Item 1. Financial Statements
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(US$ 000’s, except share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
ASSETS
|
|
|
|
|
Current assets
|
|
|
|
|
Cash and cash equivalents
|
$
|
176,094
|
|
|
$
|
36,621
|
|
|
Accounts receivable, net of allowances for credit losses of $8,803 and $8,548
|
131,918
|
|
|
188,618
|
|
|
Program rights, net (Note 5)
|
—
|
|
|
75,909
|
|
|
Other current assets (Note 6)
|
32,883
|
|
|
48,832
|
|
|
Total current assets
|
340,895
|
|
|
349,980
|
|
|
Non-current assets
|
|
|
|
|
|
|
Property, plant and equipment, net (Note 7)
|
102,378
|
|
|
113,901
|
|
|
Program rights, net (Note 5)
|
238,096
|
|
|
166,237
|
|
|
Goodwill (Note 3)
|
639,414
|
|
|
667,988
|
|
|
Other intangible assets, net (Note 3)
|
120,838
|
|
|
127,589
|
|
|
Other non-current assets (Note 6)
|
20,921
|
|
|
22,167
|
|
|
Total non-current assets
|
1,121,647
|
|
|
1,097,882
|
|
|
Total assets
|
$
|
1,462,542
|
|
|
$
|
1,447,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
Current liabilities
|
|
|
|
|
Accounts payable and accrued liabilities (Note 8)
|
$
|
130,913
|
|
|
$
|
135,650
|
|
|
Current portion of long-term debt and other financing arrangements (Note 4)
|
6,952
|
|
|
6,836
|
|
|
Other current liabilities (Note 9)
|
29,280
|
|
|
13,515
|
|
|
Total current liabilities
|
167,145
|
|
|
156,001
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
Long-term debt and other financing arrangements (Note 4)
|
597,124
|
|
|
600,273
|
|
|
Other non-current liabilities (Note 9)
|
80,076
|
|
|
80,000
|
|
|
Total non-current liabilities
|
677,200
|
|
|
680,273
|
|
|
Commitments and contingencies (Note 19)
|
|
|
|
|
|
|
TEMPORARY EQUITY
|
|
|
|
|
200,000 shares of Series B Convertible Redeemable Preferred Stock of $0.08 each (December 31, 2019 - 200,000) (Note 12)
|
269,370
|
|
|
269,370
|
|
|
EQUITY
|
|
|
|
|
|
CME Ltd. shareholders’ equity (Note 13):
|
|
|
|
|
|
One share of Series A Convertible Preferred Stock of $0.08 each (December 31, 2019 – one)
|
—
|
|
|
—
|
|
|
254,548,180 shares of Class A Common Stock of $0.08 each (December 31, 2019 – 253,607,026)
|
20,364
|
|
|
20,288
|
|
|
Nil shares of Class B Common Stock of $0.08 each (December 31, 2019 – nil)
|
—
|
|
|
—
|
|
|
Additional paid-in capital
|
2,008,860
|
|
|
2,007,275
|
|
|
Accumulated deficit
|
(1,418,722
|
)
|
|
(1,458,942
|
)
|
|
Accumulated other comprehensive loss
|
(262,061
|
)
|
|
(226,916
|
)
|
|
Total CME Ltd. shareholders’ equity
|
348,441
|
|
|
341,705
|
|
|
Noncontrolling interests
|
386
|
|
|
513
|
|
|
Total equity
|
348,827
|
|
|
342,218
|
|
|
Total liabilities and equity
|
$
|
1,462,542
|
|
|
$
|
1,447,862
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME / LOSS
(US$ 000’s, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Net revenues
|
$
|
135,545
|
|
|
$
|
183,599
|
|
|
$
|
279,361
|
|
|
$
|
330,158
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Content costs
|
43,693
|
|
|
70,356
|
|
|
108,725
|
|
|
140,716
|
|
|
Other operating costs
|
12,549
|
|
|
13,806
|
|
|
26,196
|
|
|
27,054
|
|
|
Depreciation of property, plant and equipment
|
7,972
|
|
|
8,154
|
|
|
15,899
|
|
|
16,380
|
|
|
Amortization of broadcast licenses and other intangibles
|
2,110
|
|
|
2,113
|
|
|
4,277
|
|
|
4,307
|
|
|
Cost of revenues
|
66,324
|
|
|
94,429
|
|
|
155,097
|
|
|
188,457
|
|
|
Selling, general and administrative expenses
|
25,047
|
|
|
28,708
|
|
|
53,893
|
|
|
53,602
|
|
|
Operating income
|
44,174
|
|
|
60,462
|
|
|
70,371
|
|
|
88,099
|
|
|
Interest expense (Note 14)
|
(5,754
|
)
|
|
(7,735
|
)
|
|
(12,349
|
)
|
|
(15,977
|
)
|
|
Other non-operating income / (expense), net (Note 15)
|
328
|
|
|
2,237
|
|
|
(5,808
|
)
|
|
(860
|
)
|
|
Income before tax
|
38,748
|
|
|
54,964
|
|
|
52,214
|
|
|
71,262
|
|
|
Provision for income taxes
|
(7,646
|
)
|
|
(10,886
|
)
|
|
(12,142
|
)
|
|
(15,433
|
)
|
|
Net income
|
31,102
|
|
|
44,078
|
|
|
40,072
|
|
|
55,829
|
|
|
Net loss / (income) attributable to noncontrolling interests
|
77
|
|
|
(119
|
)
|
|
148
|
|
|
(112
|
)
|
|
Net income attributable to CME Ltd.
|
$
|
31,179
|
|
|
$
|
43,959
|
|
|
$
|
40,220
|
|
|
$
|
55,717
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
31,102
|
|
|
$
|
44,078
|
|
|
$
|
40,072
|
|
|
$
|
55,829
|
|
|
Other comprehensive income / (loss):
|
|
|
|
|
|
|
|
|
Currency translation adjustment
|
25,583
|
|
|
17,002
|
|
|
(35,466
|
)
|
|
1,159
|
|
|
Unrealized gain / (loss) on derivative instruments (Note 13)
|
122
|
|
|
(1,220
|
)
|
|
342
|
|
|
(4,551
|
)
|
|
Total other comprehensive income / (loss)
|
25,705
|
|
|
15,782
|
|
|
(35,124
|
)
|
|
(3,392
|
)
|
|
Comprehensive income
|
56,807
|
|
|
59,860
|
|
|
4,948
|
|
|
52,437
|
|
|
Comprehensive loss / (income) attributable to noncontrolling interests
|
230
|
|
|
(28
|
)
|
|
127
|
|
|
(158
|
)
|
|
Comprehensive income attributable to CME Ltd.
|
$
|
57,037
|
|
|
$
|
59,832
|
|
|
$
|
5,075
|
|
|
$
|
52,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PER SHARE DATA (Note 17):
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
Attributable to CME Ltd. — basic
|
$
|
0.08
|
|
|
$
|
0.12
|
|
|
$
|
0.11
|
|
|
$
|
0.15
|
|
|
Attributable to CME Ltd. — diluted
|
0.08
|
|
|
0.12
|
|
|
0.11
|
|
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares used in computing per share amounts (000’s):
|
|
|
|
|
|
|
|
|
Basic
|
265,649
|
|
|
264,570
|
|
|
265,342
|
|
|
264,385
|
|
|
Diluted
|
266,776
|
|
|
265,932
|
|
|
266,790
|
|
|
265,628
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
(US$ 000’s, except share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CME Ltd.
|
|
|
|
|
|
|
|
|
Series A Convertible Preferred Stock
|
|
Class A
Common Stock
|
|
Class B
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares
|
Par value
|
|
Number
of shares
|
Par value
|
|
Number of shares
|
Par value
|
Additional Paid-In Capital
|
|
Accumulated Deficit
|
|
Accumulated Other Comprehensive Loss
|
|
|
Noncontrolling Interest
|
|
|
Total Equity
|
|
|
BALANCE
March 31, 2020
|
1
|
|
$
|
—
|
|
|
254,298,255
|
|
$
|
20,343
|
|
|
—
|
|
$
|
—
|
|
$
|
2,008,151
|
|
$
|
(1,449,901
|
)
|
$
|
(287,919
|
)
|
|
$
|
616
|
|
|
$
|
291,290
|
|
|
Stock-based compensation
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
733
|
|
—
|
|
—
|
|
|
—
|
|
|
733
|
|
|
Share issuance, stock-based compensation
|
—
|
|
—
|
|
|
249,925
|
|
21
|
|
|
—
|
|
—
|
|
(21
|
)
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Withholding tax on net share settlement of stock-based compensation
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
(3
|
)
|
—
|
|
—
|
|
|
—
|
|
|
(3
|
)
|
|
Net income / (loss)
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
31,179
|
|
—
|
|
|
(77
|
)
|
|
31,102
|
|
|
Unrealized gain on derivative instruments
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
122
|
|
|
—
|
|
|
122
|
|
|
Currency translation adjustment
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
25,736
|
|
|
(153
|
)
|
|
25,583
|
|
|
BALANCE
June 30, 2020
|
1
|
|
$
|
—
|
|
|
254,548,180
|
|
$
|
20,364
|
|
|
—
|
|
$
|
—
|
|
$
|
2,008,860
|
|
$
|
(1,418,722
|
)
|
$
|
(262,061
|
)
|
|
$
|
386
|
|
|
$
|
348,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CME Ltd.
