REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Central European Media Enterprises Ltd.
We have audited, before the effects of the adjustments to retrospectively apply the change in accounting discussed in Note 2 to the consolidated financial statements related to the adoption of ASU 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, the consolidated balance sheet of Central European Media Enterprises Ltd. and subsidiaries (the "Company") as of December 31, 2015, and the related consolidated statements of operations and comprehensive income, equity, and cash flows for the years ended December 31, 2015 and 2014 (the 2015 and 2014 consolidated financial statements before the effects of the adjustments discussed in Note 2 to the consolidated financial statements are not presented herein). Our audits also included the financial statement schedule listed in the Index at Item 15 as it relates to 2015 and 2014. These financial statements and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such 2015 and 2014 consolidated financial statements, before the effects of the adjustments to retrospectively apply the change in accounting discussed in Note 2 to the consolidated financial statements, present fairly, in all material respects, the financial position of Central European Media Enterprises Ltd. and subsidiaries as of December 31, 2015, and the results of their operations and their cash flows for the years ended December 31, 2015 and 2014, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the financial statement schedule, as it relates to 2015 and 2014, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the change in accounting discussed in Note 2 to the consolidated financial statements and, accordingly, we do not express an opinion or any other form of assurance about whether such retrospective adjustments are appropriate and have been properly applied. Those retrospective adjustments were audited by other auditors.
DELOITTE LLP
London, United Kingdom
February 22, 2016
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED BALANCE SHEETS
(US$ 000’s, except share and per share data)
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
ASSETS
|
|
|
|
Current assets
|
|
|
|
Cash and cash equivalents
|
$
|
43,459
|
|
|
$
|
61,679
|
|
Accounts receivable, net (Note 6)
|
178,339
|
|
|
167,427
|
|
Program rights, net (Note 5)
|
86,151
|
|
|
85,972
|
|
Other current assets (Note 7)
|
32,471
|
|
|
43,206
|
|
Total current assets
|
340,420
|
|
|
358,284
|
|
Non-current assets
|
|
|
|
Property, plant and equipment, net (Note 8)
|
109,089
|
|
|
108,522
|
|
Program rights, net (Note 5)
|
179,356
|
|
|
169,073
|
|
Goodwill (Note 3)
|
602,069
|
|
|
622,243
|
|
Other intangible assets, net (Note 3)
|
138,340
|
|
|
151,162
|
|
Other non-current assets (Note 7)
|
21,443
|
|
|
31,133
|
|
Total non-current assets
|
1,050,297
|
|
|
1,082,133
|
|
Total assets
|
$
|
1,390,717
|
|
|
$
|
1,440,417
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
Current liabilities
|
|
|
|
Accounts payable and accrued liabilities (Note 9)
|
$
|
160,981
|
|
|
$
|
134,705
|
|
Current portion of long-term debt and other financing arrangements (Note 4)
|
1,494
|
|
|
1,155
|
|
Other current liabilities (Note 10)
|
9,089
|
|
|
10,448
|
|
Total current liabilities
|
171,564
|
|
|
146,308
|
|
Non-current liabilities
|
|
|
|
|
|
Long-term debt and other financing arrangements (Note 4)
|
1,002,028
|
|
|
908,521
|
|
Other non-current liabilities (Note 10)
|
68,758
|
|
|
65,749
|
|
Total non-current liabilities
|
1,070,786
|
|
|
974,270
|
|
Commitments and contingencies (Note 20)
|
|
|
|
|
|
TEMPORARY EQUITY
|
|
|
|
200,000 shares of Series B Convertible Redeemable Preferred Stock of $0.08 each (December 31, 2015 - 200,000) (Note 11)
|
254,899
|
|
|
241,198
|
|
EQUITY
|
|
|
|
|
|
CME Ltd. shareholders’ equity (Note 12):
|
|
|
|
|
|
One share of Series A Convertible Preferred Stock of $0.08 each (December 31, 2015 – one)
|
—
|
|
|
—
|
|
143,449,913 shares of Class A Common Stock of $0.08 each (December 31, 2015 – 135,804,221)
|
11,476
|
|
|
10,864
|
|
Nil shares of Class B Common Stock of $0.08 each (December 31, 2015 – nil)
|
—
|
|
|
—
|
|
Additional paid-in capital
|
1,910,244
|
|
|
1,914,050
|
|
Accumulated deficit
|
(1,785,536
|
)
|
|
(1,605,245
|
)
|
Accumulated other comprehensive loss
|
(243,988
|
)
|
|
(242,409
|
)
|
Total CME Ltd. shareholders’ (deficit) / equity
|
(107,804
|
)
|
|
77,260
|
|
Noncontrolling interests
|
1,272
|
|
|
1,381
|
|
Total (deficit) / equity
|
(106,532
|
)
|
|
78,641
|
|
Total liabilities and equity
|
$
|
1,390,717
|
|
|
$
|
1,440,417
|
|
The accompanying notes are an integral part of these consolidated financial statements.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME / LOSS
(US$ 000’s, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net revenues
|
$
|
638,013
|
|
|
$
|
605,841
|
|
|
$
|
680,793
|
|
Operating expenses:
|
|
|
|
|
|
Content costs
|
306,013
|
|
|
292,602
|
|
|
358,379
|
|
Other operating costs
|
69,353
|
|
|
69,727
|
|
|
85,478
|
|
Depreciation of property, plant and equipment
|
30,190
|
|
|
27,943
|
|
|
32,836
|
|
Amortization of intangibles
|
8,270
|
|
|
12,271
|
|
|
12,348
|
|
Cost of revenues
|
413,826
|
|
|
402,543
|
|
|
489,041
|
|
Selling, general and administrative expenses
|
112,598
|
|
|
107,001
|
|
|
143,616
|
|
Restructuring costs
|
—
|
|
|
1,714
|
|
|
9,856
|
|
Operating income
|
111,589
|
|
|
94,583
|
|
|
38,280
|
|
Interest expense (Note 14)
|
(132,224
|
)
|
|
(171,444
|
)
|
|
(142,005
|
)
|
Loss on extinguishment of debt (Note 4)
|
(150,158
|
)
|
|
—
|
|
|
(39,203
|
)
|
Non-operating expense, net (Note 15)
|
(2,487
|
)
|
|
(25,939
|
)
|
|
(9,895
|
)
|
Loss before tax
|
(173,280
|
)
|
|
(102,800
|
)
|
|
(152,823
|
)
|
(Provision) / credit for income taxes (Note 17)
|
(7,317
|
)
|
|
515
|
|
|
1,358
|
|
Loss from continuing operations
|
(180,597
|
)
|
|
(102,285
|
)
|
|
(151,465
|
)
|
Loss from discontinued operations, net of tax
|
—
|
|
|
(13,287
|
)
|
|
(80,431
|
)
|
Net loss
|
(180,597
|
)
|
|
(115,572
|
)
|
|
(231,896
|
)
|
Net loss attributable to noncontrolling interests
|
306
|
|
|
671
|
|
|
4,468
|
|
Net loss attributable to CME Ltd.
|
$
|
(180,291
|
)
|
|
$
|
(114,901
|
)
|
|
$
|
(227,428
|
)
|
|
|
|
|
|
|
Net loss
|
$
|
(180,597
|
)
|
|
$
|
(115,572
|
)
|
|
$
|
(231,896
|
)
|
Other comprehensive loss:
|
|
|
|
|
|
Currency translation adjustment
|
1,649
|
|
|
(89,714
|
)
|
|
(156,236
|
)
|
Unrealized loss on derivative instruments (Note 13)
|
(3,031
|
)
|
|
(839
|
)
|
|
(581
|
)
|
Total other comprehensive loss
|
(1,382
|
)
|
|
(90,553
|
)
|
|
(156,817
|
)
|
Comprehensive loss
|
(181,979
|
)
|
|
(206,125
|
)
|
|
(388,713
|
)
|
Comprehensive loss / (income) attributable to noncontrolling interests
|
109
|
|
|
(712
|
)
|
|
3,505
|
|
Comprehensive loss attributable to CME Ltd.
|
$
|
(181,870
|
)
|
|
$
|
(206,837
|
)
|
|
$
|
(385,208
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PER SHARE DATA (Note 18):
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
Continuing operations attributable to CME Ltd. - Basic and diluted
|
$
|
(1.28
|
)
|
|
$
|
(0.81
|
)
|
|
$
|
(1.11
|
)
|
Discontinued operations attributable to CME Ltd. - Basic and diluted
|
—
|
|
|
(0.09
|
)
|
|
(0.55
|
)
|
Net loss attributable to CME Ltd. - Basic and diluted
|
(1.28
|
)
|
|
(0.90
|
)
|
|
(1.66
|
)
|
|
|
|
|
|
|
Weighted average common shares used in computing per share amounts (000’s):
|
|
|
|
|
|
Basic and diluted
|
151,017
|
|
|
146,866
|
|
|
146,509
|
|
The accompanying notes are an integral part of these consolidated financial statements.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED STATEMENTS OF EQUITY
(US$ 000’s, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2013
|
1
|
|
$
|
—
|
|
|
134,837,442
|
|
$
|
10,787
|
|
|
—
|
|
$
|
—
|
|
$
|
1,704,066
|
|
$
|
(1,262,916
|
)
|
$
|
(11,829
|
)
|
$
|
893
|
|
$
|
441,001
|
|
Stock-based compensation
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
1,344
|
|
—
|
|
—
|
|
—
|
|
1,344
|
|
Warrant issuance, net
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
239,586
|
|
—
|
|
—
|
|
—
|
|
239,586
|
|
Share issuance, stock based compensation
|
—
|
|
—
|
|
|
497,816
|
|
40
|
|
|
—
|
|
—
|
|
(40
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
Preferred dividend paid in kind
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
(16,036
|
)
|
—
|
|
—
|
|
—
|
|
(16,036
|
)
|
Net loss
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
(227,428
|
)
|
—
|
|
(4,468
|
)
|
(231,896
|
)
|
Unrealized loss on derivative instruments
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(581
|
)
|
—
|
|
(581
|
)
|
Currency translation adjustment
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(157,199
|
)
|
963
|
|
(156,236
|
)
|
BALANCE
December 31, 2014
|
1
|
|
$
|
—
|
|
|
135,335,258
|
|
$
|
10,827
|
|
|
—
|
|
$
|
—
|
|
$
|
1,928,920
|
|
$
|
(1,490,344
|
)
|
$
|
(169,609
|
)
|
$
|
(2,612
|
)
|
$
|
277,182
|
|
Stock-based compensation
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
2,439
|
|
—
|
|
—
|
|
—
|
|
2,439
|
|
Share issuance, stock based compensation
|
—
|
|
—
|
|
|
468,963
|
|
37
|
|
|
—
|
|
—
|
|
(37
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
Preferred dividend paid in kind
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
(17,272
|
)
|
—
|
|
—
|
|
—
|
|
(17,272
|
)
|
Net loss
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
(114,901
|
)
|
—
|
|
(671
|
)
|
(115,572
|
)
|
Unrealized loss on derivative instruments
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(839
|
)
|
—
|
|
(839
|
)
|
Currency translation adjustment
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(91,097
|
)
|
1,383
|
|
(89,714
|
)
|
Reclassified to net income upon sale of subsidiaries
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
19,136
|
|
3,281
|
|
22,417
|
|
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
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
3,510
|
|
—
|
|
—
|
|
—
|
|
3,510
|
|
Exercise of warrants (Note 12)
|
—
|
|
—
|
|
|
6,996,955
|
|
560
|
|
|
—
|
|
—
|
|
6,437
|
|
—
|
|
—
|
|
—
|
|
6,997
|
|
Share issuance, stock-based compensation
|
—
|
|
—
|
|
|
648,737
|
|
52
|
|
|
—
|
|
—
|
|
(52
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
Preferred dividend paid in kind
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
(13,701
|
)
|
—
|
|
—
|
|
—
|
|
(13,701
|
)
|
Net loss
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
(180,291
|
)
|
—
|
|
(306
|
)
|
(180,597
|
)
|
Unrealized loss on derivative instruments
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(3,031
|
)
|
—
|
|
(3,031
|
)
|
Currency translation adjustment
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1,452
|
|
197
|
|
1,649
|
|
BALANCE
December 31, 2016
|
1
|
|
$
|
—
|
|
|
143,449,913
|
|
$
|
11,476
|
|
|
—
|
|
$
|
—
|
|
$
|
1,910,244
|
|
$
|
(1,785,536
|
)
|
$
|
(243,988
|
)
|
$
|
1,272
|
|
$
|
(106,532
|
)
|
The accompanying notes are an integral part of these consolidated financial statements.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(US$ 000’s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net loss
|
$
|
(180,597
|
)
|
|
$
|
(115,572
|
)
|
|
$
|
(231,896
|
)
|
