Item 1. Financial Statements
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(US$ 000’s, except share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
ASSETS
|
|
|
|
Current assets
|
|
|
|
Cash and cash equivalents
|
$
|
46,442
|
|
|
$
|
61,679
|
|
Accounts receivable, net (Note 6)
|
167,704
|
|
|
167,427
|
|
Program rights, net (Note 5)
|
89,238
|
|
|
85,972
|
|
Other current assets (Note 7)
|
29,999
|
|
|
43,206
|
|
Total current assets
|
333,383
|
|
|
358,284
|
|
Non-current assets
|
|
|
|
|
|
Property, plant and equipment, net (Note 8)
|
105,644
|
|
|
108,522
|
|
Program rights, net (Note 5)
|
179,342
|
|
|
169,073
|
|
Goodwill (Note 3)
|
632,740
|
|
|
622,243
|
|
Broadcast licenses and other intangible assets, net (Note 3)
|
149,675
|
|
|
151,162
|
|
Other non-current assets (Note 7)
|
21,169
|
|
|
31,133
|
|
Total non-current assets
|
1,088,570
|
|
|
1,082,133
|
|
Total assets
|
$
|
1,421,953
|
|
|
$
|
1,440,417
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
Current liabilities
|
|
|
|
Accounts payable and accrued liabilities (Note 9)
|
$
|
137,378
|
|
|
$
|
134,705
|
|
Current portion of long-term debt and other financing arrangements (Note 4)
|
1,157
|
|
|
1,155
|
|
Other current liabilities (Note 10)
|
24,664
|
|
|
10,448
|
|
Total current liabilities
|
163,199
|
|
|
146,308
|
|
Non-current liabilities
|
|
|
|
|
|
Long-term debt and other financing arrangements (Note 4)
|
1,053,443
|
|
|
908,521
|
|
Other non-current liabilities (Note 10)
|
56,857
|
|
|
65,749
|
|
Total non-current liabilities
|
1,110,300
|
|
|
974,270
|
|
Commitments and contingencies (Note 19)
|
|
|
|
|
|
TEMPORARY EQUITY
|
|
|
|
200,000 shares of Series B Convertible Redeemable Preferred Stock of $0.08 each (December 31, 2015 - 200,000) (Note 12)
|
250,148
|
|
|
241,198
|
|
EQUITY
|
|
|
|
|
|
CME Ltd. shareholders’ equity (Note 13):
|
|
|
|
|
|
One share of Series A Convertible Preferred Stock of $0.08 each (December 31, 2015 – one)
|
—
|
|
|
—
|
|
141,454,534 shares of Class A Common Stock of $0.08 each (December 31, 2015 – 135,804,221)
|
11,316
|
|
|
10,864
|
|
Nil shares of Class B Common Stock of $0.08 each (December 31, 2015 – nil)
|
—
|
|
|
—
|
|
Additional paid-in capital
|
1,911,425
|
|
|
1,914,050
|
|
Accumulated deficit
|
(1,786,997
|
)
|
|
(1,605,245
|
)
|
Accumulated other comprehensive loss
|
(238,483
|
)
|
|
(242,409
|
)
|
Total CME Ltd. shareholders’ (deficit) / equity
|
(102,739
|
)
|
|
77,260
|
|
Noncontrolling interests
|
1,045
|
|
|
1,381
|
|
Total (deficit) / equity
|
(101,694
|
)
|
|
78,641
|
|
Total liabilities and equity
|
$
|
1,421,953
|
|
|
$
|
1,440,417
|
|
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 June 30,
|
|
For the Six Months Ended June 30,
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Net revenues
|
$
|
175,206
|
|
|
$
|
166,834
|
|
|
$
|
304,206
|
|
|
$
|
292,967
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Content costs
|
77,282
|
|
|
73,437
|
|
|
149,260
|
|
|
144,727
|
|
Other operating costs
|
17,939
|
|
|
17,422
|
|
|
34,393
|
|
|
34,460
|
|
Depreciation of property, plant and equipment
|
7,627
|
|
|
6,936
|
|
|
14,912
|
|
|
13,937
|
|
Amortization of broadcast licenses and other intangibles
|
2,114
|
|
|
3,434
|
|
|
4,174
|
|
|
6,933
|
|
Cost of revenues
|
104,962
|
|
|
101,229
|
|
|
202,739
|
|
|
200,057
|
|
Selling, general and administrative expenses
|
26,353
|
|
|
28,712
|
|
|
49,813
|
|
|
72,613
|
|
Restructuring costs
|
—
|
|
|
452
|
|
|
—
|
|
|
1,095
|
|
Operating income
|
43,891
|
|
|
36,441
|
|
|
51,654
|
|
|
19,202
|
|
Interest expense (Note 14)
|
(29,545
|
)
|
|
(41,746
|
)
|
|
(78,699
|
)
|
|
(81,864
|
)
|
Loss on extinguishment of debt (Note 4)
|
(150,158
|
)
|
|
—
|
|
|
(150,158
|
)
|
|
—
|
|
Non-operating (expense) / income, net (Note 15)
|
(167
|
)
|
|
(2,904
|
)
|
|
1,249
|
|
|
(15,645
|
)
|
Loss before tax
|
(135,979
|
)
|
|
(8,209
|
)
|
|
(175,954
|
)
|
|
(78,307
|
)
|
Provision for income taxes
|
(5,270
|
)
|
|
(3,460
|
)
|
|
(5,989
|
)
|
|
(3,605
|
)
|
Loss from continuing operations
|
(141,249
|
)
|
|
(11,669
|
)
|
|
(181,943
|
)
|
|
(81,912
|
)
|
Income / (loss) from discontinued operations, net of tax
|
—
|
|
|
2,684
|
|
|
—
|
|
|
(604
|
)
|
Net loss
|
(141,249
|
)
|
|
(8,985
|
)
|
|
(181,943
|
)
|
|
(82,516
|
)
|
Net (income) / loss attributable to noncontrolling interests
|
(68
|
)
|
|
307
|
|
|
191
|
|
|
564
|
|
Net loss attributable to CME Ltd.
|
$
|
(141,317
|
)
|
|
$
|
(8,678
|
)
|
|
$
|
(181,752
|
)
|
|
$
|
(81,952
|
)
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(141,249
|
)
|
|
$
|
(8,985
|
)
|
|
$
|
(181,943
|
)
|
|
$
|
(82,516
|
)
|
Other comprehensive income / (loss):
|
|
|
|
|
|
|
|
Currency translation adjustment
|
(11,056
|
)
|
|
39,581
|
|
|
8,002
|
|
|
(64,183
|
)
|
Unrealized (loss) / gain on derivative instruments (Note 11)
|
(2,973
|
)
|
|
533
|
|
|
(4,221
|
)
|
|
(74
|
)
|
Total other comprehensive (loss) / income
|
(14,029
|
)
|
|
40,114
|
|
|
3,781
|
|
|
(64,257
|
)
|
Comprehensive (loss) / income
|
(155,278
|
)
|
|
31,129
|
|
|
(178,162
|
)
|
|
(146,773
|
)
|
Comprehensive (income) / loss attributable to noncontrolling interests
|
(237
|
)
|
|
639
|
|
|
336
|
|
|
(210
|
)
|
Comprehensive (loss) / income attributable to CME Ltd.
|
$
|
(155,515
|
)
|
|
$
|
31,768
|
|
|
$
|
(177,826
|
)
|
|
$
|
(146,983
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PER SHARE DATA (Note 17):
|
|
|
|
|
|
|
|
Net (loss) / income per share:
|
|
|
|
|
|
|
|
Continuing operations attributable to CME Ltd. - Basic and diluted
|
$
|
(0.98
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(1.29
|
)
|
|
$
|
(0.61
|
)
|
Discontinued operations attributable to CME Ltd. - Basic and diluted
|
0.00
|
|
|
0.02
|
|
|
0.00
|
|
|
(0.01
|
)
|
Net loss attributable to CME Ltd. - Basic and diluted
|
(0.98
|
)
|
|
(0.09
|
)
|
|
(1.29
|
)
|
|
(0.62
|
)
|
|
|
|
|
|
|
|
|
Weighted average common shares used in computing per share amounts (000’s):
|
|
|
|
|
|
|
|
Basic and diluted
|
149,083
|
|
|
146,743
|
|
|
148,080
|
|
|
146,675
|
|
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 / (Deficit)
|
|
BALANCE
December 31, 2015
|
1
|
|
$
|
—
|
|
|
135,804,221
|
|
$
|
10,864
|
|
|
—
|
|
$
|
—
|
|
$
|
1,914,050
|
|
$
|
(1,605,245
|
)
|
$
|
(242,409
|
)
|
$
|
1,381
|
|
$
|
78,641
|
|
Stock-based compensation
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
1,717
|
|
—
|
|
—
|
|
—
|
|
1,717
|
|
Exercise of warrants (Note 13)
|
—
|
|
—
|
|
|
5,059,639
|
|
405
|
|
|
—
|
|
—
|
|
4,655
|
|
—
|
|
—
|
|
—
|
|
5,060
|
|
Share issuance, stock-based compensation
|
—
|
|
—
|
|
|
590,674
|
|
47
|
|
|
—
|
|
—
|
|
(47
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
Preferred dividend paid in kind
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
(8,950
|
)
|
—
|
|
—
|
|
—
|
|
(8,950
|
)
|
Net loss
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
(181,752
|
)
|
—
|
|
(191
|
)
|
(181,943
|
)
|
Unrealized loss on derivative instruments
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(4,221
|
)
|
—
|
|
(4,221
|
)
|
Currency translation adjustment
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
8,147
|
|
(145
|
)
|
8,002
|
|
BALANCE
June 30, 2016
|
1
|
|
$
|
—
|
|
|
141,454,534
|
|
$
|
11,316
|
|
|
—
|
|
$
|
—
|
|
$
|
1,911,425
|
|
$
|
(1,786,997
|
)
|
$
|
(238,483
|
)
|
$
|
1,045
|
|
$
|
(101,694
|
)
|
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 Six Months Ended June 30,
|
|
2016
|
|
|
2015
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
Net loss
|
$
|
(181,943
|
)
|
|
$
|
(82,516
|
)
|
Adjustments to reconcile net loss to net cash generated from continuing operating activities:
|
|
|
|
|
Loss from discontinued operations, net of tax
|
—
|
|
|
604
|
|
Amortization of program rights
|
149,260
|
|
|
142,972
|
|
Depreciation and other amortization
|
38,232
|
|
|
47,044
|
|
Interest paid in kind
|
22,257
|
|
|
43,681
|
|
Loss on extinguishment of debt (Note 4)
|
150,158
|
|
|
—
|
|
Loss on disposal of fixed assets
|
17
|
|
|
3,280
|
|
Deferred income taxes
|
5,972
|
|
|
2,996
|
|
Stock-based compensation (Note 16)
|
1,717
|
|
|
992
|
|
Change in fair value of derivatives
|
11,219
|
|
|
2,241
|
|
Foreign currency exchange (gain) / loss, net
|
(13,177
|
)
|
|
564
|
|
Changes in assets and liabilities:
|
|
|
|
|
Accounts receivable, net
|
1,499
|
|
|
2,774
|
|
Accounts payable and accrued liabilities
|
(5,914
|
)
|
|
(7,417
|
)
|
Program rights
|
(153,497
|
)
|
|
(148,217
|
)
|
Other assets and liabilities
|
(326
|
)
|
|
(850
|
)
|
Accrued interest
|
(18,713
|
)
|
|
2,367
|
|
Income taxes payable
|
(225
|
)
|
|
(263
|
)
|
Deferred revenue
|
14,407
|
|
|
12,948
|
|
VAT and other taxes payable
|
(3,394
|
)
|
|
18,322
|
|
Net cash generated from continuing operating activities
|
$
|
17,549
|
|
|
$
|
41,522
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
Purchase of property, plant and equipment
|
$
|
(11,287
|
)
|
|
$
|
(14,462
|
)
|
Disposal of property, plant and equipment
|
32
|
|
|
74
|
|
Net cash used in continuing investing activities
|
$
|
(11,255
|
)
|
|
$
|
(14,388
|
)
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
Proceeds from debt
|
$
|
533,963
|
|
|
$
|
—
|
|
Repayment of debt
|
(540,699
|
)
|
|
—
|
|
Debt transaction costs
|
(9,541
|
)
|
|
(627
|
)
|
Payment of credit facilities and capital leases
|
(647
|
)
|
|
(26,726
|
)
|
Settlement of forward currency swaps
|
(12,106
|
)
|
|
—
|
|
Proceeds from exercise of warrants
|
5,060
|
|
|
—
|
|
Net cash used in continuing financing activities
|
$
|
(23,970
|
)
|
|
$
|
(27,353
|
)
|
|
|
|
|
Net cash used in discontinued operations - operating activities
|
—
|
|
|
(1,630
|
)
|
Net cash provided by discontinued operations - investing activities
|
705
|
|
|
6,954
|
|
Net cash used in discontinued operations - financing activities
|
—
|
|
|
(56
|
)
|
|
|
|
|
Impact of exchange rate fluctuations on cash and cash equivalents
|
1,734
|
|
|
(1,334
|
)
|
Net (decrease) / increase in cash and cash equivalents
|
$
|
(15,237
|
)
|
|
$
|
3,715
|
|
CASH AND CASH EQUIVALENTS, beginning of period
|
61,679
|
|
|
34,298
|
|
CASH AND CASH EQUIVALENTS, end of period
|
$
|
46,442
|
|
|
$
|
38,013
|
|
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)
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
Cash paid for interest
|
$
|
35,712
|
|
|
$
|
9,264
|
|
Cash paid for Guarantee Fees
|
20,000
|
|
|
—
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
|
|
|
|
Accretion on Series B Convertible Redeemable Preferred Stock
|
$
|
8,950
|
|
|
$
|
8,405
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
1. ORGANIZATION AND BUSINESS
Central European Media Enterprises Ltd., a Bermuda company limited by shares, is a media and entertainment company operating in Central and Eastern Europe. Our assets are held through a series of Dutch and Curaçao holding companies. We manage our business on a geographical basis, with
six
operating segments, Bulgaria, Croatia, the Czech Republic, Romania, the Slovak Republic and Slovenia, which are also our reportable segments and our main operating countries. See
Note 18, "Segment Data"
for financial information by segment.
We have market leading broadcast operations in
six
countries in Central and Eastern Europe broadcasting a total of
36
television channels. Each country also develops and produces content for their television channels. We generate advertising revenues in our country operations primarily through entering into agreements with advertisers, advertising agencies and sponsors to place advertising on the television channels that we operate. We generate additional revenues by collecting fees from cable and direct-to-home (“DTH”) operators for carriage of our channels. Unless otherwise indicated, we own
100%
of our broadcast operating and license companies in each country.
Bulgaria
We operate
one
general entertainment channel, BTV, and
five
other channels, BTV CINEMA, BTV COMEDY, RING, BTV ACTION and BTV LADY. We own
94.0%
of CME Bulgaria B.V. ("CME Bulgaria"), the subsidiary that owns our Bulgaria operations.
Croatia
We operate
one
general entertainment channel, NOVA TV (Croatia), and
three
other channels, DOMA (Croatia), NOVA WORLD and MINI TV.
Czech Republic
We operate
one
general entertainment channel, TV NOVA (Czech Republic), and
seven
other channels, NOVA CINEMA, NOVA SPORT 1, NOVA SPORT 2, FANDA, SMICHOV, TELKA and NOVA INTERNATIONAL, a general entertainment channel broadcasting in the Slovak Republic launched on February 1, 2016.
Romania
We operate
one
general entertainment channel, PRO TV, and
eight
other channels, ACASA, ACASA GOLD, PRO CINEMA, SPORT.RO, MTV ROMANIA, PRO TV INTERNATIONAL, PRO TV CHISINAU, a general entertainment channel broadcasting in Moldova, and ACASA IN MOLDOVA.
Slovak Republic
We operate
one
general entertainment channel, TV MARKIZA, and
three
other channels, DOMA (Slovak Republic), DAJTO, and MARKIZA INTERNATIONAL, a general entertainment channel broadcasting in the Czech Republic launched on February 1, 2016.
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 Bulgarian leva; all references to “HRK” are to Croatian kuna; all references to “CZK” are to Czech koruna; all references to “RON” are to the New Romanian lei; and all references to “Euro” or “EUR” are to the European Union Euro.
Interim Financial Statements
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Quarterly Report on Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles in the United States of America (“US GAAP”). Amounts as of
December 31, 2015
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, 2015
filed with the Securities and Exchange Commission ("SEC") on
February 22, 2016
. Our significant accounting policies have not changed since
December 31, 2015
, except as noted below.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring items, necessary for their fair presentation in conformity with US GAAP for complete financial statements. The results of operations for interim periods are not necessarily indicative of the results to be expected for a full year.
Functional Currency
Following the refinancing of the remaining outstanding dollar-denominated debt with Euro-denominated debt, CME Ltd.'s income and expenses are primarily denominated in Euro. It is anticipated that CME Ltd.'s cash flows will primarily be in Euros. Accordingly, management has determined that CME Ltd.'s functional currency is the Euro with effect from April 1, 2016. As a result of this change, we recognized US$
4.2 million
of currency translation adjustment due to the translation of non-monetary assets into Euro as of the date of the change. Our reporting currency continues to be the U.S. dollar.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
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.
Recent Accounting Pronouncements
Accounting Pronouncements Adopted
On January 1, 2016 we adopted the following guidance issued by the Financial Accounting Standards Board (the “FASB”):
In November 2014, the FASB issued guidance which standardizes the method used in the accounting for hybrid financial instruments issued in the form of a share. The guidance requires an entity to consider all relevant terms and features in evaluating the nature of the host contract in a hybrid financial instrument, including the embedded derivative feature being evaluated for bifurcation. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.
In April 2015, the FASB issued guidance which simplifies the balance sheet presentation of debt issuance costs. The guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction of the carrying amount of that liability. The retrospective adoption of this guidance decreased our other non-current assets as at December 31, 2015 by US$
13.8 million
, with a corresponding decrease in our long-term debt and other financing arrangements in our condensed consolidated balance sheet, with no impact to our condensed consolidated statements of operations and comprehensive income / loss or condensed consolidated statements of cash flows. Certain amounts in the prior year's condensed consolidated balance sheets have been reclassified to conform to the current year presentation.
In November 2015, the FASB issued guidance which requires that deferred tax balances be classified as non-current in our condensed consolidated balance sheet. The prospective adoption of this guidance did not have any effect on our net deferred income tax liability. Prior period amounts have not been adjusted.
Recent Accounting Pronouncements Issued
In May 2014, the FASB issued new guidance which is intended to improve the comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets. The guidance supersedes existing revenue recognition guidance and requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance is effective for our fiscal year beginning January 1, 2018. We are currently in the process of evaluating the impact of the adoption of this guidance on our condensed consolidated financial statements.
In February 2016, the FASB issued new guidance to increase transparency and comparability among organizations by recognizing leasing assets and liabilities on the balance sheet and requiring additional disclosures about an entity's leasing arrangements. The guidance requires that a lessee recognize a liability to make lease payments and a right-of-use asset, with an available exception for leases shorter than twelve months. The guidance is effective for our fiscal year beginning January 1, 2019. We are currently in the process of evaluating the impact of the adoption of this guidance on our condensed consolidated financial statements.
In March 2016, the FASB issued new guidance which is intended to simplify accounting for share-based payment transactions, specifically with regard to income taxes, the classification as either equity or liabilities and the presentation in the statement of cash flows. The guidance is effective for our fiscal year beginning January 1, 2017. We are currently in the process of evaluating the impact of the adoption of this guidance on our condensed consolidated financial statements.