|
|
|
|
|
|
|
|
|
Series A Convertible Preferred Stock
|
|
Class A
Common Stock
|
|
Class B
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares
|
Par value
|
|
Number
of shares
|
Par value
|
|
Number of shares
|
Par value
|
Additional Paid-In Capital
|
|
Accumulated Deficit
|
|
Accumulated Other Comprehensive Loss
|
|
|
Noncontrolling Interest
|
|
|
Total Equity
|
|
|
BALANCE
March 31, 2019
|
1
|
|
$
|
—
|
|
|
253,279,975
|
|
$
|
20,262
|
|
|
—
|
|
$
|
—
|
|
$
|
2,004,188
|
|
$
|
(1,566,318
|
)
|
$
|
(235,961
|
)
|
|
$
|
431
|
|
|
$
|
222,602
|
|
|
Stock-based compensation
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
1,124
|
|
—
|
|
—
|
|
|
—
|
|
|
1,124
|
|
|
Share issuance, stock-based compensation
|
—
|
|
—
|
|
|
279,323
|
|
23
|
|
|
—
|
|
—
|
|
(23
|
)
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Withholding tax on net share settlement of stock-based compensation
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
(74
|
)
|
—
|
|
—
|
|
|
—
|
|
|
(74
|
)
|
|
Net income
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
43,959
|
|
—
|
|
|
119
|
|
|
44,078
|
|
|
Unrealized loss on derivative instruments
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(1,220
|
)
|
|
—
|
|
|
(1,220
|
)
|
|
Currency translation adjustment
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
17,093
|
|
|
(91
|
)
|
|
17,002
|
|
|
BALANCE
June 30, 2019
|
1
|
|
$
|
—
|
|
|
253,559,298
|
|
$
|
20,285
|
|
|
—
|
|
$
|
—
|
|
$
|
2,005,215
|
|
$
|
(1,522,359
|
)
|
$
|
(220,088
|
)
|
|
$
|
459
|
|
|
$
|
283,512
|
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
(US$ 000’s, except share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CME Ltd.
|
|
|
|
|
|
|
|
|
Series A Convertible Preferred Stock
|
|
Class A
Common Stock
|
|
Class B
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares
|
Par value
|
|
Number
of shares
|
Par value
|
|
Number of shares
|
Par value
|
Additional Paid-In Capital
|
|
Accumulated Deficit
|
|
Accumulated Other Comprehensive Loss
|
|
|
Noncontrolling Interest
|
|
|
Total Equity
|
|
|
BALANCE
December 31, 2019
|
1
|
|
$
|
—
|
|
|
253,607,026
|
|
$
|
20,288
|
|
|
—
|
|
$
|
—
|
|
$
|
2,007,275
|
|
$
|
(1,458,942
|
)
|
$
|
(226,916
|
)
|
|
$
|
513
|
|
|
$
|
342,218
|
|
|
Stock-based compensation
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
1,672
|
|
—
|
|
—
|
|
|
—
|
|
|
1,672
|
|
|
Share issuance, stock-based compensation
|
—
|
|
—
|
|
|
941,154
|
|
76
|
|
|
—
|
|
—
|
|
(76
|
)
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Withholding tax on net share settlement of stock-based compensation
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
(11
|
)
|
—
|
|
—
|
|
|
—
|
|
|
(11
|
)
|
|
Net income / (loss)
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
40,220
|
|
—
|
|
|
(148
|
)
|
|
40,072
|
|
|
Unrealized gain on derivative instruments
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
342
|
|
|
—
|
|
|
342
|
|
|
Currency translation adjustment
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(35,487
|
)
|
|
21
|
|
|
(35,466
|
)
|
|
BALANCE
June 30, 2020
|
1
|
|
$
|
—
|
|
|
254,548,180
|
|
$
|
20,364
|
|
|
—
|
|
$
|
—
|
|
$
|
2,008,860
|
|
$
|
(1,418,722
|
)
|
$
|
(262,061
|
)
|
|
$
|
386
|
|
|
$
|
348,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CME Ltd.
|
|
|
|
|
|
|
|
|
Series A Convertible Preferred Stock
|
|
Class A
Common Stock
|
|
Class B
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares
|
Par value
|
|
Number
of shares
|
Par value
|
|
Number of shares
|
Par value
|
Additional Paid-In Capital
|
|
Accumulated Deficit
|
|
Accumulated Other Comprehensive Loss
|
|
|
Noncontrolling Interest
|
|
|
Total Equity
|
|
|
BALANCE
December 31, 2018
|
1
|
|
$
|
—
|
|
|
252,853,554
|
|
$
|
20,228
|
|
|
—
|
|
$
|
—
|
|
$
|
2,003,518
|
|
$
|
(1,578,076
|
)
|
$
|
(216,650
|
)
|
|
$
|
301
|
|
|
$
|
229,321
|
|
|
Stock-based compensation
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
2,127
|
|
—
|
|
—
|
|
|
—
|
|
|
2,127
|
|
|
Share issuance, stock-based compensation
|
—
|
|
—
|
|
|
705,744
|
|
57
|
|
|
—
|
|
—
|
|
(57
|
)
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Withholding tax on net share settlement of stock-based compensation
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
(373
|
)
|
—
|
|
—
|
|
|
—
|
|
|
(373
|
)
|
|
Net income
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
55,717
|
|
—
|
|
|
112
|
|
|
55,829
|
|
|
Unrealized loss on derivative instruments
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(4,551
|
)
|
|
—
|
|
|
(4,551
|
)
|
|
Currency translation adjustment
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1,113
|
|
|
46
|
|
|
1,159
|
|
|
BALANCE
June 30, 2019
|
1
|
|
$
|
—
|
|
|
253,559,298
|
|
$
|
20,285
|
|
|
—
|
|
$
|
—
|
|
$
|
2,005,215
|
|
$
|
(1,522,359
|
)
|
$
|
(220,088
|
)
|
|
$
|
459
|
|
|
$
|
283,512
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(US$ 000’s)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
2020
|
|
|
2019
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
Net income
|
$
|
40,072
|
|
|
$
|
55,829
|
|
|
Adjustments to reconcile net income to net cash generated from operating activities:
|
|
|
|
|
|
Amortization of program rights and other content costs
|
108,725
|
|
|
140,716
|
|
|
Depreciation and other amortization
|
21,817
|
|
|
22,414
|
|
|
Loss on extinguishment of debt
|
—
|
|
|
235
|
|
|
Gain on disposal of fixed assets
|
(100
|
)
|
|
(11
|
)
|
|
Deferred income taxes
|
2,847
|
|
|
(46
|
)
|
|
Stock-based compensation (Note 16)
|
1,672
|
|
|
2,127
|
|
|
Change in fair value of derivatives
|
—
|
|
|
36
|
|
|
Foreign currency exchange loss, net
|
5,218
|
|
|
(198
|
)
|
|
Changes in assets and liabilities:
|
|
|
|
|
Accounts receivable, net
|
53,463
|
|
|
16,551
|
|
|
Accounts payable and accrued liabilities
|
(1,693
|
)
|
|
1,349
|
|
|
Program rights
|
(103,588
|
)
|
|
(120,040
|
)
|
|
Other assets and liabilities
|
1,070
|
|
|
(918
|
)
|
|
Accrued interest
|
(76
|
)
|
|
(229
|
)
|
|
Income taxes payable
|
839
|
|
|
4,153
|
|
|
Deferred revenue
|
16,017
|
|
|
18,508
|
|
|
VAT and other taxes payable
|
8,712
|
|
|
(196
|
)
|
|
Net cash generated from operating activities
|
$
|
154,995
|
|
|
$
|
140,280
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
$
|
(8,759
|
)
|
|
$
|
(8,272
|
)
|
|
Disposal of property, plant and equipment
|
101
|
|
|
6
|
|
|
Net cash used in investing activities
|
$
|
(8,658
|
)
|
|
$
|
(8,266
|
)
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
Repayment of debt
|
$
|
—
|
|
|
$
|
(113,988
|
)
|
|
Settlement of derivative instruments
|
—
|
|
|
(1,173
|
)
|
|
Payment of credit facilities and finance leases
|
(3,918
|
)
|
|
(3,395
|
)
|
|
Payments of withholding tax on net share settlement of share-based compensation
|
(11
|
)
|
|
(373
|
)
|
|
Net cash used in financing activities
|
$
|
(3,929
|
)
|
|
$
|
(118,929
|
)
|
|
|
|
|
|
|
Impact of exchange rate fluctuations on cash and cash equivalents
|
(2,935
|
)
|
|
(477
|
)
|
|
Net increase in cash and cash equivalents
|
$
|
139,473
|
|
|
$
|
12,608
|
|
|
CASH AND CASH EQUIVALENTS, beginning of period
|
36,621
|
|
|
62,031
|
|
|
CASH AND CASH EQUIVALENTS, end of period
|
$
|
176,094
|
|
|
$
|
74,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
Cash paid for interest (including Guarantee Fees)
|
$
|
10,507
|
|
|
$
|
14,017
|
|
|
Cash paid for income taxes, net of refunds
|
8,427
|
|
|
11,348
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
1. ORGANIZATION AND BUSINESS
Central European Media Enterprises Ltd., a Bermuda company limited by shares, is a media and entertainment company operating in Central and Eastern Europe. Our assets are held through a series of Dutch holding companies. We manage our business on a geographical basis, with five operating segments; Bulgaria, the Czech Republic, Romania, the Slovak Republic and Slovenia, which are also our reportable segments and our main operating countries. See Note 18, "Segment Data" for financial information by segment.
