.9 million
at January 31, 2019 rates) of the outstanding principal balance of the 2021 Euro Loan.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
At
March 31, 2019
, the maturity of our long-term debt and credit facilities was as follows:
|
|
|
|
|
2019
|
$
|
—
|
|
2020
|
—
|
|
2021
|
168,902
|
|
2022
|
—
|
|
2023
|
526,697
|
|
2024 and thereafter
|
—
|
|
Total long-term debt and credit facilities
|
695,599
|
|
Debt issuance costs
|
(4,716
|
)
|
Carrying amount of long-term debt and credit facilities
|
$
|
690,883
|
|
Long-term Debt
Our long-term debt comprised the following at
March 31, 2019
and
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount
|
|
Fair Value
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
2021 Euro Loan
|
$
|
168,558
|
|
|
$
|
240,296
|
|
|
$
|
164,943
|
|
|
$
|
233,058
|
|
2023 Euro Loan
|
522,325
|
|
|
532,043
|
|
|
502,730
|
|
|
502,617
|
|
|
$
|
690,883
|
|
|
$
|
772,339
|
|
|
$
|
667,673
|
|
|
$
|
735,675
|
|
The fair values of the Euro Loans (as defined below) as at
March 31, 2019
and
December 31, 2018
were determined based on comparable bond yield curves based on equivalent credit ratings. 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
March 31, 2019
, the principal amount of our floating rate senior unsecured term credit facility (the "2021 Euro Loan") outstanding was EUR
150.3 million
(approximately US$
168.9 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
March 31, 2019
, the all-in borrowing rate on amounts outstanding under the 2021 Euro Loan was
3.25%
, 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
March 31, 2019
, the principal amount of our floating rate senior unsecured term credit facility (the "2023 Euro Loan") outstanding was EUR
468.8 million
(approximately US$
526.7 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
March 31, 2019
, the all-in borrowing rate on amounts outstanding under the 2023 Euro Loan was
3.75%
, 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 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).
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
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
March 31, 2019
and
December 31, 2018
was
3.0x
and
3.5x
, respectively. For the
three months
ended
March 31, 2019
and
2018
, we recognized US$
3.7 million
and US$
10.8
, 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 10, "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.
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)
|
1.66
|
%
|
|
3.25
|
%
|
2023 Euro Loan
|
1.28
|
%
|
|
0.28
|
%
|
(2)
|
2.19
|
%
|
|
3.75
|
%
|
2023 Revolving Credit Facility (if drawn)
|
6.10
|
%
|
(3)
|
—
|
%
|
|
—
|
%
|
|
6.10
|
%
|
|
|
(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
3.25%
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
3.75%
if our net leverage ratio remains unchanged.
|
|
|
(3)
|
Based on the three month LIBOR of
2.60%
as at
March 31, 2019
.
|
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
March 31, 2019
.
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.
As at
March 31, 2019
, the following spreads were 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
|
%
|
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 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.
Other Credit Facilities and Finance Lease Obligations
Other credit facilities and finance lease obligations comprised the following at
March 31, 2019
and
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
Credit facilities
(1) – (4)
|
$
|
—
|
|
|
$
|
—
|
|
Finance leases (Note 11)
|
15,613
|
|
|
15,891
|
|
Total credit facilities and finance leases
|
15,613
|
|
|
15,891
|
|
Less: current maturities
|
(5,802
|
)
|
|
(5,545
|
)
|
Total non-current credit facilities and finance leases
|
$
|
9,811
|
|
|
$
|
10,346
|
|
|
|
(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
March 31, 2019
, we had deposits of US$
56.5 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, 2018
, we had deposits of US$
36.8 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
475.0 million
(approximately US$
20.7 million
) of receivables from certain customers in the Czech Republic may be factored on a recourse or non-recourse basis. The facility has a factoring fee of
0.19%
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 Factoring KB, a.s., up to CZK
270.0 million
(approximately US$
11.8 million
) from certain customers in the Czech Republic may be factored on a non-recourse basis. The facility has a factoring fee of
0.11%
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 up to a maximum of 60 days from the due date.
|
|
|
(4)
|
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.
|
5. PROGRAM RIGHTS
Program rights comprised the following at
March 31, 2019
and
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
Program rights:
|
|
|
|
Acquired program rights, net of amortization
|
$
|
152,435
|
|
|
$
|
153,761
|
|
Less: current portion of acquired program rights
|
(74,648
|
)
|
|
(77,624
|
)
|
Total non-current acquired program rights
|
77,787
|
|
|
76,137
|
|
Produced program rights – Feature Films:
|
|
|
|
|
Released, net of amortization
|
606
|
|
|
653
|
|
Produced program rights – Television Programs:
|
|
|
|
|
|
Released, net of amortization
|
53,795
|
|
|
55,220
|
|
Completed and not released
|
12,178
|
|
|
8,347
|
|
In production
|
31,037
|
|
|
30,904
|
|
Development and pre-production
|
590
|
|
|
610
|
|
Total produced program rights
|
98,206
|
|
|
95,734
|
|
Total non-current acquired program rights and produced program rights
|
$
|
175,993
|
|
|
$
|
171,871
|
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
6. ACCOUNTS RECEIVABLE
Accounts receivable comprised the following at
March 31, 2019
and
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
Third-party customers
|
$
|
163,524
|
|
|
$
|
203,068
|
|
Less: allowance for bad debts and credit notes
|
(9,702
|
)
|
|
(9,697
|
)
|
Total accounts receivable
|
$
|
153,822
|
|
|
$
|
193,371
|
|
7. OTHER ASSETS
Other current and non-current assets comprised the following at
March 31, 2019
and
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
Current:
|
|
|
|
Prepaid acquired programming
|
$
|
21,560
|
|
|
$
|
29,918
|
|
Other prepaid expenses
|
10,732
|
|
|
9,119
|
|
VAT recoverable
|
2,186
|
|
|
1,702
|
|
Other
|
150
|
|
|
328
|
|
Total other current assets
|
$
|
34,628
|
|
|
$
|
41,067
|
|
|
|
|
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
Non-current:
|
|
|
|
|
|
Capitalized debt costs (Note 4)
|
$
|
8,928
|
|
|
$
|
9,660
|
|
Deferred tax
|
2,357
|
|
|
2,411
|
|
Operating lease - right of use asset (Note 11)
|
12,320
|
|
|
—
|
|
Other
|
362
|
|
|
337
|
|
Total other non-current assets
|
$
|
23,967
|
|
|
$
|
12,408
|
|
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment comprised the following at
March 31, 2019
and
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
Land and buildings
|
$
|
98,391
|
|
|
$
|
100,574
|
|
Machinery, fixtures and equipment
|
202,864
|
|
|
206,491
|
|
Other equipment
|
34,605
|
|
|
35,022
|
|
Software
|
66,264
|
|
|
68,239
|
|
Construction in progress
|
2,373
|
|
|
4,663
|
|
Total cost
|
404,497
|
|
|
414,989
|
|
Less: accumulated depreciation
|
(294,150
|
)
|
|
(297,385
|
)
|
Total net book value
|
$
|
110,347
|
|
|
$
|
117,604
|
|
|
|
|
|
Assets held under finance leases (included in the above)
|
|
|
|
|
|
Land and buildings
|
$
|
3,914
|
|
|
$
|
3,989
|
|
Machinery, fixtures and equipment
|
26,561
|
|
|
25,414
|
|
Total cost
|
30,475
|
|
|
29,403
|
|
Less: accumulated depreciation
|
(11,605
|
)
|
|
(10,705
|
)
|
Total net book value
|
$
|
18,870
|
|
|
$
|
18,698
|
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
The movement in the net book value of property, plant and equipment during the
three months
ended
March 31, 2019
and
2018
was comprised of:
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
2019
|
|
|
2018
|
|
Opening balance
|
$
|
117,604
|
|
|
$
|
119,349
|
|
Additions
(1)
|
3,923
|
|
|
7,014
|
|
Disposals
|
—
|
|
|
(1
|
)
|
Depreciation
|
(8,226
|
)
|
|
(8,387
|
)
|
Foreign currency movements
|
(2,954
|
)
|
|
3,515
|
|
Ending balance
|
$
|
110,347
|
|
|
$
|
121,490
|
|
|
|
(1)
|
Includes assets acquired under finance leases of US$
2.2 million
and US$
2.0 million
for the
three months
ended
March 31, 2019
and
2018
, respectively.
|
9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities comprised the following at
March 31, 2019
and
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
Accounts payable and accrued expenses
|
$
|
53,147
|
|
|
$
|
48,708
|
|
Related party accounts payable
|
280
|
|
|
292
|
|
Programming liabilities
|
20,396
|
|
|
16,072
|
|
Related party programming liabilities
|
12,959
|
|
|
12,171
|
|
Duties and other taxes payable
|
11,156
|
|
|
9,014
|
|
Accrued staff costs
|
11,758
|
|
|
17,425
|
|
Accrued interest payable
|
2,248
|
|
|
2,456
|
|
Related party accrued interest payable (including Guarantee Fees)
|
5,759
|
|
|
1,749
|
|
Income taxes payable
|
8,038
|
|
|
10,415
|
|
Other accrued liabilities
|
1,481
|
|
|
2,166
|
|
Total accounts payable and accrued liabilities
|
$
|
127,222
|
|
|
$
|
120,468
|
|
10. OTHER LIABILITIES
Other current and non-current liabilities comprised the following at
March 31, 2019
and
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
Current:
|
|
|
|
Deferred revenue
|
$
|
33,319
|
|
|
$
|
9,906
|
|
Legal provisions
|
687
|
|
|
1,978
|
|
Operating lease liability (Note 11)
|
3,443
|
|
|
—
|
|
Other
|
1,004
|
|
|
1,795
|
|
Total other current liabilities
|
$
|
38,453
|
|
|
$
|
13,679
|
|
|
|
|
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
Non-current:
|
|
|
|
|
|
Deferred tax
|
$
|
22,344
|
|
|
$
|
22,545
|
|
Derivative instruments
|
12,557
|
|
|
9,817
|
|
Operating lease liability (Note 11)
|
8,828
|
|
|
—
|
|
Related party Guarantee Fee payable (Note 4)
|
33,465
|
|
|
33,465
|
|
Other
|
4,332
|
|
|
1,466
|
|
Total other non-current liabilities
|
$
|
81,526
|
|
|
$
|
67,293
|
|
During the
three months
ended
March 31, 2019
and
2018
, we recognized revenue of US$
2.8 million
and US$
2.5 million
, which we had deferred as at
December 31, 2018
and 2017, respectively.