Adjustments to reconcile net loss to net cash generated from / (used in) continuing operating activities:
|
|
|
|
|
|
|
Loss from discontinued operations, net of tax
|
—
|
|
|
13,287
|
|
|
80,431
|
|
Amortization of program rights
|
306,013
|
|
|
292,602
|
|
|
349,819
|
|
Depreciation and other amortization
|
60,557
|
|
|
96,928
|
|
|
82,619
|
|
Interest paid in kind
|
45,289
|
|
|
81,529
|
|
|
37,884
|
|
Loss on extinguishment of debt
|
150,158
|
|
|
—
|
|
|
39,203
|
|
(Gain) / loss on disposal of fixed assets
|
(299
|
)
|
|
17,617
|
|
|
(112
|
)
|
Stock-based compensation (Note 16)
|
3,510
|
|
|
2,439
|
|
|
1,344
|
|
Change in fair value of derivatives (Note 13)
|
11,473
|
|
|
(7,333
|
)
|
|
—
|
|
Foreign currency exchange (gain) / loss, net
|
(8,604
|
)
|
|
1,491
|
|
|
(5,952
|
)
|
Net change in (net of effects of disposals of businesses):
|
|
|
|
|
|
|
Accounts receivable, net
|
(18,142
|
)
|
|
(8,077
|
)
|
|
(26,539
|
)
|
Accounts payable and accrued liabilities
|
2,601
|
|
|
6,161
|
|
|
(10,549
|
)
|
Program rights
|
(317,328
|
)
|
|
(303,111
|
)
|
|
(388,436
|
)
|
Other assets and liabilities
|
628
|
|
|
(7,384
|
)
|
|
721
|
|
Accrued interest
|
(27,240
|
)
|
|
14,101
|
|
|
(9,995
|
)
|
Income taxes payable
|
5,319
|
|
|
(303
|
)
|
|
2,948
|
|
Deferred revenue
|
(2,000
|
)
|
|
3,913
|
|
|
(1,012
|
)
|
Deferred taxes
|
1,494
|
|
|
(1,671
|
)
|
|
(2,206
|
)
|
VAT and other taxes payable
|
1,085
|
|
|
(740
|
)
|
|
16,486
|
|
Net cash generated from / (used in) continuing operating activities
|
$
|
33,917
|
|
|
$
|
85,877
|
|
|
$
|
(65,242
|
)
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
$
|
(29,567
|
)
|
|
$
|
(33,517
|
)
|
|
$
|
(28,685
|
)
|
Disposal of property, plant and equipment
|
211
|
|
|
3,091
|
|
|
137
|
|
Net cash used in continuing investing activities
|
$
|
(29,356
|
)
|
|
$
|
(30,426
|
)
|
|
$
|
(28,548
|
)
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Proceeds from debt
|
533,963
|
|
|
253,051
|
|
|
550,421
|
|
Repayments of debt
|
$
|
(540,699
|
)
|
|
$
|
(261,034
|
)
|
|
$
|
(712,919
|
)
|
Debt transactions costs
|
(9,541
|
)
|
|
(1,541
|
)
|
|
(14,206
|
)
|
Proceeds from credit facilities
|
—
|
|
|
—
|
|
|
25,000
|
|
Payment of credit facilities and capital leases
|
(1,357
|
)
|
|
(27,365
|
)
|
|
(1,080
|
)
|
Issuance of common stock
|
—
|
|
|
—
|
|
|
191,825
|
|
Settlement of forward currency swaps
|
(12,106
|
)
|
|
7,983
|
|
|
—
|
|
Proceeds from exercise of warrants
|
6,997
|
|
|
—
|
|
|
—
|
|
Other
|
—
|
|
|
—
|
|
|
(46
|
)
|
Net cash (used in) / provided by continuing financing activities
|
$
|
(22,743
|
)
|
|
$
|
(28,906
|
)
|
|
$
|
38,995
|
|
|
|
|
|
|
|
Net cash used in discontinued operations - operating activities
|
—
|
|
|
(3,019
|
)
|
|
(1,408
|
)
|
Net cash provided by / (used in) discontinued operations - investing activities
|
1,194
|
|
|
6,598
|
|
|
(228
|
)
|
Net cash used in discontinued operations - financing activities
|
—
|
|
|
(76
|
)
|
|
(942
|
)
|
|
|
|
|
|
|
Impact of exchange rate fluctuations on cash
|
(1,232
|
)
|
|
(2,667
|
)
|
|
(10,651
|
)
|
Net (decrease) / increase in cash and cash equivalents
|
$
|
(18,220
|
)
|
|
$
|
27,381
|
|
|
$
|
(68,024
|
)
|
CASH AND CASH EQUIVALENTS, beginning of period
|
61,679
|
|
|
34,298
|
|
|
102,322
|
|
CASH AND CASH EQUIVALENTS, end of period
|
$
|
43,459
|
|
|
$
|
61,679
|
|
|
$
|
34,298
|
|
The accompanying notes are an integral part of these consolidated financial statements.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(US$ 000’s)
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
Cash paid for interest (including mandatory cash-pay Guarantee Fees)
|
$
|
53,982
|
|
|
$
|
18,457
|
|
|
$
|
76,154
|
|
Cash paid for Guarantee Fees that may be paid in kind
|
37,440
|
|
|
—
|
|
|
—
|
|
Cash paid / (received) for income taxes, net of refunds
|
290
|
|
|
805
|
|
|
(2,234
|
)
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES:
|
|
|
|
|
|
Accretion on Series B Convertible Redeemable Preferred Stock
|
$
|
13,701
|
|
|
$
|
17,272
|
|
|
$
|
16,036
|
|
Acquisition of property, plant and equipment under capital lease
|
1,193
|
|
|
1,511
|
|
|
1,088
|
|
The accompanying notes are an integral part of these consolidated financial statements.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
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 19, "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, direct-to-home (“DTH”) and IPTV operators for carriage of our channels. Unless otherwise indicated, we own
100%
of our broadcast operating and license companies in each country.
Bulgaria
We operate
one
general entertainment channel, BTV, and
five
other channels, BTV CINEMA, BTV COMEDY, RING, BTV ACTION and BTV LADY. We own
94%
of CME Bulgaria B.V. ("CME Bulgaria"), the subsidiary that owns our Bulgaria operations.
Croatia
We operate
one
general entertainment channel, NOVA TV (Croatia) and
three
other channels, DOMA (Croatia), NOVA WORLD and MINI TV.
Czech Republic
We operate
one
general entertainment channel, TV NOVA (Czech Republic), and
seven
other channels, NOVA CINEMA, NOVA SPORT 1, NOVA SPORT 2, NOVA ACTION (formerly FANDA), NOVA 2 (formerly SMICHOV), NOVA GOLD (formerly TELKA) and NOVA INTERNATIONAL, a general entertainment channel broadcasting in the Slovak Republic.
Romania
We operate
one
general entertainment channel, PRO TV, and
eight
other channels, ACASA, ACASA GOLD, PRO CINEMA, SPORT.RO, MTV ROMANIA, PRO TV INTERNATIONAL, PRO TV CHISINAU, a general entertainment channel broadcasting in Moldova, and ACASA IN MOLDOVA.
Slovak Republic
We operate
one
general entertainment channel, TV MARKIZA, and
three
other channels, DOMA (Slovak Republic), DAJTO, and MARKIZA INTERNATIONAL, a general entertainment channel broadcasting in the Czech Republic.
Slovenia
We operate
two
general entertainment channels, POP TV and KANAL A, and
three
other channels, KINO, BRIO and OTO.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The terms the “Company”, “we”, “us”, and “our” are used in this Form 10-K 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$”, “USD” or “dollars” are to U.S. dollars, all references to “BGN” are to Bulgarian leva, all references to “HRK” are to Croatian kuna, all references to “CZK” are to Czech koruna, all references to “RON” are to the New Romanian lei and all references to “Euro” or “EUR” are to the European Union Euro.
Basis of Consolidation
The consolidated financial statements include the accounts of CME Ltd. and our subsidiaries, after the elimination of intercompany accounts and transactions. Entities in which we hold less than a majority voting interest but over which we have the ability to exercise significant influence are accounted for using the equity method.
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates and assumptions.
Summary of Critical and Significant Accounting Policies
The following is a discussion of each of the Company’s critical accounting policies, including information and analysis of estimates and assumptions involved in their application, and other significant accounting policies.
Revenue Recognition
Revenue is recognized when there is persuasive evidence of an arrangement, delivery of products has occurred or services have been rendered, the price is fixed or determinable and collectibility is reasonably assured. A bad debt provision is maintained for estimated losses resulting from our customers' subsequent inability to make payments.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
Revenues are recognized net of discounts and customer sales incentives. Our principal revenue streams and their respective accounting treatments are discussed below:
Advertising revenue
Revenues primarily result from the sale of advertising time. Television advertising revenue is recognized as the commercials are aired. In many countries, we commit to provide advertisers with certain rating levels in connection with their advertising. Revenue is recorded net of estimated shortfalls, which are usually settled by providing the advertiser additional advertising time. Discounts and agency commissions are recognized at the point when the advertising is broadcast and are reflected as a reduction to gross revenue. Display advertising on our websites is recognized as impressions are delivered. Impressions are delivered when an advertisement appears in pages viewed by users.
Carriage fees and subscription revenues
Carriage fees from cable operators and direct-to-home broadcasters are recognized as revenue over the period for which the channels are provided and to which the fees relate. Subscriber revenue is recognized as contracted, based upon the number of subscribers.
Barter transactions
We enter into barter transactions which represent advertising time or other services exchanged for non-cash goods and/or other services, such as promotional items, advertising, supplies and equipment. Revenue from barter transactions is recognized as income when the services have been provided. Expenses are recognized when goods or services are received or used. We record barter transactions at the fair value of goods or services received or advertising surrendered, whichever is more readily determinable. Barter revenue amounted to US$
2.0 million
, US$
1.5 million
and US$
1.5 million
for the years ended
December 31, 2016
,
2015
and
2014
, respectively.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and marketable securities with original maturities of three months or less. Cash that is subject to restrictions is classified as restricted cash, if applicable.
Program Rights
Purchased program rights
Purchased program rights and the related liabilities are recorded at their gross value when the license period begins and the programs are available for broadcast.
Purchased program rights are classified as current or non-current assets based on anticipated usage, while the related program rights liability is classified as current or non-current according to the payment terms of the license agreement.
Program rights are evaluated to determine if expected revenues are sufficient to cover the unamortized portion of the program. To the extent that expected revenues are insufficient, the program rights are written down to their expected net realizable value. These programming impairment charges, along with programming impairment charges related to own-produced content, are presented as a component of content costs in our consolidated statements of operations and comprehensive income / loss.
The costs incurred to acquire program rights are capitalized and amortized over their expected useful lives in a manner which reflects the pattern we expect to use and benefit from the programming. If the initial airing of content allowed by a license is expected to provide more value than subsequent airings, we apply an accelerated method of amortization. These accelerated methods of amortization depend on the estimated number of runs the content is expected to receive, and are determined based on a study of historical results for similar programming. For programming that is not advertising supported, each program's costs are amortized on a straight-line basis over the license period. For content that is expected to be aired only once, the entire cost is recognized as expense on the first run.