We are market-leading broadcasters in each of our five operating countries with a combined portfolio of 30 television channels. Each country develops and produces content for their television channels. We generate advertising revenues primarily through entering into agreements with advertisers, advertising agencies and sponsors to place advertising on the television channels that we operate. We generate additional revenues by collecting fees from cable, and direct-to-home and internet protocol television ("IPTV") operators for carriage of our channels as well as from advertising related to our digital initiatives. Unless otherwise indicated, we own 100% of our broadcast operating and license companies in each country.
Bulgaria
We operate one general entertainment channel, BTV, and five other channels, BTV CINEMA, BTV COMEDY, BTV ACTION, BTV LADY and RING. We own 94% of CME Bulgaria B.V., the subsidiary that owns our Bulgaria operations.
Czech Republic
We operate one general entertainment channel, TV NOVA, and seven other channels, NOVA 2, NOVA CINEMA, NOVA SPORT 1, NOVA SPORT 2, NOVA ACTION, NOVA GOLD and NOVA INTERNATIONAL, a general entertainment channel broadcasting in the Slovak Republic.
Romania
We operate one general entertainment channel, PRO TV, and six other channels, PRO 2, PRO X, PRO GOLD, PRO CINEMA, PRO TV INTERNATIONAL, as well as PRO TV CHISINAU, a general entertainment channel broadcasting in Moldova.
Slovak Republic
We operate one general entertainment channel, TV MARKIZA, and three other channels, DOMA, DAJTO, and MARKIZA INTERNATIONAL, a general entertainment channel broadcasting in the Czech Republic.
Slovenia
We operate two general entertainment channels, POP TV and KANAL A, and three other channels, KINO, BRIO and OTO.
Merger
On October 27, 2019, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with TV Bidco B.V. ("Parent") and TV Bermuda Ltd. ("Merger Sub"). Parent and Merger Sub are affiliates of PPF Group N.V. Pursuant to the Merger Agreement, Merger Sub will merge with and into the Company (the "Merger"), with the Company continuing as the surviving company in the proposed Merger as a wholly-owned subsidiary of Parent.
The closing of the proposed Merger is subject to several conditions, including, but not limited to, the requisite vote of the Company’s shareholders in favor of the Merger Agreement and the proposed Merger, the receipt of certain competition and other regulatory approvals, compliance with covenants and agreements in the Merger Agreement (subject to certain materiality qualifications), and the absence of any governmental order prohibiting completion of the proposed Merger.. A special general meeting of shareholders of the Company was held on February 27, 2020, where more than 99% of the votes cast by shareholders were in favor of approving the Merger Agreement, the related statutory merger agreement and the Merger. In addition, regulatory approvals required under the Merger Agreement in Romania and Slovenia have been obtained. For additional information on the Merger, please see the proxy statement of the Company related to the special general meeting of shareholders, filed with the SEC on January 10, 2020. Parent is currently expecting to file the required notification with the European Commission in the third quarter, and based on our anticipated timing of that, we expect the proposed Merger to be completed prior to October 27, 2020. If the receipt of certain competition and other regulatory approvals, including the approval of the European Commission, is not satisfied by October 27, 2020 but all other conditions to closing of the proposed Merger have been satisfied or waived by such date (other than those conditions that by their nature are to be satisfied at the closing of the Merger), either CME or Parent can elect to extend the closing date of the proposed Merger to January 27, 2021.
Under the Merger Agreement, at the effective time of the proposed Merger (the “Effective Time”), without any action required by the Company, Parent, Merger Sub or any shareholder of the Company or any other person, each Class A Share issued and outstanding immediately prior to the Effective Time will be canceled and cease to exist automatically and each such Class A Share (other than shares owned by the Company, Parent, Merger Sub or any of their respective direct or indirect wholly-owned subsidiaries, in each case not held on behalf of third parties) will be converted into the right to receive US$ 4.58 in cash.
Under the Merger Agreement, at the Effective Time, without any action required by the Company, Parent, Merger Sub or any shareholder of the Company or any other person, the Series A Preferred Share issued and outstanding immediately prior to the Effective Time will be canceled and cease to exist automatically and will be converted into the right to receive US$ 32,900,000 in cash, without interest, and each Series B Preferred Share issued and outstanding immediately prior to the Effective Time will be canceled and cease to exist automatically and will be converted into the right to receive US$ 1,630.875 in cash, without interest; provided that, among other things, any conversion of the Series A Preferred Share or any Series B Preferred Shares into Class A Shares on or after October 27, 2019 will be deemed to be null and void.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
2. BASIS OF PRESENTATION
The terms the "Company", "we", "us", and "our" are used in this Form 10-Q to refer collectively to the parent company, Central European Media Enterprises Ltd. (“CME Ltd.”), and the subsidiaries through which our various businesses are conducted. Unless otherwise noted, all statistical and financial information presented in this report has been converted into U.S. dollars using period-end exchange rates. All references to "US$", "USD" or "dollars" are to U.S. dollars, all references to "BGN" are to the Bulgarian leva, all references to "CZK" are to the Czech koruna, all references to "RON" are to the New Romanian lei, and all references to "Euro" or "EUR" are to the European Union Euro. Where applicable, prior period presentation has been modified to conform to current year presentation.
Interim Financial Statements
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Quarterly Report on Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles in the United States of America (“US GAAP”). Amounts as of December 31, 2019 included in the unaudited condensed consolidated financial statements have been derived from audited consolidated financial statements as of that date. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission on February 6, 2020. Our significant accounting policies have not changed since December 31, 2019, except as noted below.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring items and changes in US GAAP, necessary for their fair presentation in conformity with US GAAP for complete financial statements. The results of operations for interim periods are not necessarily indicative of the results to be expected for a full year.
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates and assumptions.
Basis of Consolidation
The unaudited condensed consolidated financial statements include the accounts of CME Ltd. and our subsidiaries, after the elimination of intercompany accounts and transactions. Entities in which we hold less than a majority voting interest but over which we have the ability to exercise significant influence are accounted for using the equity method. Other investments are accounted for using the cost method.
Seasonality
We experience seasonality, with advertising sales tending to be lowest during the third quarter of each calendar year due to the summer holiday period (typically July and August), and highest during the fourth quarter of each calendar year due to the winter holiday season.
Allowance for Credit Losses
In each of our segments, we stratify our receivables by age within risk-based pools. We apply an allowance percentage to each aging bucket based on historical collection trends adjusted for anticipated changes in future collectibility, including the potential impact of the COVID-19 pandemic. Our risk pools are generally defined as TV Advertising, Carriage Fee and Subscription and Other, based on the revenue source of the related receivable.
We maintain a specific allowance for estimated losses resulting from the inability of certain customers to make required payments. If the financial condition of these customers were to deteriorate, additional allowances may be required in future periods. We review accounts receivable balances periodically to identify the need for specific provision.
We consider factors external to the specific customer, including current conditions and forecasts of economic conditions that are unique to each segment, including the potential impact of the COVID-19 pandemic. In the event we recover amounts previously written off, we release the specific allowance for credit loss.
Goodwill and Indefinite-Lived Intangible Assets
Goodwill is evaluated at the reporting unit level, which we have determined is each of our five operating segments. We calculated the fair value of our reporting units as of October 1, 2019, based on the present value of expected future cash flows, including terminal value, discounted at appropriate rates, determined separately for each reporting unit, and on publicly available information, where appropriate. The determination of fair value involves the use of significant estimates and assumptions, including: revenue growth rates, operating margins, capital expenditures, working capital requirements, tax rates, terminal growth rates, management's long-term plan 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.
Indefinite-lived intangible assets are evaluated for impairment individually using the relief from royalty method to calculate fair value. An impairment loss is recognized if the carrying amount of an indefinite-lived intangible asset exceeds its fair value.
We performed a qualitative assessment for all of our reporting units and indefinite-lived intangible assets as of June 30, 2020 to determine whether the impact of the COVID-19 pandemic indicates that it is more likely than not that the fair value of any reporting unit or indefinite-lived intangible asset is less than its carrying value. The results of these procedures indicated that none of our reporting units or indefinite-lived intangible assets were more likely than not impaired.