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. LEASES
We enter into operating and finance leases for offices, production and related facilities, cars and certain equipment. Our leases have remaining lease terms up to ten years. Certain lease agreements include options to extend for up to three years and include options to terminate within one year.
The components of lease cost for the three months ended
March 31, 2019
were as follows:
|
|
|
|
|
|
For the Three Months Ended March 31,
|
Operating lease cost:
|
|
Short-term operating lease cost
|
$
|
1,684
|
|
Long-term operating lease cost
|
1,150
|
|
Total operating lease cost
|
$
|
2,834
|
|
|
|
Finance lease cost:
|
|
Amortization of right-of-use asset
|
$
|
1,255
|
|
Interest of lease liabilities
|
107
|
|
Total finance lease cost
|
$
|
1,362
|
|
The classification of cash flows related to our leases for the three months ended
March 31, 2019
was as follows:
|
|
|
|
|
|
For the Three Months Ended March 31,
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
Operating cash flows from operating leases
|
$
|
1,321
|
|
Operating cash flows from finance leases
|
109
|
|
Financing cash flows from finance leases
|
1,769
|
|
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
Operating leases
|
$
|
1,564
|
|
Finance leases
|
2,248
|
|
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 current and non-current assets and liabilities related to our leasing arrangements comprised the following at
March 31, 2019
:
|
|
|
|
|
|
March 31, 2019
|
|
Operating Leases
|
|
Operating lease right-of-use-assets, gross
|
$
|
13,284
|
|
Accumulated amortization
|
(964
|
)
|
Operating lease right-of-use-assets, net
|
$
|
12,320
|
|
|
|
Other current liabilities
|
$
|
3,443
|
|
Other non-current liabilities
|
8,828
|
|
Total operating lease liabilities
|
$
|
12,271
|
|
|
|
Finance Leases
|
|
Property, plant and equipment, gross
|
$
|
30,475
|
|
Accumulated depreciation
|
(11,605
|
)
|
Property, plant and equipment, net
|
$
|
18,870
|
|
|
|
Current portion of long-term debt and other financing arrangements
|
$
|
5,802
|
|
Long-term debt and other financing arrangements
|
9,811
|
|
Total finance lease liabilities
|
$
|
15,613
|
|
|
|
Weighted Average Remaining Lease Term
|
Years
|
|
Operating leases
|
5.3
|
|
Finance leases
|
2.9
|
|
|
|
Weighted Average Discount Rate
|
Discount Rate
|
|
Operating leases
|
4.71
|
%
|
Finance leases
|
2.09
|
%
|
Our lease liabilities had the following maturities at
March 31, 2019
:
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
|
Finance Leases
|
|
2019
|
$
|
3,270
|
|
|
$
|
4,583
|
|
2020
|
3,060
|
|
|
5,677
|
|
2021
|
2,179
|
|
|
4,215
|
|
2022
|
1,460
|
|
|
1,565
|
|
2023
|
1,322
|
|
|
36
|
|
2024 and thereafter
|
2,732
|
|
|
16
|
|
Total undiscounted payments
|
14,023
|
|
|
16,092
|
|
Less: amount representing interest
|
(1,752
|
)
|
|
(479
|
)
|
Present value of net minimum lease payments
|
$
|
12,271
|
|
|
$
|
15,613
|
|
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.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
We evaluate the position of each financial instrument measured at fair value in the hierarchy individually based on the valuation methodology we apply. The carrying amount of financial instruments, including cash and cash equivalents, accounts receivable, and accounts payable and accrued liabilities, approximate their fair value due to the short-term nature of these items. The fair value of our long-term debt is included in
Note 4, "Long-term Debt and Other Financing Arrangements"
.
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.
Each instrument is fully designated as a cash flow hedge, including amounts that were previously de-designated. All changes in the fair value of these instruments are recorded in accumulated other comprehensive income / loss and subsequently reclassified to interest expense when the hedged item affects earnings.
Information relating to financial instruments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade Date
|
|
Number of Contracts
|
|
|
Aggregate Notional Amount
|
|
|
Maturity Date
|
|
Objective
|
|
Fair Value as at March 31, 2019
|
|
November 10, 2015
|
|
3
|
|
|
EUR
|
150,335
|
|
|
November 1, 2019
|
|
Interest rate hedge underlying 2021 Euro Loan
|
|
$
|
(317
|
)
|
April 26, 2018
|
|
3
|
|
|
EUR
|
150,335
|
|
|
November 1, 2021
|
|
Interest rate hedge underlying 2021 Euro Loan, forward starting on November 1, 2019
|
|
$
|
(1,368
|
)
|
April 5, 2016
|
|
5
|
|
|
EUR
|
468,800
|
|
|
February 19, 2021
|
|
Interest rate hedge underlying 2023 Euro Loan
|
|
$
|
(2,497
|
)
|
April 26, 2018
|
|
4
|
|
|
EUR
|
468,800
|
|
|
April 26, 2023
|
|
Interest rate hedge underlying 2023 Euro Loan, forward starting on February 19, 2021
|
|
$
|
(8,691
|
)
|
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 months
ended
March 31, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
2019
|
|
|
2018
|
|
Loss on interest rate swaps
|
(36
|
)
|
|
(228
|
)
|
Change in fair value of derivatives
|
$
|
(36
|
)
|
|
$
|
(228
|
)
|
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
March 31, 2019
and
December 31, 2018
. The Series B Preferred Shares are held by Time Warner Media Holdings B.V. ("TW Investor"), a wholly owned subsidiary of AT&T. As at
March 31, 2019
and
December 31, 2018
, the accreted value of the Series B Preferred Shares was US$
269.4 million
. The Series B Preferred Shares have a stated value of US$
1,000
per share and no longer accrete subsequent to June 24, 2018. As of
March 31, 2019
, the
200,000
shares of Series B preferred stock were convertible into approximately
111.1 million
shares of Class A common stock.
Each Series B Preferred Share may, at the holder's option, be converted into the number of shares of our Class A common stock determined by dividing (i) the accreted stated value plus accrued but unpaid dividends, if any, in each case as of the conversion date, by (ii) the conversion price, which was approximately US$
2.42
at
March 31, 2019
, 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.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
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.
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.
14. EQUITY
Preferred Stock
5,000,000
shares of Preferred Stock were authorized as at
March 31, 2019
and
December 31, 2018
.
One
share of Series A Convertible Preferred Stock (the "Series A Preferred Share") was issued and outstanding as at
March 31, 2019
and
December 31, 2018
. The Series A Preferred Share is convertible into
11,211,449
shares of Class A common stock on the date that is 61 days after the date on which the ownership of our outstanding shares of Class A common stock by a group that includes TW Investor and its affiliates would not be greater than
49.9%
. The Series A Preferred Share is entitled to one vote per each share of Class A common stock into which it is convertible and has such other rights, powers and preferences, including potential adjustments to the number of shares of Class A common stock to be issued upon conversion, as are set forth in the Certificate of Designation for the Series A Preferred Share.
200,000
shares of Series B Preferred Shares were issued and outstanding as at
March 31, 2019
and
December 31, 2018
(see
Note 13, "Convertible Redeemable Preferred Shares"
). As of
March 31, 2019
, the
200,000
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
March 31, 2019
and
December 31, 2018
. 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 pre-emptive or other subscription rights and there are no redemption or sinking fund provisions with respect to such shares.
There were
253.3 million
and
252.9 million
shares of Class A common stock outstanding at
March 31, 2019
and
December 31, 2018
, respectively, and
no
shares of Class B common stock outstanding at
March 31, 2019
or
December 31, 2018
.
As at
March 31, 2019
, TW Investor owns
64.1%
of the outstanding shares of Class A common stock. In connection with the exercise of warrants by Warner Media and TW Investor, each of them issued standing proxies to the independent directors of the Company, pursuant to which they granted the right to vote the approximately
100.9 million
shares of Class A common stock received on the exercise of those warrants (the “Warrant Shares”) on all matters other than a transaction resulting in 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 from that date. As a result of the standing proxies, after giving effect to its ownership of the Series A Preferred Share, TW Investor has a
44.4%
voting interest in the Company.