3. GOODWILL AND INTANGIBLE ASSETS
Goodwill:
Goodwill by reporting unit as at
June 30, 2016
and
December 31, 2015
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bulgaria
|
|
Croatia
|
|
Czech Republic
|
|
Romania
|
|
Slovak Republic
|
|
Slovenia
|
|
Total
|
Gross Balance, December 31, 2015
|
$
|
172,365
|
|
|
$
|
11,005
|
|
|
$
|
759,491
|
|
|
$
|
85,443
|
|
|
$
|
47,605
|
|
|
$
|
19,400
|
|
|
$
|
1,095,309
|
|
Accumulated impairment losses
|
(144,639
|
)
|
|
(10,454
|
)
|
|
(287,545
|
)
|
|
(11,028
|
)
|
|
—
|
|
|
(19,400
|
)
|
|
(473,066
|
)
|
Balance, December 31, 2015
|
27,726
|
|
|
551
|
|
|
471,946
|
|
|
74,415
|
|
|
47,605
|
|
|
—
|
|
|
622,243
|
|
Foreign currency
|
447
|
|
|
16
|
|
|
7,549
|
|
|
1,544
|
|
|
941
|
|
|
—
|
|
|
10,497
|
|
Balance, June 30, 2016
|
28,173
|
|
|
567
|
|
|
479,495
|
|
|
75,959
|
|
|
48,546
|
|
|
—
|
|
|
632,740
|
|
Accumulated impairment losses
|
(144,639
|
)
|
|
(10,454
|
)
|
|
(287,545
|
)
|
|
(11,028
|
)
|
|
—
|
|
|
(19,400
|
)
|
|
(473,066
|
)
|
Gross Balance, June 30, 2016
|
$
|
172,812
|
|
|
$
|
11,021
|
|
|
$
|
767,040
|
|
|
$
|
86,987
|
|
|
$
|
48,546
|
|
|
$
|
19,400
|
|
|
$
|
1,105,806
|
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
Broadcast licenses and other intangible assets:
The gross value and accumulated amortization of broadcast licenses and other intangible assets was as follows as at
June 30, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
December 31, 2015
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
Indefinite-lived:
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
$
|
84,641
|
|
|
$
|
—
|
|
|
$
|
84,641
|
|
|
$
|
83,188
|
|
|
$
|
—
|
|
|
$
|
83,188
|
|
Amortized:
|
|
|
|
|
|
|
|
|
|
|
|
Broadcast licenses
|
194,951
|
|
|
(133,266
|
)
|
|
61,685
|
|
|
191,860
|
|
|
(127,613
|
)
|
|
64,247
|
|
Trademarks
|
627
|
|
|
(627
|
)
|
|
—
|
|
|
614
|
|
|
(614
|
)
|
|
—
|
|
Customer relationships
|
54,099
|
|
|
(51,112
|
)
|
|
2,987
|
|
|
53,120
|
|
|
(49,672
|
)
|
|
3,448
|
|
Other
|
1,762
|
|
|
(1,400
|
)
|
|
362
|
|
|
2,138
|
|
|
(1,859
|
)
|
|
279
|
|
Total
|
$
|
336,080
|
|
|
$
|
(186,405
|
)
|
|
$
|
149,675
|
|
|
$
|
330,920
|
|
|
$
|
(179,758
|
)
|
|
$
|
151,162
|
|
Broadcast licenses consist of our TV NOVA license in the Czech Republic, which is amortized on a straight-line basis through the expiration date of the license in 2025. 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
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Long-term debt
|
$
|
1,051,317
|
|
|
$
|
906,028
|
|
Other credit facilities and capital leases
|
3,283
|
|
|
3,648
|
|
Total long-term debt and other financing arrangements
|
1,054,600
|
|
|
909,676
|
|
Less: current maturities
|
(1,157
|
)
|
|
(1,155
|
)
|
Total non-current long-term debt and other financing arrangements
|
$
|
1,053,443
|
|
|
$
|
908,521
|
|
Financing Transactions
On April 7, 2016, we drew the EUR
468.8 million
(approximately US$
534.0 million
as of the transaction date) 2021 Euro Term Loan in full, the proceeds of which, together with cash on hand, were applied toward the repayment of the outstanding US$
38.2 million
of the
15.0%
term loan facility due 2017 (the "2017 Term Loan"), plus US$
1.5 million
of accrued and unpaid interest thereon, and toward the redemption and discharge of the outstanding US$
502.5 million
of the
15.0%
Senior Secured Notes due 2017 (the "2017 PIK Notes"), plus US$
26.6 million
of accrued and unpaid interest thereon.
Also on April 7, 2016, we extended the maturity date of the 2018 Euro Term Loan by
one
year to November 1, 2018. In addition, we extended the maturity date of the 2021 Revolving Credit Facility to February 19, 2021, with a borrowing capacity of US$
50.0 million
with effect from January 1, 2018. We also amended the 2021 Revolving Credit Facility such that interest is determined on the basis of our net leverage ratio (as defined in the Reimbursement Agreement) and ranges from
10.0%
(if our net leverage ratio is greater than or equal to
seven
times) to
7.0%
per annum (if our net leverage ratio is less than
five
times). The modifications of the 2018 Euro Term Loan and the 2019 Euro Term Loan were accounted for in the same manner as a debt extinguishment.
As a result of the above transactions, we recognized a loss on extinguishment of debt of US$
150.2 million
in the second quarter of 2016.
During the six months ended
June 30, 2016
we paid US$
20.0 million
of accrued Guarantee Fees (as defined below) related to the 2018 Euro Term Loan for which we had previously made an election to pay in kind. The accrued Guarantee Fee payments are presented as cash outflows from operating activities in our condensed consolidated statements of cash flows.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
Overview
Total long-term debt and credit facilities comprised the following at
June 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Amount of Liability Component
|
|
|
Debt Issuance Costs
(1)
|
|
|
Net Carrying Amount
|
|
2018 Euro Term Loan
|
$
|
278,438
|
|
|
$
|
(850
|
)
|
|
$
|
277,588
|
|
2019 Euro Term Loan
|
261,269
|
|
|
(586
|
)
|
|
260,683
|
|
2021 Euro Term Loan
|
520,462
|
|
|
(7,416
|
)
|
|
513,046
|
|
2021 Revolving Credit Facility
|
—
|
|
|
—
|
|
|
—
|
|
Total long-term debt and credit facilities
|
$
|
1,060,169
|
|
|
$
|
(8,852
|
)
|
|
$
|
1,051,317
|
|
|
|
(1)
|
Debt issuance costs related to the 2018 Euro Term Loan, 2019 Euro Term Loan and 2021 Euro Term Loan are being amortized on a straight-line basis, which approximates the effective interest method, over the life of the respective instruments. Debt issuance costs related to the 2021 Revolving Credit Facility are classified as non-current assets in our condensed consolidated balance sheet and are being amortized on a straight-line basis over the life of the 2021 Revolving Credit Facility.
|
Long-term Debt
Our long-term debt comprised the following at
June 30, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount
|
|
Fair Value
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
2017 PIK Notes
|
$
|
—
|
|
|
$
|
359,789
|
|
|
$
|
—
|
|
|
$
|
552,338
|
|
2017 Term Loan
|
—
|
|
|
27,592
|
|
|
—
|
|
|
41,525
|
|
2018 Euro Term Loan
|
277,588
|
|
|
272,189
|
|
|
278,438
|
|
|
273,046
|
|
2019 Euro Term Loan
|
260,683
|
|
|
246,458
|
|
|
261,269
|
|
|
256,210
|
|
2021 Euro Term Loan
|
513,046
|
|
|
—
|
|
|
520,462
|
|
|
—
|
|
|
$
|
1,051,317
|
|
|
$
|
906,028
|
|
|
$
|
1,060,169
|
|
|
$
|
1,123,119
|
|
2018 Euro Term Loan
As at
June 30, 2016
, the principal amount of our floating rate senior unsecured term credit facility (as amended, the "2018 Euro Term Loan") outstanding was EUR
250.8 million
(approximately US$
278.4 million
). The 2018 Euro Term Loan bears interest at three-month EURIBOR (fixed pursuant to customary hedging arrangements (see
Note 11, "Financial Instruments and Fair Value Measurements"
)) plus a margin of between
1.1%
and
1.9%
depending on the credit rating of Time Warner Inc. ("Time Warner"). As at
June 30, 2016
, the all-in borrowing rate on amounts outstanding under the 2018 Euro Term Loan was
8.5%
(the components of which are shown in the table below under the heading "Interest Rate Summary").
Interest on the 2018 Euro Term Loan is payable quarterly in arrears on each March 12, June 12, September 12 and December 12. The 2018 Euro Term Loan matures on November 1, 2018 and may be prepaid at our option, in whole or in part, without premium or penalty, upon the occurrence of certain events, including if our net leverage (as defined in the Reimbursement Agreement) decreases to below
five
times for two consecutive quarters, or at any time from November 1, 2017. The 2018 Euro Term Loan is a senior unsecured obligation of CME Ltd., and is unconditionally guaranteed by our
100%
owned subsidiary CME Media Enterprises B.V ("CME BV") and by Time Warner and certain of its subsidiaries.
The fair value of the 2018 Euro Term Loan as at
June 30, 2016
approximated its face value. This measurement of estimated fair value uses Level 2 inputs as described in
Note 11, "Financial Instruments and Fair Value Measurements"
. Certain derivative instruments, including contingent event of default and change of control put options, have been identified as being embedded in the 2018 Euro Term Loan. The embedded derivatives are considered clearly and closely related to the 2018 Euro Term Loan, and as such are not required to be accounted for separately.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
2019 Euro Term Loan
As at
June 30, 2016
, the principal amount of our floating rate senior unsecured term credit facility (the "2019 Euro Term Loan") outstanding was EUR
235.3 million
(approximately US$
261.3 million
). The 2019 Euro Term Loan bears interest at three-month EURIBOR (fixed pursuant to customary hedging arrangements (see
Note 11, "Financial Instruments and Fair Value Measurements"
)) plus a margin of between
1.1%
and
1.9%
depending on the credit rating of Time Warner. As at
June 30, 2016
, the all-in borrowing rate on amounts outstanding under the 2019 Euro Term Loan was
8.5%
(the components of which are shown in the table below under the heading "Interest Rate Summary").
Interest on the 2019 Euro Term Loan is payable quarterly in arrears on each February 13, May 13, August 13 and November 13. The 2019 Euro Term Loan matures on November 1, 2019 and may be prepaid at our option, in whole or in part, from June 1, 2016, without premium or penalty. The 2019 Euro Term Loan is a senior unsecured obligation of CME Ltd., and is unconditionally guaranteed by CME BV and by Time Warner and certain of its subsidiaries.
The fair value of the 2019 Euro Term Loan as at
June 30, 2016
approximated its face value. This measurement of estimated fair value uses Level 2 inputs as described in
Note 11, "Financial Instruments and Fair Value Measurements"
. Certain derivative instruments, including contingent event of default and change of control put options, have been identified as being embedded in the 2019 Euro Term Loan. The embedded derivatives are considered clearly and closely related to the Euro Term Loans, and as such are not required to be accounted for separately.
2021 Euro Term Loan
As at
June 30, 2016
, the principal amount of our floating rate senior unsecured term credit facility (the "2021 Euro Term Loan") outstanding was EUR
468.8 million
(approximately US$
520.5 million
). The 2021 Euro Term Loan bears interest at three-month EURIBOR (fixed pursuant to customary hedging arrangements (see
Note 11, "Financial Instruments and Fair Value Measurements"
)) plus a margin of between
1.1%
and
1.9%
depending on the credit rating of Time Warner. The all-in borrowing rate including the Guarantee Fee ranges from
10.5%
(if our net leverage ratio is greater than or equal to
eight
times) to
7.0%
per annum (if our net leverage ratio is less than
five
times). As at
June 30, 2016
, the all-in borrowing rate on amounts outstanding under the 2021 Euro Term Loan was
10.0%
(the components of which are shown in the table below under the heading "Interest Rate Summary").
Interest on the 2021 Euro Term Loan is payable quarterly in arrears on each April 7, July 7, October 7 and January 7. The 2021 Euro Term Loan matures on February 19, 2021 and may be prepaid at our option, in whole or in part, without premium or penalty, upon the earlier of the occurrence of certain events, including if our net leverage (as defined in the Reimbursement Agreement) decreases to below
five
times for two consecutive quarters, or at any time from February 19, 2020. The 2021 Euro Term Loan is a senior unsecured obligation of CME BV, and is unconditionally guaranteed by CME Ltd. and by Time Warner and certain of its subsidiaries.
The fair value of the 2021 Euro Term Loan as at
June 30, 2016
approximated its face value. This measurement of estimated fair value uses Level 2 inputs as described in
Note 11, "Financial Instruments and Fair Value Measurements"
. Certain derivative instruments, including contingent event of default and change of control put options, have been identified as being embedded in the 2021 Euro Term Loan. The embedded derivatives are considered clearly and closely related to the Euro Term Loans, and as such are not required to be accounted for separately.
Reimbursement Agreement and Guarantee Fees
In connection with Time Warner’s guarantees of the 2018 Euro Term Loan, 2019 Euro Term Loan and 2021 Euro Term Loan (collectively, the “Euro Term Loans”), we entered into a reimbursement agreement (as amended, the “Reimbursement Agreement") with Time Warner which provides for the payment of guarantee fees (collectively, the "Guarantee Fees") to Time Warner as consideration for those guarantees, and that we will reimburse Time Warner for any amounts paid by them under any guarantee or through any loan purchase right exercised by Time Warner. The loan purchase right allows Time Warner to purchase any amount outstanding under the Euro Term Loans from the lenders following an event of default under the Euro Term Loans or the Reimbursement Agreement. The Reimbursement Agreement is jointly and severally guaranteed by our
100%
owned subsidiary Central European Media Enterprises N.V. ("CME NV") and CME BV and is secured by a pledge over
100%
of the outstanding shares of each of CME NV and CME BV. The covenants and events of default under the Reimbursement Agreement are substantially the same as under the 2021 Revolving Credit Facility.
We pay Guarantee Fees to Time Warner based on the amounts outstanding on the Euro Term Loans calculated on a per annum basis as shown in the table below. For the
three and six months
ended
June 30, 2016
and
2015
, we recognized US$
19.8 million
and US$
28.9 million
and US$
4.8 million
and US$
9.6 million
, respectively, of Guarantee Fees as interest expense in our condensed consolidated statements of operations and comprehensive income / loss.
The Guarantee Fees relating to the 2018 Euro Term Loan and the 2019 Euro Term Loan are payable semi-annually in arrears on each May 1 and November 1, in cash or in kind (by adding such semi-annual Guarantee Fees to any such amount then outstanding). The Guarantee Fees relating to the 2021 Euro Term Loan are payable semi-annually in arrears on each June 1 and December 1 with the first
5.0%
(including the base rate and the rate paid pursuant to the hedging arrangements) paid in cash and the remainder payable at our election in cash or in kind.
The Guarantee Fees paid in kind are presented as a component of other non-current liabilities (see
Note 10, "Other Liabilities"
) and bear interest per annum at their respective Guarantee Fee rate (as set forth in the table below), payable semi-annually in arrears in cash or in kind (by adding such semi-annual Guarantee Fees to any such amount then outstanding) on each respective payment date. Guarantee Fees paid in cash are included in cash flows from operating activities in our condensed consolidated statements of cash flows.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
Interest Rate Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Rate
|
|
|
Rate Fixed Pursuant to Interest Rate Hedges
|
|
|
|
Guarantee Fee Rate
|
|
|
All-in Borrowing Rate
|
|
2018 Euro Term Loan
|
1.50
|
%
|
|
0.21
|
%
|
(1)
|
|
6.79
|
%
|
|
8.50
|
%
|
2019 Euro Term Loan
|
1.50
|
%
|
|
0.31
|
%
|
|
|
6.69
|
%
|
|
8.50
|
%
|
2021 Euro Term Loan
|
1.50
|
%
|
|
0.28
|
%
|
|
|
8.22
|
%
|
|
10.00
|
%
|
2021 Revolving Credit Facility
(2)
|
10.00
|
%
|
|
—
|
%
|
|
|
—
|
%
|
|
10.00
|
%
|
|
|
(1)
|
Effective until November 1, 2017. From November 1, 2017 through maturity on November 1, 2018, the rate fixed pursuant to interest rate hedges will decrease to
0.14%
, with a corresponding increase in the guarantee fee rate, such that the all-in borrowing rate remains
8.50%
.
|
|
|
(2)
|
As at
June 30, 2016
, the aggregate principal amount available under the 2021 Revolving Credit Facility was undrawn.
|
2021 Revolving Credit Facility
We had
no
balance outstanding under the US$
115.0 million
revolving credit facility (the “2021 Revolving Credit Facility”), all of which was available to be drawn, as at
June 30, 2016
.
The 2021 Revolving Credit Facility bears interest at a rate per annum based on, at our option, an alternative base rate plus
8.0%
or an amount equal to the greater of (i) an adjusted LIBO rate and (ii)
1.0%
, plus, in each case,
9.0%
, with the first
5.0%
paid in cash and the remainder payable at our election in cash or in kind by adding such accrued interest to the applicable principal amount drawn under the 2021 Revolving Credit Facility. The interest rate on the 2021 Revolving Credit Facility is determined on the basis of our net leverage ratio (as defined in the Reimbursement Agreement) and ranges from
10.0%
(if our net leverage is greater than or equal to
seven
times) to
7.0%
per annum (if our net leverage ratio is less than
five
times). The maturity date of the 2021 Revolving Credit Facility is February 19, 2021 with the available amount decreasing to US$
50.0 million
with effect from January 1, 2018. When drawn, the 2021 Revolving Credit Facility permits prepayment at our option in whole or in part without penalty.
The 2021 Revolving Credit Facility is jointly and severally guaranteed by CME NV and CME BV and is secured by a pledge over
100%
of the outstanding shares of each of CME NV and CME BV. The 2021 Revolving Credit Facility agreement contains limitations on 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, cash flow cover and total leverage ratios, and has covenants in respect of incurring indebtedness, the provision of guarantees, making investments and disposals, granting security and certain events of defaults.