Produced program rights
Program rights that are produced by us consist of deferred film and television costs including direct costs, production overhead and development costs. The costs are stated at the lower of cost, net of accumulated amortization, or fair value. The amount of capitalized production costs recognized as cost of revenues for a given production as it is exhibited in various markets is determined using the film forecast method. The proportion of costs recognized is equal to the proportion of the revenue recognized compared to the total revenue expected to be generated throughout the product's life cycle (the “ultimate revenues”). Our process for evaluating ultimate revenues is tailored to the potential we believe a title has for generating multiple revenues. The majority of our production is intended primarily for exploitation by our own broadcasters. In such cases, we consider mainly the free television window in our calculation of the ultimate revenues. Changes in estimates of ultimate revenues from period to period affect the amount of film costs amortized in a given period and, therefore, could have an impact on our results for that period.
Produced program rights are amortized on an individual production basis using the ratio of the current period's gross revenues to estimated remaining total ultimate revenues from such programs. Produced program rights are evaluated to determine if expected revenues, less additional costs to be incurred (including exploitation costs) are sufficient to cover the unamortized portion of the program. To the extent that expected revenues are insufficient, the program rights are written down to their fair value.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
Property, Plant and Equipment
Property, plant and equipment is carried at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives assigned to each major asset category as below:
|
|
|
Asset category
|
Estimated useful life
|
Land
|
Indefinite
|
Buildings
|
25 years
|
Machinery, fixtures and equipment
|
4 - 8 years
|
Other equipment
|
3 - 8 years
|
Software
|
3 - 5 years
|
Construction-in-progress is not depreciated until put into use. Capital leases are depreciated on a straight-line basis over the shorter of the estimated useful life of the asset or the lease term. Leasehold improvements are depreciated over the shorter of the related lease term or the life of the asset. Assets to be disposed of are reported at the lower of carrying amount or fair value, less expected costs of disposal.
Long-Lived Assets Including Intangible Assets with Finite Lives
Long-lived assets include property, plant, equipment and intangible assets with finite lives. We evaluate the remaining useful life of intangible assets with finite lives each reporting period. We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Long-lived assets are evaluated at the asset group level when there is an indication that they may be impaired. The carrying amounts of long-lived assets are considered impaired when the anticipated undiscounted cash flows from such assets are less than their carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair value.
Goodwill and Indefinite-Lived Intangible Assets
Historically, we have assessed the carrying amount of our goodwill and other indefinite-lived intangibles for impairment annually as of December 31, or more frequently if events or changes in circumstances indicate that such carrying amount may not be recoverable. During the third quarter of 2016, we elected to change the date of our assessment for all of our reporting units from December 31 to October 1. We believe this change will more closely align the assessment with our long- and short-range business planning and forecasting process. The voluntary change in accounting principle related to the annual testing date will not delay, accelerate or avoid an impairment charge. This change was not applied retrospectively as it was impracticable to do so because retrospective application would require application of significant estimates and assumptions with the use of hindsight. Accordingly, the change was applied prospectively.
We evaluate goodwill and indefinite-lived intangible assets for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Such events and changes in circumstances include:
|
|
•
|
under-performance of operating segments or changes in projected results;
|
|
|
•
|
changes in the manner of utilization of an asset;
|
|
|
•
|
severe and sustained declines in the trading price of shares of our Class A common stock that are not attributable to factors other than the underlying value of our assets;
|
|
|
•
|
negative market conditions or economic trends; and
|
|
|
•
|
specific events, such as new legislation, new market entrants, changes in technology or adverse legal judgments that we believe could have a negative impact on our business.
|
Goodwill is evaluated at the reporting unit level, which we have determined is each of our
six
operating segments. We have elected to bypass the qualitative assessment for all of our reporting units in 2016 and proceed directly to performing the first step of the goodwill impairment test. The fair value of our reporting units is determined based on estimates of future cash flows discounted at appropriate rates and on publicly available information, where appropriate. In the assessment of discounted future cash flows the following data is used: management's long-term plan, a terminal value at the end of the forecasted periods assuming an inflationary perpetual growth rate, and a discount rate selected with reference to the relevant cost of capital. An impairment exists when the carrying amount of a reporting unit (including its goodwill), exceeds its fair value after adjusting for any impairments of long-lived assets or indefinite-lived intangible assets.
We evaluate the remaining useful life of each indefinite-lived intangible asset each reporting period. Each indefinite-lived intangible asset is evaluated for impairment individually. The fair value of our indefinite-lived intangible assets are determined using the relief from royalty method. An impairment loss is recognized if the carrying amount of an indefinite-lived intangible asset exceeds its fair value.
Income Taxes
We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which the temporary differences are expected to be recovered or settled. Valuation allowances are established when necessary to reduce deferred tax assets to amounts which are more likely than not to be realized. In evaluating the realizability of our deferred tax assets, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations.
We recognize in the consolidated financial statements those tax positions determined to be “more likely than not” of being sustained upon examination, based on the technical merits of the positions and we recognize, when applicable, both accrued interest and penalties related to uncertain tax positions in income tax expense in the accompanying consolidated statements of operations and comprehensive income / loss.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
Foreign Currency
Functional Currency
Following the refinancing of the remaining outstanding dollar-denominated debt with Euro-denominated debt in April 2016, CME Ltd.'s income and expenses are primarily denominated in Euro. It is anticipated that CME Ltd.'s cash flows will primarily be in Euro. 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 a loss of US$
4.2 million
of currency translation adjustment in the second quarter of 2016 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.
Translation of financial statements
Our reporting currency is the dollar. The financial statements of our operations whose functional currency is other than the dollar are translated from such functional currency to dollars at the exchange rates in effect at the balance sheet date for assets and liabilities, and at weighted average rates for the period for revenues and expenses, including gains and losses. Translational gains and losses are charged or credited to accumulated other comprehensive income / loss, a component of equity.
Certain of our intercompany loans to our subsidiaries are of a long-term investment nature. We recorded a gain of US$
8.8 million
and losses of US$
89.0 million
and US$
164.4 million
for the years ended
December 31, 2016
,
2015
, and
2014
, respectively, on the retranslation of these intercompany loans as an adjustment to accumulated other comprehensive income / loss, a component of shareholders' equity, as settlement of these loans is not planned or anticipated in the foreseeable future.
Transactions in foreign currencies
Gains and losses from foreign currency transactions are included in foreign currency exchange gain / loss, net in the consolidated statements of operations and comprehensive income / loss in the period during which they arise.
Leases
Leases are classified as either capital or operating. Those leases that transfer substantially all benefits and risks of ownership of the property to us are accounted for as capital leases. All other leases are accounted for as operating leases.
Capital leases are accounted for as assets and are depreciated on a straight-line basis over the shorter of the estimated useful life of the asset or the lease term. Commitments to repay the principal amounts arising under capital lease obligations are included in current liabilities to the extent that the amount is repayable within one year; otherwise the principal is included in non-current liabilities. The capitalized lease obligation reflects the present value of future lease payments. The financing element of the lease payments is charged to interest expense over the term of the lease.
Operating lease costs are expensed on a straight-line basis over the term of the lease.
Financial Instruments
Fair value of financial instruments
The carrying amount of financial instruments, including cash, 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 (as defined hereinafter) is included in
Note 4, "Long-term Debt and Other Financing Arrangements"
.
Fair value is the price an asset or liability could be exchanged in an arm’s-length orderly transaction between knowledgeable, able and willing parties that is not a forced sale or liquidation. US GAAP requires significant management estimates in determining fair value. The extent of management’s judgments is highly dependent on the valuation model employed and the observability of inputs to the fair value model. The level of management judgment required in establishing fair value of financial instruments is more significant where there is no active market in which the instrument is traded. For financial instruments that are not remeasured through net income, we estimate fair value at issuance and account for the instrument at amortized cost. For financial instruments that are remeasured through net income, we assess the fair value of the instrument at each period end or earlier when events occur or circumstances change that would so require (see
Note 13, "Financial Instruments and Fair Value Measurements"
).
Derivative financial instruments
We use derivative financial instruments for the purpose of mitigating currency and interest rate risks, which exist as part of ongoing business operations and financing activities. As a policy, we do not engage in speculative or leveraged transactions, nor do we hold or issue derivative financial instruments for trading purposes.
Forward exchange contracts and currency swaps are used to mitigate exposures to currency fluctuations on certain short-term transactions generally denominated in currencies other than our functional currency. These contracts are marked to market at the balance sheet date, and the resultant unrealized gains and losses are recorded in the consolidated statements of operations and comprehensive income / loss, together with realized gains and losses arising on settlement of these contracts.
Interest rate swaps and other instruments may be used to mitigate exposures to interest rate fluctuations on certain of our long-term debt instruments with variable interest rates. These contracts are marked to market at the balance sheet date, and the resultant unrealized gains and losses are recorded in the consolidated statements of operations and comprehensive income / loss, together with realized gains and losses arising on settlement of these contracts. From time to time, we may designate certain of these instruments as hedges and apply hedge accounting as discussed in
Note 13, "Financial Instruments and Fair Value Measurements"
.
Stock-Based Compensation
Stock-based compensation is recognized at fair value. We calculate the fair value of stock option awards using the Black-Scholes option pricing model on the grant date. The grant date fair value of restricted stock units ("RSUs") is calculated as the closing price of our Class A common stock on the date of grant. Stock-based compensation expense is recognized on a straight-line basis over the vesting period of the award. Stock-based compensation awards are accounted for as equity-settled transactions.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
Contingencies
The estimated loss from a loss contingency such as a legal proceeding or other claim is recorded in the consolidated statements of operations and comprehensive income / loss if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. Disclosure of a loss contingency is made if there is at least a reasonable possibility that a loss has been incurred.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense incurred for the years ended
December 31, 2016
,
2015
and
2014
totaled US$
5.4 million
, US$
3.0 million
and US$
3.7 million
, respectively.
Earnings Per Share
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.
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 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 consolidated balance sheet, with no impact to our consolidated statements of operations and comprehensive income / loss or consolidated statements of cash flows.
In November 2015, the FASB issued guidance which requires that deferred tax balances be classified as non-current in our 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.
In the third quarter of 2016, we adopted the FASB guidance issued in March 2016 intended to simplify accounting for share-based payment transactions, specifically with regard to accounting for forfeitures, income taxes, the classification as either equity or liabilities and the presentation in the statement of cash flows. We have made a policy election to account for forfeitures as they occur. The cumulative-effect adjustment to equity as a result of adopting this guidance was not material. The adoption of this guidance did not have any other material impacts on our consolidated financial statements or disclosures.
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 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 consolidated financial statements.
In August 2016, the FASB issued new guidance which is intended to reduce the existing diversity in practice related to specific cash flow issues. As applicable to CME, the guidance requires that cash flows at the settlement of zero-coupon debt instruments or debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing be bifurcated between cash outflows for operating activities for the portion attributable to accrued interest, and cash outflows for financing activities for the portion attributable to the principal. The guidance requires a retrospective transition method and is effective for our fiscal year beginning January 1, 2018, with early adoption permitted. We expect to adopt this guidance as of January 1, 2018. Upon adoption, our net cash flows generated from / used in continuing operating activities will decrease by US$
110.7 million
and US$
1.1 million
for the years ended December 31, 2016 and 2015, respectively, with a corresponding increase in net cash used in / provided by continuing financing activities.
In October 2016, the FASB issued new guidance which is intended to improve the accounting for the income tax consequences of intercompany transfers of assets other than inventory. The guidance would require an entity to recognize the income tax consequences of such transfers in the period in which the transfer occurs, rather than defer recognition of current and deferred income taxes for the transfer until the asset is sold to a third party. The guidance requires a modified retrospective transition method through a cumulative-effect adjustment to retained earnings. The guidance is effective for our fiscal year beginning January 1, 2018, with early adoption permitted. The cumulative-effect adjustment to equity as a result of early adopting this guidance as of January 1, 2017 will not have a material impact on our consolidated financial statements.