Program Rights
Our predominant strategy in each segment is to generate television advertising revenues through airing a diversified library of complementary content across our portfolio of channels. Licensed and produced content are predominantly monetized as a group and reviewed for potential impairment as a film group in each segment when an event or change in circumstances indicates a change in the expected usefulness of the content or that the fair value may be less than unamortized cost. Content assets within a film group are stated at the lower of unamortized cost or fair value. Our calculations of fair value include significant assumptions about the amounts and timing of cash inflows and outflows and the rates by which these cash flows are discounted to the present period. Unamortized costs for assets that have been, or are expected to be abandoned, are written off.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
We performed qualitative impairment assessments of the film groups in each segment as of June 30, 2020, to determine whether the impact of the COVID-19 pandemic or other changes in circumstances indicate that the fair value of the film groups may be less than its unamortized cost. The results of these qualitative assessments did not indicate that the fair value of any film group was less than its unamortized cost.
Income Taxes
We have historically calculated the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate for the full fiscal year to “ordinary” income or loss (pretax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period. However, due to the uncertainty related to the impact of the COVID-19 pandemic on our operations, we have used a discrete effective tax rate method to calculate taxes for the three and six months ended June 30, 2020.
Recent Accounting Pronouncements
Accounting Pronouncements Adopted
In June 2016, the Financial Accounting Standards Board ("FASB") issued guidance to provide financial statement users with more information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendments replaced the incurred loss impairment methodology in the legacy guidance with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The guidance primarily applies to our accounts receivable and had no material impact upon adoption as of January 1, 2020.
In March 2019, the FASB issued guidance that aligns the accounting for production costs of an episodic television series with the accounting for production costs of films. The guidance further requires that an entity test a film or license agreement for program material for impairment at a film group level and under a fair value model when the film or license agreement is predominantly monetized with other films and/or license agreements. Further, content acquired under a license agreement is not required to be separately presented on the balance sheet based on the estimated time of usage. The guidance was adopted prospectively on January 1, 2020, at which time we reclassified US$ 75.9 million of our current content assets to non-current on our condensed consolidated Balance Sheets. There was no cumulative effect adjustment or impairment identified upon adoption. The change to a fair value model and the use of film groups in the assessment of impairment of our content is a significant change to the previously prescribed approach; however, the results of these procedures are not substantially different than the results under the previous approach.
During the adoption process we identified and corrected an error in our program rights disclosure as at December 31, 2019 relating to the misclassification of certain completed and released content that had been disclosed as completed and not released. The disclosure error did not impact the consolidated balance sheets, the consolidated statements of operations and comprehensive income, the consolidated statements of equity or the consolidated statements of cash flows and was not material as at December 31, 2019.
Recent Accounting Pronouncements Issued
In March 2020, the FASB issued guidance to provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. Interest charged on our Euro Loans (as defined in Note 4, "Long-term Debt and Other Financing Arrangements") and the related hedging instruments is based on three-month EURIBOR, which is not expected to be discontinued prior to the maturity of these instruments. Interest charged on our Revolving Credit Facility ("RCF"), when drawn, is based on three-month LIBOR through its maturity on April 26, 2023, however, we do not anticipate this guidance will significantly impact our accounting for this instrument.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
3. GOODWILL AND INTANGIBLE ASSETS
Goodwill:
Goodwill by reporting unit as at June 30, 2020 and December 31, 2019 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bulgaria
|
|
Czech Republic
|
|
Romania
|
|
Slovak Republic
|
|
Slovenia
|
|
Total
|
|
Gross Balance, December 31, 2019
|
$
|
173,146
|
|
|
$
|
805,396
|
|
|
$
|
83,521
|
|
|
$
|
49,137
|
|
|
$
|
19,400
|
|
|
$
|
1,130,600
|
|
|
Accumulated impairment losses
|
(144,639
|
)
|
|
(287,545
|
)
|
|
(11,028
|
)
|
|
—
|
|
|
(19,400
|
)
|
|
(462,612
|
)
|
|
Balance, December 31, 2019
|
28,507
|
|
|
517,851
|
|
|
72,493
|
|
|
49,137
|
|
|
—
|
|
|
667,988
|
|
|
Foreign currency
|
(91
|
)
|
|
(27,283
|
)
|
|
(1,035
|
)
|
|
(165
|
)
|
|
—
|
|
|
(28,574
|
)
|
|
Balance, June 30, 2020
|
28,416
|
|
|
490,568
|
|
|
71,458
|
|
|
48,972
|
|
|
—
|
|
|
639,414
|
|
|
Accumulated impairment losses
|
(144,639
|
)
|
|
(287,545
|
)
|
|
(11,028
|
)
|
|
—
|
|
|
(19,400
|
)
|
|
(462,612
|
)
|
|
Gross Balance, June 30, 2020
|
$
|
173,055
|
|
|
$
|
778,113
|
|
|
$
|
82,486
|
|
|
$
|
48,972
|
|
|
$
|
19,400
|
|
|
$
|
1,102,026
|
|
Other intangible assets:
The net book values of our other intangible assets as at June 30, 2020 and December 31, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
|
Indefinite-lived:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
$
|
84,036
|
|
|
$
|
—
|
|
|
$
|
84,036
|
|
|
$
|
85,484
|
|
|
$
|
—
|
|
|
$
|
85,484
|
|
|
Amortized:
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadcast licenses
|
199,035
|
|
|
(165,357
|
)
|
|
33,678
|
|
|
208,669
|
|
|
(169,239
|
)
|
|
39,430
|
|
|
Customer relationships
|
53,875
|
|
|
(53,400
|
)
|
|
475
|
|
|
54,807
|
|
|
(54,288
|
)
|
|
519
|
|
|
Other
|
5,678
|
|
|
(3,029
|
)
|
|
2,649
|
|
|
4,642
|
|
|
(2,486
|
)
|
|
2,156
|
|
|
Total
|
$
|
342,624
|
|
|
$
|
(221,786
|
)
|
|
$
|
120,838
|
|
|
$
|
353,602
|
|
|
$
|
(226,013
|
)
|
|
$
|
127,589
|
|
Net broadcast licenses consist solely of our TV Nova license in the Czech Republic, which is amortized on a straight-line basis through its expiration date 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. Other intangibles primarily consist of software licenses which are typically amortized on a straight-line basis over three years to five years.
4. LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS
Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
Long-term debt
|
$
|
589,453
|
|
|
$
|
590,777
|
|
|
Other credit facilities and finance leases
|
14,623
|
|
|
16,332
|
|
|
Total long-term debt and other financing arrangements
|
604,076
|
|
|
607,109
|
|
|
Less: current maturities
|
(6,952
|
)
|
|
(6,836
|
)
|
|
Total non-current long-term debt and other financing arrangements
|
$
|
597,124
|
|
|
$
|
600,273
|
|
Overview
Total long-term debt and credit facilities comprised the following at June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Amount of Liability Component
|
|
|
Debt Issuance
Costs (1)
|
|
|
Net Carrying Amount
|
|
|
2021 Euro Loan
|
$
|
67,564
|
|
|
$
|
(71
|
)
|
|
$
|
67,493
|
|
|
2023 Euro Loan
|
524,962
|
|
|
(3,002
|
)
|
|
521,960
|
|
|
2023 Revolving Credit Facility
|
—
|
|
|
—
|
|
|
—
|
|
|
Total long-term debt and credit facilities
|
$
|
592,526
|
|
|
$
|
(3,073
|
)
|
|
$
|
589,453
|
|
|
|
|
|
(1)
|
Debt issuance costs related to the 2021 Euro Loan, the 2023 Euro Loan and the 2023 Revolving Credit Facility (each as defined below) are being amortized on a straight-line basis, which approximates the effective interest method, over the life of the respective instruments. Debt issuance costs related to the 2023 Revolving Credit Facility are classified as non-current assets in our condensed consolidated balance sheet.
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
At June 30, 2020, the maturity of our long-term debt and credit facilities was as follows:
|
|
|
|
|
|
|
|
2020
|
$
|
—
|
|
|
2021
|
67,564
|
|
|
2022
|
—
|
|
|
2023
|
524,962
|
|
|
2024
|
—
|
|
|
2025 and thereafter
|
—
|
|
|
Total long-term debt and credit facilities
|
592,526
|
|
|
Debt issuance costs
|
(3,073
|
)
|
|
Carrying amount of long-term debt and credit facilities
|
$
|
589,453
|
|
Long-term Debt
Our long-term debt comprised the following at June 30, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount
|
|
Fair Value
|
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
2021 Euro Loan
|
$
|
67,493
|
|
|
$
|
67,683
|
|
|
$
|
66,817
|
|
|
$
|
68,120
|
|
|
2023 Euro Loan
|
521,960
|
|
|
523,094
|
|
|
508,936
|
|
|
529,303
|
|
|
|
$
|
589,453
|
|
|
$
|
590,777
|
|
|
$
|
575,753
|
|
|
$
|
597,423
|
|
The estimated fair values of the Euro Loans (as defined below) as at June 30, 2020 and December 31, 2019 were determined using the average yield curve of comparable bonds with equivalent credit ratings which is a Level 2 input as described in Note 11, "Financial Instruments and Fair Value Measurements". Certain derivative instruments, including contingent event of default and change of control put options, have been identified as being embedded in each of the Euro Loans. The embedded derivatives are considered clearly and closely related to their respective Euro Loan, and as such are not required to be accounted for separately.