Other Credit Facilities and Capital Lease Obligations
Other credit facilities and capital lease obligations comprised the following at
June 30, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Credit facilities
(1) – (3)
|
$
|
—
|
|
|
$
|
—
|
|
Capital leases
|
3,283
|
|
|
3,648
|
|
Total credit facilities and capital leases
|
3,283
|
|
|
3,648
|
|
Less: current maturities
|
(1,157
|
)
|
|
(1,155
|
)
|
Total non-current credit facilities and capital leases
|
$
|
2,126
|
|
|
$
|
2,493
|
|
|
|
(1)
|
We have a cash pooling arrangement with Bank Mendes Gans (“BMG”), a subsidiary of ING Bank N.V. (“ING”), which enables us to receive credit across the group in respect of cash balances 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
June 30, 2016
, we had deposits of US$
17.6 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, 2015
, we had deposits of US$
19.6 million
in and
no
drawings on the BMG cash pool.
|
|
(2)
|
As at
June 30, 2016
and
December 31, 2015
, there were
no
drawings outstanding under a CZK
800.0 million
(approximately US$
32.7 million
) factoring framework agreement with Factoring Ceska Sporitelna (“FCS”). Under this facility up to CZK
800.0 million
(approximately US$
32.7 million
) of receivables from certain customers in the Czech Republic may be factored on a recourse or non-recourse basis. The facility has a factoring fee of
0.3%
of any factored receivable and bears interest at one-month PRIBOR plus
2.5%
per annum for the period that receivables are factored and outstanding.
|
|
|
(3)
|
As at
June 30, 2016
, there were RON
45.8 million
(approximately US$
11.3 million
) of receivables factored under a RON
75.0 million
(approximately US$
18.5 million
) factoring framework agreement with Global Funds IFN S.A. entered into in the first quarter of 2016. Under this facility, receivables from certain customers in Romania may be factored on a non-recourse basis. The facility has a factoring fee of
4.0%
of any factored receivable and bears interest at
6.0%
per annum from the date the receivables are factored to the due date of the factored receivable.
|
As at
June 30, 2016
, there were
no
receivables factored under a RON
20.0 million
(approximately US$
4.9 million
) factoring framework agreement with UniCredit Bank S.A. Under this facility, receivables from certain customers in Romania may be factored on a non-recourse basis. The facility has a factoring fee of
0.3%
of any factored receivable and bears interest at
2.3%
per annum from the date the receivables are factored to the earlier of the date the factored receivable is collected or
210
days from the factored receivable's due date.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
Total Group
At
June 30, 2016
, the maturity of our long-term debt and credit facilities, excluding any future elections to pay interest in kind, was as follows:
|
|
|
|
|
2016
|
$
|
—
|
|
2017
|
—
|
|
2018
|
278,438
|
|
2019
|
261,269
|
|
2020
|
—
|
|
2021 and thereafter
|
520,462
|
|
Total long-term debt and credit facilities
|
1,060,169
|
|
Debt issuance costs
|
(8,852
|
)
|
Carrying amount of long-term debt and credit facilities
|
$
|
1,051,317
|
|
Capital Lease Commitments
We lease certain of our office and broadcast facilities as well as machinery and equipment under various leasing arrangements. The future minimum lease payments, by year and in the aggregate, under capital leases with initial or remaining non-cancellable lease terms in excess of one year, consisted of the following at
June 30, 2016
:
|
|
|
|
|
2016
|
$
|
631
|
|
2017
|
1,186
|
|
2018
|
919
|
|
2019
|
574
|
|
2020
|
83
|
|
2021 and thereafter
|
—
|
|
Total undiscounted payments
|
3,393
|
|
Less: amount representing interest
|
(110
|
)
|
Present value of net minimum lease payments
|
$
|
3,283
|
|
5. PROGRAM RIGHTS
Program rights comprised the following at
June 30, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Program rights:
|
|
|
|
Acquired program rights, net of amortization
|
$
|
184,431
|
|
|
$
|
179,632
|
|
Less: current portion of acquired program rights
|
(89,238
|
)
|
|
(85,972
|
)
|
Total non-current acquired program rights
|
95,193
|
|
|
93,660
|
|
Produced program rights – Feature Films:
|
|
|
|
|
Released, net of amortization
|
1,183
|
|
|
1,298
|
|
Produced program rights – Television Programs:
|
|
|
|
|
|
Released, net of amortization
|
58,453
|
|
|
56,125
|
|
Completed and not released
|
1,488
|
|
|
3,500
|
|
In production
|
21,636
|
|
|
13,783
|
|
Development and pre-production
|
1,389
|
|
|
707
|
|
Total produced program rights
|
84,149
|
|
|
75,413
|
|
Total non-current acquired program rights and produced program rights
|
$
|
179,342
|
|
|
$
|
169,073
|
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
6. ACCOUNTS RECEIVABLE
Accounts receivable comprised the following at
June 30, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Unrelated customers
|
$
|
176,653
|
|
|
$
|
176,628
|
|
Less: allowance for bad debts and credit notes
|
(8,949
|
)
|
|
(9,201
|
)
|
Total accounts receivable
|
$
|
167,704
|
|
|
$
|
167,427
|
|
7. OTHER ASSETS
Other current and non-current assets comprised the following at
June 30, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Current:
|
|
|
|
Prepaid acquired programming
|
$
|
18,934
|
|
|
$
|
22,761
|
|
Other prepaid expenses
|
7,825
|
|
|
6,941
|
|
Deferred tax
|
—
|
|
|
10,425
|
|
VAT recoverable
|
476
|
|
|
733
|
|
Income taxes recoverable
|
253
|
|
|
249
|
|
Other
|
2,511
|
|
|
2,097
|
|
Total other current assets
|
$
|
29,999
|
|
|
$
|
43,206
|
|
|
|
|
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Non-current:
|
|
|
|
|
|
Capitalized debt costs
|
$
|
17,735
|
|
|
$
|
27,060
|
|
Deferred tax
|
208
|
|
|
124
|
|
Other
|
3,226
|
|
|
3,949
|
|
Total other non-current assets
|
$
|
21,169
|
|
|
$
|
31,133
|
|
Capitalized debt costs are being amortized over the term of the related debt instruments using the straight-line method, which approximates the effective interest method.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment comprised the following at
June 30, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Land and buildings
|
$
|
94,087
|
|
|
$
|
92,237
|
|
Machinery, fixtures and equipment
|
173,275
|
|
|
164,503
|
|
Other equipment
|
28,477
|
|
|
32,314
|
|
Software licenses
|
58,887
|
|
|
55,656
|
|
Construction in progress
|
1,386
|
|
|
3,001
|
|
Total cost
|
356,112
|
|
|
347,711
|
|
Less: accumulated depreciation
|
(250,468
|
)
|
|
(239,189
|
)
|
Total net book value
|
$
|
105,644
|
|
|
$
|
108,522
|
|
|
|
|
|
Assets held under capital leases (included in the above)
|
|
|
|
|
|
Land and buildings
|
$
|
3,880
|
|
|
$
|
3,805
|
|
Machinery, fixtures and equipment
|
4,584
|
|
|
4,646
|
|
Total cost
|
8,464
|
|
|
8,451
|
|
Less: accumulated depreciation
|
(3,893
|
)
|
|
(3,556
|
)
|
Total net book value
|
$
|
4,571
|
|
|
$
|
4,895
|
|
The movement in the net book value of property, plant and equipment during the
six months
ended
June 30, 2016
and
2015
is comprised of:
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
2016
|
|
|
2015
|
|
Opening balance
|
$
|
108,522
|
|
|
$
|
114,335
|
|
Additions
|
10,043
|
|
|
14,313
|
|
Disposals
|
(49
|
)
|
|
(252
|
)
|
Depreciation
|
(14,912
|
)
|
|
(13,937
|
)
|
Foreign currency movements
|
2,040
|
|
|
(8,117
|
)
|
Ending balance
|
$
|
105,644
|
|
|
$
|
106,342
|
|
9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities comprised the following at
June 30, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Accounts payable and accrued expenses
|
$
|
55,746
|
|
|
$
|
57,042
|
|
Related party accounts payable
|
68
|
|
|
53
|
|
Programming liabilities
|
22,948
|
|
|
24,901
|
|
Related party programming liabilities
|
16,320
|
|
|
14,583
|
|
Duties and other taxes payable
|
9,424
|
|
|
12,856
|
|
Accrued staff costs
|
15,900
|
|
|
20,709
|
|
Accrued interest payable
|
3,058
|
|
|
914
|
|
Related party accrued interest payable
(1)
|
10,450
|
|
|
477
|
|
Other
|
3,464
|
|
|
3,170
|
|
Total accounts payable and accrued liabilities
|
$
|
137,378
|
|
|
$
|
134,705
|
|
|
|
(1)
|
Amount represents accrued Guarantee Fees for which we have not yet paid in cash or made an election to pay in kind. See
Note 4, "Long-term Debt and Other Financing Arrangements"
.
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
10. OTHER LIABILITIES
Other current and non-current liabilities comprised the following at
June 30, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Current:
|
|
|
|
Deferred revenue
|
$
|
22,435
|
|
|
$
|
7,546
|
|
Derivative liabilities
|
533
|
|
|
650
|
|
Restructuring provision
|
—
|
|
|
458
|
|
Legal provision
|
1,269
|
|
|
1,520
|
|
Other
|
427
|
|
|
274
|
|
Total other current liabilities
|
$
|
24,664
|
|
|
$
|
10,448
|
|
|
|
|
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Non-current:
|
|
|
|
|
|
Deferred tax
|
$
|
21,741
|
|
|
$
|
25,990
|
|
Programming liabilities
|
39
|
|
|
—
|
|
Related party Commitment Fee payable
(1)
|
9,498
|
|
|
9,240
|
|
Related party Guarantee Fee payable (Note 4)
|
19,911
|
|
|
22,655
|
|
Accrued interest
|
—
|
|
|
977
|
|
Related party accrued interest
|
—
|
|
|
5,304
|
|
Other
|
5,668
|
|
|
1,583
|
|
Total other non-current liabilities
|
$
|
56,857
|
|
|
$
|
65,749
|
|
|
|
(1)
|
Represents the commitment fee ("Commitment Fee") payable to Time Warner, including accrued interest, in respect of its obligation under a commitment letter dated November 14, 2014 between Time Warner and us whereby Time Warner agreed to provide or assist with arranging a loan facility to repay our
5.0%
senior convertible notes at maturity in November 2015. The Commitment Fee is payable by November 1, 2019, the maturity date of the 2019 Euro Term Loan, or earlier if the repayment of the 2019 Euro Term Loan is accelerated. The Commitment Fee bears interest at
8.5%
per annum and such interest is payable in arrears on each May 1 and November 1, and may be paid in cash or in kind, at our election.
|
11. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
ASC 820, “Fair Value Measurements and Disclosure”, establishes a hierarchy that prioritizes the inputs to those valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are:
Basis of Fair Value Measurement
|
|
Level 1
|
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted instruments.
|
|
|
Level 2
|
Quoted prices in markets that are not considered to be active or financial instruments for which all significant inputs are observable, either directly or indirectly.
|
|
|
Level 3
|
Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
|
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
We evaluate the position of each financial instrument measured at fair value in the hierarchy individually based on the valuation methodology we apply. The carrying amount of financial instruments, including cash and cash equivalents, accounts receivable, and accounts payable and accrued liabilities, approximate their fair value due to the short-term nature of these items. The fair value of our long-term debt is included in
Note 4, "Long-term Debt and Other Financing Arrangements"
.
Hedge Accounting Activities
Cash Flow Hedges of Interest Rate Risk
We are party to interest rate swap agreements to mitigate our exposure to interest rate fluctuations on the outstanding principal amount of our Euro Term Loans. These interest rate swaps, designated as cash flow hedges, provide us with variable-rate cash receipts in exchange for fixed-rate payments over the lives of the agreements, with no exchange of the underlying notional amount. These instruments are carried at fair value on our consolidated balance sheets, and the effective portion of changes in the fair value is recorded in accumulated other comprehensive income / loss and subsequently reclassified to interest expense when the hedged item affects earnings. The ineffective portion of changes in the fair value is recognized immediately in the change in fair value of derivatives in our condensed consolidated statements of operations and comprehensive income / loss. For the
three and six months
ended
June 30, 2016
and
2015
, we did not recognize any charges related to hedge ineffectiveness.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
Information relating to financial instruments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade Date
|
|
Number of Contracts
|
|
|
Description
|
|
Aggregate Notional Amount
|
|
|
Maturity Date
|
|
Objective
|
|
Fair Value as at June 30, 2016
|
|
April 5, 2016
|
|
5
|
|
|
Interest rate swap
|
|
€
|
468,800
|
|
|
February 21, 2021
|
|
Interest rate hedge underlying 2021 Euro Term Loan
|
|
$
|
(2,534
|
)
|
April 5, 2016
|
|
4
|
|
|
Interest rate swap
|
|
€
|
250,800
|
|
|
November 1, 2018
|
|
Interest rate hedge underlying 2018 Euro Term Loan, forward starting on November 1, 2017
|
|
$
|
(216
|
)
|
November 10, 2015
|
|
3
|
|
|
Interest rate swap
|
|
€
|
235,335
|
|
|
November 1, 2019
|
|
Interest rate hedge underlying 2019 Euro Term Loan
|
|
$
|
(2,041
|
)
|
November 14, 2014
|
|
2
|
|
|
Interest rate swap
|
|
€
|
250,800
|
|
|
November 1, 2017
|
|
Interest rate hedge underlying 2018 Euro Term Loan
|
|
$
|
(767
|
)
|
We value the interest rate swap agreements using a valuation model which calculates the fair value on the basis of the net present value of the estimated future cash flows. The most significant input used in the valuation model is the expected EURIBOR-based yield curve. These instruments were allocated to Level 2 of the fair value hierarchy because the critical inputs to this model, including current interest rates, relevant yield curves and the known contractual terms of the instruments, were readily observable.
|
|
|
|
|
|
Accumulated Other Comprehensive Loss
|
|
BALANCE December 31, 2015
|
$
|
(1,420
|
)
|
Loss on interest rate swaps
|
(5,217
|
)
|
Reclassified to interest expense
|
996
|
|
BALANCE June 30, 2016
|
$
|
(5,641
|
)
|
Non-Hedge Accounting Activities
The change in fair value of derivatives not designated as hedging instruments comprised the following for the
three and six months
ended
June 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Currency swaps
|
$
|
2,544
|
|
|
$
|
(2,220
|
)
|
|
$
|
(11,506
|
)
|
|
$
|
(3,230
|
)
|
Foreign Currency Risk
We have entered into a number of forward foreign exchange contracts to reduce our exposure to movements in foreign exchange rates related to contractual payments under certain dollar-denominated agreements and to the refinancing of certain long-term debt. Information relating to financial instruments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade Date
|
|
Number of Contracts
|
|
|
Description
|
|
Aggregate Notional Amount
|
|
|
Maturity Date
|
|
Objective
|
|
Fair Value as at June 30, 2016
|
|
February 11, 2016
|
|
1
|
|
|
EUR / USD forward
|
|
$
|
32,940
|
|
|
December 21, 2016
|
|
USD-denominated operating payments
|
|
$
|
791
|
|
December 3, 2015
|
|
2
|
|
|
EUR / USD forward
|
|
$
|
18,736
|
|
|
December 21, 2016
|
|
USD-denominated operating payments
|
|
$
|
(533
|
)
|
These forward foreign exchange contracts are considered economic hedges but were not designated as hedging instruments, so changes in the fair value of the derivatives were recorded as changes in fair value of derivatives in the condensed consolidated statements of operations and comprehensive income / loss and in the condensed consolidated balance sheet in other liabilities. We valued these contracts using an industry-standard pricing model which calculated the fair value on the basis of the net present value of the estimated future cash flows receivable or payable. These instruments were allocated to Level 2 of the fair value hierarchy because the critical inputs to this model, including foreign exchange forward rates and the known contractual terms of the instruments, were readily observable.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
12. CONVERTIBLE REDEEMABLE PREFERRED SHARES
200,000
shares of our Series B Convertible Redeemable Preferred Stock, par value US$
0.08
per share (the “Series B Preferred Shares”) were issued and outstanding as at
June 30, 2016
and
December 31, 2015
. As at
June 30, 2016
and
December 31, 2015
, the carrying value of the Series B Preferred Shares was US$
250.1 million
and US$
241.2 million
, respectively. The Series B Preferred Shares are held by Time Warner Media Holdings B.V. ("TW Investor"). As of
June 30, 2016
, the
200,000
shares of Series B preferred stock were convertible into approximately
103.2 million
shares of Class A common stock.
The initial stated value of the Series B Preferred Shares of US$
1,000
per share accretes at an annual rate of
3.75%
, compounded quarterly, from and including June 25, 2016 to but excluding the fifth anniversary of the date of issuance. We have the right to pay cash to the holder in lieu of any further accretion. Each Series B Preferred Share may, at the holder's option, be converted into the number of shares of our Class A common stock determined by dividing (i) the accreted stated value plus accrued but unpaid dividends, if any, in each case as of the conversion date, by (ii) the conversion price, which was approximately US$
2.42
at
June 30, 2016
, but is subject to adjustment from time to time pursuant to customary weighted-average anti-dilution provisions with respect to our issuances of equity or equity-linked securities at a price below the then-applicable conversion price (excluding any securities issued under our benefit plans at or above fair market value). We have the right to redeem the Series B Preferred Shares in whole or in part upon
30 days
' written notice. The redemption price of each outstanding Series B Preferred Share is equal to its accreted stated value plus accrued but unpaid dividends, if any, in each case as of the redemption date specified in the redemption notice. After receipt of a redemption notice, each holder of Series B Preferred Shares will have the right to convert, prior to the date of redemption, all or part of such Series B Preferred Shares to be redeemed by us into shares of our Class A common stock in accordance with the terms of conversion described above.
Holders of the Series B Preferred Shares have no voting rights on any matter presented to holders of any class of our capital stock, with the exception that they may vote with holders of shares of our Class A common stock (i) with respect to a change of control event or (ii) as provided by our Bye-laws or applicable Bermuda law. Holders of Series B Preferred Shares will participate in any dividends declared or paid on our Class A common stock on an as-converted basis. The Series B Preferred Shares will rank pari passu with our Series A Convertible Preferred Stock and senior to all other equity securities of the Company in respect of payment of dividends and distribution of assets upon liquidation. The Series B Preferred Shares have such other rights, powers and preferences as are set forth in the Certificate of Designation for the Series B Preferred Shares.
We concluded that the Series B Preferred Shares were not considered a liability and that the embedded conversion feature in the Series B Preferred Shares was clearly and closely related to the host contract and therefore did not need to be bifurcated. The Series B Preferred Shares are required to be classified outside of permanent equity because such shares can be redeemed for cash in certain circumstances. The Series B Preferred Shares are carried on the balance sheet at redemption value. As the Series B Preferred Shares are redeemable, we have accreted changes in the redemption value since issuance. For the
three and six months
ended
June 30, 2016
and
2015
, we recognized accretion on the Series B Preferred Shares of US$
4.4 million
and US$
9.0 million
; and US$
4.3 million
and US$
8.4 million
, respectively, with corresponding decreases in additional paid-in capital, net of the effect of foreign exchange.
13. EQUITY
Preferred Stock
5,000,000
shares of Preferred Stock were authorized as at
June 30, 2016
and
December 31, 2015
.
One
share of Series A Convertible Preferred Stock (the "Series A Preferred Share") was issued and outstanding as at
June 30, 2016
and
December 31, 2015
. 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
June 30, 2016
and
December 31, 2015
(see
Note 12, "Convertible Redeemable Preferred Shares"
). As of
June 30, 2016
, the
200,000
shares of Series B preferred stock were convertible into approximately
103.2 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
June 30, 2016
and
December 31, 2015
. The rights of the holders of Class A common stock and Class B common stock are identical except for voting rights. The shares of Class A common stock are entitled to
one
vote per share and the shares of Class B common stock are entitled to
ten
votes per share. Shares of Class B common stock are convertible into shares of Class A common stock on a
one
-for-
one
basis for no additional consideration. Holders of each class of shares are entitled to receive dividends and upon liquidation or dissolution are entitled to receive all assets available for distribution to holders of our common stock. Under our Bye-laws, the holders of each class have no preemptive or other subscription rights and there are no redemption or sinking fund provisions with respect to such shares.
There were
141.5 million
and
135.8 million
shares of Class A common stock outstanding at
June 30, 2016
and
December 31, 2015
, respectively, and
no
shares of Class B common stock outstanding at
June 30, 2016
or
December 31, 2015
.
As at
June 30, 2016
, TW Investor owns
43.4%
of the outstanding shares of Class A common stock and has a
47.6%
voting interest in the Company due to its ownership of the Series A Preferred Share.
Warrants
On May 2, 2014, we issued
114,000,000
warrants in connection with a rights offering. Each warrant may be exercised from
May 2, 2016
until May 2, 2018 and entitles the holder thereof to receive
one
share of our Class A common stock at an exercise price of US$
1.00
per share in cash. During the second quarter of
2016
,
5,059,639
warrants were exercised resulting in net proceeds to us of US$
5.1 million
. As at
June 30, 2016
,
108,940,361
warrants remain outstanding. Time Warner and TW Investor collectively hold
100,926,996
of these warrants (approximately
92.6%
). The warrants are classified in additional paid-in capital, a component of equity, and are not subject to subsequent revaluation.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
14. INTEREST EXPENSE
Interest expense comprised the following for the
three and six months
ended
June 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Interest on long-term debt and other financing arrangements
|
$
|
26,901
|
|
|
$
|
28,072
|
|
|
$
|
59,553
|
|
|
$
|
55,690
|
|
Amortization of capitalized debt issuance costs
|
2,302
|
|
|
3,864
|
|
|
6,201
|
|
|
7,701
|
|
Amortization of debt issuance discount
|
342
|
|
|
9,810
|
|
|
12,945
|
|
|
18,473
|
|
Total interest expense
|
$
|
29,545
|
|
|
$
|
41,746
|
|
|
$
|
78,699
|
|
|
$
|
81,864
|
|
We paid cash interest of US$
35.7 million
and US$
9.3 million
during the
six months
ended
June 30, 2016
and
2015
, respectively. In addition, we paid US$
20.0 million
of accrued Guarantee Fees during the
six months
ended
June 30, 2016
, for which we had previously made an election to pay in kind.