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
three months
ended
March 31, 2019
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, 2018
|
$
|
(207,668
|
)
|
|
$
|
(8,982
|
)
|
|
$
|
(216,650
|
)
|
Other comprehensive loss before reclassifications:
|
|
|
|
|
|
Foreign exchange loss on intercompany loans
(1)
|
(612
|
)
|
|
—
|
|
|
(612
|
)
|
Foreign exchange loss on the Series B Preferred Shares
|
(5,106
|
)
|
|
—
|
|
|
(5,106
|
)
|
Currency translation adjustment
|
(10,262
|
)
|
|
—
|
|
|
(10,262
|
)
|
Change in the fair value of hedging instruments
|
—
|
|
|
(3,702
|
)
|
|
(3,702
|
)
|
Amounts reclassified from accumulated other comprehensive loss:
|
|
|
|
|
|
|
Changes in fair value reclassified to interest expense
|
—
|
|
|
371
|
|
|
371
|
|
Net other comprehensive loss
|
(15,980
|
)
|
|
(3,331
|
)
|
|
(19,311
|
)
|
BALANCE March 31, 2019
|
$
|
(223,648
|
)
|
|
$
|
(12,313
|
)
|
|
$
|
(235,961
|
)
|
|
|
(1)
|
Represents foreign exchange gains on intercompany loans that are of a long-term investment nature which are reported in the same manner as translation adjustments.
|
15. INTEREST EXPENSE
Interest expense comprised the following for the
three months
ended
March 31, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
2019
|
|
|
2018
|
|
Interest on long-term debt and other financing arrangements
|
$
|
7,368
|
|
|
$
|
16,209
|
|
Amortization of capitalized debt issuance costs
|
874
|
|
|
1,609
|
|
Total interest expense
|
$
|
8,242
|
|
|
$
|
17,818
|
|
We paid cash interest (including Guarantee Fees) of US$
3.1 million
and US$
4.9 million
during the
three months
ended
March 31, 2019
and
2018
, respectively.
16. OTHER NON-OPERATING INCOME / EXPENSE, NET
Other non-operating income / expense, net comprised the following for the
three months
ended
March 31, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
2019
|
|
|
2018
|
|
Interest income
|
$
|
152
|
|
|
$
|
144
|
|
Foreign currency exchange (loss) / gain, net
|
(3,077
|
)
|
|
4,390
|
|
Change in fair value of derivatives (Note 12)
|
(36
|
)
|
|
(228
|
)
|
Loss on extinguishment of debt
|
(151
|
)
|
|
(109
|
)
|
Other income, net
|
15
|
|
|
11
|
|
Total other non-operating (expense) / income, net
|
$
|
(3,097
|
)
|
|
$
|
4,208
|
|
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.
For the three months ended
March 31, 2019
and
2018
, we recognized charges for stock-based compensation of US$
1.0
million and US$
1.1
million, respectively, presented as a component of selling, general and administrative expenses in our condensed consolidated statements of operations and comprehensive income / loss.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
Stock Options
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
three months
ended
March 31, 2019
. The summary of stock options outstanding as at
March 31, 2019
and
December 31, 2018
is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted Average Exercise Price per Share
|
|
|
Weighted Average Remaining Contractual Term (years)
|
|
Aggregate Intrinsic Value
|
|
Outstanding at December 31, 2018
|
2,011,392
|
|
|
$
|
2.32
|
|
|
6.58
|
|
$
|
916
|
|
Outstanding at March 31, 2019
|
2,011,392
|
|
|
2.32
|
|
|
6.33
|
|
3,329
|
|
Vested and expected to vest
|
2,011,392
|
|
|
2.32
|
|
|
6.33
|
|
3,329
|
|
Exercisable at March 31, 2019
|
1,508,544
|
|
|
$
|
2.32
|
|
|
6.33
|
|
$
|
2,497
|
|
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
March 31, 2019
, 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 aggregate intrinsic value (the difference between the stock price on the last day of trading of the
first quarter
of
2019
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
March 31, 2019
. This amount changes based on the fair value of our Class A common stock. As at
March 31, 2019
, there was US$
0.2 million
of unrecognized compensation expense related to stock options which is expected to be recognized over a weighted-average period of
0.33 years
with all options vesting by March 2020.
Restricted Stock Units with Time-Based Vesting
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. Holders of RSU awards are not entitled to receive cash dividend equivalents prior to the vesting of awards and are not entitled to vote shares underlying awards.
The following table summarizes information about unvested RSUs as at
March 31, 2019
and
December 31, 2018
:
|
|
|
|
|
|
|
|
|
Number of
Shares / Units
|
|
|
Weighted Average
Grant Date
Fair Value
|
|
Unvested at December 31, 2018
|
1,996,355
|
|
|
$
|
3.68
|
|
Granted
|
977,200
|
|
|
3.55
|
|
Vested
|
(510,903
|
)
|
|
3.38
|
|
Unvested at March 31, 2019
|
2,462,652
|
|
|
$
|
3.69
|
|
The intrinsic value of unvested RSUs was US$
9.8 million
as at
March 31, 2019
. Total unrecognized compensation cost related to unvested RSUs as at
March 31, 2019
was US$
7.8 million
and is expected to be recognized over a weighted-average period of
2.8
years.
Restricted Stock Units with Performance Conditions
Each RSU with performance conditions (“PRSU”) represents a right to receive one share of Class A common stock of the Company for each PRSU that vests in accordance with a performance-based vesting schedule. The performance-based vesting schedule sets forth specified objectives for unlevered free cash flow and OIBDA over defined periods and by defined dates. Holders of PRSU awards are not entitled to receive cash dividend equivalents prior to the vesting of awards and are not entitled to vote shares underlying awards.
On December 4, 2018, the 2018 PRSU Award was granted with unlevered free cash flow and OIBDA targets corresponding to two, three and four-year performance periods ending December 31, 2020, 2021 and 2022, respectively. The maximum achievement under the 2018 PRSU Award is
200%
of the shares allotted to the corresponding target. Due to the uncertainty of achieving any of the prescribed targets within the 2018 PRSU Award, we have not recognized any related compensation cost.
The following table summarizes information about unvested PRSUs as at
March 31, 2019
and
December 31, 2018
:
|
|
|
|
|
|
|
|
|
Number of
Shares / Units
|
|
|
Weighted-Average
Grant Date Fair Value
|
|
Unvested at December 31, 2018
|
501,572
|
|
|
$
|
3.19
|
|
Granted
|
—
|
|
|
—
|
|
Vested
|
—
|
|
|
—
|
|
Unvested at March 31, 2019
|
501,572
|
|
|
$
|
3.19
|
|
The intrinsic value of unvested PRSUs was US$
2.0
million as at
March 31, 2019
.
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 after adjusting for the impact of those dilutive shares on the allocation of income to the Series B Preferred Shares.
The components of basic and diluted earnings per share are as follows:
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
2019
|
|
|
2018
|
|
Income from continuing operations
|
$
|
11,751
|
|
|
$
|
6,756
|
|
Net loss attributable to noncontrolling interests
|
7
|
|
|
178
|
|
Less: preferred share accretion paid in kind (Note 13)
|
—
|
|
|
(2,447
|
)
|
Less: income allocated to Series B Preferred Shares
|
(3,482
|
)
|
|
(1,838
|
)
|
Income from continuing operations available to common shareholders, net of noncontrolling interest
|
8,276
|
|
|
2,649
|
|
Income from discontinued operations, net of tax
|
—
|
|
|
316
|
|
Less income allocated to Series B Preferred Shares
|
—
|
|
|
(129
|
)
|
Net income attributable to CME Ltd. available to common shareholders — basic
|
8,276
|
|
|
2,836
|
|
|
|
|
|
Effect of dilutive securities
|
|
|
|
Dilutive effect of employee stock options, RSUs and Series B Preferred Shares
|
9
|
|
|
469
|
|
Net income attributable to CME Ltd. available to common shareholders — diluted
|
$
|
8,285
|
|
|
$
|
3,305
|
|
|
|
|
|
Weighted average outstanding shares of common stock — basic
(1)
|
264,199
|
|
|
158,039
|
|
Dilutive effect of employee stock options, RSUs and common stock warrants
|
1,012
|
|
|
83,866
|
|
Weighted average outstanding shares of common stock — diluted
|
265,211
|
|
|
241,905
|
|
|
|
|
|
Net income per share:
|
|
|
|
Continuing operations — basic
|
$
|
0.03
|
|
|
$
|
0.02
|
|
Continuing operations — diluted
|
0.03
|
|
|
0.01
|
|
Discontinued operations — basic
|
—
|
|
|
0.00
|
|
Discontinued operations — diluted
|
—
|
|
|
0.00
|
|
Attributable to CME Ltd. — basic
|
0.03
|
|
|
0.02
|
|
Attributable to CME Ltd. — diluted
|
$
|
0.03
|
|
|
$
|
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 rights of the Series A Preferred Share are considered substantially similar to that of our Class A common stock.
|
Weighted-average equity awards and convertible shares are excluded from the calculation of diluted earnings per share if their effect would be anti-dilutive. The following instruments were anti-dilutive but may be dilutive in future periods:
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
2019
|
|
|
2018
|
|
RSUs
|
1,064
|
|
|
903
|
|
Total
|
1,064
|
|
|
903
|
|
19. SEGMENT DATA
We manage our business on a geographical basis, with
five
operating segments: Bulgaria, the Czech Republic, Romania, the Slovak Republic and Slovenia, which are also our reportable segments and our main operating countries. These segments reflect how CME Ltd.’s operating performance is evaluated by our chief operating decision makers, who we have identified as our co-Chief Executive Officers; how operations are managed by segment managers; and the structure of our internal financial reporting.
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 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.