2021 Euro Loan
As at June 30, 2020, the principal amount of our floating rate senior unsecured term credit facility (the "2021 Euro Loan") outstanding was EUR 60.3 million (approximately US$ 67.6 million). The 2021 Euro Loan bears interest at three-month EURIBOR (fixed pursuant to customary hedging arrangements (see Note 11, "Financial Instruments and Fair Value Measurements")) plus a margin of between 1.1% and 1.9% depending on the credit rating of Warner Media. As at June 30, 2020, the all-in borrowing rate on amounts outstanding under the 2021 Euro Loan was 3.25%, the components of which are shown in the table below under the heading "Interest Rate Summary".
Interest on the 2021 Euro Loan is payable quarterly in arrears on each February 13, May 13, August 13 and November 13. The 2021 Euro Loan matures on November 1, 2021 and may be prepaid at our option, in whole or in part, without premium or penalty from cash generated from our operations. The 2021 Euro Loan may be refinanced at our option at any time. The 2021 Euro Loan is a senior unsecured obligation of CME Ltd. and is unconditionally guaranteed by CME Media Enterprises B.V. ("CME BV") and by Warner Media, LLC ("Warner Media") and certain of its subsidiaries.
2023 Euro Loan
As at June 30, 2020, the principal amount of our floating rate senior unsecured term credit facility (the "2023 Euro Loan") outstanding was EUR 468.8 million (approximately US$ 525.0 million). The 2023 Euro Loan bears interest at three-month EURIBOR (fixed pursuant to customary hedging arrangements (see Note 11, "Financial Instruments and Fair Value Measurements")) plus a margin of between 1.1% and 1.9% depending on the credit rating of Warner Media. As at June 30, 2020, the all-in borrowing rate on amounts outstanding under the 2023 Euro Loan was 3.50%, the components of which are shown in the table below under the heading "Interest Rate Summary".
Interest on the 2023 Euro Loan is payable quarterly in arrears on each January 7, April 7, July 7 and October 7. The 2023 Euro Loan matures on April 26, 2023 and may be prepaid at our option, in whole or in part, without premium or penalty from cash generated from our operations. The 2023 Euro Loan may be refinanced at our option at any time. The 2023 Euro Loan is a senior unsecured obligation of CME BV and is unconditionally guaranteed by CME Ltd. and by Warner Media and certain of its subsidiaries.
Reimbursement Agreement and Guarantee Fees
In connection with Warner Media’s guarantees of the 2021 Euro Loan and 2023 Euro Loan (collectively, the "Euro Loans"), we entered into a reimbursement agreement (as amended, the “Reimbursement Agreement") with Warner Media. The Reimbursement Agreement provides for the payment of guarantee fees (collectively, the "Guarantee Fees") to Warner Media as consideration for those guarantees, and the reimbursement to Warner Media of any amounts paid by them under any guarantee or through any loan purchase right exercised by it. The loan purchase right allows Warner Media to purchase any amount outstanding under the Euro Loans from the lenders following an event of default under the Euro Loans or the Reimbursement Agreement. The Reimbursement Agreement is guaranteed by our 100% owned subsidiary CME BV and is secured by a pledge over 100% of the outstanding shares of CME BV. The covenants and events of default under the Reimbursement Agreement are substantially the same as under the 2023 Revolving Credit Facility (described below).
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
We pay Guarantee Fees to Warner Media based on the amounts outstanding on the Euro Loans calculated on a per annum basis based on our consolidated net leverage as defined in the Reimbursement Agreement, which among other adjustments, takes into consideration cash balances up to US$ 75.0 million for the purposes of the net leverage calculation. As at June 30, 2020, our available cash balance was US$ 176.1 million. The Guarantee Fee rates applicable to our Euro Loans are shown in the tables below:
All-in Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Net Leverage
|
2021 Euro Loan
|
|
|
2023 Euro Loan
|
|
|
≥
|
7.0x
|
|
|
|
6.00
|
%
|
|
6.50
|
%
|
|
<
|
7.0x
|
-
|
6.0x
|
|
5.00
|
%
|
|
5.50
|
%
|
|
<
|
6.0x
|
-
|
5.0x
|
|
4.25
|
%
|
|
4.75
|
%
|
|
<
|
5.0x
|
-
|
4.0x
|
|
3.75
|
%
|
|
4.25
|
%
|
|
<
|
4.0x
|
-
|
3.0x
|
|
3.25
|
%
|
|
3.75
|
%
|
|
<
|
3.0x
|
|
|
|
3.25
|
%
|
|
3.50
|
%
|
Our consolidated net leverage as at June 30, 2020 and December 31, 2019 was 2.4x. For the three and six months ended June 30, 2020 and 2019, we recognized US$ 2.8 million and US$ 5.6 million; and US$ 3.6 million and US$ 7.3 million, respectively, of Guarantee Fees as interest expense in our condensed consolidated statements of operations and comprehensive income / loss.
The Guarantee Fees relating to the 2021 Euro Loan are payable semi-annually in arrears on each May 1 and November 1. The Guarantee Fees relating to the 2023 Euro Loan are payable semi-annually in arrears on each June 1 and December 1.
The Guarantee Fees on the 2023 Euro Loan that were previously paid in kind are presented as a component of other non-current liabilities (see Note 9, "Other Liabilities") and bear interest per annum at the applicable Guarantee Fee rate (as set forth in the table below). Guarantee Fees are included in cash flows from operating activities in our condensed consolidated statements of cash flows.
Interest Rate Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Rate
|
|
|
Rate Fixed Pursuant to Interest Rate Hedges
|
|
|
Guarantee Fee Rate
|
|
|
All-in Borrowing Rate
|
|
|
2021 Euro Loan
|
1.28
|
%
|
|
0.47
|
%
|
|
1.50
|
%
|
|
3.25
|
%
|
|
2023 Euro Loan
|
1.28
|
%
|
|
0.28
|
%
|
(1)
|
1.94
|
%
|
|
3.50
|
%
|
|
2023 Revolving Credit Facility (if drawn)
|
4.25
|
%
|
|
—
|
%
|
|
—
|
%
|
|
4.25
|
%
|
|
|
|
|
(1)
|
Effective until February 19, 2021. From February 19, 2021 through maturity on April 26, 2023, the rate fixed pursuant to interest rate hedges will increase to 0.97%, with a corresponding decrease in the Guarantee Fee rate, such that the all-in borrowing rate remains 3.50% if our net leverage ratio remains unchanged.
|
2023 Revolving Credit Facility
We had no balance outstanding under the US$ 75.0 million revolving credit facility (the "2023 Revolving Credit Facility") as at June 30, 2020.
The 2023 Revolving Credit Facility bears interest at a rate per annum based on, at our option, an alternate base rate ("ABR Loans" as defined in the 2023 Revolving Credit Facility Agreement) plus the spread applicable to ABR Loans based on our consolidated net leverage or an amount equal to the greater of (i) an adjusted LIBO rate and (ii) 1.0%, plus the spread applicable to the Eurodollar Loans (as defined in the 2023 Revolving Credit Facility Agreement) based on our consolidated net leverage ratio (as defined in the Reimbursement Agreement), with all amounts payable in cash. The maturity date of the 2023 Revolving Credit Facility is April 26, 2023. When drawn, the 2023 Revolving Credit Facility permits prepayment at our option in whole or in part without penalty.
As at June 30, 2020, the following spreads were applicable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Net Leverage
|
Alternate Base Rate Loans
|
|
|
Eurodollar Loans
|
|
|
≥
|
7.0x
|
|
|
|
5.25
|
%
|
|
6.25
|
%
|
|
<
|
7.0x
|
-
|
6.0x
|
|
4.25
|
%
|
|
5.25
|
%
|
|
<
|
6.0x
|
-
|
5.0x
|
|
3.50
|
%
|
|
4.50
|
%
|
|
<
|
5.0x
|
-
|
4.0x
|
|
3.00
|
%
|
|
4.00
|
%
|
|
<
|
4.0x
|
-
|
3.0x
|
|
2.50
|
%
|
|
3.50
|
%
|
|
<
|
3.0x
|
|
|
|
2.25
|
%
|
|
3.25
|
%
|
The 2023 Revolving Credit Facility is guaranteed by CME BV and is secured by a pledge over 100% of the outstanding shares of CME BV. The 2023 Revolving Credit Facility agreement contains limitations on CME’s ability to incur indebtedness, incur guarantees, grant liens, pay dividends or make other distributions, enter into certain affiliate transactions, consolidate, merge or effect a corporate reconstruction, make certain investments acquisitions and loans, and conduct certain asset sales. The agreement also contains maintenance covenants in respect of interest cover and total leverage ratios, and has covenants in respect of incurring indebtedness, the provision of guarantees, making investments and disposals, granting security and certain events of defaults.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
Other Credit Facilities and Finance Lease Obligations
Cash Pooling
We have a cash pooling arrangement with Bank Mendes Gans (“BMG”), a subsidiary of ING Bank N.V., which enables us to receive credit throughout the group in respect of cash balances which our subsidiaries deposit with BMG. Cash deposited by our subsidiaries with BMG is pledged as security against the drawings of other subsidiaries up to the amount deposited. As at June 30, 2020, we had deposits of US$ 80.1 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, 2019, we had deposits of US$ 11.6 million in and no drawings on the BMG cash pool.