In January 2017, the FASB issued new guidance which is intended to simplify goodwill impairment testing by eliminating Step 2, and instead recognize an impairment charge for the amount by which the carrying amount of the reporting unit exceeds the fair value of the reporting unit. The guidance also eliminates the requirement to perform a qualitative analysis for reporting units with a negative carrying value. The guidance is effective for us for annual and interim impairment tests after January 1, 2020, with early adoption permitted for interim and annual impairment tests performed from January 1, 2017. We are currently in the process of evaluating the impact of the adoption of this guidance on our consolidated financial statements and whether we will early adopt.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
3. GOODWILL AND INTANGIBLE ASSETS
Goodwill:
Goodwill by reporting unit as at
December 31, 2016
and
December 31, 2015
is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bulgaria
|
|
Croatia
|
|
Czech Republic
|
|
Romania
|
|
Slovak Republic
|
|
Slovenia
|
|
Total
|
Gross Balance, December 31, 2014
|
$
|
175,494
|
|
|
$
|
11,065
|
|
|
$
|
800,640
|
|
|
$
|
94,777
|
|
|
$
|
53,088
|
|
|
$
|
19,400
|
|
|
$
|
1,154,464
|
|
Accumulated impairment losses
|
(144,639
|
)
|
|
(10,454
|
)
|
|
(287,545
|
)
|
|
(11,028
|
)
|
|
—
|
|
|
(19,400
|
)
|
|
(473,066
|
)
|
Balance, December 31, 2014
|
30,855
|
|
|
611
|
|
|
513,095
|
|
|
83,749
|
|
|
53,088
|
|
|
—
|
|
|
681,398
|
|
Foreign currency
|
(3,129
|
)
|
|
(60
|
)
|
|
(41,149
|
)
|
|
(9,334
|
)
|
|
(5,483
|
)
|
|
—
|
|
|
(59,155
|
)
|
Balance, December 31, 2015
|
27,726
|
|
|
551
|
|
|
471,946
|
|
|
74,415
|
|
|
47,605
|
|
|
—
|
|
|
622,243
|
|
Accumulated impairment losses
|
(144,639
|
)
|
|
(10,454
|
)
|
|
(287,545
|
)
|
|
(11,028
|
)
|
|
—
|
|
|
(19,400
|
)
|
|
(473,066
|
)
|
Gross Balance, December 31, 2015
|
$
|
172,365
|
|
|
$
|
11,005
|
|
|
$
|
759,491
|
|
|
$
|
85,443
|
|
|
$
|
47,605
|
|
|
$
|
19,400
|
|
|
$
|
1,095,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
(976
|
)
|
|
(17
|
)
|
|
(15,008
|
)
|
|
(2,657
|
)
|
|
(1,516
|
)
|
|
—
|
|
|
(20,174
|
)
|
Balance, December 31, 2016
|
26,750
|
|
|
534
|
|
|
456,938
|
|
|
71,758
|
|
|
46,089
|
|
|
—
|
|
|
602,069
|
|
Accumulated impairment losses
|
(144,639
|
)
|
|
(10,454
|
)
|
|
(287,545
|
)
|
|
(11,028
|
)
|
|
—
|
|
|
(19,400
|
)
|
|
(473,066
|
)
|
Gross Balance, December 31, 2016
|
$
|
171,389
|
|
|
$
|
10,988
|
|
|
$
|
744,483
|
|
|
$
|
82,786
|
|
|
$
|
46,089
|
|
|
$
|
19,400
|
|
|
$
|
1,075,135
|
|
Other intangible assets:
Changes in the net book value of our other intangible assets as at
December 31, 2016
and
December 31, 2015
is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
Indefinite-lived:
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
$
|
80,324
|
|
|
$
|
—
|
|
|
$
|
80,324
|
|
|
$
|
83,188
|
|
|
$
|
—
|
|
|
$
|
83,188
|
|
Amortized:
|
|
|
|
|
|
|
|
|
|
|
|
Broadcast licenses
|
185,686
|
|
|
(130,325
|
)
|
|
55,361
|
|
|
191,860
|
|
|
(127,613
|
)
|
|
64,247
|
|
Trademarks
|
591
|
|
|
(591
|
)
|
|
—
|
|
|
614
|
|
|
(614
|
)
|
|
—
|
|
Customer relationships
|
51,338
|
|
|
(48,997
|
)
|
|
2,341
|
|
|
53,120
|
|
|
(49,672
|
)
|
|
3,448
|
|
Other
|
1,522
|
|
|
(1,208
|
)
|
|
314
|
|
|
2,138
|
|
|
(1,859
|
)
|
|
279
|
|
Total
|
$
|
319,461
|
|
|
$
|
(181,121
|
)
|
|
$
|
138,340
|
|
|
$
|
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. Our customer relationships are deemed to have an economic useful life of, and are amortized on a straight-line basis, over
five years
to
fifteen years
.
The estimated amortization expense for our intangible assets with finite lives as of
December 31, 2016
is as follows:
|
|
|
|
|
2017
|
$
|
7,777
|
|
2018
|
7,703
|
|
2019
|
7,240
|
|
2020
|
7,020
|
|
2021
|
6,960
|
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
Impairment of goodwill and other intangible assets:
As discussed in
Note 2, "Basis of Presentation and Summary of Significant Accounting Policies"
, we elected to change the date of our assessment for all of our reporting units from December 31 to October 1, with effect from October 1, 2016. Upon conclusion of this assessment, we determined that the fair values of our goodwill were substantially in excess of their respective carrying values.
We did not recognize any impairment charges in respect of goodwill and other intangible assets during the years ended December 31, 2016, 2015 or 2014.
4. LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS
Summary
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Long-term debt
|
$
|
999,209
|
|
|
$
|
906,028
|
|
Other credit facilities and capital leases
|
4,313
|
|
|
3,648
|
|
Total long-term debt and other financing arrangements
|
1,003,522
|
|
|
909,676
|
|
Less: current maturities
|
(1,494
|
)
|
|
(1,155
|
)
|
Total non-current long-term debt and other financing arrangements
|
$
|
1,002,028
|
|
|
$
|
908,521
|
|
Financing Transactions
On April 7, 2016, we drew the EUR
468.8 million
(approximately US$
534.0 million
as at 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 the borrowing capacity reduced from US$
115.0 million
to US$
50.0 million
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 LIBOR (subject to a floor of
1.0%
) plus
9.0%
if our net leverage ratio is greater than or equal to
seven
times, to LIBOR (subject to a floor of
1.0%
) plus
6.0%
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 year ended
December 31, 2016
, we paid US$
48.6 million
of Guarantee Fees (as defined below) related to the 2018 Euro Term Loan and the 2021 Euro Term Loan. The Guarantee Fee payments are presented as cash outflows from operating activities in our consolidated statements of cash flows.
Overview
Total long-term debt and credit facilities comprised the following at
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Amount of Liability Component
|
|
|
Debt Issuance Costs
(1)
|
|
|
Net Carrying Amount
|
|
2018 Euro Term Loan
|
264,368
|
|
|
(634
|
)
|
|
263,734
|
|
2019 Euro Term Loan
|
248,067
|
|
|
(473
|
)
|
|
247,594
|
|
2021 Euro Term Loan
|
494,162
|
|
|
(6,281
|
)
|
|
487,881
|
|
2021 Revolving Credit Facility
|
—
|
|
|
—
|
|
|
—
|
|
Total long-term debt and credit facilities
|
$
|
1,006,597
|
|
|
$
|
(7,388
|
)
|
|
$
|
999,209
|
|
|
|
(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 consolidated balance sheet and are being amortized on a straight-line basis over the life of the 2021 Revolving Credit Facility.
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
Long-term Debt
Our long-term debt comprised the following at
December 31, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
Carrying Amount
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
2017 PIK Notes
|
—
|
|
|
359,789
|
|
2017 Term Loan
|
—
|
|
|
27,592
|
|
2018 Euro Term Loan
|
263,734
|
|
|
272,189
|
|
2019 Euro Term Loan
|
247,594
|
|
|
246,458
|
|
2021 Euro Term Loan
|
487,881
|
|
|
—
|
|
|
$
|
999,209
|
|
|
$
|
906,028
|
|
2018 Euro Term Loan
As at
December 31, 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$
264.4 million
). The 2018 Euro Term Loan bears interest at three-month EURIBOR (fixed pursuant to customary hedging arrangements (see
Note 13, "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
December 31, 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 values of the 2018 Euro Term Loan of US$
233.3 million
and US$
273.0 million
as at
December 31, 2016
and
December 31, 2015
, respectively, were determined based on comparable instruments that trade in active markets. This measurement of estimated fair value uses Level 2 inputs as described in
Note 13, "Financial Instruments and Fair Value Measurements"
. Certain derivative instruments, including contingent event of default and change of control put options, have been identified as being embedded in the 2018 Euro Term Loan. The embedded derivatives are considered clearly and closely related to the 2018 Euro Term Loan, and as such are not required to be accounted for separately.
2019 Euro Term Loan
As at
December 31, 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$
248.1 million
). The 2019 Euro Term Loan bears interest at three-month EURIBOR (fixed pursuant to customary hedging arrangements (see
Note 13, "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
December 31, 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 currently be prepaid at our option, in whole or in part, without premium or penalty. The 2019 Euro Term Loan is a senior unsecured obligation of CME Ltd., and is unconditionally guaranteed by CME BV and by Time Warner and certain of its subsidiaries.
The fair values of the 2019 Euro Term Loan of US$
203.3 million
and US$
256.2 million
as at
December 31, 2016
and
December 31, 2015
, respectively, were determined based on comparable instruments that trade in active markets, plus an applicable spread. This measurement of estimated fair value uses Level 2 inputs as described in
Note 13, "Financial Instruments and Fair Value Measurements"
. Certain derivative instruments, including contingent event of default and change of control put options, have been identified as being embedded in the 2019 Euro Term Loan. The embedded derivatives are considered clearly and closely related to the 2019 Euro Term Loan, and as such are not required to be accounted for separately.
2021 Euro Term Loan
As at
December 31, 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$
494.2 million
). The 2021 Euro Term Loan bears interest at three-month EURIBOR (fixed pursuant to customary hedging arrangements (see
Note 13, "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
December 31, 2016
, the all-in borrowing rate on amounts outstanding under the 2021 Euro Term Loan was
9.0%
(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 of US$
369.7 million
as at
December 31, 2016
was determined based on comparable instruments that trade in active markets, plus an applicable spread. This measurement of estimated fair value uses Level 2 inputs as described in
Note 13, "Financial Instruments and Fair Value Measurements"
. Certain derivative instruments, including contingent event of default and change of control put options, have been identified as being embedded in the 2021 Euro Term Loan. The embedded derivatives are considered clearly and closely related to the 2021 Euro Term Loan, and as such are not required to be accounted for separately.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
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 and restated, the “Reimbursement Agreement") with Time Warner which provides for the payment of guarantee fees (collectively, the "Guarantee Fees") to Time Warner as consideration for those guarantees, and that we will reimburse Time Warner for any amounts paid by them under any guarantee or through any loan purchase right exercised by Time Warner. The loan purchase right allows Time Warner to purchase any amount outstanding under the Euro Term Loans from the lenders following an event of default under the Euro Term Loans or the Reimbursement Agreement. The Reimbursement Agreement is jointly and severally guaranteed by both our
100%
owned subsidiaries 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
year
s ended
December 31, 2016
,
2015
and
2014
, we recognized US$
68.0 million
, US$
21.5 million
and US$
1.2 million
, respectively, of Guarantee Fees as interest expense in our 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 consolidated statements of cash flows.
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
|
%
|
|
7.22
|
%
|
|
9.00
|
%
|
|
2021 Revolving Credit Facility
(2)
|
9.00
|
%
|
|
—
|
|
|
—
|
|
|
9.00
|
%
|
|
|
|
(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
December 31, 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
December 31, 2016
.