Below are tables showing our net revenues, OIBDA, total assets, capital expenditures and long-lived assets for our continuing operations by segment for the
three months
ended
March 31, 2019
and
2018
for condensed consolidated statements of operations and comprehensive income / loss data and condensed consolidated statements of cash flow data; and as at
March 31, 2019
and
December 31, 2018
for condensed consolidated balance sheet data.
|
|
|
|
|
|
|
|
|
Net revenues:
|
For the Three Months Ended March 31,
|
|
2019
|
|
|
2018
|
|
Bulgaria
|
$
|
19,293
|
|
|
$
|
19,433
|
|
Czech Republic
|
50,316
|
|
|
51,534
|
|
Romania
|
38,810
|
|
|
45,961
|
|
Slovak Republic
|
21,332
|
|
|
22,953
|
|
Slovenia
|
17,850
|
|
|
17,530
|
|
Intersegment revenues
(1)
|
(1,042
|
)
|
|
(702
|
)
|
Total net revenues
|
$
|
146,559
|
|
|
$
|
156,709
|
|
|
|
(1)
|
Reflects revenues earned from the sale of content to other country segments in CME Ltd. All other revenues are third party revenues.
|
|
|
|
|
|
|
|
|
|
OIBDA:
|
For the Three Months Ended March 31,
|
2019
|
|
|
2018
|
|
Bulgaria
|
$
|
6,121
|
|
|
$
|
2,981
|
|
Czech Republic
|
14,947
|
|
|
15,370
|
|
Romania
|
17,533
|
|
|
18,893
|
|
Slovak Republic
|
1,729
|
|
|
1,103
|
|
Slovenia
|
4,931
|
|
|
4,653
|
|
Elimination
|
48
|
|
|
16
|
|
Total operating segments
|
45,309
|
|
|
43,016
|
|
Corporate
|
(7,252
|
)
|
|
(7,692
|
)
|
Total OIBDA
|
38,057
|
|
|
35,324
|
|
Depreciation of property, plant and equipment
|
(8,226
|
)
|
|
(8,387
|
)
|
Amortization of broadcast licenses and other intangibles
|
(2,194
|
)
|
|
(2,356
|
)
|
Operating income
|
27,637
|
|
|
24,581
|
|
Interest expense (Note 15)
|
(8,242
|
)
|
|
(17,818
|
)
|
Other non-operating (expense) / income, net (Note 16)
|
(3,097
|
)
|
|
4,208
|
|
Income before tax
|
$
|
16,298
|
|
|
$
|
10,971
|
|
|
|
|
|
|
|
|
|
|
Total assets:
(1)
|
March 31, 2019
|
|
|
December 31, 2018
|
|
Bulgaria
|
$
|
141,175
|
|
|
$
|
142,165
|
|
Czech Republic
|
740,905
|
|
|
771,286
|
|
Romania
|
272,740
|
|
|
297,937
|
|
Slovak Republic
|
144,972
|
|
|
146,252
|
|
Slovenia
|
86,391
|
|
|
89,440
|
|
Total operating segments
|
1,386,183
|
|
|
1,447,080
|
|
Corporate
|
59,486
|
|
|
41,281
|
|
Total assets
|
$
|
1,445,669
|
|
|
$
|
1,488,361
|
|
|
|
(1)
|
Segment assets exclude any intercompany balances.
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
For the Three Months Ended March 31,
|
|
2019
|
|
|
2018
|
|
Bulgaria
|
$
|
774
|
|
|
$
|
451
|
|
Czech Republic
|
1,687
|
|
|
2,507
|
|
Romania
|
417
|
|
|
576
|
|
Slovak Republic
|
202
|
|
|
411
|
|
Slovenia
|
1,219
|
|
|
1,271
|
|
Total operating segments
|
4,299
|
|
|
5,216
|
|
Corporate
|
66
|
|
|
153
|
|
Total capital expenditures
|
$
|
4,365
|
|
|
$
|
5,369
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets:
(1)
|
March 31, 2019
|
|
|
December 31, 2018
|
|
Bulgaria
|
$
|
10,838
|
|
|
$
|
10,627
|
|
Czech Republic
|
37,292
|
|
|
39,314
|
|
Romania
|
30,116
|
|
|
33,368
|
|
Slovak Republic
|
15,469
|
|
|
16,376
|
|
Slovenia
|
14,919
|
|
|
15,955
|
|
Total operating segments
|
108,634
|
|
|
115,640
|
|
Corporate
|
1,713
|
|
|
1,964
|
|
Total long-lived assets
|
$
|
110,347
|
|
|
$
|
117,604
|
|
|
|
(1)
|
Reflects property, plant and equipment, net.
|
Revenues from contracts with customers comprised the following for the
three months
ended
March 31, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
Consolidated revenue by type:
|
For the Three Months Ended March 31,
|
|
2019
|
|
|
2018
|
|
Television advertising
|
$
|
111,047
|
|
|
$
|
123,306
|
|
Carriage fees and subscriptions
|
29,550
|
|
|
28,564
|
|
Other
|
5,962
|
|
|
4,839
|
|
Total net revenues
|
$
|
146,559
|
|
|
$
|
156,709
|
|
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
March 31, 2019
, we had total commitments of US$
76.2 million
(
December 31, 2018
: US$
62.8 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 and other commitments as follows:
|
|
|
|
|
|
|
|
|
|
Programming purchase obligations
|
|
|
Other commitments
|
|
2019
|
$
|
18,764
|
|
|
$
|
9,121
|
|
2020
|
22,197
|
|
|
8,083
|
|
2021
|
19,464
|
|
|
2,686
|
|
2022
|
11,527
|
|
|
2,767
|
|
2023
|
3,498
|
|
|
3,054
|
|
2024 and thereafter
|
745
|
|
|
—
|
|
Total
|
$
|
76,195
|
|
|
$
|
25,711
|
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
Contingencies
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 condensed 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.
Two
of the notes purport to be issued in favor of Marian Kocner, a controversial Slovak businessman, and the other two to a long-time associate of Mr. Kocner. All four notes 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 in respect of 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 appealed that decision.
On May 14, 2018, Markiza filed a criminal complaint with the Special Prosecutor's 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 and initiated a pre-trial investigation. Following this decision, Mr. Kocner has been taken into pre-trial custody by the Slovak authorities. Subsequently, the Special Prosecutor’s Office has charged Mr. Kocner’s long-time associate, who allegedly received two of the alleged promissory notes as the original beneficial owner and purported to endorse those notes to a company controlled by Mr. Kocner, with counterfeiting, falsification, and illegal production of money and securities.
On October 12, 2018, the court of first instance terminated proceedings in respect of the Second PN Case because the plaintiff failed to pursue the claim, which the plaintiff appealed.
On December 14, 2018, the appellate court suspended proceedings in respect of the First PN Case until a final and enforceable decision has been rendered in the criminal proceedings.
On December 21, 2018, the appellate court reversed the decision of the court of first instance to terminate the Second PN Case and directed the case be tried on the merits. No hearings have been held or scheduled in respect of this claim subsequent to that decision. In addition there have been no hearings held in respect of the Third PN Case since the initiation of the criminal proceedings.
On March 19, 2019, following the conclusion of the pre-trial investigation, the Special Prosecutor’s Office formally indicted Mr. Kocner and Mr. Rusko with counterfeiting, falsification, and illegal production of money and securities and with obstruction or perversion of justice. The special criminal court overseeing these criminal proceedings has not yet scheduled any hearings.
Markiza is seeking to have the civil proceedings in respect of all of these claims 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.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
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. We have identified transactions with individuals or entities associated with AT&T, which is represented on our Board of Directors and holds a
44.4%
voting interest in CME Ltd. (see
Note 14, "Equity"
) as at
March 31, 2019
, as material related party transactions.
AT&T
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
2019
|
|
|
2018
|
|
Cost of revenues
|
$
|
4,976
|
|
|
$
|
6,002
|
|
Interest expense
|
4,754
|
|
|
12,516
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
Programming liabilities
|
$
|
12,959
|
|
|
$
|
12,171
|
|
Other accounts payable and accrued liabilities
|
280
|
|
|
292
|
|
Accrued interest payable
(1)
|
5,759
|
|
|
1,749
|
|
Other non-current liabilities
(2)
|
33,465
|
|
|
33,465
|
|
|
|
(1)
|
Amount represents accrued Guarantee Fees for which we have not yet paid. See
Note 4, "Long-term Debt and Other Financing Arrangements"
.
|
|
|
(2)
|
Amount represents Guarantee Fees for which we had previously made an election to pay in kind.
|
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 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;
|
|
|
•
|
"
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
March 31, 2019
, 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; the impact of ending the quantitative easing program implemented by the European Central Bank; the economic, political and monetary impacts of Brexit in our markets; the outcome of our strategic review and its impact on our business; the impact of changes in local tax legislation and the timing of public holidays on advertising spending; levels of television advertising spending and the rate of development of the advertising markets in the countries in which we operate; our ability to refinance our existing indebtedness; 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 success in continuing our initiatives to diversify and enhance our revenue streams; our ability to make cost-effective investments in our television businesses, including investments in programming; our ability to develop and acquire necessary programming and attract audiences; and changes in the political and regulatory environments where we operate and in the application of relevant laws and regulations.
The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included in this report. All forward-looking statements speak only as of the date of this report. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments or otherwise, except as required by law.
II. Overview
Central European Media Enterprises Ltd. ("CME Ltd.") is a media and entertainment company operating mainly in five countries in Central and Eastern Europe. We manage our business on a geographical basis, with
five
operating segments: Bulgaria, the Czech Republic, Romania, the Slovak Republic and Slovenia, which are also our reportable segments. These operating segments reflect how CME Ltd.’s operating performance is evaluated by our chief operating decision makers, who we have identified as our co-Chief Executive Officers, how our operations are managed by segment managers, and the structure of our internal financial reporting.
Non-GAAP Financial Measures
In this report we refer to several non-GAAP financial measures, including OIBDA, OIBDA margin, free cash flow and unlevered free cash flow. We believe that each of these metrics is useful to investors for the reasons outlined below. Non-GAAP financial measures may not be comparable to similar measures reported by other companies. Non-GAAP financial measures should be evaluated in conjunction with, and are not a substitute for, US GAAP financial measures.
We evaluate our consolidated results and the performance of our segments based on net revenues and OIBDA. We believe OIBDA is useful to investors because it provides a meaningful representation of our performance, as it excludes certain items that do not impact either our cash flows or the operating results of our operations. OIBDA and unlevered free cash flow are also used as components in determining management bonuses.