Factoring Arrangements
Under a factoring framework agreement with Factoring Česka spořitelna a.s., up to CZK 475.0 million (approximately US$ 19.9 million) of receivables from certain customers in the Czech Republic may be factored on a recourse or non-recourse basis. The facility has a factoring fee of 0.19% of any factored receivable and bears interest at one-month PRIBOR plus 0.95% per annum for the period that receivables are factored and outstanding.
Under a factoring framework agreement with Factoring KB, a.s., certain receivables in the Czech Republic may be factored on a non-recourse basis. The facility has a factoring fee of 0.11% of any factored receivable and bears interest at one-month PRIBOR plus 0.95% per annum for the period that receivables are factored and outstanding up to a maximum of 60 days from the due date.
Under a factoring framework agreement with Global Funds IFN S.A., receivables from certain customers in Romania may be factored on a non-recourse basis. The facility has a factoring fee of 4.0% of any factored receivable and bears interest at 6.0% per annum from the date the receivables are factored to the due date of the factored receivable.
As at June 30, 2020 and December 31, 2019, we had no outstanding liability balances on any of our factoring arrangements.
Finance Leases
For additional information on finance leases, see Note 10, "Leases".
5. PROGRAM RIGHTS
Program rights comprised the following at June 30, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
June 30, 2020
|
|
|
(As Adjusted)
|
|
|
Program rights:
|
|
|
|
|
Acquired program rights, net of amortization
|
$
|
127,025
|
|
|
$
|
135,352
|
|
|
Less: current portion of acquired program rights
|
—
|
|
|
(75,909
|
)
|
|
Total non-current acquired program rights
|
127,025
|
|
|
59,443
|
|
|
Produced program rights – Feature Films:
|
|
|
|
|
|
Released, net of amortization
|
417
|
|
|
504
|
|
|
Produced program rights – Television Programs:
|
|
|
|
|
|
|
Released, net of amortization
|
71,878
|
|
|
69,707
|
|
|
Completed and not released
|
13,389
|
|
|
4,061
|
|
|
In production
|
24,980
|
|
|
32,248
|
|
|
Development and pre-production
|
407
|
|
|
274
|
|
|
Total produced program rights
|
111,071
|
|
|
106,794
|
|
|
Total non-current acquired program rights and produced program rights
|
$
|
238,096
|
|
|
$
|
166,237
|
|
The Company identified and corrected an error in the above disclosure as at December 31, 2019 relating to the misclassification of certain completed and released content that had been disclosed as completed and not released (see Note 2, "Basis of Presentation").
As of June 30, 2020, expected amortization of our program rights is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
First year
|
|
|
Second year
|
|
|
Third year
|
|
|
Thereafter
|
|
|
Acquired program rights
|
$
|
64,901
|
|
|
$
|
43,679
|
|
|
$
|
16,836
|
|
|
$
|
1,609
|
|
|
Produced and released program rights
|
13,899
|
|
|
11,281
|
|
|
9,044
|
|
|
38,071
|
|
As of June 30, 2020, approximately US$ 8.6 million of the US$ 13.4 million of our completed and unreleased produced content is expected to be amortized in the next twelve months.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
Content costs for the three and six months ended June 30, 2020 and 2019 is comprised of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Purchased program rights amortization
|
$
|
19,013
|
|
|
$
|
21,472
|
|
|
$
|
43,765
|
|
|
$
|
47,984
|
|
|
Produced program rights amortization
|
23,844
|
|
|
47,279
|
|
|
62,918
|
|
|
89,543
|
|
|
Other content costs
|
836
|
|
|
1,605
|
|
|
2,042
|
|
|
3,189
|
|
|
Total content costs
|
$
|
43,693
|
|
|
$
|
70,356
|
|
|
$
|
108,725
|
|
|
$
|
140,716
|
|
6. OTHER ASSETS
Other current and non-current assets comprised the following at June 30, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
Current:
|
|
|
|
|
Prepaid acquired programming
|
$
|
21,996
|
|
|
$
|
27,237
|
|
|
Other prepaid expenses
|
9,746
|
|
|
12,775
|
|
|
VAT recoverable
|
719
|
|
|
7,775
|
|
|
Other
|
422
|
|
|
1,045
|
|
|
Total other current assets
|
$
|
32,883
|
|
|
$
|
48,832
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
Non-current:
|
|
|
|
|
|
|
Capitalized debt costs (Note 4)
|
$
|
6,157
|
|
|
$
|
7,277
|
|
|
Deferred tax
|
1,883
|
|
|
2,261
|
|
|
Operating lease right-of-use assets (Note 10)
|
11,940
|
|
|
11,682
|
|
|
Other
|
941
|
|
|
947
|
|
|
Total other non-current assets
|
$
|
20,921
|
|
|
$
|
22,167
|
|
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment comprised the following at June 30, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
Land and buildings
|
$
|
98,241
|
|
|
$
|
100,502
|
|
|
Machinery, fixtures and equipment
|
209,633
|
|
|
212,810
|
|
|
Other equipment
|
34,668
|
|
|
36,007
|
|
|
Software
|
68,902
|
|
|
70,294
|
|
|
Construction in progress
|
1,560
|
|
|
4,774
|
|
|
Total cost
|
413,004
|
|
|
424,387
|
|
|
Less: accumulated depreciation
|
(310,626
|
)
|
|
(310,486
|
)
|
|
Total net book value
|
$
|
102,378
|
|
|
$
|
113,901
|
|
|
|
|
|
|
|
Assets held under finance leases (included in the above)
|
|
|
|
|
|
|
Land and buildings
|
$
|
—
|
|
|
$
|
3,914
|
|
|
Machinery, fixtures and equipment
|
33,345
|
|
|
31,961
|
|
|
Total cost
|
33,345
|
|
|
35,875
|
|
|
Less: accumulated depreciation
|
(16,368
|
)
|
|
(15,799
|
)
|
|
Total net book value
|
$
|
16,977
|
|
|
$
|
20,076
|
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
The movement in the net book value of property, plant and equipment during the six months ended June 30, 2020 and 2019 was comprised of:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
2020
|
|
|
2019
|
|
|
Opening balance
|
$
|
113,901
|
|
|
$
|
117,604
|
|
|
Additions (1)
|
7,064
|
|
|
10,200
|
|
|
Disposals
|
(23
|
)
|
|
(2
|
)
|
|
Depreciation
|
(15,899
|
)
|
|
(16,380
|
)
|
|
Foreign currency movements
|
(2,665
|
)
|
|
(795
|
)
|
|
Ending balance
|
$
|
102,378
|
|
|
$
|
110,627
|
|
|
|
|
|
(1)
|
Includes assets acquired under finance leases. For additional information see Note 10, "Leases".
|
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities comprised the following at June 30, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
Accounts payable and accrued expenses
|
$
|
47,357
|
|
|
$
|
56,343
|
|
|
Related party accounts payable
|
128
|
|
|
267
|
|
|
Programming liabilities
|
17,889
|
|
|
17,293
|
|
|
Related party programming liabilities
|
11,714
|
|
|
10,553
|
|
|
Duties and other taxes payable
|
11,102
|
|
|
9,426
|
|
|
Accrued staff costs (1)
|
23,141
|
|
|
24,027
|
|
|
Accrued interest payable
|
2,075
|
|
|
2,104
|
|
|
Related party accrued interest payable (including Guarantee Fees)
|
1,084
|
|
|
1,103
|
|
|
Income taxes payable
|
11,094
|
|
|
10,304
|
|
|
Other accrued liabilities
|
5,329
|
|
|
4,230
|
|
|
Total accounts payable and accrued liabilities
|
$
|
130,913
|
|
|
$
|
135,650
|
|
(1) Includes certain retention bonuses related to the proposed Merger.
9. OTHER LIABILITIES
Other current and non-current liabilities comprised the following at June 30, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
Current:
|
|
|
|
|
Deferred revenue
|
$
|
24,114
|
|
|
$
|
9,451
|
|
|
Legal provisions
|
637
|
|
|
635
|
|
|
Derivative instruments (Note 11)
|
949
|
|
|
—
|
|
|
Operating lease liabilities (Note 10)
|
3,380
|
|
|
3,203
|
|
|
Other
|
200
|
|
|
226
|
|
|
Total other current liabilities
|
$
|
29,280
|
|
|
$
|
13,515
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
Non-current:
|
|
|
|
|
|
|
Deferred tax liabilities
|
$
|
23,062
|
|
|
$
|
21,294
|
|
|
Derivative instruments (Note 11)
|
11,326
|
|
|
12,670
|
|
|
Operating lease liabilities (Note 10)
|
8,503
|
|
|
8,434
|
|
|
Related party Guarantee Fee payable (Note 4)
|
33,465
|
|
|
33,465
|
|
|
Other
|
3,720
|
|
|
4,137
|
|
|
Total other non-current liabilities
|
$
|
80,076
|
|
|
$
|
80,000
|
|
During the three and six months ended June 30, 2020 and 2019, we recognized revenue of US$ 2.4 million and US$ 5.8 million, respectively; and US$ 2.8 million and US$ 5.6 million, respectively, which was deferred as at December 31, 2019 and 2018, respectively.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
10. LEASES
We enter into operating and finance leases for offices, production and related facilities, cars and certain other equipment. Our leases have remaining lease terms up to ten years.