The 2021 Revolving Credit Facility bears interest at a rate per annum based on, at our option, an alternate 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 outstanding under the 2021 Revolving Credit Facility. The interest rate on the 2021 Revolving Credit Facility is determined on the basis of our net leverage ratio (as defined in the Reimbursement Agreement) and ranges from LIBOR (subject to a floor of
1.0%
) plus
9.0%
if our net leverage is greater than or equal to
seven
times, to LIBOR (subject to a floor of
1.0%
) plus
6.0%
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
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.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
Other Credit Facilities and Capital Lease Obligations
Other credit facilities and capital lease obligations comprised the following at
December 31, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Credit facilities
(1) – (3)
|
$
|
—
|
|
|
$
|
—
|
|
Capital leases
|
4,313
|
|
|
3,648
|
|
Total credit facilities and capital leases
|
4,313
|
|
|
3,648
|
|
Less: current maturities
|
(1,494
|
)
|
|
(1,155
|
)
|
Total non-current credit facilities and capital leases
|
$
|
2,819
|
|
|
$
|
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
December 31, 2016
, we had deposits of US$
16.4 million
in and
no
drawings on the BMG cash pool. Interest is earned on deposits at the relevant money market rate. As at
December 31, 2015
, we had deposits of US$
19.6 million
in and
no
drawings on the BMG cash pool.
|
|
(2)
|
As at
December 31, 2016
and
December 31, 2015
, there were
no
drawings outstanding under a CZK
735.0 million
(approximately US$
28.7 million
) factoring framework agreement with Factoring Ceska Sporitelna (“FCS”). Under this facility, up to CZK
735.0 million
(approximately US$
28.7 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
December 31, 2016
there were RON
105.7 million
(approximately US$
24.6 million
) of receivables factored under a 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.
|
Total Group
At
December 31, 2016
, the maturity of our long-term and credit facilities was as follows:
|
|
|
|
|
2017
|
$
|
—
|
|
2018
|
264,368
|
|
2019
|
248,067
|
|
2020
|
—
|
|
2021
|
494,162
|
|
2022 and thereafter
|
—
|
|
Total long-debt and credit facilities
|
1,006,597
|
|
Debt issuance costs
|
(7,388
|
)
|
Carrying amount of long-debt and credit facilities
|
$
|
999,209
|
|
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
December 31, 2016
:
|
|
|
|
|
2017
|
$
|
1,570
|
|
2018
|
1,339
|
|
2019
|
1,003
|
|
2020
|
525
|
|
2021
|
13
|
|
2022 and thereafter
|
—
|
|
Total undiscounted payments
|
4,450
|
|
Less: amount representing interest
|
(137
|
)
|
Present value of net minimum lease payments
|
$
|
4,313
|
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
5. PROGRAM RIGHTS
Program rights comprised the following at
December 31, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Program rights:
|
|
|
|
Acquired program rights, net of amortization
|
$
|
183,303
|
|
|
$
|
179,632
|
|
Less: current portion of acquired program rights
|
(86,151
|
)
|
|
(85,972
|
)
|
Total non-current acquired program rights
|
97,152
|
|
|
93,660
|
|
Produced program rights – Feature Films:
|
|
|
|
Released, net of amortization
|
1,039
|
|
|
1,298
|
|
Produced program rights – Television Programs:
|
|
|
|
Released, net of amortization
|
54,149
|
|
|
56,125
|
|
Completed and not released
|
2,593
|
|
|
3,500
|
|
In production
|
23,712
|
|
|
13,783
|
|
Development and pre-production
|
711
|
|
|
707
|
|
Total produced program rights
|
82,204
|
|
|
75,413
|
|
Total non-current acquired program rights and produced program rights
|
$
|
179,356
|
|
|
$
|
169,073
|
|
6. ACCOUNTS RECEIVABLE
Accounts receivable comprised the following at
December 31, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Third-party customers
|
$
|
187,937
|
|
|
$
|
176,628
|
|
Less: allowance for bad debts and credit notes
|
(9,598
|
)
|
|
(9,201
|
)
|
Total accounts receivable
|
$
|
178,339
|
|
|
$
|
167,427
|
|
Bad debt expense for the year ended
December 31, 2016
,
2015
and
2014
was US$
3.6 million
, US$
2.1 million
, and US$
4.2 million
, respectively.
7. OTHER ASSETS
Other current and non-current assets comprised the following at
December 31, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Current:
|
|
|
|
Prepaid acquired programming
|
$
|
22,511
|
|
|
$
|
22,761
|
|
Other prepaid expenses
|
5,270
|
|
|
6,941
|
|
Deferred tax
|
—
|
|
|
10,425
|
|
VAT recoverable
|
713
|
|
|
733
|
|
Income taxes recoverable
|
206
|
|
|
249
|
|
Other
|
3,771
|
|
|
2,097
|
|
Total other current assets
|
$
|
32,471
|
|
|
$
|
43,206
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Non-current:
|
|
|
|
|
|
Capitalized debt costs
|
$
|
15,018
|
|
|
$
|
27,060
|
|
Deferred tax
|
4,570
|
|
|
124
|
|
Other
|
1,855
|
|
|
3,949
|
|
Total other non-current assets
|
$
|
21,443
|
|
|
$
|
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 CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment comprised the following at
December 31, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Land and buildings
|
$
|
90,988
|
|
|
$
|
92,237
|
|
Machinery, fixtures and equipment
|
202,110
|
|
|
164,503
|
|
Other equipment
|
33,752
|
|
|
32,314
|
|
Software
|
55,542
|
|
|
55,656
|
|
Construction in progress
|
5,316
|
|
|
3,001
|
|
Total cost
|
387,708
|
|
|
347,711
|
|
Less: accumulated depreciation
|
(278,619
|
)
|
|
(239,189
|
)
|
Total net book value
|
$
|
109,089
|
|
|
$
|
108,522
|
|
|
|
|
|
Assets held under capital leases (included in the above)
|
|
|
|
|
|
Land and buildings
|
$
|
3,684
|
|
|
$
|
3,805
|
|
Machinery, fixtures and equipment
|
6,338
|
|
|
4,646
|
|
Total cost
|
10,022
|
|
|
8,451
|
|
Less: accumulated depreciation
|
(4,316
|
)
|
|
(3,556
|
)
|
Total net book value
|
$
|
5,706
|
|
|
$
|
4,895
|
|
Depreciation expense for the years ended
December 31, 2016
,
2015
and
2014
was US$
30.2 million
, US$
27.9 million
and US$
32.8 million
, respectively.
The movement in the net book value of property, plant and equipment during the years ended
December 31, 2016
and
2015
is comprised of:
|
|
|
|
|
|
|
|
|
|
For The Year Ended December 31,
|
|
2016
|
|
|
2015
|
|
Opening balance
|
$
|
108,522
|
|
|
$
|
114,335
|
|
Additions
|
34,371
|
|
|
34,523
|
|
Disposals
|
(88
|
)
|
|
(290
|
)
|
Depreciation
|
(30,190
|
)
|
|
(27,943
|
)
|
Foreign currency movements
|
(3,526
|
)
|
|
(10,810
|
)
|
Other
|
—
|
|
|
(1,293
|
)
|
Ending balance
|
$
|
109,089
|
|
|
$
|
108,522
|
|
9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities comprised the following at
December 31, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Accounts payable and accrued expenses
|
$
|
59,522
|
|
|
$
|
57,042
|
|
Related party accounts payable
|
192
|
|
|
53
|
|
Programming liabilities
|
29,249
|
|
|
24,901
|
|
Related party programming liabilities
|
18,959
|
|
|
14,583
|
|
Duties and other taxes payable
|
13,446
|
|
|
12,856
|
|
Accrued staff costs
|
20,565
|
|
|
20,709
|
|
Accrued interest payable
|
2,941
|
|
|
914
|
|
Related party accrued interest payable (including Guarantee Fees)
|
9,588
|
|
|
477
|
|
Income taxes payable
|
5,514
|
|
|
249
|
|
Other accrued liabilities
|
1,005
|
|
|
2,921
|
|
Total accounts payable and accrued liabilities
|
$
|
160,981
|
|
|
$
|
134,705
|
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
10. OTHER LIABILITIES
Other current and non-current liabilities comprised the following at
December 31, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Current:
|
|
|
|
Deferred revenue
|
$
|
5,333
|
|
|
$
|
7,546
|
|
Derivative liabilities
|
477
|
|
|
650
|
|
Restructuring provision
|
—
|
|
|
458
|
|
Legal provisions
|
2,680
|
|
|
1,520
|
|
Other
|
599
|
|
|
274
|
|
Total other current liabilities
|
$
|
9,089
|
|
|
$
|
10,448
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Non-current:
|
|
|
|
|
|
Deferred tax
|
$
|
20,335
|
|
|
$
|
25,990
|
|
Related party commitment fee payable
(1)
|
9,905
|
|
|
9,240
|
|
Related party Guarantee Fee payable (Note 4)
|
34,492
|
|
|
22,655
|
|
Accrued interest
|
—
|
|
|
977
|
|
Related party accrued interest
|
—
|
|
|
5,304
|
|
Other
|
4,026
|
|
|
1,583
|
|
Total other non-current liabilities
|
$
|
68,758
|
|
|
$
|
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. 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
December 31, 2016
and
2015
. As at
December 31, 2016
and
December 31, 2015
, the carrying value of the Series B Preferred Shares was US$
254.9 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
December 31, 2016
, the
200,000
shares of Series B preferred stock were convertible into approximately
105.2 million
shares of Class A common stock.
The initial stated value of the Series B Preferred Shares was US$
1,000
per share. The Series B Preferred Shares accrete at an annual rate of
3.75%
, compounded quarterly, from and including June 25, 2016 to but excluding June 25, 2018. We have the right to pay cash to the holder in lieu of any further accretion. Each Series B Preferred Share may, at the holder's option, be converted into the number of shares of our Class A common stock determined by dividing (i) the accreted stated value plus accrued but unpaid dividends, if any, in each case as of the conversion date, by (ii) the conversion price, which was approximately US$
2.42
at
December 31, 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 will 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 years ended
December 31, 2016
,
2015
and
2014
, we recognized accretion on the Series B Preferred Shares of US$
13.7 million
, US$
17.3 million
and US$
16.0 million
, respectively, with corresponding decreases in additional paid-in capital, net of the effect of foreign exchange.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
12. EQUITY
Preferred Stock
5,000,000
shares of Preferred Stock were authorized as at
December 31, 2016
and
2015
.
One
share of Series A Convertible Preferred Stock (the “Series A Preferred Share”) was issued and outstanding as at
December 31, 2016
and
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
December 31, 2016
and
2015
. (see
Note 11, "Convertible Redeemable Preferred Shares"
). As of
December 31, 2016
, the
200,000
Series B Preferred Shares were convertible into approximately
105.2 million
shares of Class A common stock.
Class A and 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
December 31, 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
143.4 million
and
135.8 million
shares of Class A common stock outstanding at
December 31, 2016
and
2015
, respectively, and
no
shares of Class B common stock outstanding at
December 31, 2016
or
2015
.
As at
December 31, 2016
, TW Investor owns
42.8%
of the outstanding shares of Class A common stock and has a
47.0%
voting interest in the Company due to its ownership of the Series A Preferred Share.
Warrants
On May 2, 2014, we issued
114,000,000
warrants in connection with a rights offering. Each warrant may be exercised until May 2, 2018 and entitles the holder thereof to receive
one
share of our Class A common stock at an exercise price of US$
1.00
per share in cash. During
2016
,
6,996,955
warrants were exercised resulting in proceeds to us of approximately US$
7.0 million
. As at
December 31, 2016
,
107,003,045
warrants remain outstanding. Time Warner and TW Investor collectively hold
100,926,996
of these warrants. The warrants are classified in additional paid-in capital, a component of equity, and are not subject to subsequent revaluation.
13. 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"
.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
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 consolidated statements of operations and comprehensive income / loss. For the years ended
December 31, 2016
and
2015
and
2014
, we did not recognize any charges related to hedge ineffectiveness.
Information relating to financial instruments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade Date
|
|
Number of Contracts
|
|
|
Description
|
|
Aggregate Notional Amount
|
|
|
Maturity Date
|
|
Objective
|
|
Fair Value as at December 31, 2016
|
|
April 5, 2016
|
|
5
|
|
|
Interest rate swap
|
|
€
|
468,800
|
|
|
February 21, 2021
|
|
Interest rate hedge underlying 2021 Euro Term Loan
|
|
$
|
(1,711
|
)
|
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
|
|
$
|
(284
|
)
|
November 10, 2015
|
|
3
|
|
|
Interest rate swap
|
|
€
|
235,335
|
|
|
November 1, 2019
|
|
Interest rate hedge underlying 2019 Euro Term Loan
|
|
$
|
(1,658
|
)
|
November 14, 2014
|
|
2
|
|
|
Interest rate swap
|
|
€
|
250,800
|
|
|
November 1, 2017
|
|
Interest rate hedge underlying 2018 Euro Term Loan
|
|
$
|
(477
|
)
|
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
|
(5,447
|
)
|
Reclassified to interest expense
|
2,416
|
|
BALANCE December 31, 2016
|
$
|
(4,451
|
)
|
Non-Hedge Accounting Activities
The change in fair value of derivatives not designated as hedging instruments comprised the following for the years ended
December 31, 2016
,
2015
and
2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Currency swaps
|
$
|
(10,213
|
)
|
|
$
|
4,848
|
|
|
$
|
2,311
|
|
Foreign Currency Risk
From time to time, we have entered into forward foreign exchange contracts to reduce our exposure to movements in foreign exchange rates related to contractual payments under certain dollar-denominated agreements. As at
December 31, 2016
, we had
no
forward foreign exchange contracts outstanding.