OIBDA includes amortization and impairment of program rights and is calculated as operating income / loss before depreciation, amortization of intangible assets and impairments of assets and certain unusual or infrequent items that are not considered by our co-Chief Executive Officers when evaluating our performance. 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 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 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 months
ended
March 31, 2019
and
2018
.
Executive Summary
The following table provides a summary of our consolidated results of our continuing operations for the
three months
ended
March 31, 2019
and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
2019
|
|
|
2018
|
|
|
% Act
|
|
|
% Lfl
|
|
Net revenues
|
$
|
146,559
|
|
|
$
|
156,709
|
|
|
(6.5
|
)%
|
|
1.6
|
%
|
Operating income
|
27,637
|
|
|
24,581
|
|
|
12.4
|
%
|
|
23.2
|
%
|
Operating margin
|
18.9
|
%
|
|
15.7
|
%
|
|
3.2 p.p.
|
|
|
3.3 p.p.
|
|
OIBDA
|
$
|
38,057
|
|
|
$
|
35,324
|
|
|
7.7
|
%
|
|
17.7
|
%
|
OIBDA margin
|
26.0
|
%
|
|
22.5
|
%
|
|
3.5 p.p.
|
|
|
3.6 p.p.
|
|
Our consolidated net revenues decreased at actual rates. Excluding the effect of foreign exchange, net revenues increased at constant rates in the three months ended
March 31, 2019
compared to the corresponding period in
2018
, as increases in carriage fees and subscription revenues, along with higher digital advertising revenues, more than offset a decline in television advertising revenues. Television advertising spending overall in the markets of the countries in which we operate decreased an estimated
4%
at constant rates in the first quarter of 2019 compared to 2018, and our television advertising revenues decreased
10%
at actual rates and
2%
at constant rates during the same period. The decline reflected lower spending in Romania by advertisers directly impacted by new incremental taxes imposed in the first quarter of 2019 on certain sectors of the economy, including telecommunications and banking. It also resulted from lower spending across our markets due to the timing of Easter, which was later in 2019 than it was in 2018. The resulting phasing is expected to improve results in the second quarter; and with the additional spending around Easter, we estimate our television advertising revenues have increased at constant rates in the first four months of 2019 compared to the same period in 2018. In Romania, there may be an ongoing impact on the level of demand from advertisers in the sectors affected by the new taxes implemented in the first quarter. Based on the level of spending commitments for 2019, we believe this will be largely offset by additional spending from other clients. Carriage fees and subscription revenues increased
4%
at actual rates and
12%
at constant rates as the subscriber base continued to grow and average prices increased.
Costs charged in arriving at OIBDA in the first quarter decreased
11%
at actual rates and
3%
at constant rates. Content costs decreased
3%
at constant rates, mainly due to savings from fewer sport rights, as well as the utilization of more cost effective foreign acquired programming. There were also cost savings from lower bad debt charges, professional fees, and staff and transmission costs in certain countries.
We launched the spring season in all countries during the first quarter, and the main channel in four countries increased year-to-date audience share in both prime time and all day. Our focus remains on efficient spending for programming for the most popular television schedules in each country. The resulting reach for advertisers provides the resources necessary to continue investing in high quality local content.
Since we continue to focus on controlling costs, our OIBDA margin in the three months ended
March 31, 2019
increased compared to the same period in 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 2019 and for the next few years, leading to continued OIBDA margin expansion year on year, although trends may vary from quarter to quarter.
Improving Capital Structure
On January 31, 2019, we used cash generated by the business and paid EUR
60.0 million
(approximately US$
68.9 million
at January 31, 2019 rates) of the outstanding principal balance of the 2021 Euro Loan. Following these repayments, there is EUR 150.3 million outstanding on our nearest debt maturity in November 2021.
The lower balance of gross debt, together with significant cash generated during the quarter and improved financial results, reduced our net leverage ratio to
3.0x
at the end of the quarter, down from 3.5x at the start of the year.
Review of Strategic Alternatives
On March 25, 2019, we announced that our Board of Directors had commenced a process to explore and evaluate potential strategic alternatives focused on maximizing shareholder value. These alternatives may include, among other things, the sale of part or all of the Company, a merger with another strategic partner, a recapitalization, or continuing to execute on our long-term business plan (see Part II, Item 1A, Risk Factors).
Free Cash Flow and Unlevered Free Cash Flow
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, (US$ 000's)
|
|
2019
|
|
|
2018
|
|
|
Movement
|
|
Net cash generated from continuing operating activities
|
$
|
96,009
|
|
|
$
|
71,495
|
|
|
34.3
|
%
|
Capital expenditures, net
|
(4,359
|
)
|
|
(5,353
|
)
|
|
(18.6
|
)%
|
Free cash flow
|
91,650
|
|
|
66,142
|
|
|
38.6
|
%
|
Cash paid for interest (including Guarantee Fees)
|
3,093
|
|
|
4,883
|
|
|
(36.7
|
)%
|
Unlevered free cash flow
|
$
|
94,743
|
|
|
$
|
71,025
|
|
|
33.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
(US$ 000's)
|
March 31, 2019
|
|
|
December 31, 2018
|
|
|
Movement
|
|
Cash and cash equivalents
|
$
|
80,032
|
|
|
$
|
62,031
|
|
|
29.0
|
%
|
Unlevered free cash flow increased during the
three months
ended
March 31, 2019
compared to the same period in 2018, mainly reflecting higher collections of cash from receivables generated during the significant improvement in fourth quarter performance in 2018 compared to the respective period in the prior year, as well as a benefit from the timing of cash payments for programming that was broadcast in the first quarter in 2019. This was partially offset by higher cash paid for income taxes. Net cash generated from continuing operating activities also benefited from lower cash paid for interest. Capital expenditures decreased due mainly to higher finance leasing.
Market Information
The following table sets out our estimates of the year-on-year changes in real GDP, real private consumption and the television advertising market, net of discounts, in our countries for the
three months
ended
March 31, 2019
:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2019
|
Country
|
Real GDP Growth
|
|
|
Real Private Consumption Growth
|
|
|
Net TV Ad Market Growth
|
|
Bulgaria
|
3.4
|
%
|
|
3.8
|
%
|
|
(0.3
|
)%
|
Czech Republic
|
2.7
|
%
|
|
2.9
|
%
|
|
0.4
|
%
|
Romania*
|
3.9
|
%
|
|
5.5
|
%
|
|
(11.7
|
)%
|
Slovak Republic
|
4.0
|
%
|
|
3.4
|
%
|
|
(2.9
|
)%
|
Slovenia
|
3.8
|
%
|
|
1.4
|
%
|
|
(0.7
|
)%
|
Total CME Ltd. Markets
|
3.5
|
%
|
|
3.7
|
%
|
|
(3.6
|
)%
|
* 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, in the first three months of 2019 we estimate that GDP grew in each of the countries in which we operate at a rate that exceeded the average growth rate for Western Europe, a trend that has been ongoing for more than four years. These growth rates are slightly lower than the same period in 2018, as exports have decreased slightly, which is reported to be connected to softness in the German economy, and uncertainty around the final terms under which the UK will exit the EU. However, domestic private consumption remains robust, supported by historically low unemployment and higher average wages, and analysts forecast this level of overall growth will be sustained for the duration of 2019.
We estimate that the TV advertising markets in the countries in which we operate
declined
overall by
4%
on average at constant rates in the
three months
ended
March 31, 2019
compared to the same period in
2018
. The significant market contraction in Romania reflected lower spending by advertisers directly impacted by new incremental taxes imposed in the first quarter of 2019 on certain sectors of the economy, including telecommunications and banking. The timing of Easter also contributed to fewer gross ratings points ("GRPs") being sold in the first quarter. The market in the Slovak Republic also declined, mainly due to lower year-on-year spending in March from the timing of Easter, however the decline from selling fewer GRPs in the quarter was mostly offset by higher average prices. The remaining markets were broadly flat in the first quarter, and overall trends related to spending in Bulgaria were consistent with the same period in 2018. In the Czech Republic, higher average prices more than offset selling fewer GRPs compared to last year, from both the timing of Easter and more spending around the Olympics in the first three months of 2018. In Slovenia there were fewer advertisements placed related to the timing of Easter, which was offset by higher spending from smaller advertisers, so fewer GRPs were sold but average prices increased.
With additional spending around Easter, we estimate our television advertising revenues rebounded in April 2019 across our segments resulting in growth overall at constant rates in the first four months of 2019 compared to the same period in 2018. We expect that trend to continue for the remainder of 2019, supported by a forecast of strong growth in real private consumption for the year. In Romania, there may be an ongoing impact on the level of demand from advertisers in the sectors affected by the new taxes implemented in the first quarter. Based on the level of spending commitments for 2019, we believe this will be largely offset by additional spending from other clients.