15. OTHER NON-OPERATING INCOME / EXPENSE
Other non-operating income / expense comprised the following for the
three and six months
ended
June 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Interest income
|
$
|
285
|
|
|
$
|
118
|
|
|
$
|
393
|
|
|
$
|
230
|
|
Foreign currency exchange (loss) / gain, net
|
(3,002
|
)
|
|
2,289
|
|
|
12,420
|
|
|
(9,200
|
)
|
Change in fair value of derivatives (Note 11)
|
2,544
|
|
|
(2,220
|
)
|
|
(11,506
|
)
|
|
(3,230
|
)
|
Other income / (expense), net
|
6
|
|
|
(3,091
|
)
|
|
(58
|
)
|
|
(3,445
|
)
|
Total other non-operating (expense) / income
|
$
|
(167
|
)
|
|
$
|
(2,904
|
)
|
|
$
|
1,249
|
|
|
$
|
(15,645
|
)
|
16. STOCK-BASED COMPENSATION
Under our 2015 Stock Incentive Plan (the "2015 Plan")
6,000,000
shares of Class A common stock are authorized for grants of stock options, restricted stock units ("RSUs"), restricted stock and stock appreciation rights to employees and non-employee directors. In addition, any shares available under our Amended and Restated Stock Incentive Plan (which expired on June 1, 2015), including in respect of any awards that expire, terminate or are forfeited, will be available for awards under the 2015 Plan. Under the 2015 Plan, awards are made to employees and directors at the discretion of the Compensation Committee. Any awards previously issued under the Amended and Restated Stock Incentive Plan will continue to be governed by the terms of that plan.
For the
three and six months
ended
June 30, 2016
and
2015
, we recognized charges for stock-based compensation of US$
0.9 million
and US$
1.7 million
; and US$
0.6 million
and US$
1.0 million
, respectively, presented as a component of selling, general and administrative expenses in our condensed consolidated statements of operations and comprehensive income / loss.
Stock Options
A summary of option activity for the
six months
ended
June 30, 2016
is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted Average Exercise Price per Share
|
|
|
Weighted Average Remaining Contractual Term (years)
|
|
Aggregate Intrinsic Value
|
|
Outstanding at December 31, 2015
|
1,666,000
|
|
|
$
|
3.53
|
|
|
9.07
|
|
$
|
640
|
|
Granted
|
411,392
|
|
|
2.46
|
|
|
|
|
|
Expired
|
(63,000
|
)
|
|
32.62
|
|
|
|
|
|
Outstanding at June 30, 2016
|
2,014,392
|
|
|
$
|
2.40
|
|
|
9.07
|
|
$
|
—
|
|
Vested and expected to vest
|
2,014,392
|
|
|
2.40
|
|
|
9.07
|
|
—
|
|
Exercisable at June 30, 2016
|
403,000
|
|
|
$
|
2.69
|
|
|
8.87
|
|
$
|
—
|
|
The fair value of stock options is estimated on the grant date using the Black-Scholes option-pricing model and recognized ratably over the requisite service period. The aggregate intrinsic value (the difference between the stock price on the last day of trading of the
second quarter
of
June 30, 2016
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
June 30, 2016
. This amount changes based on the fair value of our Class A common stock. As at
June 30, 2016
, there was US$
2.4 million
unrecognized compensation expense related to stock options which is expected to be recognized over a weighted-average period of
3.1 years
.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
Restricted Stock Units
Each RSU represents a right to receive
one
share of Class A common stock according to its vesting conditions. The majority of RSU issued have a time-based vesting conditions and vest ratably over
one
to
four
years from the date of grant. Vesting of RSU with performance-based vesting conditions ("PRSU") is contingent on the achievement of cumulative OIBDA and unlevered free cash flow targets over a multi-year period. Upon vesting, shares of Class A common stock are issued from authorized but unissued shares. Holders of RSU and PRSU awards are not entitled to receive cash dividend equivalents and are not entitled to vote. The grant date fair value of RSU and PRSU is calculated as the closing price of our Class A common shares on the date of grant.
The following table summarizes information about unvested RSU and PRSU as at
June 30, 2016
:
|
|
|
|
|
|
|
|
|
Number of
Shares / Units
|
|
|
Weighted Average
Grant Date
Fair Value
|
|
Unvested at December 31, 2015
|
2,554,597
|
|
|
$
|
2.72
|
|
Granted
|
705,166
|
|
|
2.41
|
|
Vested
|
(626,126
|
)
|
|
2.83
|
|
Unvested at June 30, 2016
|
2,633,637
|
|
|
$
|
2.61
|
|
As at
June 30, 2016
, the intrinsic value of unvested RSUs was US$
5.6 million
. Total unrecognized compensation cost related to unvested RSUs as at
June 30, 2016
was US$
4.1 million
and is expected to be recognized over a weighted-average period of
2.6 years
.
17. EARNINGS PER SHARE
We determined that the Series B Preferred Shares are a participating security, and accordingly, our basic and diluted net income / loss per share is calculated using the two-class method. Under the two-class method, basic net income / loss per common share is computed by dividing the net income available to common shareholders after deducting contractual amounts of accretion on our Series B Preferred Shares by the weighted-average number of common shares outstanding during the period. Diluted net income / loss per share is computed by dividing the adjusted net income by the weighted-average number of dilutive shares outstanding during the period.
The components of basic and diluted earnings per share are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Loss from continuing operations
|
$
|
(141,249
|
)
|
|
$
|
(11,669
|
)
|
|
$
|
(181,943
|
)
|
|
$
|
(81,912
|
)
|
Net (income) / loss attributable to noncontrolling interests
|
(68
|
)
|
|
307
|
|
|
191
|
|
|
564
|
|
Less: preferred share accretion paid in kind (Note 12)
|
(4,440
|
)
|
|
(4,264
|
)
|
|
(8,950
|
)
|
|
(8,405
|
)
|
Loss from continuing operations available to common shareholders, net of noncontrolling interest
|
(145,757
|
)
|
|
(15,626
|
)
|
|
(190,702
|
)
|
|
(89,753
|
)
|
Income / (loss) from discontinued operations, net of tax
|
—
|
|
|
2,684
|
|
|
—
|
|
|
(604
|
)
|
Net loss attributable to CME Ltd. available to common shareholders - Basic
|
$
|
(145,757
|
)
|
|
$
|
(12,942
|
)
|
|
$
|
(190,702
|
)
|
|
$
|
(90,357
|
)
|
|
|
|
|
|
|
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
Preferred share accretion paid in kind
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net loss attributable to CME Ltd. available to common shareholders - Diluted
|
$
|
(145,757
|
)
|
|
$
|
(12,942
|
)
|
|
$
|
(190,702
|
)
|
|
$
|
(90,357
|
)
|
|
|
|
|
|
|
|
|
Weighted average outstanding shares of common stock - Basic
(1)
|
149,083
|
|
|
146,743
|
|
|
148,080
|
|
|
146,675
|
|
Dilutive effect of employee stock options and RSUs
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Weighted average outstanding shares of common stock - Diluted
|
149,083
|
|
|
146,743
|
|
|
148,080
|
|
|
146,675
|
|
|
|
|
|
|
|
|
|
Net (loss) / income per share:
|
|
|
|
|
|
|
|
Continuing operations attributable to CME Ltd. - Basic and diluted
|
$
|
(0.98
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(1.29
|
)
|
|
$
|
(0.61
|
)
|
Discontinued operations attributable to CME Ltd. - Basic and diluted
|
0.00
|
|
|
0.02
|
|
|
0.00
|
|
|
(0.01
|
)
|
Net loss attributable to CME Ltd. - Basic and diluted
|
(0.98
|
)
|
|
(0.09
|
)
|
|
(1.29
|
)
|
|
(0.62
|
)
|
|
|
(1)
|
For the purpose of computing basic earnings per share, the
11,211,449
shares of Class A common stock underlying the Series A Preferred Share are included in the weighted average outstanding shares of common stock - basic, because the holder of the Series A Preferred Share is entitled to receive any dividends payable when dividends are declared by the Board of Directors with respect to any shares of common stock.
|
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
June 30, 2016
,
106,510,057
warrants, stock options, RSUs and shares underlying the Series B Preferred Shares were antidilutive to income from continuing operations and excluded from the calculation of earnings per share. These instruments may become dilutive in the future. As set forth in the Certificate of Designation for the Series B Preferred Shares, the holders of our Series B Preferred Shares are not contractually obligated to share in our losses.
18. SEGMENT DATA
We manage our business on a geographical basis, with
six
operating segments: Bulgaria, Croatia, the Czech Republic, Romania, the Slovak Republic and Slovenia, which are also our reportable segments and our main operating countries. These segments reflect how CME Ltd.’s operating performance is evaluated by our chief operating decision makers, who we have identified as our co-Chief Executive Officers; how operations are managed by segment managers; and the structure of our internal financial reporting.
Our segments generate revenues primarily from the sale of advertising and sponsorship on our channels. This is supplemented by revenues from cable and satellite television service providers to carry our channels on their platforms and from revenues through the sale of distribution rights to third parties. Intersegment revenues and profits have been eliminated in consolidation.
We evaluate our consolidated results and the performance of our segments based on net revenues and OIBDA (as defined below). We believe OIBDA is useful to investors because it provides a meaningful representation of our performance as it excludes certain items that either do not impact our cash flows or the operating results of our operations. OIBDA is also used as a component in determining management bonuses.
OIBDA includes amortization and impairment of program rights and is determined as operating income / loss before depreciation, amortization of intangible assets, impairments of assets and certain unusual or infrequent items that are not considered by our chief operating decision makers when evaluating our performance. Stock-based compensation and certain other items are not allocated to our segments for purposes of evaluating their performance and therefore are not included in their respective OIBDA.
Below are tables showing our net revenues, OIBDA, total assets, capital expenditures and long-lived assets for our continuing operations by segment for the
three and six months
ended
June 30, 2016
and
2015
for condensed consolidated statements of operations and comprehensive income / loss data and condensed consolidated statements of cash flow data; and as at
June 30, 2016
and
December 31, 2015
for condensed consolidated balance sheet data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues:
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Bulgaria
|
$
|
20,455
|
|
|
$
|
19,420
|
|
|
$
|
36,314
|
|
|
$
|
36,204
|
|
Croatia
|
16,559
|
|
|
16,242
|
|
|
28,204
|
|
|
28,235
|
|
Czech Republic
|
50,919
|
|
|
52,131
|
|
|
89,527
|
|
|
87,096
|
|
Romania
|
48,929
|
|
|
44,034
|
|
|
81,299
|
|
|
77,556
|
|
Slovak Republic
|
22,540
|
|
|
20,236
|
|
|
41,602
|
|
|
37,774
|
|
Slovenia
|
16,116
|
|
|
15,063
|
|
|
27,769
|
|
|
26,543
|
|
Intersegment revenues
(1)
|
(312
|
)
|
|
(292
|
)
|
|
(509
|
)
|
|
(441
|
)
|
Total net revenues
|
$
|
175,206
|
|
|
$
|
166,834
|
|
|
$
|
304,206
|
|
|
$
|
292,967
|
|
|
|
(1)
|
Reflects revenues earned from the sale of content to other country segments in CME Ltd. All other revenues are third party revenues.
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDA and reconciliation of OIBDA to condensed consolidated statements of operations and comprehensive income / loss:
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Bulgaria
|
$
|
5,954
|
|
|
$
|
4,045
|
|
|
$
|
7,023
|
|
|
$
|
6,243
|
|
Croatia
|
4,501
|
|
|
4,972
|
|
|
5,902
|
|
|
6,834
|
|
Czech Republic
|
23,099
|
|
|
24,238
|
|
|
33,173
|
|
|
34,329
|
|
Romania
|
22,962
|
|
|
15,419
|
|
|
32,424
|
|
|
18,780
|
|
Slovak Republic
|
3,158
|
|
|
3,627
|
|
|
5,551
|
|
|
3,482
|
|
Slovenia
|
1,624
|
|
|
963
|
|
|
916
|
|
|
1,323
|
|
Elimination
|
(62
|
)
|
|
15
|
|
|
(68
|
)
|
|
(35
|
)
|
Total operating segments
|
61,236
|
|
|
53,279
|
|
|
84,921
|
|
|
70,956
|
|
Corporate
|
(7,604
|
)
|
|
(6,468
|
)
|
|
(14,181
|
)
|
|
(12,697
|
)
|
Total OIBDA
|
53,632
|
|
|
46,811
|
|
|
70,740
|
|
|
58,259
|
|
Depreciation of property, plant and equipment
|
(7,627
|
)
|
|
(6,936
|
)
|
|
(14,912
|
)
|
|
(13,937
|
)
|
Amortization of broadcast licenses and other intangibles
|
(2,114
|
)
|
|
(3,434
|
)
|
|
(4,174
|
)
|
|
(6,933
|
)
|
Other items
(1)
|
—
|
|
|
—
|
|
|
—
|
|
|
(18,187
|
)
|
Operating income
|
43,891
|
|
|
36,441
|
|
|
51,654
|
|
|
19,202
|
|
Interest expense (Note 14)
|
(29,545
|
)
|
|
(41,746
|
)
|
|
(78,699
|
)
|
|
(81,864
|
)
|
Loss on extinguishment of debt (Note 4)
|
(150,158
|
)
|
|
—
|
|
|
(150,158
|
)
|
|
—
|
|
Non-operating (expense) / income, net (Note 15)
|
(167
|
)
|
|
(2,904
|
)
|
|
1,249
|
|
|
(15,645
|
)
|
Loss before tax
|
$
|
(135,979
|
)
|
|
$
|
(8,209
|
)
|
|
$
|
(175,954
|
)
|
|
$
|
(78,307
|
)
|
|
|
(1)
|
Other items for the six months ended June 30, 2015 consists solely of a charge related to a tax audit of Pro TV in Romania which was subsequently reversed in the third quarter of 2015.
|
|
|
|
|
|
|
|
|
|
Total assets
(1)
:
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Bulgaria
|
$
|
134,480
|
|
|
$
|
134,418
|
|
Croatia
|
54,494
|
|
|
52,306
|
|
Czech Republic
|
720,949
|
|
|
746,269
|
|
Romania
|
268,733
|
|
|
261,984
|
|
Slovak Republic
|
123,627
|
|
|
121,122
|
|
Slovenia
|
74,732
|
|
|
70,911
|
|
Total operating segments
|
1,377,015
|
|
|
1,387,010
|
|
Corporate
|
44,938
|
|
|
53,407
|
|
Total assets
|
$
|
1,421,953
|
|
|
$
|
1,440,417
|
|
|
|
(1)
|
Segment assets exclude any intercompany balances.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Bulgaria
|
$
|
806
|
|
|
$
|
764
|
|
|
$
|
988
|
|
|
$
|
1,463
|
|
Croatia
|
803
|
|
|
407
|
|
|
1,080
|
|
|
935
|
|
Czech Republic
|
1,312
|
|
|
2,080
|
|
|
2,863
|
|
|
4,576
|
|
Romania
|
605
|
|
|
1,867
|
|
|
2,334
|
|
|
2,587
|
|
Slovak Republic
|
291
|
|
|
601
|
|
|
824
|
|
|
1,747
|
|
Slovenia
|
455
|
|
|
626
|
|
|
1,715
|
|
|
1,560
|
|
Total operating segments
|
4,272
|
|
|
6,345
|
|
|
9,804
|
|
|
12,868
|
|
Corporate
|
939
|
|
|
636
|
|
|
1,483
|
|
|
1,594
|
|
Total capital expenditures
|
$
|
5,211
|
|
|
$
|
6,981
|
|
|
$
|
11,287
|
|
|
$
|
14,462
|
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
Long-lived assets
(1)
:
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Bulgaria
|
$
|
5,462
|
|
|
$
|
5,602
|
|
Croatia
|
5,742
|
|
|
5,497
|
|
Czech Republic
|
38,028
|
|
|
39,907
|
|
Romania
|
21,180
|
|
|
20,873
|
|
Slovak Republic
|
15,224
|
|
|
15,606
|
|
Slovenia
|
14,227
|
|
|
15,082
|
|
Total operating segments
|
99,863
|
|
|
102,567
|
|
Corporate
|
5,781
|
|
|
5,955
|
|
Total long-lived assets
|
$
|
105,644
|
|
|
$
|
108,522
|
|
|
|
(1)
|
Reflects property, plant and equipment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenue by type:
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Television advertising
|
$
|
149,012
|
|
|
$
|
141,557
|
|
|
$
|
253,183
|
|
|
$
|
243,172
|
|
Carriage fees and subscriptions
|
19,862
|
|
|
18,427
|
|
|
39,071
|
|
|
37,205
|
|
Other
|
6,332
|
|
|
6,850
|
|
|
11,952
|
|
|
12,590
|
|
Total net revenues
|
$
|
175,206
|
|
|
$
|
166,834
|
|
|
$
|
304,206
|
|
|
$
|
292,967
|
|
19. COMMITMENTS AND CONTINGENCIES
Commitments
a) Programming Rights Agreements and Other Commitments
At
June 30, 2016
, we had total commitments of US$
124.2 million
(
December 31, 2015
: US$
144.9 million
) in respect of future programming, including contracts signed with license periods starting after the balance sheet date. In addition, we have digital transmission obligations, future minimum operating lease payments for non-cancellable operating leases with remaining terms in excess of one year (net of amounts to be recharged to third parties) and other commitments as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Programming purchase obligations
|
|
|
Other
commitments
|
|
|
Operating
leases
|
|
|
Capital
expenditures
|
|
2016
|
$
|
31,173
|
|
|
$
|
15,999
|
|
|
$
|
1,846
|
|
|
$
|
2,245
|
|
2017
|
35,289
|
|
|
10,169
|
|
|
2,727
|
|
|
—
|
|
2018
|
22,620
|
|
|
5,507
|
|
|
2,098
|
|
|
—
|
|
2019
|
20,212
|
|
|
11,251
|
|
|
939
|
|
|
—
|
|
2020
|
10,444
|
|
|
330
|
|
|
452
|
|
|
—
|
|
2021 and thereafter
|
4,431
|
|
|
340
|
|
|
1,422
|
|
|
—
|
|
Total
|
$
|
124,169
|
|
|
$
|
43,596
|
|
|
$
|
9,484
|
|
|
$
|
2,245
|
|
b) Call option
Top Tone Holdings has exercised its right to acquire additional equity in CME Bulgaria, however the closing of this transaction has not yet occurred because the purchaser financing is still pending. If consummated, we would own
90.0%
of our Bulgaria operations.
Contingencies
a) Litigation
We are from time to time party to legal proceedings, arbitrations and regulatory proceedings arising in the normal course of our business operations. We evaluate, on a quarterly basis, developments in such matters and provide accruals for such matters, as appropriate. In making such decisions, we consider the degree of probability of an unfavorable outcome and our ability to make a reasonable estimate of the amount of a loss. An unfavorable outcome in any such proceedings, if material, could have an adverse effect on our business or consolidated financial statements.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
b) Restrictions on dividends from Consolidated Subsidiaries and Unconsolidated Affiliates
Corporate law in the Central and Eastern European countries in which we have operations stipulates generally that dividends may be declared by shareholders, out of yearly profits, subject to the maintenance of registered capital and required reserves after the recovery of accumulated losses. The reserve requirement restriction generally provides that before dividends may be distributed, a portion of annual net profits (typically
5.0%
) be allocated to a reserve, which reserve is capped at a proportion of the registered capital of a company (ranging from
5.0%
to
25.0%
). The restricted net assets of our consolidated subsidiaries and equity in earnings of investments accounted for under the equity method together are less than
25.0%
of consolidated net assets.
20. RELATED PARTY TRANSACTIONS
We consider our related parties to be our officers, directors and shareholders who have direct control and/or influence over the Company as well as other parties that can significantly influence management. We have identified transactions with individuals or entities associated with Time Warner, which is represented on our Board of Directors and holds a
47.6%
voting interest in CME Ltd. as at
June 30, 2016
, as material related party transactions.