14. INTEREST EXPENSE
Interest expense comprised the following for the years ended
December 31, 2016
,
2015
and
2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Interest on long-term debt and other financing arrangements
|
$
|
110,127
|
|
|
$
|
114,730
|
|
|
$
|
104,570
|
|
Amortization of capitalized debt issuance costs
|
9,152
|
|
|
15,484
|
|
|
18,297
|
|
Amortization of debt issuance discount
|
12,945
|
|
|
41,230
|
|
|
19,138
|
|
Total interest expense
|
$
|
132,224
|
|
|
$
|
171,444
|
|
|
$
|
142,005
|
|
We paid cash interest (including mandatory cash-pay Guarantee Fees) of US$
54.0 million
, US$
18.5 million
and
US$
76.2 million
for years ended
December 31, 2016
,
2015
and
2014
, respectively. In addition, we paid US$
37.4 million
of Guarantee Fees during the
year
ended
December 31, 2016
, for which we had the option to pay in kind.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
15. OTHER NON-OPERATING INCOME / EXPENSE
Other non-operating income / expense comprised the following for the years ended
December 31, 2016
,
2015
and
2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Interest income
|
$
|
592
|
|
|
$
|
440
|
|
|
$
|
294
|
|
Foreign currency exchange gain / (loss), net
|
6,648
|
|
|
(13,481
|
)
|
|
(12,767
|
)
|
Change in fair value of derivatives (Note 13)
|
(10,213
|
)
|
|
4,848
|
|
|
2,311
|
|
Other income / (expense), net
|
486
|
|
|
(17,746
|
)
|
|
267
|
|
Total other non-operating expense
|
$
|
(2,487
|
)
|
|
$
|
(25,939
|
)
|
|
$
|
(9,895
|
)
|
16. STOCK-BASED COMPENSATION
Under our 2015 Stock Incentive Plan (the "2015 Plan"),
6,000,000
shares of Class A common stock are authorized for grants of stock options, restricted stock units ("RSU"), restricted stock and stock appreciation rights to employees and non-employee directors. In addition, any shares available under our Amended and Restated Stock Incentive Plan (which expired on June 1, 2015), including in respect of any awards that expire, terminate or are forfeited, will be available for awards under the 2015 Plan. Under the 2015 Plan, awards are made to employees and directors at the discretion of the Compensation Committee. Any awards previously issued under the Amended and Restated Stock Incentive Plan will continue to be governed by the terms of that plan.
For the years ended
December 31, 2016
,
2015
and
2014
, we recognized charges for stock-based compensation of US$
3.5 million
, US$
2.4 million
and US$
1.3 million
, respectively, presented as a component of selling, general and administrative expenses in our consolidated statements of operations and comprehensive income / loss.
Stock Options
Grants of options allow the holders to purchase shares of Class A common stock at an exercise price, which is generally the market price prevailing at the date of the grant, with vesting between
one
and
four
years after the awards are granted. A summary of option activity for the
year
ended
December 31, 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
|
(66,000
|
)
|
|
33.66
|
|
|
|
|
|
Outstanding at December 31, 2016
|
2,011,392
|
|
|
$
|
2.32
|
|
|
8.58
|
|
$
|
453
|
|
Vested or expected to vest at December 31, 2016
|
2,011,392
|
|
|
$
|
2.32
|
|
|
8.58
|
|
$
|
453
|
|
Exercisable at December 31, 2016
|
400,000
|
|
|
$
|
2.29
|
|
|
8.42
|
|
$
|
104
|
|
When options are vested, holders may exercise them at any time up to the maximum contractual life of the instrument which is specified in the option agreement. At
December 31, 2016
, the maximum life of options that had been issued under the Plan was
ten years
. Upon providing the appropriate written notification, holders pay the exercise price and receive shares. Shares delivered in respect of stock option exercises are newly issued shares.
The fair value of stock options is estimated on the grant date using the Black-Scholes option-pricing model and recognized ratably over the requisite service period as a component of selling, general and administrative expenses. The weighted average grant date fair value of stock options granted during
2016
was $
1.56
per option.
The aggregate intrinsic value (the difference between the stock price on the last day of trading of the fourth quarter of
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
December 31, 2016
. This amount changes based on the fair value of our Class A common stock.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
The weighted average assumptions used in the Black-Scholes model for grants made in the year ended
December 31, 2016
and
2015
were as follows:
|
|
|
|
|
|
|
|
|
|
For The Year Ended December 31,
|
|
2016
|
|
|
2015
|
|
Risk-free interest rate
|
1.61
|
%
|
|
1.86
|
%
|
Expected term (years)
|
6.25
|
|
|
6.25
|
|
Expected volatility
|
69.22
|
%
|
|
75.18
|
%
|
Dividend yield
|
0
|
%
|
|
0
|
%
|
Weighted-average fair value
|
$
|
1.56
|
|
|
$
|
1.54
|
|
As at
December 31, 2016
, there was US$
2.0 million
unrecognized compensation expense related to stock options which is expected to be recognized over a weighted-average period of
2.6 years
.
The following table summarizes information about stock option activity during
2016
,
2015
, and
2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Shares
|
|
|
Weighted Average Exercise Price (per share)
|
|
|
Shares
|
|
|
Weighted Average Exercise Price (per share)
|
|
|
Shares
|
|
|
Weighted Average Exercise Price (per share)
|
|
Outstanding at January 1
|
1,666,000
|
|
|
$
|
3.53
|
|
|
155,000
|
|
|
$
|
29.88
|
|
|
390,500
|
|
|
$
|
27.26
|
|
Awards granted
|
411,392
|
|
|
2.46
|
|
|
1,600,000
|
|
|
2.29
|
|
|
—
|
|
|
—
|
|
Awards forfeited
|
—
|
|
|
—
|
|
|
(20,000
|
)
|
|
23.12
|
|
|
(114,500
|
)
|
|
30.87
|
|
Awards expired
|
(66,000)
|
|
|
33.66
|
|
|
(69,000
|
)
|
|
28.23
|
|
|
(121,000
|
)
|
|
20.48
|
|
Outstanding at December 31
|
2,011,392
|
|
|
$
|
2.32
|
|
|
1,666,000
|
|
|
$
|
3.53
|
|
|
155,000
|
|
|
$
|
29.88
|
|
Restricted Stock Units
Each RSU represents a right to receive one share of Class A common stock of the Company for each RSU that vests in accordance with a time-based vesting schedule, generally between
one
to
four
years from the date of grant. Upon vesting, shares of Class A common stock are issued from authorized but unissued shares. Holders of RSU awards are not entitled to receive cash dividend equivalents and are not entitled to vote. The grant date fair value of RSUs is calculated as the closing price of our Class A common shares on the date of grant. For awards with market conditions, the grant date fair value is calculated using a Monte Carlo simulation model. The Monte Carlo simulation model requires the input of subjective assumptions, including the expected volatility of our common stock, interest rates, dividend yields and correlation coefficient between our common stock and the relevant market index.
The following table summarizes information about unvested RSUs as at
December 31, 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
|
|
Forfeited
|
(91,012
|
)
|
|
2.47
|
|
Unvested at December 31, 2016
|
2,542,625
|
|
|
$
|
2.61
|
|
As at
December 31, 2016
, the intrinsic value of unvested RSUs was US$
6.5 million
. Total unrecognized compensation cost related to unvested RSUs as at
December 31, 2016
was US$
2.9 million
and is expected to be recognized over a weighted-average period of
1.9 years
.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
17. INCOME TAXES
As our investments are predominantly owned by Dutch holding companies, the components of the provision / credit for income taxes and of the loss before tax have been analyzed between their Netherlands and non-Netherlands components. Similarly the Dutch corporate income tax rates have been used in the reconciliation of income taxes.
Loss from continuing operations before income taxes
The Netherlands and non-Netherlands components of loss from continuing operations before income taxes are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Domestic
|
$
|
(66,226
|
)
|
|
$
|
(73,132
|
)
|
|
$
|
(117,247
|
)
|
Foreign
|
(107,054
|
)
|
|
(29,668
|
)
|
|
(35,576
|
)
|
Total
|
$
|
(173,280
|
)
|
|
$
|
(102,800
|
)
|
|
$
|
(152,823
|
)
|
Total tax (provision) / credit for the years ended December 31,
2016
,
2015
and
2014
was allocated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Income tax (provision) / credit from continuing operations
|
$
|
(7,317
|
)
|
|
$
|
515
|
|
|
$
|
1,358
|
|
Income tax credit from discontinued operations
|
—
|
|
|
91
|
|
|
1,987
|
|
Total (provision) / tax credit
|
$
|
(7,317
|
)
|
|
$
|
606
|
|
|
$
|
3,345
|
|
Provision / Credit for Income Taxes
The Netherlands and non-Netherlands components of the provision / credit for income taxes from continuing operations consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Current income tax provision:
|
|
|
|
|
|
Domestic
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Foreign
|
(5,261
|
)
|
|
(550
|
)
|
|
(558
|
)
|
|
(5,261
|
)
|
|
(550
|
)
|
|
(558
|
)
|
Deferred tax (provision) / credit:
|
|
|
|
|
|
Domestic
|
—
|
|
|
—
|
|
|
—
|
|
Foreign
|
(2,056
|
)
|
|
1,065
|
|
|
1,916
|
|
|
(2,056
|
)
|
|
1,065
|
|
|
1,916
|
|
(Provision) / credit for income taxes
|
$
|
(7,317
|
)
|
|
$
|
515
|
|
|
$
|
1,358
|
|
In
2016
,
2015
and
2014
, the net (provision) / credit for income taxes is less than the (provision) / credit computed at statutory tax rates primarily due to losses on which no tax benefit has been received.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
Reconciliation of Effective Income Tax Rate
The following is a reconciliation of income taxes, calculated at statutory Netherlands rates, to the (provision) / credit for income taxes included in the accompanying Consolidated Statements of Operations and Comprehensive Income / Loss for the years ended December 31,
2016
,
2015
and
2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Income taxes at Netherlands rates (25%)
|
$
|
43,310
|
|
|
$
|
25,689
|
|
|
$
|
38,193
|
|
Jurisdictional differences in tax rates
|
(43,049
|
)
|
|
(17,462
|
)
|
|
(12,965
|
)
|
Unrecognized tax benefits
|
(925
|
)
|
|
—
|
|
|
—
|
|
Losses expired
|
(1,847
|
)
|
|
(4,009
|
)
|
|
(4,899
|
)
|
Change in valuation allowance
|
(5,863
|
)
|
|
3,614
|
|
|
(7,012
|
)
|
Non-deductible expenses
|
(395
|
)
|
|
(1,859
|
)
|
|
(5,624
|
)
|
Other
|
1,452
|
|
|
(5,458
|
)
|
|
(6,335
|
)
|
(Provision) / credit for income taxes
|
$
|
(7,317
|
)
|
|
$
|
515
|
|
|
$
|
1,358
|
|
In
2016
,
2015
and 2014, the jurisdictional rate difference mainly arises as a result of a loss in Bermuda where there is no income tax.