The components of lease cost for the three and six months ended June 30, 2020 and 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Operating lease cost:
|
|
|
|
|
|
|
|
|
Short-term operating lease cost
|
$
|
545
|
|
|
$
|
1,128
|
|
|
$
|
1,691
|
|
|
$
|
2,812
|
|
|
Long-term operating lease cost
|
1,193
|
|
|
1,149
|
|
|
2,430
|
|
|
2,299
|
|
|
Total operating lease cost
|
$
|
1,738
|
|
|
$
|
2,277
|
|
|
$
|
4,121
|
|
|
$
|
5,111
|
|
|
|
|
|
|
|
|
|
|
|
Finance lease cost:
|
|
|
|
|
|
|
|
|
Amortization of right-of-use asset
|
$
|
1,625
|
|
|
$
|
1,464
|
|
|
$
|
3,213
|
|
|
$
|
2,719
|
|
|
Interest on lease liabilities
|
84
|
|
|
88
|
|
|
167
|
|
|
196
|
|
|
Total finance lease cost
|
$
|
1,709
|
|
|
$
|
1,552
|
|
|
$
|
3,380
|
|
|
$
|
2,915
|
|
The classification of cash flows related to our leases for the six months ended June 30, 2020 and 2019 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
2020
|
|
2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows from operating leases
|
$
|
2,322
|
|
|
$
|
2,749
|
|
|
Operating cash flows from finance leases
|
188
|
|
|
186
|
|
|
Financing cash flows from finance leases
|
3,918
|
|
|
3,395
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
|
|
|
Operating leases
|
$
|
2,169
|
|
|
$
|
2,607
|
|
|
Finance leases
|
1,599
|
|
|
2,746
|
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
Our assets and liabilities related to our leasing arrangements comprised the following at June 30, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
Operating Leases
|
|
|
|
|
Operating lease right-of-use-assets, gross
|
$
|
17,026
|
|
|
$
|
15,396
|
|
|
Accumulated amortization
|
(5,086
|
)
|
|
(3,714
|
)
|
|
Operating lease right-of-use-assets, net
|
$
|
11,940
|
|
|
$
|
11,682
|
|
|
|
|
|
|
|
Other current liabilities
|
$
|
3,380
|
|
|
$
|
3,203
|
|
|
Other non-current liabilities
|
8,503
|
|
|
8,434
|
|
|
Total operating lease liabilities
|
$
|
11,883
|
|
|
$
|
11,637
|
|
|
|
|
|
|
|
Finance Leases
|
|
|
|
|
Property, plant and equipment, gross
|
$
|
33,345
|
|
|
$
|
35,875
|
|
|
Accumulated depreciation
|
(16,368
|
)
|
|
(15,799
|
)
|
|
Property, plant and equipment, net
|
$
|
16,977
|
|
|
$
|
20,076
|
|
|
|
|
|
|
|
Current portion of long-term debt and other financing arrangements
|
$
|
6,952
|
|
|
$
|
6,836
|
|
|
Long-term debt and other financing arrangements
|
7,671
|
|
|
9,496
|
|
|
Total finance lease liabilities
|
$
|
14,623
|
|
|
$
|
16,332
|
|
|
|
|
|
|
|
Weighted Average Remaining Lease Term in Years
|
|
|
|
|
Operating leases
|
4.8
|
|
|
4.9
|
|
|
Finance leases
|
2.6
|
|
|
2.7
|
|
|
|
|
|
|
|
Weighted Average Discount Rate
|
|
|
|
|
Operating leases
|
4.8
|
%
|
|
4.7
|
%
|
|
Finance leases
|
2.0
|
%
|
|
2.1
|
%
|
Our lease liabilities had the following maturities at June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
|
Finance Leases
|
|
|
2020
|
$
|
2,849
|
|
|
$
|
3,739
|
|
|
2021
|
2,558
|
|
|
6,107
|
|
|
2022
|
2,476
|
|
|
3,392
|
|
|
2023
|
1,886
|
|
|
1,614
|
|
|
2024
|
1,345
|
|
|
160
|
|
|
2025 and thereafter
|
2,307
|
|
|
—
|
|
|
Total undiscounted payments
|
13,421
|
|
|
15,012
|
|
|
Less: amounts representing interest
|
(1,538
|
)
|
|
(389
|
)
|
|
Present value of net minimum lease payments
|
$
|
11,883
|
|
|
$
|
14,623
|
|
11. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
ASC 820, "Fair Value Measurements and Disclosure", establishes a hierarchy that prioritizes the inputs to those valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are:
Basis of Fair Value Measurement
|
|
|
|
Level 1
|
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted instruments.
|
|
|
|
|
Level 2
|
Quoted prices in markets that are not considered to be active or financial instruments for which all significant inputs are observable, either directly or indirectly.
|
|
|
|
|
Level 3
|
Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
|
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
We evaluate the position of each financial instrument measured at fair value in the hierarchy individually based on the valuation methodology we apply. The carrying amount of financial instruments, including cash and cash equivalents, accounts receivable, and accounts payable and accrued liabilities, approximate their fair value due to the short-term nature of these items. The fair value of our long-term debt is included in Note 4, "Long-term Debt and Other Financing Arrangements".
Hedging Activities
Cash Flow Hedges of Interest Rate Risk
We are party to interest rate swap agreements to mitigate our exposure to interest rate fluctuations on the outstanding principal amount of the Euro Loans. These interest rate swaps provide us with variable-rate cash receipts in exchange for fixed-rate payments over the lives of the agreements, with no exchange of the underlying notional amount. These instruments are carried at fair value on our condensed consolidated balance sheets as other current and other non-current liabilities based on their maturity.
We value the interest rate swap agreements using a valuation model which calculates the fair value on the basis of the net present value of the estimated future cash flows. The most significant input used in the valuation model is the expected EURIBOR-based yield curve. These instruments were allocated to Level 2 of the fair value hierarchy because the critical inputs to this model, including current interest rates, relevant yield curves and the known contractual terms of the instruments, were readily observable.
As at June 30, 2020 each instrument is designated as a cash flow hedge. All changes in the fair value of these instruments are recorded in accumulated other comprehensive income / loss and subsequently reclassified to interest expense when the hedged item affects earnings.
Information relating to financial instruments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade Date
|
|
Number of Contracts
|
|
|
Aggregate Notional Amount
|
|
|
Maturity Date
|
|
Objective
|
|
Fair Value as at June 30, 2020
|
|
|
April 5, 2016
|
|
5
|
|
|
EUR
|
468,800
|
|
|
February 19, 2021
|
|
Interest rate hedge underlying 2023 Euro Loan
|
|
$
|
(949
|
)
|
|
April 26, 2018
|
|
3
|
|
|
EUR
|
60,335
|
|
|
November 1, 2021
|
|
Interest rate hedge underlying 2021 Euro Loan
|
|
$
|
(427
|
)
|
|
April 26, 2018
|
|
4
|
|
|
EUR
|
468,800
|
|
|
April 26, 2023
|
|
Interest rate hedge underlying 2023 Euro Loan, forward starting on February 19, 2021
|
|
$
|
(10,899
|
)
|
12. CONVERTIBLE REDEEMABLE PREFERRED SHARES
200,000 shares of our Series B Convertible Redeemable Preferred Stock, par value US$ 0.08 per share (the “Series B Preferred Shares”) were issued and outstanding as at June 30, 2020 and December 31, 2019. The Series B Preferred Shares are held by Time Warner Media Holdings B.V. ("TW Investor"), a wholly owned subsidiary of AT&T. As at June 30, 2020 and December 31, 2019, the accreted value of the Series B Preferred Shares was US$ 269.4 million. The Series B Preferred Shares have a stated value of US$ 1,000 per share and no longer accrete subsequent to June 24, 2018. As of June 30, 2020, the 200,000 shares of Series B preferred stock were convertible into approximately 111.1 million shares of Class A common stock.