Segment Performance
Our total Net Revenues and OIBDA by segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET REVENUES
|
|
For the Three Months Ended March 31, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
2019
|
|
|
2018
|
|
|
% Act
|
|
|
% Lfl
|
|
Bulgaria
|
$
|
19,293
|
|
|
$
|
19,433
|
|
|
(0.7
|
)%
|
|
6.9
|
%
|
Czech Republic
|
50,316
|
|
|
51,534
|
|
|
(2.4
|
)%
|
|
6.4
|
%
|
Romania
|
38,810
|
|
|
45,961
|
|
|
(15.6
|
)%
|
|
(7.5
|
)%
|
Slovak Republic
|
21,332
|
|
|
22,953
|
|
|
(7.1
|
)%
|
|
0.1
|
%
|
Slovenia
|
17,850
|
|
|
17,530
|
|
|
1.8
|
%
|
|
9.6
|
%
|
Intersegment revenues
|
(1,042
|
)
|
|
(702
|
)
|
|
NM
(1)
|
|
|
NM
(1)
|
|
Total net revenues
|
$
|
146,559
|
|
|
$
|
156,709
|
|
|
(6.5
|
)%
|
|
1.6
|
%
|
|
|
(1)
|
Number is not meaningful.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDA
|
|
For the Three Months Ended March 31, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
2019
|
|
|
2018
|
|
|
% Act
|
|
|
% Lfl
|
|
Bulgaria
|
$
|
6,121
|
|
|
$
|
2,981
|
|
|
105.3
|
%
|
|
121.2
|
%
|
Czech Republic
|
14,947
|
|
|
15,370
|
|
|
(2.8
|
)%
|
|
6.1
|
%
|
Romania
|
17,533
|
|
|
18,893
|
|
|
(7.2
|
)%
|
|
1.7
|
%
|
Slovak Republic
|
1,729
|
|
|
1,103
|
|
|
56.8
|
%
|
|
71.5
|
%
|
Slovenia
|
4,931
|
|
|
4,653
|
|
|
6.0
|
%
|
|
14.1
|
%
|
Eliminations
|
48
|
|
|
16
|
|
|
NM
(1)
|
|
|
NM
(1)
|
|
Total operating segments
|
45,309
|
|
|
43,016
|
|
|
5.3
|
%
|
|
14.9
|
%
|
Corporate
|
(7,252
|
)
|
|
(7,692
|
)
|
|
5.7
|
%
|
|
(2.2
|
)%
|
Consolidated OIBDA
|
$
|
38,057
|
|
|
$
|
35,324
|
|
|
7.7
|
%
|
|
17.7
|
%
|
|
|
(1)
|
Number is not meaningful.
|
Bulgaria
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
2019
|
|
|
2018
|
|
|
% Act
|
|
|
% Lfl
|
|
Television advertising
|
$
|
12,590
|
|
|
$
|
13,132
|
|
|
(4.1
|
)%
|
|
3.3
|
%
|
Carriage fees and subscriptions
|
5,321
|
|
|
5,307
|
|
|
0.3
|
%
|
|
7.8
|
%
|
Other
|
1,382
|
|
|
994
|
|
|
39.0
|
%
|
|
49.4
|
%
|
Net revenues
|
19,293
|
|
|
19,433
|
|
|
(0.7
|
)%
|
|
6.9
|
%
|
Costs charged in arriving at OIBDA
|
13,172
|
|
|
16,452
|
|
|
(19.9
|
)%
|
|
(13.8
|
)%
|
OIBDA
|
$
|
6,121
|
|
|
$
|
2,981
|
|
|
105.3
|
%
|
|
121.2
|
%
|
|
|
|
|
|
|
|
|
OIBDA margin
|
31.7
|
%
|
|
15.3
|
%
|
|
16.4 p.p.
|
|
|
16.4 p.p.
|
|
We estimate the television advertising market in Bulgaria was broadly flat at constant rates in the
three months
ended
March 31, 2019
compared to the same period in 2018.
Our television advertising revenues increased on a constant currency basis in the first quarter of 2019 due to higher average prices, reflecting list price increases in the sales policy for 2019, as well as selling more GRPs. Carriage fees and subscription revenues increased due to price inflation in existing contracts and growth in the number of subscribers.
On a constant currency basis, costs charged in arriving at OIBDA decreased, primarily due to lower content costs. This included reduced sports rights, as we broadcast fewer UEFA Champions League matches, and no longer broadcast matches from the Italian Serie A League. We also replaced our locally produced telenovela broadcast in 2018 with a more cost effective foreign fiction title acquired from the region.
Czech Republic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
2019
|
|
|
2018
|
|
|
% Act
|
|
|
% Lfl
|
|
Television advertising
|
$
|
43,164
|
|
|
$
|
45,394
|
|
|
(4.9
|
)%
|
|
3.6
|
%
|
Carriage fees and subscriptions
|
4,268
|
|
|
3,920
|
|
|
8.9
|
%
|
|
18.6
|
%
|
Other
|
2,884
|
|
|
2,220
|
|
|
29.9
|
%
|
|
41.7
|
%
|
Net revenues
|
50,316
|
|
|
51,534
|
|
|
(2.4
|
)%
|
|
6.4
|
%
|
Costs charged in arriving at OIBDA
|
35,369
|
|
|
36,164
|
|
|
(2.2
|
)%
|
|
6.5
|
%
|
OIBDA
|
$
|
14,947
|
|
|
$
|
15,370
|
|
|
(2.8
|
)%
|
|
6.1
|
%
|
|
|
|
|
|
|
|
|
OIBDA margin
|
29.7
|
%
|
|
29.8
|
%
|
|
(0.1) p.p.
|
|
|
(0.1) p.p.
|
|
We estimate the television advertising market in the Czech Republic was broadly flat at constant rates in the
three months
ended
March 31, 2019
compared to the same period in 2018.
Our television advertising revenues increased on a constant currency basis in the first quarter due to higher average prices, reflecting list price increases in the sales policy for 2019. This was partially offset by selling fewer GRPs due in part to the timing of Easter compared to last year, and because in previous years advertisers had been shifting more spending into the traditionally slower period for advertising, which included spending around the Olympics in 2018. The later timing of Easter in 2019 is expected to improve growth in television advertising revenues in this segment in the second quarter. Carriage fees and subscription revenues increased on a constant currency basis due to an increase in the number of subscribers as well as price inflation in existing contracts.
Costs charged in arriving at OIBDA increased at constant rates in the quarter due to marketing activities to celebrate the 25th anniversary of TV Nova broadcasting in the Czech Republic. There was also an increase in staff costs related to personnel changes to support our digital initiatives.
Romania
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
2019
|
|
|
2018
|
|
|
% Act
|
|
|
% Lfl
|
|
Television advertising
|
$
|
26,550
|
|
|
$
|
33,430
|
|
|
(20.6
|
)%
|
|
(13.0
|
)%
|
Carriage fees and subscriptions
|
11,277
|
|
|
11,827
|
|
|
(4.7
|
)%
|
|
4.1
|
%
|
Other
|
983
|
|
|
704
|
|
|
39.6
|
%
|
|
52.2
|
%
|
Net revenues
|
38,810
|
|
|
45,961
|
|
|
(15.6
|
)%
|
|
(7.5
|
)%
|
Costs charged in arriving at OIBDA
|
21,277
|
|
|
27,068
|
|
|
(21.4
|
)%
|
|
(14.0
|
)%
|
OIBDA
|
$
|
17,533
|
|
|
$
|
18,893
|
|
|
(7.2
|
)%
|
|
1.7
|
%
|
|
|
|
|
|
|
|
|
OIBDA margin
|
45.2
|
%
|
|
41.1
|
%
|
|
4.1 p.p.
|
|
|
4.1 p.p.
|
|
The television advertising market in Romania
declined
an estimated
12%
at constant rates in the
three months
ended
March 31, 2019
compared to the same period in 2018.
Our television advertising revenues declined at constant rates in the first quarter due to lower spending by advertisers directly impacted by new incremental taxes imposed in the first quarter of 2019 on certain sectors of the economy, including telecommunications and banking. In the first three months of 2019, spending from clients in the affected sectors was roughly half the levels seen in the same period of 2018. The timing of Easter also contributed to selling fewer GRPs and lower average prices. The later timing of Easter in 2019 is expected to improve television advertising revenues in this segment in the second quarter. There may be an ongoing impact on the level of demand from advertisers in the sectors affected by the new taxes implemented in the first quarter. Based on the level of spending commitments for 2019, we believe this will be largely offset by additional spending from other clients. 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.
We reduced content costs by
5%
at constant rates, primarily from broadcasting more cost effective foreign acquired content and fewer sport rights, as we no longer broadcast UEFA Champions League matches. This was partially offset by additional episodes of certain local titles when compared to the schedule in 2018. Costs charged in arriving at OIBDA also decreased due to a reversal of a legal provision as well as lower bad debt charges resulting from related VAT recoverable due to a change in local legislation.
Slovak Republic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
2019
|
|
|
2018
|
|
|
% Act
|
|
|
% Lfl
|
|
Television advertising
|
$
|
17,933
|
|
|
$
|
19,840
|
|
|
(9.6
|
)%
|
|
(2.6
|
)%
|
Carriage fees and subscriptions
|
2,272
|
|
|
2,243
|
|
|
1.3
|
%
|
|
8.9
|
%
|
Other
|
1,127
|
|
|
870
|
|
|
29.5
|
%
|
|
39.3
|
%
|
Net revenues
|
21,332
|
|
|
22,953
|
|
|
(7.1
|
)%
|
|
0.1
|
%
|
Costs charged in arriving at OIBDA
|
19,603
|
|
|
21,850
|
|
|
(10.3
|
)%
|
|
(3.5
|
)%
|
OIBDA
|
$
|
1,729
|
|
|
$
|
1,103
|
|
|
56.8
|
%
|
|
71.5
|
%
|
|
|
|
|
|
|
|
|
OIBDA margin
|
8.1
|
%
|
|
4.8
|
%
|
|
3.3 p.p.
|
|
|
3.4 p.p.
|
|
The television advertising market in the Slovak Republic
declined
an estimated
3%
at constant rates in the
three months
ended
March 31, 2019
compared to the same period in 2018.
Our television advertising revenues decreased on a constant currency basis in the first quarter of 2019 due to less advertising being sold in March, resulting from the later timing of Easter in 2019 compared to last year. The decrease in volumes sold in the quarter was mostly offset by a significant increase in average prices, which reflected both higher prices in the sales policy for 2019 as well as more efficient delivery of inventory this year. The timing of Easter in 2019 is expected to improve growth in television advertising revenues in this segment in the second quarter. Carriage fees and subscriptions revenue increased from higher prices in new contracts.