Components of Deferred Tax Assets and Liabilities
The following table shows the significant components included in deferred income taxes as at December 31,
2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Assets:
|
|
|
|
Tax benefit of loss carry-forwards and other tax credits
|
$
|
112,585
|
|
|
$
|
111,526
|
|
Programming rights
|
2,935
|
|
|
4,052
|
|
Property, plant and equipment
|
3,427
|
|
|
4,427
|
|
Accrued expenses
|
4,699
|
|
|
4,544
|
|
Other
|
1,623
|
|
|
1,718
|
|
Gross deferred tax assets
|
125,269
|
|
|
126,267
|
|
Valuation allowance
|
(110,920
|
)
|
|
(109,481
|
)
|
Net deferred tax assets
|
$
|
14,349
|
|
|
$
|
16,786
|
|
|
|
|
|
Liabilities:
|
|
|
|
Broadcast licenses, trademarks and customer relationships
|
$
|
22,704
|
|
|
$
|
24,897
|
|
Property, plant and equipment
|
142
|
|
|
173
|
|
Programming rights
|
7,182
|
|
|
7,082
|
|
Other
|
86
|
|
|
75
|
|
Total deferred tax liabilities
|
30,114
|
|
|
32,227
|
|
Net deferred income tax liability
|
$
|
15,765
|
|
|
$
|
15,441
|
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
Deferred tax is recognized on the consolidated balance sheet as follows:
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Net current deferred tax assets
(1)
|
$
|
—
|
|
|
$
|
10,425
|
|
Net non-current deferred tax assets
|
4,570
|
|
|
124
|
|
|
4,570
|
|
|
10,549
|
|
|
|
|
|
Net current deferred tax liabilities
(1)
|
—
|
|
|
—
|
|
Net non-current deferred tax liabilities
|
20,335
|
|
|
25,990
|
|
|
20,335
|
|
|
25,990
|
|
|
|
|
|
Net deferred income tax liability
|
$
|
15,765
|
|
|
$
|
15,441
|
|
|
|
(1)
|
Reflects the prospective adoption in 2016 of accounting guidance requiring that deferred tax balances be classified as non-current in our consolidated balance sheets. See
Note 2, "Basis of Presentation and Summary of Significant Accounting Policies"
.
|
We provided a valuation allowance against potential deferred tax assets of US$
110.9 million
and US$
109.5 million
as at
December 31, 2016
and
2015
, respectively, since it has been determined by management, based on the weight of all available evidence, that it is more likely than not that the benefits associated with these assets will not be realized. During
2016
, valuation allowances of US$
2.7 million
and US$
7.1 million
were released in Bulgaria and the Slovak Republic, respectively, following a period of consistent profitability which resulted in a net credit to the income statement of US$
7.4 million
.
During
2016
, we had the following movements on valuation allowances:
|
|
|
|
|
Balance at December 31, 2015
|
$
|
109,481
|
|
Created during the period
|
15,738
|
|
Utilized
|
(2,519
|
)
|
Released due to changes in future profitability
|
(7,356
|
)
|
Foreign exchange
|
(4,674
|
)
|
Other
|
250
|
|
Balance at December 31, 2016
|
$
|
110,920
|
|
As of
December 31, 2016
we had operating loss carry-forwards that will expire in the following periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021-36
|
|
|
Indefinite
|
|
Bulgaria
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,182
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Czech Republic
|
559
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
The Netherlands
|
27,190
|
|
|
25,832
|
|
|
57,430
|
|
|
46,427
|
|
|
268,060
|
|
|
—
|
|
Slovak Republic
|
5,749
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Slovenia
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
21,898
|
|
United Kingdom
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,395
|
|
Total
|
$
|
33,498
|
|
|
$
|
25,835
|
|
|
$
|
57,430
|
|
|
$
|
52,609
|
|
|
$
|
268,060
|
|
|
$
|
23,293
|
|
The losses are subject to examination by the tax authorities and to restriction on their utilization. In particular, the losses can only be utilized against profits arising in the legal entity in which they arose.
We have provided valuation allowances against most of the above loss carry-forwards. However, valuation allowances have not been provided against the loss carry-forwards in our main operating company in Bulgaria and in the Slovak Republic on the basis of future reversals of existing taxable temporary differences and taxable income from future trading. The tax benefits associated with the tax losses in the United Kingdom were recognized following the adoption of the FASB guidance simplifying accounting for share-based payment transactions. However, a valuation allowance was also recognized due to a lack of foreseeable future UK income.
As at
December 31, 2016
and
2015
, we had
no
undistributed earnings in subsidiaries giving rise to a temporary difference.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
|
|
Balance at December 31, 2013
|
$
|
108
|
|
Decreases resulting from the expiry of the statute of limitations
|
(51
|
)
|
Other
|
(4
|
)
|
Balance at December 31, 2014
|
53
|
|
Decreases resulting from the expiry of the statute of limitations
|
(53
|
)
|
Balance at December 31, 2015
|
—
|
|
Increases for tax positions taken during a prior period
|
766
|
|
Increases for tax positions taken during the current period
|
159
|
|
Balance at December 31, 2016
|
$
|
925
|
|
We do not anticipate a material increase or decrease in unrecognized tax benefits within the next 12 months.
Our subsidiaries file income tax returns in the Netherlands and various other tax jurisdictions. As at
December 31, 2016
, our subsidiaries are generally no longer subject to income tax examinations for years before:
|
|
|
Tax Jurisdiction
|
Year
|
Bulgaria
|
2010
|
Croatia
|
2012
|
Czech Republic
|
2011
|
The Netherlands
|
2014
|
Romania
|
2014
|
Slovak Republic
|
2010
|
Slovenia
|
2008
|
United Kingdom
|
2015
|
We recognize, when applicable, both accrued interest and penalties related to unrecognized tax benefits in income tax expense in the accompanying consolidated statements of operations and comprehensive income / loss. There were
no
significant interest or penalties accrued in the years ended
December 31, 2016
,
2015
and
2014
.
18. EARNINGS PER SHARE
We determined that the Series B Preferred Shares are a participating security, and accordingly, our basic and diluted net income / loss per share is calculated using the two-class method. Under the two-class method, basic net income / loss per common share is computed by dividing the net income available to common shareholders after deducting contractual amounts of accretion on our Series B Preferred Shares by the weighted-average number of common shares outstanding during the period. Diluted net income / loss per share is computed by dividing the adjusted net income by the weighted-average number of dilutive shares outstanding during the period.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
The components of basic and diluted earnings per share are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Loss from continuing operations
|
$
|
(180,597
|
)
|
|
$
|
(102,285
|
)
|
|
$
|
(151,465
|
)
|
Net loss attributable to noncontrolling interests
|
306
|
|
|
671
|
|
|
4,468
|
|
Less: preferred dividend paid in kind (Note 11)
|
(13,701
|
)
|
|
(17,272
|
)
|
|
(16,036
|
)
|
Loss from continuing operations available to common shareholders, net of noncontrolling interest
|
(193,992
|
)
|
|
(118,886
|
)
|
|
(163,033
|
)
|
Loss from discontinued operations, net of tax
|
—
|
|
|
(13,287
|
)
|
|
(80,431
|
)
|
Net loss attributable to CME Ltd. available to common shareholders - Basic
|
$
|
(193,992
|
)
|
|
$
|
(132,173
|
)
|
|
$
|
(243,464
|
)
|
|
|
|
|
|
|
Effect of dilutive securities
|
|
|
|
|
|
Preferred dividend paid in kind
|
—
|
|
|
—
|
|
|
—
|
|
Net loss attributable to CME Ltd. available to common shareholders - Diluted
|
$
|
(193,992
|
)
|
|
$
|
(132,173
|
)
|
|
$
|
(243,464
|
)
|
|
|
|
|
|
|
Weighted average outstanding shares of common stock - Basic
(1)
|
151,017
|
|
|
146,866
|
|
|
146,509
|
|
Dilutive effect of employee stock options and RSUs
|
—
|
|
|
—
|
|
|
—
|
|
Weighted average outstanding shares of common stock - Diluted
|
151,017
|
|
|
146,866
|
|
|
146,509
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
Continuing operations attributable to CME Ltd. - Basic and diluted
|
$
|
(1.28
|
)
|
|
$
|
(0.81
|
)
|
|
$
|
(1.11
|
)
|
Discontinued operations attributable to CME Ltd. - Basic and diluted
|
—
|
|
|
(0.09
|
)
|
|
(0.55
|
)
|
Net loss attributable to CME Ltd. - Basic and diluted
|
(1.28
|
)
|
|
(0.90
|
)
|
|
(1.66
|
)
|
|
|
(1)
|
For the purpose of computing basic earnings per share, the
11,211,449
shares of Class A common stock underlying the Series A Preferred Share are included in the weighted average outstanding shares of common stock - basic, because the holder of the Series A Preferred Share is entitled to receive any dividends payable when dividends are declared by the Board of Directors with respect to any shares of the common stock.
|
At
December 31, 2016
,
108,396,778
(
December 31, 2015
:
3,221,575
) 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.
19. SEGMENT DATA
We manage our business on a geographical basis, with
six
operating segments: Bulgaria, Croatia, the Czech Republic, Romania, the Slovak Republic and Slovenia, which are also our reportable segments and our main operating countries. These segments reflect how CME Ltd.’s operating performance is evaluated by our chief operating decision makers, who we have identified as our co-Chief Executive Officers; how operations are managed by segment managers; and the structure of our internal financial reporting.
Our segments generate revenues primarily from the sale of advertising and sponsorship on our channels. This is supplemented by revenues from cable and satellite television service providers to carry our channels on their platforms and from revenues through the sale of distribution rights to third parties. Intersegment revenues and profits have been eliminated in consolidation.
We evaluate our consolidated results and the performance of our segments based on net revenues and OIBDA (as defined below). We believe OIBDA is useful to investors because it provides a meaningful representation of our performance as it excludes certain items that either do not impact our cash flows or the operating results of our operations. OIBDA is also used as a component in determining management bonuses.
OIBDA includes amortization and impairment of program rights and is calculated as operating income / loss before depreciation, amortization of intangible assets, impairments of assets and certain unusual or infrequent items that are not considered by our chief operating decision makers when evaluating our performance. Stock-based compensation and certain other items are not allocated to our segments for purposes of evaluating their performance and therefore are not included in their respective OIBDA.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
Below are tables showing our net revenues, OIBDA, total assets, capital expenditures and long-lived assets for our continuing operations by segment for the years ended
December 31, 2016
,
2015
and
2014
for consolidated statements of operations and comprehensive income / loss data and consolidated statements of cash flow data; and as at
December 31, 2016
and
2015
for consolidated balance sheet data.
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues:
|
For The Year Ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Bulgaria
|
$
|
72,651
|
|
|
$
|
73,090
|
|
|
$
|
87,078
|
|
Croatia
|
55,607
|
|
|
55,912
|
|
|
62,026
|
|
Czech Republic
|
190,372
|
|
|
182,636
|
|
|
202,779
|
|
Romania
|
172,951
|
|
|
157,578
|
|
|
178,614
|
|
Slovak Republic
|
90,549
|
|
|
84,434
|
|
|
90,556
|
|
Slovenia
|
56,912
|
|
|
54,233
|
|
|
61,370
|
|
Intersegment revenues
(1)
|
(1,029
|
)
|
|
(2,042
|
)
|
|
(1,630
|
)
|
Total net revenues
|
$
|
638,013
|
|
|
$
|
605,841
|
|
|
$
|
680,793
|
|
|
|
(1)
|
Reflects revenues earned from the sale of content to other country segments in CME Ltd. All other revenues are third party revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDA:
|
For The Year Ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Bulgaria
|
$
|
12,242
|
|
|
$
|
15,479
|
|
|
$
|
9,367
|
|
Croatia
|
8,578
|
|
|
7,880
|
|
|
7,835
|
|
Czech Republic
|
77,018
|
|
|
71,697
|
|
|
61,964
|
|
Romania
|
62,016
|
|
|
41,176
|
|
|
37,259
|
|
Slovak Republic
|
15,947
|
|
|
10,585
|
|
|
4,586
|
|
Slovenia
|
4,801
|
|
|
6,057
|
|
|
5,331
|
|
Elimination
|
2
|
|
|
(229
|
)
|
|
(16
|
)
|
Total operating segments
|
180,604
|
|
|
152,645
|
|
|
126,326
|
|
Corporate
|
(30,555
|
)
|
|
(29,830
|
)
|
|
(30,880
|
)
|
Total OIBDA
|
$
|
150,049
|
|
|
$
|
122,815
|
|
|
95,446
|
|
Depreciation of property, plant and equipment
|
(30,190
|
)
|
|
(27,943
|
)
|
|
(32,836
|
)
|
Amortization of intangibles
|
(8,270
|
)
|
|
(12,271
|
)
|
|
(12,348
|
)
|
Other items
(1)
|
—
|
|
|
11,982
|
|
|
(11,982
|
)
|
Operating income
|
111,589
|
|
|
94,583
|
|
|
38,280
|
|
Interest expense (Note 14)
|
(132,224
|
)
|
|
(171,444
|
)
|
|
(142,005
|
)
|
Loss on extinguishment of debt (Note 4)
|
(150,158
|
)
|
|
—
|
|
|
(39,203
|
)
|
Non-operating expense, net (Note 15)
|
(2,487
|
)
|
|
(25,939
|
)
|
|
(9,895
|
)
|
Loss before tax
|
$
|
(173,280
|
)
|
|
$
|
(102,800
|
)
|
|
$
|
(152,823
|
)
|
|
|
(1)
|
Other items consists solely of the charges related to tax audits of our Romanian operations, which were accrued in the fourth quarter of 2014 and fully released in the third quarter of 2015.