Time Warner
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Net revenues
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
22
|
|
Cost of revenues
|
4,750
|
|
|
9,565
|
|
|
11,446
|
|
|
11,864
|
|
Interest expense
|
23,994
|
|
|
30,419
|
|
|
65,499
|
|
|
59,585
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Programming liabilities
|
$
|
16,320
|
|
|
$
|
14,583
|
|
Other accounts payable and accrued liabilities
|
68
|
|
|
53
|
|
Long-term debt and other financing arrangements
|
—
|
|
|
324,979
|
|
Accrued interest payable
(1)
|
10,450
|
|
|
5,781
|
|
Other non-current liabilities
(2)
|
29,409
|
|
|
31,895
|
|
|
|
(1)
|
Amount represents accrued Guarantee Fees for which we have not yet paid in cash or made an election to pay in kind. See
Note 4, "Long-term Debt and Other Financing Arrangements"
.
|
|
|
(2)
|
Amount represents the Commitment Fee, as well as the Guarantee Fees for which we have made an election to pay in kind. See
Note 4, "Long-term Debt and Other Financing Arrangements"
.
|
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following defined terms are used in this Quarterly Report on Form 10-Q:
|
|
•
|
the term "
2017 PIK Notes
" refers to our 15.0% senior secured notes due 2017, redeemed in April 2016;
|
|
|
•
|
the term "
2017 Term Loan
" refers to our 15.0% term loan facility due 2017, dated as of February 28, 2014, as amended and restated on November 14, 2014, repaid in April 2016;
|
|
|
•
|
the term "
2018 Euro Term Loan
" refers to our floating rate senior unsecured term credit facility guaranteed by Time Warner, dated as of November 14, 2014 and amended on February 19, 2016 to, among other things, extend the maturity to 2018 with effect from the drawing of the 2021 Euro Term Loan;
|
|
|
•
|
the term "
2019 Euro Term Loan
" refers to our floating rate senior unsecured term credit facility due 2019 guaranteed by Time Warner, dated as of September 30, 2015 and amended on February 19, 2016;
|
|
|
•
|
the term "
2021 Euro Term Loan
" refers to our floating rate senior unsecured term credit facility due 2021 entered into by CME BV, guaranteed by Time Warner and CME Ltd., dated as of February 19, 2016;
|
|
|
•
|
the term "
Euro Term Loans
" refers collectively to the 2018 Euro Term Loan, 2019 Euro Term Loan and 2021 Euro Term Loan;
|
|
|
•
|
the term "
2021 Revolving Credit Facility
" refers to our amended and restated revolving credit facility dated as of February 28, 2014, as amended and restated as of November 14, 2014 and further amended and restated on February 19, 2016 to, among other things, extend the maturity to 2021 with effect from the drawing of the 2021 Euro Term Loan;
|
|
|
•
|
the term "
Guarantee Fees
" refers to amounts accrued and payable to Time Warner as consideration for Time Warner's guarantees of the 2018 Euro Term Loan, 2019 Euro Term Loan and 2021 Euro Term Loan;
|
|
|
•
|
the term "
Reimbursement Agreement
" refers to an agreement with Time Warner which provides that we will reimburse Time Warner for any amounts paid by them under any guarantee or through any loan purchase right exercised by Time Warner, dated as of November 14, 2014 and amended and restated on February 19, 2016;
|
|
|
•
|
the term "
CME BV
" refers to CME Media Enterprises B.V., our 100% owned subsidiary;
|
|
|
•
|
the term "
CME NV
" refers to Central European Media Enterprises N.V., our 100% owned subsidiary;
|
|
|
•
|
the term "
Time Warner
" refers to Time Warner Inc.; and
|
|
|
•
|
the term "
TW Investor
" refers to Time Warner Media Holdings B.V.
|
The exchange rates used in this report are as at
June 30, 2016
, 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, 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. 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: levels of television advertising spending and the rate of development of the advertising markets in the countries in which we operate; the effect of global economic uncertainty, including the United Kingdom's exit from the European Union and Eurozone instability in our markets and the extent, timing and duration of any recovery; the extent to which our liquidity constraints and debt service obligations restrict our business; our success in continuing our initiatives to diversify and enhance our revenue streams; our ability to make cost-effective investments in our television businesses, including investments in programming; our ability to develop and acquire necessary programming and attract audiences; our ability to refinance our existing indebtedness; changes in the political and regulatory environments where we operate and in the application of relevant laws and regulations; our exposure to additional tax liabilities; and the timely renewal of broadcasting licenses and our ability to obtain additional frequencies and licenses. The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included in this report. All forward-looking statements speak only as of the date of this report. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments or otherwise, except as required by law.
II. Overview
Central European Media Enterprises Ltd. ("CME Ltd.") is a media and entertainment company operating mainly in six countries in Central and Eastern Europe. We manage our business on a geographical basis, with
six
operating segments: Bulgaria, Croatia, the Czech Republic, Romania, the Slovak Republic and Slovenia, which are also our reportable segments. These operating segments reflect how CME Ltd.’s operating performance is evaluated by our chief operating decision makers, who we have identified as our co-Chief Executive Officers, how our operations are managed by segment managers, and the structure of our internal financial reporting.
Non-GAAP Financial Measures
In this report we refer to several non-GAAP financial measures, including OIBDA, OIBDA margin, free cash flow and unlevered free cash flow. We believe that each of these metrics are 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 (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 do not impact either our cash flows or the operating results of our operations. OIBDA and unlevered free cash flow (as defined below) are also used as a component in determining management bonuses.
OIBDA includes amortization and impairment of program rights and is determined as operating income / loss before depreciation, amortization of intangible assets and impairments of assets and certain unusual or infrequent items that are not considered by our co-CEOs when evaluating our performance. Stock-based compensation and certain other items are not allocated to our segments for purposes of evaluating their performance and therefore are not included in their respective OIBDA. Our key performance measure of the efficiency of our consolidated operations and our segments is OIBDA margin. We define OIBDA margin as the ratio of OIBDA to net revenues. Intersegment revenues and profits have been eliminated on consolidation.
We have previously used free cash flow as a measure of the ability of our operations to generate cash. We define free cash flow as cash flows from continuing operating activities less purchases of property, plant and equipment, net of disposals of property, plant and equipment and excluding the cash impact of certain unusual or infrequent items that are not included in costs charged in arriving at OIBDA because they are not considered by our co-CEOs when evaluating performance. Following the refinancing transaction completed in April, the amount of interest and related Guarantee Fees on our outstanding indebtedness that is paid in cash has increased. Since we expect to use cash generated by the business to pay more interest and related Guarantee Fees in cash, and these cash payments are reflected in free cash flow, we think unlevered free cash flow, defined as free cash flow before cash payments for interest and Guarantee Fees, better illustrates the cash generated by our operations when comparing periods.
For additional information regarding our business segments, including a reconciliation of OIBDA to US GAAP financial measures, see Item 1,
Note 18, "Segment Data"
. For a reconciliation of free cash flow and unlevered free cash flow to a US GAAP financial measure, see "Free Cash Flow and Unlevered Free Cash Flow" below.
The following analysis contains references to like-for-like or constant currency percentage movements (“% Lfl”). These references reflect the impact of applying the current period average exchange rates to the prior period revenues and costs. 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 like-for-like percentage movements as well as actual (“% Act”) percentage movements (which includes the effect of foreign exchange). Unless otherwise stated, all percentage increases or decreases in the following analysis refer to year-on-year percentage changes between the
three and six months
ended
June 30, 2016
and
2015
.
Executive Summary
The following table provides a summary of our consolidated results for the
three and six months
ended
June 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, (US$ 000's)
|
|
For the Six Months Ended June 30, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
|
|
|
|
Movement
|
|
2016
|
|
|
2015
|
|
|
% Act
|
|
|
% Lfl
|
|
|
2016
|
|
|
2015
|
|
|
% Act
|
|
|
% Lfl
|
|
Net revenues
|
$
|
175,206
|
|
|
$
|
166,834
|
|
|
5.0
|
%
|
|
2.8
|
%
|
|
$
|
304,206
|
|
|
$
|
292,967
|
|
|
3.8
|
%
|
|
3.4
|
%
|
Operating income
|
43,891
|
|
|
36,441
|
|
|
20.4
|
%
|
|
17.9
|
%
|
|
51,654
|
|
|
19,202
|
|
|
169.0
|
%
|
|
150.8
|
%
|
Operating margin
|
25.1
|
%
|
|
21.8
|
%
|
|
3.3 p.p.
|
|
|
3.3 p.p.
|
|
|
17.0
|
%
|
|
6.6
|
%
|
|
10.4 p.p.
|
|
|
10.0 p.p.
|
|
OIBDA
|
$
|
53,632
|
|
|
$
|
46,811
|
|
|
14.6
|
%
|
|
12.1
|
%
|
|
$
|
70,740
|
|
|
$
|
58,259
|
|
|
21.4
|
%
|
|
18.4
|
%
|
OIBDA margin
|
30.6
|
%
|
|
28.1
|
%
|
|
2.5 p.p.
|
|
|
2.5 p.p.
|
|
|
23.3
|
%
|
|
19.9
|
%
|
|
3.4 p.p.
|
|
|
2.9 p.p.
|
|
(1)
Number is not meaningful.
Our consolidated net revenues increased
3%
at constant exchange rates in the
three and six months
ended
June 30, 2016
compared to the corresponding periods in
2015
, due to improvement in both television advertising revenues and carriage fees and subscription revenues. Television advertising spending in the markets of the countries in which we operate grew
5%
overall in the first half of 2016 compared to 2015. Our television advertising revenues grew
4%
at constant rates during that period due primarily to significant growth in Romania and the Slovak Republic. Carriage fees and subscription revenues increased
6%
at constant rates during the
three and six months
ended
June 30, 2016
compared to the corresponding periods in
2015
due to growth in the number of subscribers to cable, satellite and IPTV platforms, better channel offerings, and new channel launches. At actual rates, our consolidated net revenues increased
5%
and
4%
in the
three and six months
ended
June 30, 2016
, respectively, compared to the corresponding periods in 2015.
Costs charged in arriving at OIBDA decreased slightly at constant exchange rates in the
three and six months
ended
June 30, 2016
compared to the corresponding periods in
2015
. Competition for audience share remains significant and we made targeted investments in programming in certain countries, which was partially offset by more efficient local production and savings on foreign programming, resulting in an increase in overall content costs of
3%
at constant rates in the respective three- and six-month periods. However, as we continue to focus on controlling costs, the increase in content costs was more than offset by savings in other costs. At actual rates, costs charged in arriving at OIBDA increased
1%
in the second quarter and decreased
1%
in the first half of 2016 compared to the same period in 2015.
The growth in revenue, combined with cost savings, resulted in an improvement in our OIBDA margin. Since we expect revenues to grow at a faster pace than costs this year and the next several years, we anticipate our full year OIBDA margin in 2016 will exceed our OIBDA margin of 20% in 2015.
Operating income during the
three and six months
ended
June 30, 2016
increased at both constant and actual rates compared to the same period in
2015
, as net revenues increased while our total costs decreased. Excluding the US$ 18.2 million charge taken in the first quarter of 2015 related to tax audits then underway in Romania, which was subsequently reversed in the third quarter of 2015, operating income for the
six months
ended June 30, 2015 was US$
37.4 million
.
We maintained our audience share leadership in all countries during the first half of 2016, and we had successful programs in the second quarter setting new audience share records in our largest markets. We broadcast UEFA European Championship matches in Romania during the quarter, which benefited our audience share in that country. In the rest of the countries, the games were aired primarily by the public broadcasters. This negatively impacted our audience shares during the quarter but had minimal impact on television advertising revenues, since the public broadcasters are limited in the amount of advertising they may sell. We remain committed to the pillars of our programming strategy, which include news, local fiction, and local reality and entertainment, and will continue to invest in programming on a targeted basis to improve our competitive position as we focus on improving the profitability of our channels.
We ended the quarter with US$
46.4 million
of cash. Our unlevered free cash flow increased
70%
to US$
62.0 million
in the
six months
ended
June 30, 2016
, from US$
36.4 million
in the same period in
2015
. This improvement during the first half of 2016 reflected the improvement in OIBDA and lower capital expenditures. Free cash flow decreased
77%
to US$
6.3 million
, from US$
27.1 million
in the same period in
2015
because we paid more interest in cash and elected to repay a total of US$
20.0 million
of accrued Guarantee Fees during the first half of 2016. For the full year, we expect unlevered free cash flow to improve from US$ 73.9 million in 2015. Cash paid for interest will be higher in 2016 than it was in 2015, and we also plan to use cash to pay the Guarantee Fee related to the 2018 Euro Term Loan payable in November. As a result, we anticipate that free cash flow for 2016 will decrease significantly from US$ 55.5 million in 2015.
On April 8, 2016, we completed the refinancing transaction entered into on February 19, 2016. As part of this transaction:
|
|
•
|
The new EUR 468.8 million 2021 Euro Term Loan was used, together with corporate cash, to repay the US$ 502.5 million aggregate principal amount of the 2017 PIK Notes and repay the US$ 38.2 million 2017 Term Loan, as well as accrued and unpaid interest.
|
|
|
•
|
The maturity date of the existing EUR 250.8 million term loan was extended by one year so the Company’s nearest debt maturity is November 2018.
|
|
|
•
|
The maturity date of our existing US$ 115.0 million revolving credit facility was extended from 2017 to 2021, with access to US$ 50.0 million of liquidity from 2018.
|
Following the transaction:
|
|
•
|
All outstanding long-term debt is denominated in Euros.
|
|
|
•
|
The all-in rate applicable to the 2021 Euro Term Loan and associated guarantee by Time Warner currently stands at 10.0% and can go as low as 7.0%, depending on our net leverage ratio, decreasing the cost of borrowing as the Company’s net leverage ratio improves.
|
|
|
•
|
The cost of the 2021 Revolving Credit Facility, which is currently undrawn, ranges from 10.0% to 7.0%, depending on our net leverage ratio, also decreasing the cost of borrowing as the Company’s net leverage ratio improves.
|
|
|
•
|
We recorded a non-cash loss on extinguishment of debt amounting to US$
150.2 million
in the second quarter of 2016.
|
|
|
•
|
Savings from a lower cost of borrowing, together with improving unlevered free cash flow and expected proceeds from future warrant exercises, should allow us to substantially repay the principal amount of our nearest debt maturity in November 2018.
|
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
six months
ended
June 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2016
|
Country
|
Real GDP Growth
|
|
|
Real Private Consumption Growth
|
|
|
Net TV Ad Market Growth
|
|
Bulgaria
|
2.6
|
%
|
|
2.3
|
%
|
|
(1
|
)%
|
Croatia
|
2.1
|
%
|
|
2.1
|
%
|
|
1
|
%
|
Czech Republic
|
2.4
|
%
|
|
2.7
|
%
|
|
2
|
%
|
Romania*
|
4.3
|
%
|
|
7.0
|
%
|
|
7
|
%
|
Slovak Republic
|
3.4
|
%
|
|
2.8
|
%
|
|
20
|
%
|
Slovenia
|
2.2
|
%
|
|
1.3
|
%
|
|
4
|
%
|
Total CME Ltd. Markets
|
3.0
|
%
|
|
3.7
|
%
|
|
5
|
%
|
* Romanian market excludes Moldova.
Sources: Real GDP Growth and Real Private Consumption Growth, CME Ltd. estimates based on market consensus; TV Ad Market Growth, CME Ltd. estimates at constant exchange rates.
After adjusting for inflation, we estimate that during the first six months of 2016 the rate of overall GDP growth in the countries in which we operate remained higher than the average for Western Europe. The growth in our largest markets continues to be driven by domestic demand, which is evidenced by robust growth in real private consumption, in addition to growth in exports. The overall macro-economic backdrop remains positive, and includes an unemployment rate in the Czech Republic that was the lowest in the EU, as well as fiscal stimulus in Romania that contributed to significant growth in private consumption in that country. We believe that the growth in real GDP and private consumption that is forecast for 2016 across all six of the countries in which we operate will be supportive of continued overall television advertising market growth during the year.
A referendum was held in the United Kingdom on June 23, 2016 whereby the UK electorate voted in favor of the United Kingdom leaving the European Union, commonly referred to as “Brexit”. The overall economic impact of Brexit on the EU and the Euro is difficult to estimate at present, and could have an indirect influence upon GDP growth in the countries in which we operate if it results in a decline in exports. However, current projections suggest the potential reduction in exports would have limited impact on GDP growth, due in part to the improvement in private consumption in these economies since 2014. The departure of the United Kingdom from the EU may also adversely affect the budgetary contributions and allocations among the EU member states, including the countries in which we operate, which are generally net recipients of EU funding. However, existing commitments for budgetary contributions would not be affected, so there is not expected to be any impact on allocations to net recipient countries in the next several years.
We estimate that the TV advertising markets in the countries in which we operate
increased
by
5%
on average in the
six months
ended
June 30, 2016
compared to the same period in
2015
. In Bulgaria, spending on television advertising rebounded during the second quarter as sentiment regarding the macro-economic environment in the country improved. This increase nearly offset the market decline experienced in the first three months of the year. The market growth in Croatia continued to be driven by an increase in average market prices in the first six months of the year. In the Czech Republic, the market grew in the first half of 2016, however the timing of spending was different from the prior year as advertisers allocated more of their budgets for television to the first quarter of 2016 at lower season prices, which negatively impacted spending in the second quarter. Significant discounting by the competition to sell their incremental inventory also put pressure on average prices. In addition, the ice hockey world championship reduced spending in the month of May 2016 compared to 2015, since last year it was hosted in the country and had a positive impact on spending in the market. In Romania, demand for advertising drove average prices higher since the market was largely sold-out during the second quarter. Overall, the number of gross ratings points ("GRPs") sold in the first half of 2016 was essentially flat so the best inventory available was sold at much higher prices. Also contributing to the demand for advertising was the broadcasting of UEFA European Championship matches by our main channel in Romania, since the games have historically been aired by the public broadcaster. In the Slovak Republic, the market grew in the first half of 2016 primarily due to higher prices. Demand was also influenced by an increase in spending on informational and political campaigns. Excluding the spending on these campaigns, we estimate the market grew 13% during the first half of 2016. Growth in the Slovak Republic is expected to be lower for the full year as campaign spending will be lower in the second half of 2016 and year-on-year comparisons will also be impacted by the significant volume of such spending in the second half of 2015. In Slovenia, a more positive macro-economic outlook and improvement in the growth of private consumption encouraged clients to increase their investments in advertising.
Segment Performance
Our total Net Revenues and OIBDA by segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET REVENUES
|
|
For the Three Months Ended June 30, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
2016
|
|
|
2015
|
|
|
% Act
|
|
|
% Lfl
|
|
Bulgaria
|
$
|
20,455
|
|
|
$
|
19,420
|
|
|
5.3
|
%
|
|
3.4
|
%
|
Croatia
|
16,559
|
|
|
16,242
|
|
|
2.0
|
%
|
|
(1.6
|
)%
|
Czech Republic
|
50,919
|
|
|
52,131
|
|
|
(2.3
|
)%
|
|
(5.4
|
)%
|
Romania
|
48,929
|
|
|
44,034
|
|
|
11.1
|
%
|
|
10.4
|
%
|
Slovak Republic
|
22,540
|
|
|
20,236
|
|
|
11.4
|
%
|
|
9.2
|
%
|
Slovenia
|
16,116
|
|
|
15,063
|
|
|
7.0
|
%
|
|
4.9
|
%
|
Intersegment revenues
|
(312
|
)
|
|
(292
|
)
|
|
NM
(1)
|
|
|
NM
(1)
|
|
Total net revenues
|
$
|
175,206
|
|
|
$
|
166,834
|
|
|
5.0
|
%
|
|
2.8
|
%
|
(1)
Number is not meaningful.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET REVENUES
|
|
For the Six Months Ended June 30, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
2016
|
|
|
2015
|
|
|
% Act
|
|
|
% Lfl
|
|
Bulgaria
|
$
|
36,314
|
|
|
$
|
36,204
|
|
|
0.3
|
%
|
|
0.4
|
%
|
Croatia
|
28,204
|
|
|
28,235
|
|
|
(0.1
|
)%
|
|
(1.6
|
)%
|
Czech Republic
|
89,527
|
|
|
87,096
|
|
|
2.8
|
%
|
|
0.9
|
%
|
Romania
|
81,299
|
|
|
77,556
|
|
|
4.8
|
%
|
|
6.0
|
%
|
Slovak Republic
|
41,602
|
|
|
37,774
|
|
|
10.1
|
%
|
|
10.2
|
%
|
Slovenia
|
27,769
|
|
|
26,543
|
|
|
4.6
|
%
|
|
4.5
|
%
|
Intersegment revenues
|
(509
|
)
|
|
(441
|
)
|
|
NM
(1)
|
|
|
NM
(1)
|
|
Total net revenues
|
$
|
304,206
|
|
|
$
|
292,967
|
|
|
3.8
|
%
|
|
3.4
|
%
|
(1)
Number is not meaningful.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDA
|
|
For the Three Months Ended June 30, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
2016
|
|
|
2015
|
|
|
% Act
|
|
|
% Lfl
|
|
Bulgaria
|
$
|
5,954
|
|
|
$
|
4,045
|
|
|
47.2
|
%
|
|
44.8
|
%
|
Croatia
|
4,501
|
|
|
4,972
|
|
|
(9.5
|
)%
|
|
(12.7
|
)%
|
Czech Republic
|
23,099
|
|
|
24,238
|
|
|
(4.7
|
)%
|
|
(7.7
|
)%
|
Romania
|
22,962
|
|
|
15,419
|
|
|
48.9
|
%
|
|
48.2
|
%
|
Slovak Republic
|
3,158
|
|
|
3,627
|
|
|
(12.9
|
)%
|
|
(15.1
|
)%
|
Slovenia
|
1,624
|
|
|
963
|
|
|
68.6
|
%
|
|
66.4
|
%
|
Eliminations
|
(62
|
)
|
|
15
|
|
|
NM
(1)
|
|
|
NM
(1)
|
|
Total operating segments
|
61,236
|
|
|
53,279
|
|
|
14.9
|
%
|
|
12.4
|
%
|
Corporate
|
(7,604
|
)
|
|
(6,468
|
)
|
|
(17.6
|
)%
|
|
(15.2
|
)%
|
Consolidated OIBDA
|
$
|
53,632
|
|
|
$
|
46,811
|
|
|
14.6
|
%
|
|
12.1
|
%
|
(1)
Number is not meaningful.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDA
|
|
For the Six Months Ended June 30, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
2016
|
|
|
2015
|
|
|
% Act
|
|
|
% Lfl
|
|
Bulgaria
|
$
|
7,023
|
|
|
$
|
6,243
|
|
|
12.5
|
%
|
|
12.0
|
%
|
Croatia
|
5,902
|
|
|
6,834
|
|
|
(13.6
|
)%
|
|
(16.5
|
)%
|
Czech Republic
|
33,173
|
|
|
34,329
|
|
|
(3.4
|
)%
|
|
(6.0
|
)%
|
Romania
|
32,424
|
|
|
18,780
|
|
|
72.7
|
%
|
|
72.1
|
%
|
Slovak Republic
|
5,551
|
|
|
3,482
|
|
|
59.4
|
%
|
|
48.8
|
%
|
Slovenia
|
916
|
|
|
1,323
|
|
|
(30.8
|
)%
|
|
(32.7
|
)%
|
Eliminations
|
(68
|
)
|
|
(35
|
)
|
|
NM
(1)
|
|
|
NM
(1)
|
|
Total operating segments
|
84,921
|
|
|
70,956
|
|
|
19.7
|
%
|
|
17.1
|
%
|
Corporate
|
(14,181
|
)
|
|
(12,697
|
)
|
|
(11.7
|
)%
|
|
(11.3
|
)%
|
Consolidated OIBDA
|
$
|
70,740
|
|
|
$
|
58,259
|
|
|
21.4
|
%
|
|
18.4
|
%
|
(1)
Number is not meaningful.