On a constant currency basis, costs charged in arriving at OIBDA decreased during the quarter due to lower professional fees (see Item 1, Note 20 Commitments and Contingencies), lower personnel costs following the pooling of certain administrative functions with the Czech operations, and lower transmission fees. Content costs were broadly flat, as an increase in foreign content from more expensive movies was mostly offset by lower costs from local content as certain titles started later in the year when compared to the schedule in 2018.
Slovenia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
2019
|
|
|
2018
|
|
|
% Act
|
|
|
% Lfl
|
|
Television advertising
|
$
|
10,810
|
|
|
$
|
11,510
|
|
|
(6.1
|
)%
|
|
1.1
|
%
|
Carriage fees and subscriptions
|
6,412
|
|
|
5,267
|
|
|
21.7
|
%
|
|
31.0
|
%
|
Other
|
628
|
|
|
753
|
|
|
(16.6
|
)%
|
|
(10.3
|
)%
|
Net revenues
|
17,850
|
|
|
17,530
|
|
|
1.8
|
%
|
|
9.6
|
%
|
Costs charged in arriving at OIBDA
|
12,919
|
|
|
12,877
|
|
|
0.3
|
%
|
|
8.0
|
%
|
OIBDA
|
$
|
4,931
|
|
|
$
|
4,653
|
|
|
6.0
|
%
|
|
14.1
|
%
|
|
|
|
|
|
|
|
|
OIBDA margin
|
27.6
|
%
|
|
26.5
|
%
|
|
1.1 p.p.
|
|
|
1.1 p.p.
|
|
The television advertising market in Slovenia
declined
an estimated
1%
at constant rates in the
three months
ended
March 31, 2019
compared to the same period in 2018.
Our television advertising revenues increased on a constant currency basis in the quarter as spending from new smaller clients more than offset lower levels of advertising from larger multinationals that had spent more around the Olympics in 2018, as well as a reduction in ads placed related to the timing of Easter in 2019. This resulted in higher average prices that more than offset selling fewer GRPs. Carriage fees and subscription revenues increased due to price inflation in existing agreements, as well as growth in subscribers.
On a constant currency basis, costs charged in arriving at OIBDA increased in the first quarter due to higher content costs, as the spring season started earlier than in 2018 and more attractive foreign acquired titles were broadcast this year compared to last year.
III. Analysis of the Results of Operations and Financial Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
2019
|
|
|
2018
|
|
|
% Act
|
|
|
% Lfl
|
|
Revenue:
|
|
|
|
|
|
|
|
Television advertising
|
$
|
111,047
|
|
|
$
|
123,306
|
|
|
(9.9
|
)%
|
|
(2.1
|
)%
|
Carriage fees and subscriptions
|
29,550
|
|
|
28,564
|
|
|
3.5
|
%
|
|
12.2
|
%
|
Other revenue
|
5,962
|
|
|
4,839
|
|
|
23.2
|
%
|
|
33.3
|
%
|
Net Revenues
|
146,559
|
|
|
156,709
|
|
|
(6.5
|
)%
|
|
1.6
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
Content costs
|
70,360
|
|
|
78,460
|
|
|
(10.3
|
)%
|
|
(2.7
|
)%
|
Other operating costs
|
13,248
|
|
|
14,467
|
|
|
(8.4
|
)%
|
|
(0.7
|
)%
|
Depreciation of property, plant and equipment
|
8,226
|
|
|
8,387
|
|
|
(1.9
|
)%
|
|
6.3
|
%
|
Amortization of broadcast licenses and other intangibles
|
2,194
|
|
|
2,356
|
|
|
(6.9
|
)%
|
|
1.3
|
%
|
Cost of revenues
|
94,028
|
|
|
103,670
|
|
|
(9.3
|
)%
|
|
(1.6
|
)%
|
Selling, general and administrative expenses
|
24,894
|
|
|
28,458
|
|
|
(12.5
|
)%
|
|
(5.1
|
)%
|
Operating income
|
$
|
27,637
|
|
|
$
|
24,581
|
|
|
12.4
|
%
|
|
23.2
|
%
|
Revenue:
Television advertising revenues:
We estimate television advertising spending in our markets declined on average by
4%
at constant rates in the
three months
ended
March 31, 2019
as compared to the same period in
2018
, negatively 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 months
ended
March 31, 2019
grew approximately
12%
at constant rates as compared to the same periods in
2018
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 months
ended
March 31, 2019
as compared to the same periods in
2018
primarily due to higher online revenues in the Czech Republic and Romania.
Operating Expenses:
Content costs:
Content costs (including production costs and amortization and impairment of program rights) decreased during the
three months
ended
March 31, 2019
compared to the same period in
2018
primarily due to fewer sporting events and the use of more cost effective programming in Bulgaria and Romania, which was partially offset by the earlier start to local production and higher quality foreign fiction in Slovenia.
Other operating costs:
On a constant currency basis, 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) remained consistent during the three months ended
March 31, 2019
compared to the same period in
2018
.
Depreciation of property, plant and equipment:
Total depreciation of property, plant and equipment increased at constant rates during the
three months
ended
March 31, 2019
compared to the same period in
2018
primarily due to depreciation of machinery and equipment in Romania that was placed in service during 2018.
Amortization of broadcast licenses and other intangibles:
At constant rates, total amortization of broadcast licenses and other intangibles for the three months ended
March 31, 2019
increased when compared to the same period in
2018
primarily due to software investments in Bulgaria in 2019.
Selling, general and administrative expenses:
Selling, general and administrative expenses decreased during the three months ended
March 31, 2019
as compared to the same period in
2018
primarily due to the revision of a legal accrual as well as changes in local VAT legislation in Romania which were partially offset by costs incurred for the 25th anniversary event in the Czech Republic.
Non-cash stock-based compensation charges for the
three months
ended
March 31, 2019
and
2018
were US$
1.0
million and US$
$1.1
million, respectively. See Item 1,
Note 17, "Stock-based Compensation"
.
Operating income:
Operating income during the three months ended
March 31, 2019
increased compared to the same period in
2018
primarily due to increases in carriage fee revenues and the reduction in content costs.
Our operating margin, which is determined as operating income divided by net revenues, was
18.9%
and
15.7%
for the
three months
ended
March 31, 2019
and
2018
, respectively.
Other income / (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
March 31, (US$ 000's)
|
|
2019
|
|
|
2018
|
|
|
% Act
|
|
Interest expense
|
$
|
(8,242
|
)
|
|
$
|
(17,818
|
)
|
|
53.7
|
%
|
Other non-operating income / (expense):
|
|
|
|
|
|
Interest income
|
152
|
|
|
144
|
|
|
5.6
|
%
|
Foreign currency exchange (loss) / gain, net
|
(3,077
|
)
|
|
4,390
|
|
|
(170.1
|
)%
|
Change in fair value of derivatives
|
(36
|
)
|
|
(228
|
)
|
|
84.2
|
%
|
Loss on extinguishment of debt
|
(151
|
)
|
|
(109
|
)
|
|
(38.5
|
)%
|
Other income, net
|
15
|
|
|
11
|
|
|
36.4
|
%
|
Provision for income taxes
|
(4,547
|
)
|
|
(4,215
|
)
|
|
(7.9
|
)%
|
Income from discontinued operations, net of tax
|
—
|
|
|
316
|
|
|
NM
(1)
|
|
Net loss attributable to noncontrolling interests
|
7
|
|
|
178
|
|
|
(96.1
|
)%
|
|
|
(1)
|
Number is not meaningful.
|
Interest expense:
Interest expense during the
three months
ended
March 31, 2019
decreased compared to the same periods in 2018. 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 4, "Long-term Debt and Other Financing Arrangements"
.
Interest income:
Interest income primarily reflects earnings on cash balances and was not material.
Foreign currency exchange (loss) / gain, net
:
We are exposed to fluctuations in foreign exchange rates on the revaluation of monetary assets and liabilities denominated in currencies other than the local functional currency of the relevant subsidiary. This includes third party receivables and payables, as well as certain of our intercompany loans which are not considered of a long-term investment nature. Our subsidiaries generally receive funding via loans that are denominated in currencies other than the 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.
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
March 31, (US$ 000's)
|
|
2019
|
|
|
2018
|
|
Revaluation of intercompany loans
|
$
|
(180
|
)
|
|
$
|
269
|
|
Transaction (losses) / gains on long-term debt and other financing arrangements
|
(727
|
)
|
|
2,020
|
|
Transactional (losses) / gains on evaluation of monetary assets and liabilities
|
(2,170
|
)
|
|
2,101
|
|
Transaction (losses) / gains
|
$
|
(3,077
|
)
|
|
$
|
4,390
|
|
Change in fair value of derivatives:
During the
three months
ended
March 31, 2019
, and
2018
we recognized losses as a result of the partial settlement of our interest rate swaps in connection with the repayment of debt. See Item 1,
Note 12, "Financial Instruments and Fair Value Measurements"
.
Loss on extinguishment of debt:
During the
three months
ended
March 31, 2019
, we recognized losses on extinguishment of debt related to our partial repayment of the 2021 Euro Loan.
Other income, net
:
Our other income / expense, net during the
three months
ended
March 31, 2019
and
2018
was not material.
Provision for income taxes
:
The provision for income taxes for the
three months
ended
March 31, 2019
reflects income tax charges on profits in Bulgaria, the Czech Republic, Romania and Slovenia and the impact of losses on which no tax benefit has been received.
The provision for income taxes for the
three months
ended
March 31, 2018
reflects income tax charges on profits in the Czech Republic, Romania and Slovenia 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,
19%
in Slovenia and
21%
in the Slovak Republic.