|
|
|
|
|
|
|
|
|
|
Total assets
(1)
:
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Bulgaria
|
$
|
130,873
|
|
|
$
|
134,418
|
|
Croatia
|
49,135
|
|
|
52,306
|
|
Czech Republic
|
700,190
|
|
|
746,269
|
|
Romania
|
266,132
|
|
|
261,984
|
|
Slovak Republic
|
131,220
|
|
|
121,122
|
|
Slovenia
|
72,381
|
|
|
70,911
|
|
Total operating segments
|
1,349,931
|
|
|
1,387,010
|
|
Corporate
|
40,786
|
|
|
53,407
|
|
Total assets
|
$
|
1,390,717
|
|
|
$
|
1,440,417
|
|
|
|
(1)
|
Segment assets exclude any intercompany balances.
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures:
|
For The Year Ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Bulgaria
|
$
|
3,304
|
|
|
$
|
3,517
|
|
|
$
|
2,627
|
|
Croatia
|
2,593
|
|
|
3,215
|
|
|
2,701
|
|
Czech Republic
|
8,043
|
|
|
10,982
|
|
|
9,139
|
|
Romania
|
6,863
|
|
|
5,794
|
|
|
4,686
|
|
Slovak Republic
|
1,693
|
|
|
2,921
|
|
|
2,240
|
|
Slovenia
|
4,128
|
|
|
3,197
|
|
|
3,502
|
|
Total operating segments
|
26,624
|
|
|
29,626
|
|
|
24,895
|
|
Corporate
|
2,943
|
|
|
3,891
|
|
|
3,790
|
|
Total capital expenditures
|
$
|
29,567
|
|
|
$
|
33,517
|
|
|
$
|
28,685
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets
(1)
:
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Bulgaria
|
$
|
6,280
|
|
|
$
|
5,602
|
|
Croatia
|
5,832
|
|
|
5,497
|
|
Czech Republic
|
39,529
|
|
|
39,907
|
|
Romania
|
22,796
|
|
|
20,873
|
|
Slovak Republic
|
15,326
|
|
|
15,606
|
|
Slovenia
|
14,177
|
|
|
15,082
|
|
Total operating segments
|
103,940
|
|
|
102,567
|
|
Corporate
|
5,149
|
|
|
5,955
|
|
Total long-lived assets
|
$
|
109,089
|
|
|
$
|
108,522
|
|
|
|
(1)
|
Reflects property, plant and equipment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by type:
|
For The Year Ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Television advertising
|
$
|
532,600
|
|
|
$
|
505,498
|
|
|
$
|
565,601
|
|
Carriage fees and subscriptions
|
78,606
|
|
|
73,058
|
|
|
80,487
|
|
Other
|
26,807
|
|
|
27,285
|
|
|
34,705
|
|
Total net revenues
|
$
|
638,013
|
|
|
$
|
605,841
|
|
|
$
|
680,793
|
|
We do not rely on any single major customer or group of major customers.
20. COMMITMENTS AND CONTINGENCIES
Commitments
a) Programming Rights Agreements and Other Commitments
At
December 31, 2016
, we had total commitments of US$
128.2 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
|
|
2017
|
$
|
43,462
|
|
|
$
|
17,545
|
|
|
$
|
3,374
|
|
|
$
|
609
|
|
2018
|
34,889
|
|
|
5,157
|
|
|
2,077
|
|
|
—
|
|
2019
|
32,074
|
|
|
10,851
|
|
|
923
|
|
|
—
|
|
2020
|
14,003
|
|
|
356
|
|
|
476
|
|
|
—
|
|
2021
|
1,503
|
|
|
322
|
|
|
327
|
|
|
—
|
|
2022 and thereafter
|
2,281
|
|
|
44
|
|
|
1,433
|
|
|
—
|
|
Total
|
$
|
128,212
|
|
|
$
|
34,275
|
|
|
$
|
8,610
|
|
|
$
|
609
|
|
For the years ended
December 31, 2016
,
2015
and
2014
, we incurred aggregate rent expense on all facilities of US$
9.4 million
, US$
7.8 million
and US$
10.0 million
, respectively.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
b) Factoring of Trade Receivables
CET 21 has a CZK
735.0 million
(approximately US$
28.7 million
) factoring framework agreement with FCS. Under this facility up to CZK
735.0 million
(approximately US$
28.7 million
) may be factored on a recourse or non-recourse basis. As at
December 31, 2016
, there were CZK
462.9 million
(approximately US$
18.1 million
) (
December 31, 2015
: CZK
478.9 million
, approximately US$
18.7 million
based on
December 31, 2016
rates), of receivables subject to the factoring framework agreement.
In the first quarter of 2016, Pro TV entered into a RON
109.0 million
(approximately US$
25.3 million
) factoring framework agreement with Global Funds IFN S.A. Under this facility up to RON
109.0 million
(approximately US$
25.3 million
) may be factored on a non-recourse basis. As at
December 31, 2016
, there were RON
105.7 million
(approximately US$
24.6 million
) of receivables subject to the factoring framework agreement.
Contingencies
a) Litigation
We are from time to time party to legal proceedings, arbitrations and regulatory proceedings arising in the normal course of our business operations, including the proceeding described below. We evaluate, on a quarterly basis, developments in such matters and provide accruals for such matters, as appropriate. In making such decisions, we consider the degree of probability of an unfavorable outcome and our ability to make a reasonable estimate of the amount of a loss. An unfavorable outcome in any such proceedings, if material, could have an adverse effect on our business or consolidated financial statements.
In late November and December 2016, CME’s Slovak subsidiary MARKIZA-SLOVAKIA, spol. s.r.o. (“Markiza”) was notified of claims that were filed in June 2016 in a court of first instance in Bratislava, the Slovak Republic to collect amounts allegedly owing under
four
promissory notes. These
four
promissory notes were purportedly issued in June 2000 by Pavol Rusko in his personal capacity and were purportedly guaranteed by Markiza under the signature of Mr. Rusko, who was an executive director of Markiza at that time as well as one of its shareholders. The notes purport to be issued in favor of Marian Kocner, a controversial Slovak businessman, and to a former associate of Mr. Kocner, and were supposedly assigned several times, ultimately to Sprava a inkaso zmeniek, s.r.o., a company owned by Mr. Kocner that is the plaintiff in these proceedings. The
four
notes purport to be in the aggregate amount of approximately EUR
69.0 million
. A court of first instance in Bratislava has suspended proceedings in respect of
one
of the promissory notes (in the amount of approximately EUR
26.0 million
) because the plaintiff failed to pay court fees. Two of the remaining notes allegedly matured in 2015 and the third in 2016. Despite a random case assignment system at the Bratislava court, the three cases dealing with the other notes have all been assigned to the same judge. We do not believe that any of the promissory notes are authentic and are vigorously defending the claims. We are currently unable to estimate for what amount, if any, we may be liable if the plaintiff is ultimately successful in pursuing their claims.
21. RELATED PARTY TRANSACTIONS
We consider our related parties to be our officers, directors and shareholders who have direct control and/or influence over the Company as well as other parties that can significantly influence management. We have identified transactions with individuals or entities associated with Time Warner, which is represented on our Board of Directors and holds a
47.0%
voting interest in CME Ltd. as at
December 31, 2016
, as material related party transactions.
Time Warner
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net revenues
|
$
|
—
|
|
|
$
|
198
|
|
|
$
|
59
|
|
Cost of revenues
|
25,445
|
|
|
32,497
|
|
|
20,713
|
|
Interest expense
|
108,205
|
|
|
127,970
|
|
|
61,887
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Programming liabilities
|
$
|
18,959
|
|
|
$
|
14,583
|
|
Other accounts payable and accrued liabilities
|
192
|
|
|
53
|
|
Long-term debt and other financing arrangements
|
—
|
|
|
324,979
|
|
Accrued interest payable
(1)
|
9,588
|
|
|
5,781
|
|
Other non-current liabilities
(2)
|
44,397
|
|
|
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"
.
|
See Part III, Item 13, "Certain Relationships and Related Transactions, and Director Independence."
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
22. QUARTERLY FINANCIAL DATA
Selected quarterly financial data for the years ended
December 31, 2016
and
2015
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2016
|
|
First Quarter (Unaudited)
|
|
Second Quarter (Unaudited)
|
|
Third Quarter (Unaudited)
|
|
Fourth Quarter (Unaudited)
|
Consolidated Statements of Operations and Comprehensive Income / Loss Data:
|
|
|
|
|
|
|
|
Net revenues
|
$
|
129,000
|
|
|
$
|
175,206
|
|
|
$
|
126,706
|
|
|
$
|
207,101
|
|
Cost of revenues
|
97,777
|
|
|
104,962
|
|
|
91,141
|
|
|
119,946
|
|
Operating income
|
7,763
|
|
|
43,891
|
|
|
8,384
|
|
|
51,551
|
|
(Loss) / income from continuing operations
|
(40,694
|
)
|
|
(141,249
|
)
|
|
(19,823
|
)
|
|
21,169
|
|
Net (loss) / income
|
(40,694
|
)
|
|
(141,249
|
)
|
|
(19,823
|
)
|
|
21,169
|
|
Net (loss) / income attributable to CME Ltd.
|
(40,435
|
)
|
|
(141,317
|
)
|
|
(19,627
|
)
|
|
21,088
|
|
|
|
|
|
|
|
|
|
Net (loss) / income per share:
|
|
|
|
|
|
|
|
Basic EPS
|
$
|
(0.31
|
)
|
|
$
|
(0.98
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
0.07
|
|
Effect of dilutive securities
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.01
|
)
|
Diluted EPS
|
$
|
(0.31
|
)
|
|
$
|
(0.98
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2015
|
|
First Quarter (Unaudited)
|
|
Second Quarter (Unaudited)
|
|
Third Quarter (Unaudited)
|
|
Fourth Quarter (Unaudited)
|
Consolidated Statements of Operations and Comprehensive Income / Loss Data:
|
|
|
|
|
|
|
|
Net revenues
|
$
|
126,133
|
|
|
$
|
166,834
|
|
|
$
|
117,322
|
|
|
$
|
195,552
|
|
Cost of revenues
|
98,828
|
|
|
101,229
|
|
|
85,832
|
|
|
116,654
|
|
Operating (loss) / income
|
(17,239
|
)
|
|
36,441
|
|
|
28,853
|
|
|
46,528
|
|
(Loss) / income from continuing operations
|
(70,243
|
)
|
|
(11,669
|
)
|
|
(21,510
|
)
|
|
1,137
|
|
(Loss) / income from discontinued operations, net of tax
|
(3,288
|
)
|
|
2,684
|
|
|
(265
|
)
|
|
(12,418
|
)
|
Net loss
|
(73,531
|
)
|
|
(8,985
|
)
|
|
(21,775
|
)
|
|
(11,281
|
)
|
Net loss attributable to CME Ltd.
|
(73,274
|
)
|
|
(8,678
|
)
|
|
(21,522
|
)
|
|
(11,427
|
)
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
Basic EPS
|
$
|
(0.53
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(0.11
|
)
|
Effect of dilutive securities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Diluted EPS
|
$
|
(0.53
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(0.11
|
)
|