Bulgaria
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
2016
|
|
|
2015
|
|
|
% Act
|
|
|
% Lfl
|
|
Television advertising
|
$
|
14,682
|
|
|
$
|
13,864
|
|
|
5.9
|
%
|
|
3.9
|
%
|
Carriage fees and subscriptions
|
4,641
|
|
|
4,473
|
|
|
3.8
|
%
|
|
1.9
|
%
|
Other
|
1,132
|
|
|
1,083
|
|
|
4.5
|
%
|
|
2.5
|
%
|
Net revenues
|
20,455
|
|
|
19,420
|
|
|
5.3
|
%
|
|
3.4
|
%
|
Costs charged in arriving at OIBDA
|
14,501
|
|
|
15,375
|
|
|
(5.7
|
)%
|
|
(7.5
|
)%
|
OIBDA
|
$
|
5,954
|
|
|
$
|
4,045
|
|
|
47.2
|
%
|
|
44.8
|
%
|
|
|
|
|
|
|
|
|
OIBDA margin
|
29.1
|
%
|
|
20.8
|
%
|
|
8.3 p.p.
|
|
|
8.3 p.p.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
2016
|
|
|
2015
|
|
|
% Act
|
|
|
% Lfl
|
|
Television advertising
|
$
|
24,646
|
|
|
$
|
25,125
|
|
|
(1.9
|
)%
|
|
(2.0
|
)%
|
Carriage fees and subscriptions
|
9,212
|
|
|
8,973
|
|
|
2.7
|
%
|
|
3.3
|
%
|
Other
|
2,456
|
|
|
2,106
|
|
|
16.6
|
%
|
|
16.7
|
%
|
Net revenues
|
36,314
|
|
|
36,204
|
|
|
0.3
|
%
|
|
0.4
|
%
|
Costs charged in arriving at OIBDA
|
29,291
|
|
|
29,961
|
|
|
(2.2
|
)%
|
|
(2.0
|
)%
|
OIBDA
|
$
|
7,023
|
|
|
$
|
6,243
|
|
|
12.5
|
%
|
|
12.0
|
%
|
|
|
|
|
|
|
|
|
OIBDA margin
|
19.3
|
%
|
|
17.2
|
%
|
|
2.1 p.p.
|
|
|
2.0 p.p.
|
|
The television advertising market in Bulgaria
declined
an estimated
1%
at constant rates in the
six months
ended
June 30, 2016
compared to the same period in 2015.
Our television advertising revenues increased by
4%
at constant rates during the second quarter as improvement in the macro-economic environment in the country led to advertisers purchasing more advertising, albeit amid continuing pressure on our prices. Our television advertising revenues declined
2%
on a constant currency basis in the first six months of 2016 due to lower average prices as well as reduced budgets of certain advertising clients during the first quarter. Carriage fees and subscription revenues increased on a constant currency basis in the three and six months ended June 30, 2016 due to growth in the number of subscribers.
On a constant currency basis costs, charged in arriving at OIBDA decreased in the second quarter due primarily to a
7%
decrease in content costs, driven by savings from foreign programming, which more than offset costs from additional hours of local programming. The decrease in content costs during the second quarter more than offset an increase in costs during the first three months of the year, resulting in costs decreasing in the first half of 2016.
Croatia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
2016
|
|
|
2015
|
|
|
% Act
|
|
|
% Lfl
|
|
Television advertising
|
$
|
14,707
|
|
|
$
|
14,720
|
|
|
(0.1
|
)%
|
|
(3.6
|
)%
|
Carriage fees and subscriptions
|
643
|
|
|
559
|
|
|
15.0
|
%
|
|
11.3
|
%
|
Other
|
1,209
|
|
|
963
|
|
|
25.5
|
%
|
|
21.4
|
%
|
Net revenues
|
16,559
|
|
|
16,242
|
|
|
2.0
|
%
|
|
(1.6
|
)%
|
Costs charged in arriving at OIBDA
|
12,058
|
|
|
11,270
|
|
|
7.0
|
%
|
|
3.2
|
%
|
OIBDA
|
$
|
4,501
|
|
|
$
|
4,972
|
|
|
(9.5
|
)%
|
|
(12.7
|
)%
|
|
|
|
|
|
|
|
|
OIBDA margin
|
27.2
|
%
|
|
30.6
|
%
|
|
(3.4) p.p.
|
|
|
(3.4) p.p.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
2016
|
|
|
2015
|
|
|
% Act
|
|
|
% Lfl
|
|
Television advertising
|
$
|
24,779
|
|
|
$
|
25,021
|
|
|
(1.0
|
)%
|
|
(2.6
|
)%
|
Carriage fees and subscriptions
|
1,267
|
|
|
1,160
|
|
|
9.2
|
%
|
|
8.8
|
%
|
Other
|
2,158
|
|
|
2,054
|
|
|
5.1
|
%
|
|
4.7
|
%
|
Net revenues
|
28,204
|
|
|
28,235
|
|
|
(0.1
|
)%
|
|
(1.6
|
)%
|
Costs charged in arriving at OIBDA
|
22,302
|
|
|
21,401
|
|
|
4.2
|
%
|
|
3.3
|
%
|
OIBDA
|
$
|
5,902
|
|
|
$
|
6,834
|
|
|
(13.6
|
)%
|
|
(16.5
|
)%
|
|
|
|
|
|
|
|
|
OIBDA margin
|
20.9
|
%
|
|
24.2
|
%
|
|
(3.3) p.p.
|
|
|
(3.8) p.p.
|
|
The television advertising market in Croatia
increased
an estimated
1%
at constant rates in the
six months
ended
June 30, 2016
compared to the same period in 2015.
Our television advertising revenues decreased at constant rates during the second quarter and first half of 2016 from selling a lower volume of GRPs at a higher average price compared to the same periods in 2015.
Costs charged in arriving at OIBDA increased during both the second quarter and first half of 2016 due to an increase in content costs as a result of launching an additional entertainment format when compared to the schedule in the same periods of 2015. This increase was partially offset by lower costs for foreign programming. Costs in the second quarter were also negatively impacted by the collection of previously reserved bad debts in the corresponding period of 2015.
Czech Republic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
2016
|
|
|
2015
|
|
|
% Act
|
|
|
% Lfl
|
|
Television advertising
|
$
|
46,673
|
|
|
$
|
48,097
|
|
|
(3.0
|
)%
|
|
(6.1
|
)%
|
Carriage fees and subscriptions
|
2,604
|
|
|
2,005
|
|
|
29.9
|
%
|
|
25.7
|
%
|
Other
|
1,642
|
|
|
2,029
|
|
|
(19.1
|
)%
|
|
(21.4
|
)%
|
Net revenues
|
50,919
|
|
|
52,131
|
|
|
(2.3
|
)%
|
|
(5.4
|
)%
|
Costs charged in arriving at OIBDA
|
27,820
|
|
|
27,893
|
|
|
(0.3
|
)%
|
|
(3.5
|
)%
|
OIBDA
|
$
|
23,099
|
|
|
$
|
24,238
|
|
|
(4.7
|
)%
|
|
(7.7
|
)%
|
|
|
|
|
|
|
|
|
OIBDA margin
|
45.4
|
%
|
|
46.5
|
%
|
|
(1.1) p.p.
|
|
|
(1.1) p.p.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
2016
|
|
|
2015
|
|
|
% Act
|
|
|
% Lfl
|
|
Television advertising
|
$
|
81,463
|
|
|
$
|
79,545
|
|
|
2.4
|
%
|
|
0.5
|
%
|
Carriage fees and subscriptions
|
5,131
|
|
|
4,024
|
|
|
27.5
|
%
|
|
26.0
|
%
|
Other
|
2,933
|
|
|
3,527
|
|
|
(16.8
|
)%
|
|
(18.3
|
)%
|
Net revenues
|
89,527
|
|
|
87,096
|
|
|
2.8
|
%
|
|
0.9
|
%
|
Costs charged in arriving at OIBDA
|
56,354
|
|
|
52,767
|
|
|
6.8
|
%
|
|
5.5
|
%
|
OIBDA
|
$
|
33,173
|
|
|
$
|
34,329
|
|
|
(3.4
|
)%
|
|
(6.0
|
)%
|
|
|
|
|
|
|
|
|
OIBDA margin
|
37.1
|
%
|
|
39.4
|
%
|
|
(2.3) p.p.
|
|
|
(2.7) p.p.
|
|
The television advertising market in the Czech Republic
increased
an estimated
2%
at constant rates in the
six months
ended
June 30, 2016
compared to the same period in 2015.
On a constant currency basis, net revenues increased in the first half of 2016, driven by an increase in television advertising revenues as well as an increase in carriage fees and subscription revenues. The timing of advertising spending in the first six months of 2016 was different from the prior year as advertisers allocated more of their television budgets to the first quarter of 2016 at lower season prices, which negatively impacted our television advertising revenues in the second quarter. Significant discounting by the competition to sell their incremental inventory also put pressure on our average prices in the second quarter of 2016. In addition, the ice hockey world championship reduced spending in the month of May 2016 compared to 2015, since last year it was hosted in the country and had a positive impact on spending in the market. Carriage fees and subscription revenues increased on a constant currency basis in the second quarter and first half of 2016 due to high definition versions of our channels that are now available as well as the launch of Nova Sport 2 in the second half of 2015 and the launch of Nova International during the first quarter of 2016.
Content costs were flat at constant rates during the second quarter as higher expenses for our popular reality format,
Your Face Sounds Familiar
, in the spring season were offset by savings from broadcasting fewer hours of local and foreign fiction, and additional costs from the launch of Nova Sport 2 last year were offset by savings in other sports programming. Total costs charged in arriving at OIBDA during the quarter were lower due to savings from personnel costs. Total costs charged in arriving at OIBDA increased in the first half of 2016 because the savings in the second quarter were more than offset by an increase in content costs from more local productions, foreign movies and sports programming in the first quarter of 2016 compared to the same periods of last year.
Romania
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
2016
|
|
|
2015
|
|
|
% Act
|
|
|
% Lfl
|
|
Television advertising
|
$
|
37,797
|
|
|
$
|
32,917
|
|
|
14.8
|
%
|
|
14.1
|
%
|
Carriage fees and subscriptions
|
10,178
|
|
|
10,004
|
|
|
1.7
|
%
|
|
1.2
|
%
|
Other
|
954
|
|
|
1,113
|
|
|
(14.3
|
)%
|
|
(14.9
|
)%
|
Net revenues
|
48,929
|
|
|
44,034
|
|
|
11.1
|
%
|
|
10.4
|
%
|
Costs charged in arriving at OIBDA
|
25,967
|
|
|
28,615
|
|
|
(9.3
|
)%
|
|
(9.9
|
)%
|
OIBDA
|
$
|
22,962
|
|
|
$
|
15,419
|
|
|
48.9
|
%
|
|
48.2
|
%
|
|
|
|
|
|
|
|
|
OIBDA margin
|
46.9
|
%
|
|
35.0
|
%
|
|
11.9 p.p.
|
|
|
11.9 p.p.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
2016
|
|
|
2015
|
|
|
% Act
|
|
|
% Lfl
|
|
Television advertising
|
$
|
59,493
|
|
|
$
|
55,264
|
|
|
7.7
|
%
|
|
8.6
|
%
|
Carriage fees and subscriptions
|
20,164
|
|
|
20,374
|
|
|
(1.0
|
)%
|
|
0.9
|
%
|
Other
|
1,642
|
|
|
1,918
|
|
|
(14.4
|
)%
|
|
(13.4
|
)%
|
Net revenues
|
81,299
|
|
|
77,556
|
|
|
4.8
|
%
|
|
6.0
|
%
|
Costs charged in arriving at OIBDA
|
48,875
|
|
|
58,776
|
|
|
(16.8
|
)%
|
|
(15.5
|
)%
|
OIBDA
|
$
|
32,424
|
|
|
$
|
18,780
|
|
|
72.7
|
%
|
|
72.1
|
%
|
|
|
|
|
|
|
|
|
OIBDA margin
|
39.9
|
%
|
|
24.2
|
%
|
|
15.7 p.p.
|
|
|
15.3 p.p.
|
|
The television advertising market in Romania
increased
an estimated
7%
at constant rates in the
six months
ended
June 30, 2016
compared to the same period in 2015.
Our television advertising revenues increased
14%
at constant rates during the second quarter. Since the market was largely sold-out during the quarter, fewer GRPs available from our channels were sold at much higher prices. Also contributing to the demand for advertising was the broadcasting of UEFA European Championship matches by our main channel. This growth in television advertising revenues in the second quarter also resulted in the increase in net revenues in the first half of 2016 compared to the same period in 2015. Carriage fees and subscription revenues grew slightly on a constant currency basis during the three and six months ended June 30, 2016, due to an increase in the number of subscribers, which helped offset a decrease in other revenues.
Even though content costs increased
3%
on a constant currency basis during the second quarter, due primarily to the cost of broadcasting matches of the UEFA European Championship, costs charged in arriving at OIBDA
decreased
, reflecting a decrease in bad debt expense, together with lower personnel costs following restructuring efforts in 2015, lower professional fees for tax and legal advisors, and savings on satellite transmission costs. Content costs decreased by
5%
in the first half of 2016 as the cost of the tournament in June was more than offset by savings in the first quarter from not airing a local entertainment format in 2016 that was introduced as a lead-in to the spring season in 2015, as well as some savings from foreign programming.
Slovak Republic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
2016
|
|
|
2015
|
|
|
% Act
|
|
|
% Lfl
|
|
Television advertising
|
$
|
21,246
|
|
|
$
|
18,793
|
|
|
13.1
|
%
|
|
10.8
|
%
|
Carriage fees and subscriptions
|
559
|
|
|
360
|
|
|
55.3
|
%
|
|
52.3
|
%
|
Other
|
735
|
|
|
1,083
|
|
|
(32.1
|
)%
|
|
(33.5
|
)%
|
Net revenues
|
22,540
|
|
|
20,236
|
|
|
11.4
|
%
|
|
9.2
|
%
|
Costs charged in arriving at OIBDA
|
19,382
|
|
|
16,609
|
|
|
16.7
|
%
|
|
14.5
|
%
|
OIBDA
|
$
|
3,158
|
|
|
$
|
3,627
|
|
|
(12.9
|
)%
|
|
(15.1
|
)%
|
|
|
|
|
|
|
|
|
OIBDA margin
|
14.0
|
%
|
|
17.9
|
%
|
|
(3.9) p.p.
|
|
|
(4.0) p.p.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
2016
|
|
|
2015
|
|
|
% Act
|
|
|
% Lfl
|
|
Television advertising
|
$
|
39,091
|
|
|
$
|
35,099
|
|
|
11.4
|
%
|
|
11.4
|
%
|
Carriage fees and subscriptions
|
876
|
|
|
660
|
|
|
32.7
|
%
|
|
32.7
|
%
|
Other
|
1,635
|
|
|
2,015
|
|
|
(18.9
|
)%
|
|
(18.8
|
)%
|
Net revenues
|
41,602
|
|
|
37,774
|
|
|
10.1
|
%
|
|
10.2
|
%
|
Costs charged in arriving at OIBDA
|
36,051
|
|
|
34,292
|
|
|
5.1
|
%
|
|
5.9
|
%
|
OIBDA
|
$
|
5,551
|
|
|
$
|
3,482
|
|
|
59.4
|
%
|
|
48.8
|
%
|
|
|
|
|
|
|
|
|
OIBDA margin
|
13.3
|
%
|
|
9.2
|
%
|
|
4.1 p.p.
|
|
|
3.4 p.p.
|
|
The television advertising market in the Slovak Republic increased an estimated
20%
at constant rates in the
six months
ended
June 30, 2016
compared to the same period in 2015.
Our television advertising revenues grew significantly during the second quarter and first half of 2016 due primarily to higher prices. The first six months of 2016 also benefited from an increase in spending on informational and political campaigns. Excluding this spending, our revenues grew 9% and 8% during the
three and six months
ended
June 30, 2016
and our market share would have been higher since a lower proportion of these campaigns were placed on our channels. Growth is expected to be significantly lower for the full year as campaign spending will be lower in the second half of 2016 and year-on-year comparisons will also be impacted by the significant volume of such spending in the second half of 2015. Carriage fees and subscription revenues increased significantly during the second quarter and first half of 2016 due to new agreements with carriers.
On a constant currency basis costs charged in arriving at OIBDA
increased
during the second quarter due primarily to a
18%
increase in content costs, reflecting more hours of local programming in the spring season of 2016 than in 2015. Content costs increased by
7%
in the first half of 2016 as savings from foreign content in the first three months of the year partially offset increased investment in local production.
Slovenia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
2016
|
|
|
2015
|
|
|
% Act
|
|
|
% Lfl
|
|
Television advertising
|
$
|
13,907
|
|
|
$
|
13,166
|
|
|
5.6
|
%
|
|
3.6
|
%
|
Carriage fees and subscriptions
|
1,237
|
|
|
1,026
|
|
|
20.6
|
%
|
|
18.3
|
%
|
Other
|
972
|
|
|
871
|
|
|
11.6
|
%
|
|
9.6
|
%
|
Net revenues
|
16,116
|
|
|
15,063
|
|
|
7.0
|
%
|
|
4.9
|
%
|
Costs charged in arriving at OIBDA
|
14,492
|
|
|
14,100
|
|
|
2.8
|
%
|
|
0.7
|
%
|
OIBDA
|
$
|
1,624
|
|
|
$
|
963
|
|
|
68.6
|
%
|
|
66.4
|
%
|
|
|
|
|
|
|
|
|
OIBDA margin
|
10.1
|
%
|
|
6.4
|
%
|
|
3.7 p.p.
|
|
|
3.7 p.p.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
2016
|
|
|
2015
|
|
|
% Act
|
|
|
% Lfl
|
|
Television advertising
|
$
|
23,711
|
|
|
$
|
23,118
|
|
|
2.6
|
%
|
|
2.4
|
%
|
Carriage fees and subscriptions
|
2,421
|
|
|
2,014
|
|
|
20.2
|
%
|
|
20.8
|
%
|
Other
|
1,637
|
|
|
1,411
|
|
|
16.0
|
%
|
|
15.8
|
%
|
Net revenues
|
27,769
|
|
|
26,543
|
|
|
4.6
|
%
|
|
4.5
|
%
|
Costs charged in arriving at OIBDA
|
26,853
|
|
|
25,220
|
|
|
6.5
|
%
|
|
6.6
|
%
|
OIBDA
|
$
|
916
|
|
|
$
|
1,323
|
|
|
(30.8
|
)%
|
|
(32.7
|
)%
|
|
|
|
|
|
|
|
|
OIBDA margin
|
3.3
|
%
|
|
5.0
|
%
|
|
(1.7) p.p.
|
|
|
(1.8) p.p.
|
|
The television advertising market in Slovenia
increased
an estimated
4%
at constant rates in the
six months
ended
June 30, 2016
compared to the same period in 2015.