Income from discontinued operations, net of tax
:
Income from discontinued operations, net of tax for the
three months
ended
March 31, 2018
is the operating result of the Croatia operations which were sold on July 31, 2018.
Net loss attributable to noncontrolling interests
:
The results attributable to noncontrolling interests for the
three months
ended
March 31, 2019
and
2018
relate to the noncontrolling interest share of our Bulgaria operations.
Other comprehensive (loss) / income:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
March 31, (US$ 000's)
|
|
2019
|
|
|
2018
|
|
|
% Act
|
|
Currency translation adjustment, net
|
$
|
(15,843
|
)
|
|
$
|
11,785
|
|
|
(234.4
|
)%
|
Unrealized (loss) / gain on derivative instruments
|
(3,331
|
)
|
|
191
|
|
|
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 (loss) / income due to currency translation adjustment, net comprised the following for the
three months
ended
March 31, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
March 31, (US$ 000's)
|
|
2019
|
|
|
2018
|
|
|
% Act
|
Foreign exchange (loss) / gain on intercompany transactions
|
$
|
(612
|
)
|
|
$
|
1,531
|
|
|
NM
(1)
|
Foreign exchange (loss) / gain on the Series B Preferred Shares
|
(5,106
|
)
|
|
7,151
|
|
|
NM
(1)
|
Currency translation adjustment
|
(10,125
|
)
|
|
3,103
|
|
|
NM
(1)
|
Currency translation adjustment, net
|
$
|
(15,843
|
)
|
|
$
|
11,785
|
|
|
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
three months
ended
March 31, 2019
and
March 31, 2018
.
Percent Change During the
Three Months
Ended
March 31, 2019
Percent Change During the
Three Months
Ended
March 31, 2018
Unrealized (loss) / gain on derivative instruments
:
The unrealized (loss) / gain on derivatives is due to the portion of changes in the fair value of our interest rate swaps designated as cash flow hedges and recognized in accumulated other comprehensive (loss) / income. See Item 1,
Note 12, "Financial Instruments and Fair Value Measurements"
.
Condensed consolidated balance sheets as at
March 31, 2019
and
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Balance Sheet (US$ 000’s)
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
|
% Act
|
|
|
% Lfl
|
|
Current assets
|
$
|
343,130
|
|
|
$
|
374,093
|
|
|
(8.3
|
)%
|
|
(5.8
|
)%
|
Non-current assets
|
1,102,539
|
|
|
1,114,268
|
|
|
(1.1
|
)%
|
|
1.4
|
%
|
Current liabilities
|
171,477
|
|
|
139,692
|
|
|
22.8
|
%
|
|
25.9
|
%
|
Non-current liabilities
|
782,220
|
|
|
849,978
|
|
|
(8.0
|
)%
|
|
(6.2
|
)%
|
Temporary equity
|
269,370
|
|
|
269,370
|
|
|
—
|
%
|
|
—
|
%
|
CME Ltd. shareholders’ equity
|
222,171
|
|
|
229,020
|
|
|
NM
(1)
|
|
|
NM
(1)
|
|
Noncontrolling interests in consolidated subsidiaries
|
431
|
|
|
301
|
|
|
43.2
|
%
|
|
(1.6
|
)%
|
|
|
(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, 2018
, excluding the impact of foreign currency translation.
Current assets:
Current assets at
March 31, 2019
decreased from
December 31, 2018
primarily due to a reduction in accounts receivable caused by seasonality and other market trends of our business which was partially offset by customer prepayments on their 2019 advertising campaigns.
Non-current assets:
Non-current assets at
March 31, 2019
increased at constant rates from
December 31, 2018
primarily due to the inclusion of operating lease right-of-use assets as a result of adopting new accounting guidance as well as investments in program rights.
Current liabilities:
Current liabilities at
March 31, 2019
increased from
December 31, 2018
primarily due to increases in programming and production-related payables and accrued guarantee fees.
Non-current liabilities:
Non-current liabilities at
March 31, 2019
decreased from
December 31, 2018
primarily due to the repayment of amounts outstanding on the 2021 Euro Loan. See Item 1,
Note 4, "Long-term Debt and Other Financing Arrangements"
.
Temporary equity:
Temporary equity at
March 31, 2019
and
December 31, 2018
represents the accreted value of the Series B Preferred Shares.
CME Ltd. shareholders’ equity
:
The decrease in shareholders' equity primarily reflects the net income attributable to CME Ltd. during the
three months
ended
March 31, 2019
which was more than offset by the impact of currency translation adjustments in accumulated other comprehensive loss.
Noncontrolling interests in consolidated subsidiaries:
Noncontrolling interests in consolidated subsidiaries represents the noncontrolling interest in Bulgaria.
IV. Liquidity and Capital Resources
IV (a) Summary of Cash Flows
Cash and cash equivalents
increased
by US$
18.0 million
during the
three months
ended
March 31, 2019
. The change in cash and cash equivalents for the periods presented below is summarized as follows:
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, (US$ 000's)
|
|
2019
|
|
|
2018
|
|
Net cash generated from continuing operating activities
|
$
|
96,009
|
|
|
$
|
71,495
|
|
Net cash used in continuing investing activities
|
(4,359
|
)
|
|
(5,353
|
)
|
Net cash used in continuing financing activities
|
(71,736
|
)
|
|
(60,526
|
)
|
Net cash provided by discontinued operations
|
—
|
|
|
9,554
|
|
Impact of exchange rate fluctuations on cash and cash equivalents
|
(1,913
|
)
|
|
2,515
|
|
Net increase in cash and cash equivalents
|
$
|
18,001
|
|
|
$
|
17,685
|
|
Operating Activities
Net cash generated from continuing operations increased during the
three months
ended
March 31, 2019
when compared to the same period in 2018. We saw an increase in cash collections from improved operating performance and lower payments for programming. We paid cash interest (including mandatory cash-pay Guarantee Fees) of US$
3.1 million
during the
three months
ended
March 31, 2019
compared to US$
4.9 million
during the
three months
ended
March 31, 2018
.
Investing Activities
Net cash used in continuing investing activities for the
three months
ended
March 31, 2019
and 2018 primarily reflects asset additions in the Czech Republic and Slovenia.
Financing Activities
Net cash used in continuing financing activities during the
three months
ended
March 31, 2019
primarily reflects principal repayments made on our obligations under the 2021 Euro Loan. Cash used in continuing financing activities during the
three months
ended
March 31, 2018
primarily reflected principal repayments made on our then outstanding obligation under the 2019 Euro Loan.
Discontinued Operations
The net cash provided by discontinued operations during the
three months
ended
March 31, 2018
reflects the result of our Croatia operations which were sold on July 31, 2018.
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
March 31, 2019
, we also had available the aggregate principal amount of US$
75.0 million
under the 2023 Revolving Credit Facility (see Item 1,
Note 4, "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
March 31, 2019
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
|
$
|
695,599
|
|
|
$
|
—
|
|
|
$
|
168,902
|
|
|
$
|
526,697
|
|
|
$
|
—
|
|
Long-term debt – interest
|
142,015
|
|
|
27,340
|
|
|
53,142
|
|
|
61,533
|
|
|
—
|
|
Unconditional purchase obligations
|
76,195
|
|
|
24,231
|
|
|
39,670
|
|
|
11,582
|
|
|
712
|
|
Operating lease obligations
|
14,023
|
|
|
3,930
|
|
|
4,947
|
|
|
2,620
|
|
|
2,526
|
|
Finance lease obligations
|
16,092
|
|
|
6,072
|
|
|
8,940
|
|
|
1,070
|
|
|
10
|
|
Other long-term obligations
|
25,711
|
|
|
12,177
|
|
|
8,404
|
|
|
5,130
|
|
|
—
|
|
Total contractual obligations
|
$
|
969,635
|
|
|
$
|
73,750
|
|
|
$
|
284,005
|
|
|
$
|
608,632
|
|
|
$
|
3,248
|
|
Long-Term Debt
For more information on our long-term debt, see Item 1,
Note 4, "Long-term Debt and Other Financing Arrangements"
. Interest payable on our long-term debt is calculated using interest rates and exchange rates in effect as at
March 31, 2019
.
Unconditional Purchase Obligations
Unconditional purchase obligations primarily comprise future programming commitments. At
March 31, 2019
, we had commitments in respect of future programming of US$
76.2 million
. This includes contracts signed with license periods starting after
March 31, 2019
.
Operating and Finance Leases
For more information on our operating and finance lease commitments, see Item 1,
Note 11, "Leases"
.
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
For the three months ending March 31, 2019, net cash generated from continuing operations and unlevered free cash flow were US$
96.0 million
and US$
94.7 million
compared to US$
71.5 million
and US$
71.0 million
for the three months ended March 31, 2018 (See Section II, Overview). As at
March 31, 2019
, we had US$
80.0 million
in cash and cash equivalents.
On January 31, 2019, we paid EUR
60.0 million
(approximately US$
68.9 million
at January 31, 2019 rates) of the outstanding principal balance of the 2021 Euro Loan with cash generated by our operations. We expect cash paid for interest and Guarantee Fees to decline in 2019 compared to 2018 due to the reduction in our overall indebtedness and a lower weighted average all-in rate.
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 to continue to increase in 2019 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.
As at
March 31, 2019
, the weighted average all-in rate (comprising interest and Guarantee Fees) applicable to the Euro Loans was approximately 3.6%, all of which is payable in cash. As at
March 31, 2019
, our net leverage ratio improved to
3.0x
from 3.5x at December 31, 2018.
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.
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, we may decide to enter into pay-Euro receive-dollar forward foreign exchange contracts. We entered no such agreements during the period ending
March 31, 2019
.
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, 2018
filed with the Securities and Exchange Commission ("SEC") on
February 6, 2019
. 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, leases, 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.