Television advertising revenue increased at constant rates during the second quarter as a more positive macro-economic outlook and improvement in the growth of private consumption encouraged clients to increase their investments in advertising. This improvement in advertising revenue in the second quarter also benefited the first half of the year after a change in the mix of our clients in the first quarter when certain clients had shifted spending to our competitors for lower prices, which was offset by spending from new clients both on television and online. Carriage fees and subscription revenues increased in both periods primarily as a result of an increase in the monthly price for our subscription video on demand product, Voyo.
On a constant currency basis costs charged in arriving at OIBDA
increased
during both periods due primarily to an increase in content costs from additional hours of local own produced programming in the spring schedule, which was partially offset by savings from foreign programming. The higher cost of local programming in the second quarter was also mostly offset by savings from cost cutting measures, mainly due to lower personnel costs.
Free Cash Flow and Unlevered Free Cash Flow
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, (US$ 000's)
|
|
2016
|
|
|
2015
|
|
|
Movement
|
|
Net cash generated from continuing operating activities
|
$
|
17,549
|
|
|
$
|
41,522
|
|
|
(57.7
|
)%
|
Capital expenditures, net
|
(11,255
|
)
|
|
(14,388
|
)
|
|
21.8
|
%
|
Free cash flow
|
6,294
|
|
|
27,134
|
|
|
(76.8
|
)%
|
Cash paid for interest
|
35,712
|
|
|
9,264
|
|
|
NM
(1)
|
|
Cash paid for Guarantee Fees
|
20,000
|
|
|
—
|
|
|
NM
(1)
|
|
Unlevered free cash flow
|
$
|
62,006
|
|
|
$
|
36,398
|
|
|
70.4
|
%
|
(1)
Number is not meaningful.
|
|
|
|
|
|
|
|
|
|
|
|
(US$ 000's)
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
Movement
|
|
Cash and cash equivalents
|
$
|
46,442
|
|
|
$
|
61,679
|
|
|
(24.7
|
)%
|
We ended the quarter with US$
46.4 million
of cash. Our unlevered free cash flow increased
70%
to US$
62.0 million
in the
six months
ended
June 30, 2016
, from US$
36.4 million
in the same period in
2015
. This improvement during the first half of 2016 reflected the improvement in OIBDA and lower capital expenditures. Free cash flow decreased
77%
to US$
6.3 million
, from US$
27.1 million
in the same period in
2015
because we paid more interest in cash and elected to repay a total of US$
20.0 million
of accrued Guarantee Fees during the first half of 2016.
For the full year, we expect unlevered free cash flow to improve from US$ 73.9 million in 2015, primarily reflecting an increase in OIBDA, which will be partially offset by investments in new local productions for next year. Cash paid for interest will be higher in 2016 than it was in 2015, and we also plan to use cash to pay the Guarantee Fee related to the 2018 Euro Term Loan payable in November rather than electing to pay in kind. As a result, we anticipate that free cash flow for 2016 will decrease significantly from US$ 55.5 million in 2015.
III. Analysis of the Results of Operations and Financial Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
2016
|
|
|
2015
|
|
|
% Act
|
|
|
% Lfl
|
|
Revenue:
|
|
|
|
|
|
|
|
Television advertising
|
$
|
149,012
|
|
|
$
|
141,557
|
|
|
5.3
|
%
|
|
2.9
|
%
|
Carriage fees and subscriptions
|
19,862
|
|
|
18,427
|
|
|
7.8
|
%
|
|
6.3
|
%
|
Other revenue
|
6,332
|
|
|
6,850
|
|
|
(7.6
|
)%
|
|
(9.6
|
)%
|
Net Revenues
|
175,206
|
|
|
166,834
|
|
|
5.0
|
%
|
|
2.8
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
Content costs
|
77,282
|
|
|
73,437
|
|
|
5.2
|
%
|
|
3.0
|
%
|
Other operating costs
|
17,939
|
|
|
17,422
|
|
|
3.0
|
%
|
|
0.6
|
%
|
Depreciation of property, plant and equipment
|
7,627
|
|
|
6,936
|
|
|
10.0
|
%
|
|
7.3
|
%
|
Amortization of broadcast licenses and other intangibles
|
2,114
|
|
|
3,434
|
|
|
(38.4
|
)%
|
|
(39.8
|
)%
|
Cost of revenues
|
104,962
|
|
|
101,229
|
|
|
3.7
|
%
|
|
1.4
|
%
|
Selling, general and administrative expenses
|
26,353
|
|
|
28,712
|
|
|
(8.2
|
)%
|
|
(10.0
|
)%
|
Restructuring costs
|
—
|
|
|
452
|
|
|
(100.0
|
)%
|
|
(100.0
|
)%
|
Operating income
|
$
|
43,891
|
|
|
$
|
36,441
|
|
|
20.4
|
%
|
|
17.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, (US$ 000's)
|
|
|
|
|
|
Movement
|
|
2016
|
|
|
2015
|
|
|
% Act
|
|
|
% Lfl
|
|
Revenue:
|
|
|
|
|
|
|
|
Television advertising
|
$
|
253,183
|
|
|
$
|
243,172
|
|
|
4.1
|
%
|
|
3.5
|
%
|
Carriage fees and subscriptions
|
39,071
|
|
|
37,205
|
|
|
5.0
|
%
|
|
6.1
|
%
|
Other revenue
|
11,952
|
|
|
12,590
|
|
|
(5.1
|
)%
|
|
(5.4
|
)%
|
Net Revenues
|
304,206
|
|
|
292,967
|
|
|
3.8
|
%
|
|
3.4
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
Content costs
|
149,260
|
|
|
144,727
|
|
|
3.1
|
%
|
|
3.3
|
%
|
Other operating costs
|
34,393
|
|
|
34,460
|
|
|
(0.2
|
)%
|
|
(0.1
|
)%
|
Depreciation of property, plant and equipment
|
14,912
|
|
|
13,937
|
|
|
7.0
|
%
|
|
6.9
|
%
|
Amortization of broadcast licenses and other intangibles
|
4,174
|
|
|
6,933
|
|
|
(39.8
|
)%
|
|
(39.9
|
)%
|
Cost of revenues
|
202,739
|
|
|
200,057
|
|
|
1.3
|
%
|
|
1.5
|
%
|
Selling, general and administrative expenses
|
49,813
|
|
|
72,613
|
|
|
(31.4
|
)%
|
|
(31.4
|
)%
|
Restructuring costs
|
—
|
|
|
1,095
|
|
|
(100.0
|
)%
|
|
(100.0
|
)%
|
Operating income
|
$
|
51,654
|
|
|
$
|
19,202
|
|
|
169.0
|
%
|
|
150.8
|
%
|
Revenue:
Television advertising revenues:
We estimate television advertising spending in our markets grew on average by
5%
in the
six months
ended
June 30, 2016
as compared to the same period in 2015, positively impacting our television advertising revenues. See "Overview - Segment Performance" above for additional information on television advertising revenues for each of our operating countries.
Carriage fees and subscriptions:
Carriage fees and subscriptions revenue increased during the
three and six months
ended
June 30, 2016
, as compared to the same periods in
2015
, primarily in the Czech Republic due to the launch of additional channels in the second half of 2015 and first quarter of 2016, in addition to high definition versions of our channels that are now included in most cable and satellite platforms. Carriage fees revenues also benefited from higher subscriber counts in the current year. See "Overview - Segment Performance" above for additional information on carriage fees and subscription revenues.
Other revenues:
Other revenues include primarily internet advertising revenues and revenues generated through the licensing of our own productions. Other revenues decreased during the
three and six months
ended
June 30, 2016
as compared to the same periods in the prior year due to lower internet advertising, primarily in the Czech Republic as advertisers allocated more of their budgets to the first quarter of 2016 at lower season pricing, which negatively impacted our revenues in the second quarter.
Operating Expenses:
Content costs:
Content costs (including production costs and amortization and impairment of program rights) increased during the
three and six months
ended
June 30, 2016
compared to the same periods in
2015
. The increase is primarily due to more hours of local productions in our broadcast schedules on 2016 than in 2015, which was partially offset by savings from foreign programming.
Other operating costs:
Other operating costs (excluding content costs, depreciation of property, plant and equipment, amortization of broadcast licenses and other intangibles as well as selling, general and administrative expenses) were broadly flat during the
three and six months
ended
June 30, 2016
compared to the same periods in
2015
, as lower transmission costs in Romania following the renegotiation of certain contracts in the second half of 2015 were offset by individually insignificant increases across the other segments.
Depreciation of property, plant and equipment:
Total depreciation of property, plant and equipment increased during the
three and six months
ended
June 30, 2016
compared to the same periods in
2015
primarily due to depreciation on production and technical equipment put in service after June 30, 2015.
Amortization of broadcast licenses and other intangibles:
Total amortization of broadcast licenses and other intangibles decreased during the
three and six months
ended
June 30, 2016
, compared to the same periods in
2015
. The decrease is due to higher amortization expense in 2015 for certain of our trademarks in Romania that we determined were no longer indefinite-lived and began amortizing from January 1, 2015 which were subsequently divested with the sale of our Romanian studios in the fourth quarter of 2015. The lower amortization expense also reflects certain intangible assets which were fully amortized in the fourth quarter of 2015.
Selling, general and administrative expenses:
Selling, general and administrative expenses were lower during the
three and six months
ended
June 30, 2016
compared to the same periods in
2015
primarily due to a charge taken in the prior year related to certain tax audits in Romania (which was subsequently reversed in the third quarter of 2015). The decrease is also due to lower professional fees and increased non-recourse factoring activities resulting in lower bad debt expense.
Selling, general and administrative expenses for
three and six months
ended
June 30, 2016
and
2015
also includes charges in respect of non-cash stock-based compensation (see Item 1,
Note 16, "Stock-based Compensation"
). The charge for stock-based compensation expense in 2016 increased compared to the prior periods reflecting the full year impact of stock options and performance-based RSUs granted in the first quarter of 2015.
Operating income / (loss):
Operating income during the
three and six months
ended
June 30, 2016
increased compared to the same periods in
2015
, as net revenues increased while our total costs decreased. Excluding the charge taken in the first quarter of 2015 related to tax audits then underway in Romania, operating income for the
six months
ended June 30, 2015 was US$
37.4 million
.
Our operating margin, which is determined as operating income / loss divided by net revenues, was
25%
and
17%
for the
three and six months
ended
June 30, 2016
compared to
22%
and
7%
for the
three and six months
ended
June 30, 2015
. Excluding the charge related to the Romanian tax audits, operating margin for the
six months
ended June 30, 2015 was
13%
.
Other income / expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, (US$ 000's)
|
|
For the Six Months Ended June 30,
(US$ 000's)
|
|
2016
|
|
|
2015
|
|
|
% Act
|
|
|
2016
|
|
|
2015
|
|
|
% Act
|
|
Interest expense
|
$
|
(29,545
|
)
|
|
$
|
(41,746
|
)
|
|
29.2
|
%
|
|
$
|
(78,699
|
)
|
|
$
|
(81,864
|
)
|
|
3.9
|
%
|
Loss on extinguishment of debt
|
(150,158
|
)
|
|
—
|
|
|
NM
(1)
|
|
|
(150,158
|
)
|
|
—
|
|
|
NM
(1)
|
|
Non-operating income / (expense):
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
285
|
|
|
118
|
|
|
141.5
|
%
|
|
393
|
|
|
230
|
|
|
70.9
|
%
|
Foreign currency exchange (loss) / gain, net
|
(3,002
|
)
|
|
2,289
|
|
|
NM
(1)
|
|
|
12,420
|
|
|
(9,200
|
)
|
|
NM
(1)
|
|
Change in fair value of derivatives
|
2,544
|
|
|
(2,220
|
)
|
|
NM
(1)
|
|
|
(11,506
|
)
|
|
(3,230
|
)
|
|
NM
(1)
|
|
Other income / (expense), net
|
6
|
|
|
(3,091
|
)
|
|
NM
(1)
|
|
|
(58
|
)
|
|
(3,445
|
)
|
|
98.3
|
%
|
Provision for income taxes
|
(5,270
|
)
|
|
(3,460
|
)
|
|
(52.3
|
)%
|
|
(5,989
|
)
|
|
(3,605
|
)
|
|
(66.1
|
)%
|
Income / (loss) from discontinued operations, net of tax
|
—
|
|
|
2,684
|
|
|
(100.0
|
)%
|
|
—
|
|
|
(604
|
)
|
|
100.0
|
%
|
Net (income) / loss attributable to noncontrolling interests
|
(68
|
)
|
|
307
|
|
|
NM
(1)
|
|
|
191
|
|
|
564
|
|
|
(66.1
|
)%
|
Other comprehensive income / (loss):
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment, net
|
(11,056
|
)
|
|
39,581
|
|
|
NM
(1)
|
|
|
8,002
|
|
|
(64,183
|
)
|
|
NM
(1)
|
|
Unrealized (loss) / gain on derivative instruments
|
(2,973
|
)
|
|
533
|
|
|
NM
(1)
|
|
|
(4,221
|
)
|
|
(74
|
)
|
|
NM
(1)
|
|
|
|
(1)
|
Number is not meaningful.
|
Interest expense:
Interest expense during the
three and six months
ended
June 30, 2016
decreased compared to the
three and six months
ended
June 30, 2015
primarily due to lower amortization of debt discount and issuance costs following the extinguishment of the 2017 PIK Notes and 2017 Term Loan. Interest expense for the three months ended June 30, 2016 also decreased as compared to the same period in 2015 due to the refinancing of the 2017 PIK Notes and the 2017 Term Loan (each 15% per annum) with the 2021 Euro Term Loan (all-in rate of 10.0% per annum).
Loss on extinguishment of debt:
During the
three and six months
ended
June 30, 2016
, we recognized a loss on extinguishment of debt related to the redemption and discharge of the 2017 PIK Notes, repayment of the 2017 Term Loan and modifications of 2018 Euro Term Loan and 2019 Euro Term Loan, which were accounted for in a similar manner as a debt extinguishment.
Interest income:
Interest income primarily reflects earnings on cash balances.
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 dollar, and any change in the relevant exchange rate will require us to recognize a transaction gain or loss on revaluation. Certain of our intercompany loans are classified as long-term in nature, and therefore gains or losses on revaluation are not recorded through the statement of operations and comprehensive income / loss. See the discussion under "Currency translation adjustment, net" below.
During the
six months
ended
June 30, 2016
, we recognized a net gain of US$
12.4 million
comprised of transaction gains of US$
38.2 million
relating to the revaluation of intercompany loans, transaction losses of approximately US$
25.5 million
on our long-term debt and transaction losses of US$
0.3 million
relating to the revaluation of monetary assets and liabilities denominated in currencies other than the local functional currency of the relevant subsidiary.
During the
six months
ended
June 30, 2015
, we recognized a net loss comprised of US$
9.2 million
transaction losses of US$
24.3 million
relating to the revaluation of intercompany loans, transaction gains of approximately US$
23.9 million
on our long-term debt and transaction losses of US$
8.8 million
relating to the revaluation of monetary assets and liabilities denominated in currencies other than the local functional currency of the relevant subsidiary.
Change in fair value of derivatives:
During the
three and six months
ended
June 30, 2016
, we recognized gains and losses, respectively, as a result of the change in the fair value of our USD/EUR foreign currency forward contracts entered into on December 3, 2015, February 11, 2016 and February 17, 2016. During the
three and six months
ended
June 30, 2015
, we recognized a loss as a result of the change in the fair value of our USD/EUR and USD/CZK foreign currency forward contracts entered into on March 11, 2015. See Item 1,
Note 11, "Financial Instruments and Fair Value Measurements"
.
Other income / (expense), net
:
Our other income / expense, net during the
three and six months
ended
June 30, 2016
was not material. During the
three and six months
ended
June 30, 2015
, we recognized other expense primarily due to the estimated loss on the sale of a building and related land in Bulgaria recorded in the second quarter of 2015.
Provision for income taxes
:
The provision for income taxes for the
three and six months
ended
June 30, 2016
reflects losses on which no tax benefit has been received and tax charges on profits in the Czech Republic and Romania.
The provision for income taxes for the
three and six months
ended
June 30, 2015
continues to reflect valuation allowances in respect of the tax benefit of losses and reflects tax charges on profits in the Czech Republic and Croatia.
Our subsidiaries are subject to income taxes at statutory rates ranging from
10.0%
in Bulgaria to
22.0%
in the Slovak Republic.
Net (income) / loss attributable to noncontrolling interests
:
The results attributable to noncontrolling interests for the
three and six months
ended
June 30, 2016
and
2015
primarily relates to the noncontrolling interest share of our Bulgaria operations.
Currency translation adjustment, net:
The underlying equity value of our investments (which are denominated in the functional currency of the relevant entity) are converted into dollars at each balance sheet date, with any change in value of the underlying assets and liabilities being recorded as a currency translation adjustment to the balance sheet rather than net income / loss.
In the
three and six months
ended
June 30, 2016
, we recognized other comprehensive loss of US$
11.1 million
and other comprehensive income of US$
8.0 million
, respectively, compared to other comprehensive income of US$
39.6 million
and other comprehensive loss of US$
64.2 million
during the
three and six months
ended
June 30, 2015
. Included in these amounts are foreign exchange gains and losses on the retranslation of certain of our intercompany loans which are considered to be of a long-term investment nature, and as such, are included in accumulated other comprehensive income / loss, a component of shareholders' equity. For the
three and six months
ended
June 30, 2016
and
2015
, we recognized losses of US$
16.8 million
and US$
7.3 million
; and a gain of US$
33.1 million
and a loss of US$
66.6 million
, respectively, in accumulated other comprehensive income / loss. In addition, management has determined that CME Ltd.'s functional currency is the Euro with effect from April 1, 2016. As a result of this change, we recognized a charge of US$
4.2 million
of currency translation adjustment due to the translation of non-monetary assets into Euro as of the date of the change.
The following table illustrates the amount by which the exchange rate of the dollar to the functional currencies of our operations moved between January 1 and
June 30, 2016
and
2015
, respectively:
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
2016
|
|
|
2015
|
|
Bulgarian Lev
|
(2
|
)%
|
|
9
|
%
|
Croatian Kuna
|
(3
|
)%
|
|
8
|
%
|
Czech Koruna
|
(2
|
)%
|
|
7
|
%
|
Euro
|
(2
|
)%
|
|
9
|
%
|
New Romanian Lei
|
(2
|
)%
|
|
8
|
%
|
The dollar weakened against the functional currencies of our operations between January 1 and
June 30, 2016
compared to a significant strengthening for the same period in
2015
. The following table illustrates the change in the average exchange rates of the dollar to the functional currencies of our operations between the
six months
ended
June 30, 2016
and
2015
.
|
|
|
|
|
Change in Average Rates
|
Bulgarian Lev
|
1
|
%
|
Croatian Kuna
|
(1
|
)%
|
Czech Koruna
|
(1
|
)%
|
Euro
|
1
|
%
|
New Romanian Lei
|
2
|
%
|
To the extent that our subsidiaries incur transaction losses in their local functional currency income statement on the revaluation of monetary assets and liabilities denominated in dollars, we recognize a gain of the same amount as a currency translation adjustment within equity when we retranslate our net investment in that subsidiary into dollars.
The following charts depict the movement of the dollar versus the functional currencies of our operations, based on monthly closing rates, during the
six months
ended
June 30, 2016
and
June 30, 2015
.
Percent Change During the
Six Months
Ended
June 30, 2016
Percent Change During the
Six Months
Ended
June 30, 2015
Unrealized (loss) / gain on derivative instruments
:
We recognized unrealized losses on derivatives classified as hedging instruments for the
three and six months
ended
June 30, 2016
compared to an unrealized gain and an unrealized loss for the
three and six months
ended
2015
, respectively, due to the effective portion of changes in the fair value of our interest rate swaps classified as cash flow hedges and recognized in accumulated other comprehensive income / loss. See Item 1,
Note 11, "Financial Instruments and Fair Value Measurements"
.
Consolidated balance sheets as at
June 30, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Balance Sheet (US$ 000’s)
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
% Act
|
|
Current assets
|
$
|
333,383
|
|
|
$
|
358,284
|
|
|
(7.0
|
)%
|
Non-current assets
|
1,088,570
|
|
|
1,082,133
|
|
|
0.6
|
%
|
Current liabilities
|
163,199
|
|
|
146,308
|
|
|
11.5
|
%
|
Non-current liabilities
|
1,110,300
|
|
|
974,270
|
|
|
14.0
|
%
|
Temporary equity
|
250,148
|
|
|
241,198
|
|
|
3.7
|
%
|
CME Ltd. shareholders’ (deficit) / equity
|
(102,739
|
)
|
|
77,260
|
|
|
NM
(1)
|
|
Noncontrolling interests in consolidated subsidiaries
|
1,045
|
|
|
1,381
|
|
|
(24.3
|
)%
|
|
|
(1)
|
Number is not meaningful.
|
Note: The analysis below is intended to highlight the key factors that led to the movements from
December 31, 2015
, excluding the impact of foreign currency translation.
Current assets:
Current assets at
June 30, 2016
decreased compared to
December 31, 2015
. Current assets decreased primarily due lower cash balances following the refinancing of the 2017 PIK Notes and 2017 Term Loan, partially with cash on hand. In addition, the prospective adoption of new accounting guidance which requires that deferred tax assets and liabilities be classified as non-current in the condensed consolidated balance sheets decreased current assets.
Non-current assets:
Non-current assets at
June 30, 2016
increased compared to
December 31, 2015
. Excluding the positive impact of foreign currency translation, non-current assets decreased slightly primarily due to depreciation on property, plant and equipment and amortization of intangible assets and debt issuance costs associated with our 2021 Revolving Credit Facility. The decreases were partly offset by higher own-produced program rights as our fall schedule has entered production.
Current liabilities:
Current liabilities at
June 30, 2016
increased compared to
December 31, 2015
. The increase is primarily due to higher deferred revenue balances from customer prepayments.
Non-current liabilities:
Non-current liabilities at
June 30, 2016
increased compared to
December 31, 2015
, primarily due to the refinancing of 2017 PIK Notes and the 2017 Term Loan, both of which had significant issuance discounts, with the 2021 Euro Term Loan, which was had no such discount. The increases were partly offset by the cash repayment of US$ 20.0 million of Guarantee Fees on the 2018 Euro Term Loan for which we previously made an election to pay in kind.
Temporary equity:
Temporary equity at
June 30, 2016
increased compared to
December 31, 2015
, due to the accretion on the Series B Convertible Redeemable Preferred Stock held by TW Investor.
CME Ltd. shareholders’ (deficit) / equity
:
CME Ltd. shareholders’ equity decreased compared to
December 31, 2015
. This primarily reflects the net loss attributable to CME Ltd., a decrease in accumulated other comprehensive loss due to currency translation adjustments during the
six months
ended
June 30, 2016
and accretion of the preferred dividend paid in kind on our Series B Preferred Shares.
Noncontrolling interests in consolidated subsidiaries:
Noncontrolling interests in consolidated subsidiaries at
June 30, 2016
decreased compared to
December 31, 2015
, due to the net loss attributable to noncontrolling interest in Bulgaria.
IV. Liquidity and Capital Resources
IV (a) Summary of Cash Flows
Cash and cash equivalents
decreased
by US$
15.2 million
during the
six months
ended
June 30, 2016
. The change in cash and cash equivalents for the periods presented below is summarized as follows:
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, (US$ 000's)
|
|
2016
|
|
|
2015
|
|
Net cash generated from continuing operating activities
|
$
|
17,549
|
|
|
$
|
41,522
|
|
Net cash used in continuing investing activities
|
(11,255
|
)
|
|
(14,388
|
)
|
Net cash used in continuing financing activities
|
(23,970
|
)
|
|
(27,353
|
)
|
Net cash provided by discontinued operations
|
705
|
|
|
5,268
|
|
Impact of exchange rate fluctuations on cash and cash equivalents
|
1,734
|
|
|
(1,334
|
)
|
Net (decrease) / increase in cash and cash equivalents
|
$
|
(15,237
|
)
|
|
$
|
3,715
|
|
Operating Activities
Cash generated from operations during the
six months
ended
June 30, 2016
was US$
17.5 million
compared to US$
41.5 million
for the
six months
ended
June 30, 2015
. The decrease compared to the prior period reflects higher payments in 2016 for cash interest and accrued Guarantee Fees, which more than offset increases in operating cash flows due to better OIBDA performance. In the
six months
ended
June 30, 2016
, we made US$
20.0 million
of payments for accrued Guarantee Fees for which we previously made and election to pay in kind. We paid cash interest of US$
35.7 million
during the
six months
ended
June 30, 2016
compared to US$
9.3 million
during the
six months
ended
June 30, 2015
.
Investing Activities
Our net cash used in investing activities of US$
11.3 million
and US$
14.4 million
for the
six months
ended
June 30, 2016
and
2015
, respectively, related to capital expenditures.
Financing Activities
Cash used in financing activities during the
six months
ended
June 30, 2016
was US$
24.0 million
compared to US$
27.4 million
during the
six months
ended
June 30, 2015
. The amount of net cash used in financing activities in the
six months
ended
June 30, 2016
primarily reflected the refinancing of the 2017 PIK Notes and the 2017 Term Loan with the proceeds of the 2021 Euro Term Loan and cash on hand. The net cash used in financing activities in the
six months
ended
June 30, 2015
primarily reflected the repayment of amounts drawn on the 2021 Revolving Credit Facility, including accrued interest which we had elected to pay in kind by adding it to the then outstanding principal amount.
Discontinued Operations
The net cash provided by discontinued operations during the
six months
ended
June 30, 2016
was US$
0.7 million
compared US$
5.3 million
during the
six months
ended
June 30, 2015
. The net cash provided by discontinued operations for the
six months
ended
June 30, 2016
is due to the receipt of deferred proceeds from the divestiture of businesses in the prior year.
IV (b) Sources and Uses of Cash
Our ongoing source of cash is primarily the receipt of payments from advertisers, advertising agencies and distributors of our television channels. We also have available the 2021 Revolving Credit Facility (see Item 1,
Note 4, "Long-term Debt and Other Financing Arrangements"
). As at
June 30, 2016
, the undrawn aggregate principal amount available under the 2021 Revolving Credit Facility was US$ 115.0 million. Surplus cash, after funding ongoing operations, may be remitted to us, where appropriate, by our subsidiaries in the form of debt interest payments and capital repayments, dividends, and other distributions and loans from our subsidiaries.
Corporate law in the Central and Eastern European countries in which we operate stipulates generally that dividends may be declared by the partners or shareholders out of yearly profits subject to the maintenance of registered capital, required reserves and after the recovery of accumulated losses. The reserve requirement restriction generally provides that before dividends may be distributed, a portion of annual net profits (typically
5.0%
) be allocated to a reserve, which is capped at a proportion of the registered capital of a company (ranging from
5.0%
to
25.0%
). The restricted net assets of our consolidated subsidiaries and equity in earnings of investments accounted for under the equity method together are less than
25.0%
of consolidated net assets.
IV (c) Contractual Obligations, Commitments and Off-Balance Sheet Arrangements
Our future contractual obligations as at
June 30, 2016
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period (US$ 000’s)
|
|
Total
|
|
|
Less than 1 year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
More than 5 years
|
|
Long-term debt – principal
|
$
|
1,060,169
|
|
|
$
|
—
|
|
|
$
|
278,438
|
|
|
$
|
781,731
|
|
|
$
|
—
|
|
Long-term debt – interest
|
458,006
|
|
|
37,274
|
|
|
134,953
|
|
|
285,779
|
|
|
—
|
|
Unconditional purchase obligations
|
126,414
|
|
|
53,700
|
|
|
54,937
|
|
|
15,506
|
|
|
2,271
|
|
Operating leases
|
9,484
|
|
|
3,324
|
|
|
3,907
|
|
|
994
|
|
|
1,259
|
|
Capital lease obligations
|
3,393
|
|
|
1,222
|
|
|
1,854
|
|
|
317
|
|
|
—
|
|
Other long-term obligations
|
43,596
|
|
|
22,151
|
|
|
10,904
|
|
|
10,381
|
|
|
160
|
|
Total contractual obligations
|
$
|
1,701,062
|
|
|
$
|
117,671
|
|
|
$
|
484,993
|
|
|
$
|
1,094,708
|
|
|
$
|
3,690
|
|
Long-Term Debt
For more information on our long-term debt, see Item 1,
Note 4, "Long-term Debt and Other Financing Arrangements"
. Interest payable on our long-term debt is calculated using exchange rates and interest rates in effect as at
June 30, 2016
. For the purposes of the above table, it is assumed that the Guarantee Fees will be paid in kind at each interest payment date through the maturity dates of the respective Euro Term Loan. However, we intend to allocate excess cash towards the Guarantee Fee related to the 2018 Euro Term Loan rather than electing to pay in kind.
Unconditional Purchase Obligations
Unconditional purchase obligations primarily comprise future programming commitments. At
June 30, 2016
, we had commitments in respect of future programming of US$
124.2 million
. This includes contracts signed with license periods starting after
June 30, 2016
.
Operating Leases
For more information on our operating lease commitments see Item 1,
Note 19, "Commitments and Contingencies"
.
Other Long-Term Obligations
Other long-term obligations are primarily comprised of digital transmission commitments.
Other
Top Tone Holdings has exercised its right to acquire additional equity in CME Bulgaria. If consummated, we would own
90.0%
of our Bulgaria broadcast operations. The option strike price is the fair value of the equity in CME Bulgaria, as determined by an independent valuation.
IV (d) Cash Outlook
Because cash flows from operating activities were negative in 2012, 2013 and 2014, we relied on equity and debt financings to ensure adequate funding for our operations. While cash flows from operating activities were positive in 2015 and are anticipated to be positive in 2016, our election to pay interest on the 2017 PIK Notes and the 2017 Term Loan and Guarantee Fees in kind increased our leverage. In response, we have sought other capital resources to fund our operations, our debt service and other obligations, including the refinancing transaction below.
On April 7, 2016, we drew on the EUR
468.8 million
(approximately US$
520.5 million
as at June 30, 2016) 2021 Euro Term Loan, the proceeds of which, together with cash on hand, were applied toward the repayment of the 2017 Term Loan plus accrued interest and the redemption and discharge of the 2017 PIK Notes plus accrued interest thereon. We also extended the maturity date of the 2018 Euro Term Loan by one year to November 1, 2018. In addition, we amended the interest rate applicable to amounts drawn on the 2021 Revolving Credit Facility such that interest is determined on the basis of our net leverage ratio (as defined in the Reimbursement Agreement) and ranges from 10.0% (if our net leverage ratio is greater than or equal to seven times) to
7.0%
per annum (if our net leverage ratio is less than
five
times); and extended the maturity date of the 2021 Revolving Credit Facility to February 19, 2021, with a borrowing capacity of US$ 50.0 million with effect from January 1, 2018. Following these transactions, our nearest debt maturity is November 1, 2018 and our cost of borrowing has decreased.
We are continuing to take actions to conserve cash, including targeted reductions to our operating cost base through cost optimization programs, with the intention of allocating any excess cash, including in respect of common stock warrant exercises, towards substantially repaying the 2018 Euro Term Loan when it matures in November 2018. In this respect, in the six months ended June 30, 2016 we paid US$ 20.0 million of previously accrued Guarantee Fees, and made an additional payment of US$ 7.5 million in July 2016 with the intention of paying the Guarantee Fees related to the 2018 Euro Term Loan in cash rather than electing to pay in kind. We believe we have adequate cash resources to continue operating as a going concern.
Credit ratings and future debt issuances
Our corporate credit is rated
B2
by Moody's Investors Service and
B+
by Standard & Poor's, both with
stable
outlook. Ratings agencies have indicated that retention of these ratings is dependent on maintaining an adequate liquidity profile. If we fail to meet this liquidity parameter, it is likely that the rating agencies will downgrade us. The availability of additional liquidity is dependent upon our continued operating performance, improved financial performance and credit ratings. We are currently able to raise only a limited amount of additional debt (other than refinancing indebtedness) or under the agreements for the 2021 Revolving Credit Facility and the Reimbursement Agreement.
Credit risk of financial counterparties
We have entered into a number of significant contracts with financial counterparties as follows:
Interest Rate Swaps
We are party to interest rate swap agreements to mitigate our exposure to interest rate fluctuations on our Euro Term Loans. These interest rate swaps, designated as cash flow hedges, provide the Company with variable-rate cash receipts in exchange for fixed-rate payments over the lives of the agreements, with no exchange of the underlying notional amount.
Foreign Exchange Forwards
We are exposed to movements in the USD to EUR exchange rates related to contractual payments under dollar-denominated agreements. To reduce this exposure, from time to time we enter into pay-Euro receive-dollar forward foreign exchange contracts. As at
June 30, 2016
, we had outstanding
three
forward foreign exchange contracts with aggregate notional amounts of approximately US$
51.7 million
related to contractual operating payments.
Cash Deposits
We deposit cash in the global money markets with a range of bank counterparties and review the counterparties we choose weekly. The maximum period of deposit is three months but we have more recently held amounts on deposit for shorter periods, from overnight to one month. The credit rating of a bank is a critical factor in determining the size of cash deposits and we will only deposit cash with banks of an investment rating of A or A3 or higher. In addition we also closely monitor the credit default swap spreads and other market information for each of the banks with which we consider depositing or have deposited funds.
IV (e) Off-Balance Sheet Arrangements
None.
V. Critical Accounting Policies and Estimates
Our accounting policies that have a material effect on our financial condition and results of operations are more fully described in Part II, Item 8 of our Annual Report on Form 10-K for the year ended
December 31, 2015
filed with the Securities and Exchange Commission ("SEC") on
February 22, 2016
. The preparation of these financial statements requires us to make judgments in selecting appropriate assumptions for calculating financial estimates, which inherently contain some degree of uncertainty. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable. Using these estimates we make judgments about the carrying values of assets and liabilities and the reported amounts of revenues and expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe our critical accounting policies are as follows: program rights, goodwill and intangible assets, impairment or disposal of long-lived assets, revenue recognition, income taxes, foreign exchange, determination of the fair value of financial instruments, contingencies and discontinued operations. These critical accounting policies affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements. See Item 1,
Note 2, "Basis of Presentation"
for a discussion of accounting standards adopted in the period, and recently issued accounting standards not yet adopted.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We engage in activities that expose us to various market risks, including the effect of changes in foreign currency exchange rates and interest rates. We do not engage in speculative transactions, nor do we hold or issue financial instruments for trading purposes. The table below sets forth our market risk sensitive instruments as at the following dates:
June 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Maturity Dates
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
2019
|
|
|
2020
|
|
|
Thereafter
|
Long-term Debt (000's):
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable rate (EUR)
|
|
—
|
|
|
—
|
|
|
250,800
|
|
|
|
235,335
|
|
|
—
|
|
|
468,800
|
|
Average interest rate
(1)
|
|
—
|
|
|
—
|
|
|
1.50
|
%
|
|
|
1.50
|
%
|
|
—
|
|
|
1.50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swaps (000's):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable to fixed (EUR)
|
|
—
|
|
|
250,800
|
|
|
250,800
|
|
(2)
|
|
235,335
|
|
|
—
|
|
|
468,800
|
|
Average pay rate
|
|
—
|
|
|
0.21
|
%
|
|
0.14
|
%
|
|
|
0.31
|
%
|
|
—
|
|
|
0.28
|
%
|
Average receive rate
|
|
—
|
|
|
—
|
%
|
|
—
|
%
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
|
(1)
|
As discussed in Item 1,
Note 4, "Long-term Debt and Other Financing Arrangements"
, as consideration for Time Warner's guarantee of the Euro Term Loans, we pay Guarantee Fees to Time Warner based on the amounts outstanding on the Euro Term Loans, each calculated such that the all-in borrowing rate on each the 2018 Euro Term Loan and the 2019 Euro Term Loan is 8.5% per annum and the all-in borrowing rate on the 2021 Euro Term Loan is 10.0% per annum.
|
|
|
(2)
|
The interest rate swaps maturing in 2018 are forward starting to coincide with the maturity date of the interest rate swaps maturing in 2017. See Item 1,
Note 11, "Financial Instruments and Fair Value Measurements"
.
|
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Maturity Dates
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
Thereafter
|
|
Long-term Debt (000's):
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable rate (EUR)
1
|
|
—
|
|
|
250,800
|
|
|
—
|
|
|
235,335
|
|
|
—
|
|
|
—
|
|
Average interest rate
|
|
—
|
|
|
1.50
|
%
|
|
—
|
|
|
1.50
|
%
|
|
—
|
|
|
—
|
|
Fixed rate (US$)
|
|
—
|
|
|
540,698
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Average interest rate
|
|
—
|
|
|
15.00
|
%
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swaps (000's):
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable to fixed (EUR)
|
|
—
|
|
|
250,800
|
|
|
—
|
|
|
235,335
|
|
|
—
|
|
|
—
|
|
Average pay rate
|
|
—
|
|
|
0.21
|
%
|
|
—
|
|
|
0.31
|
%
|
|
—
|
|
|
—
|
|
Average receive rate
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
|
|
|
(1)
|
As discussed in Item 8,
Note 4, "Long-term Debt and Other Financing Arrangements"
, as consideration for Time Warner's guarantee of the Euro Term Loans, we pay Guarantee Fees to Time Warner based on the amounts outstanding on the 2018 Euro Term Loan and the 2019 Euro Term Loan, each calculated such that the all-in borrowing rate on each is 8.5%.
|
Foreign Currency Exchange Risk Management
We conduct business in a number of currencies other than our functional currencies. As a result, we are subject to foreign currency exchange rate risk due to the effects that foreign exchange rate movements of these currencies have on our costs and on the cash flows we receive from our subsidiaries. In limited instances, including the transactions noted below, we enter into forward foreign exchange contracts to minimize foreign currency exchange rate risk.
On February 11, 2016, we entered into forward foreign exchange contracts to reduce our exposure to movements in the USD to EUR exchange rates related to contractual payments under dollar-denominated agreements to be made during 2016. At
June 30, 2016
, forward foreign exchange contracts with an aggregate notional amount of approximately US$
32.9 million
were outstanding.
On February 17, 2016, we entered into five USD to EUR forward exchange contracts with an aggregate notional amount of US$ 557.0 million, to reduce our exposure to USD to EUR exchange rate fluctuations in connection with the refinancing of the dollar-denominated 2017 PIK Notes and 2017 Term Loan with the 2021 Euro Term Loan. The forwards were settled on April 7, 2016.
Interest Rate Risk Management
The Euro Term Loans bear interest at a variable rate based on EURIBOR plus an applicable margin. We are party to a number of interest rate swap agreements intended to reduce our exposure to interest rate movements (see
Note 11, "Financial Instruments and Fair Value Measurements"
).
Item 4. Controls and Procedures
We have established disclosure controls and procedures designed to ensure that information required to be disclosed in our Quarterly Report on Form 10-Q is recorded, processed, summarized and reported within the specified time periods and is designed to ensure that information required to be disclosed is accumulated and communicated to management, including the co-Principal Executive Officers and the Principal Financial Officer, to allow timely decisions regarding required disclosure.
Our co-Principal Executive Officers and our Principal Financial Officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of
June 30, 2016
and concluded that our disclosure controls and procedures were effective as of that date. There has been no change in our internal control over financial reporting during the three months ended
June 30, 2016
that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.