Pursuant to the Certificate of Designation of the Series B Preferred Shares, each Series B Preferred Share may, at the holder's option, be converted into the number of shares of our Class A common stock determined by dividing (i) the accreted stated value plus accrued but unpaid dividends, if any, in each case as of the conversion date, by (ii) the conversion price, which was approximately US$ 2.42 at June 30, 2020, but is subject to adjustment from time to time pursuant to customary weighted-average anti-dilution provisions with respect to our issuances of equity or equity-linked securities at a price below the then-applicable conversion price (excluding any securities issued under our benefit plans at or above fair market value). We have the right to redeem the Series B Preferred Shares in whole or in part upon 30 days' written notice. The redemption price of each outstanding Series B Preferred Share is equal to its accreted stated value plus accrued but unpaid dividends, if any, in each case as of the redemption date specified in the redemption notice. After receipt of a redemption notice, each holder of Series B Preferred Shares will have the right to convert, prior to the date of redemption, all or part of such Series B Preferred Shares to be redeemed by us into shares of our Class A common stock in accordance with the terms of conversion described above.
Holders of the Series B Preferred Shares have no voting rights on any matter presented to holders of any class of our capital stock, with the exception that they may vote with holders of shares of our Class A common stock (i) with respect to a change of control event or (ii) as provided by our Bye-laws or applicable Bermuda law. Holders of Series B Preferred Shares will participate in any dividends declared or paid on our Class A common stock on an as-converted basis. The Series B Preferred Shares will rank pari passu with our Series A Convertible Preferred Stock and senior to all other equity securities of the Company in respect of payment of dividends and distribution of assets upon liquidation. The Series B Preferred Shares have such other rights, powers and preferences as are set forth in the Certificate of Designation for the Series B Preferred Shares.
The Series B Preferred Shares are not considered a liability and the embedded conversion feature does not require bifurcation. The Series B Preferred Shares are classified outside of permanent equity at redemption value.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
13. EQUITY
Preferred Stock
5,000,000 shares of Preferred Stock were authorized as at June 30, 2020 and December 31, 2019.
One share of Series A Convertible Preferred Stock (the "Series A Preferred Share") was issued and outstanding as at June 30, 2020 and December 31, 2019. Pursuant to the Certificate of Designation of the Series A Preferred Share, 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.
200,000 shares of Series B Preferred Shares were issued and outstanding as at June 30, 2020 and December 31, 2019 (see Note 12, "Convertible Redeemable Preferred Shares"). As of June 30, 2020, the 200,000 Series B Preferred Shares were convertible into approximately 111.1 million shares of Class A common stock.
Class A and Class B Common Stock
440,000,000 shares of Class A common stock and 15,000,000 shares of Class B common stock were authorized as at June 30, 2020 and December 31, 2019. The rights of the holders of Class A common stock and Class B common stock are identical except for voting rights. The shares of Class A common stock are entitled to one vote per share and the shares of Class B common stock are entitled to ten votes per share. Shares of Class B common stock are convertible into shares of Class A common stock on a one-for-one basis for no additional consideration and automatically convert into shares of Class A common stock on a one-for-one basis when the number of shares of Class B common stock is less than 10% of the total number of shares of common stock outstanding. Holders of each class of shares are entitled to receive dividends and upon liquidation or dissolution are entitled to receive all assets available for distribution to holders of our common stock. Under our Bye-laws, the holders of each class have no pre-emptive or other subscription rights and there are no redemption or sinking fund provisions with respect to such shares.
There were 254.5 million and 253.6 million shares of Class A common stock outstanding at June 30, 2020 and December 31, 2019, respectively, and no shares of Class B common stock outstanding at June 30, 2020 or December 31, 2019.
As at June 30, 2020, TW Investor owns 63.8% of the outstanding shares of Class A common stock. In April 2018, Warner Media and TW Investor issued standing proxies to the independent directors of the Company, pursuant to which they granted the right to vote approximately 100.9 million shares of Class A common stock (the “Warrant Shares”) on all matters other than at any meeting where the agenda includes a change in control transaction. In accordance with these proxies, the Warrant Shares will be voted in proportion to votes cast at a general meeting of the Company, excluding such Warrant Shares. This proxy arrangement will remain in effect until April 2021. As a result of the standing proxies, after giving effect to its ownership of the Series A Preferred Share, TW Investor has a 44.1% voting interest in the Company.
Accumulated Other Comprehensive Loss
The movement in accumulated other comprehensive loss during the three and six months ended June 30, 2020 and 2019 comprised the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
BALANCE, beginning of period
|
$
|
(287,919
|
)
|
|
$
|
(235,961
|
)
|
|
$
|
(226,916
|
)
|
|
$
|
(216,650
|
)
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment, net
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
$
|
(275,178
|
)
|
|
$
|
(223,648
|
)
|
|
$
|
(213,955
|
)
|
|
$
|
(207,668
|
)
|
|
Foreign exchange gain / (loss) on intercompany loans (1)
|
5,180
|
|
|
2,868
|
|
|
(12,894
|
)
|
|
2,256
|
|
|
Foreign exchange gain / (loss) on the Series B Preferred Shares
|
5,884
|
|
|
3,455
|
|
|
(866
|
)
|
|
(1,651
|
)
|
|
Currency translation adjustments
|
14,672
|
|
|
10,770
|
|
|
(21,727
|
)
|
|
508
|
|
|
Balance, end of period
|
$
|
(249,442
|
)
|
|
$
|
(206,555
|
)
|
|
$
|
(249,442
|
)
|
|
$
|
(206,555
|
)
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on derivative instruments designated as hedging instruments
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
$
|
(12,741
|
)
|
|
$
|
(12,313
|
)
|
|
$
|
(12,961
|
)
|
|
$
|
(8,982
|
)
|
|
Change in the fair value of hedging instruments
|
(316
|
)
|
|
(1,700
|
)
|
|
(535
|
)
|
|
(5,402
|
)
|
|
Amounts reclassified from accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
Changes in fair value of hedging instruments reclassified to interest expense
|
438
|
|
|
480
|
|
|
877
|
|
|
851
|
|
|
Balance, end of period
|
$
|
(12,619
|
)
|
|
$
|
(13,533
|
)
|
|
$
|
(12,619
|
)
|
|
$
|
(13,533
|
)
|
|
|
|
|
|
|
|
|
|
|
BALANCE, end of period
|
$
|
(262,061
|
)
|
|
$
|
(220,088
|
)
|
|
$
|
(262,061
|
)
|
|
$
|
(220,088
|
)
|
|
|
|
|
(1)
|
Represents foreign exchange gains and losses on intercompany loans that are of a long-term investment nature and which are reported in the same manner as translation adjustments.
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
14. INTEREST EXPENSE
Interest expense comprised the following for the three and six months ended June 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Interest on long-term debt and other financing arrangements
|
$
|
4,934
|
|
|
$
|
6,882
|
|
|
$
|
10,708
|
|
|
$
|
14,250
|
|
|
Amortization of capitalized debt issuance costs
|
820
|
|
|
853
|
|
|
1,641
|
|
|
1,727
|
|
|
Total interest expense
|
$
|
5,754
|
|
|
$
|
7,735
|
|
|
$
|
12,349
|
|
|
$
|
15,977
|
|
We paid cash interest (including Guarantee Fees) of US$ 10.5 million and US$ 14.0 million during the six months ended June 30, 2020 and 2019, respectively.
15. OTHER NON-OPERATING INCOME / EXPENSE, NET
Other non-operating income / expense, net comprised the following for the three and six months ended June 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Interest income
|
$
|
151
|
|
|
$
|
115
|
|
|
$
|
293
|
|
|
$
|
267
|
|
|
Foreign currency exchange gain / (loss), net
|
7
|
|
|
2,155
|
|
|
(6,335
|
)
|
|
(922
|
)
|
|
Change in fair value of derivatives
|
—
|
|
|
—
|
|
|
—
|
|
|
(36
|
)
|
|
Loss on extinguishment of debt
|
—
|
|
|
(84
|
)
|
|
—
|
|
|
(235
|
)
|
|
Other income, net
|
170
|
|
|
51
|
|
|
234
|
|
|
66
|
|
|
Total other non-operating income / (expense), net
|
$
|
328
|
|
|
$
|
2,237
|
|
|
$
|
(5,808
|
)
|
|
$
|
(860
|
)
|
16. STOCK-BASED COMPENSATION
Our 2015 Stock Incentive Plan (the "2015 Plan") has 16,000,000 shares of Class A common stock authorized for grants of stock options, restricted stock units ("RSU"), restricted stock and stock appreciation rights to employees and non-employee directors. Under the 2015 Plan, awards are made to employees and directors at the discretion of the Compensation Committee.
For the three and six months ended June 30, 2020 and 2019, we recognized charges for stock-based compensation of US$ 0.8 million and US$ 1.7 million; and US$ 1.1 million and US$ 2.1 million respectively, as a component of selling, general and administrative expenses in our condensed 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. There was no option activity during the six months ended June 30, 2020. The summary of stock options outstanding as at June 30, 2020 and December 31, 2019 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted Average Exercise Price per Share
|
|
|
Weighted Average Remaining Contractual Term (years)
|
|
Aggregate Intrinsic Value
|
|
|
Outstanding at December 31, 2019
|
2,011,392
|
|
|
$
|
2.32
|
|
|
5.58
|
|
$
|
4,436
|
|
|
Outstanding and Exercisable at June 30, 2020
|
2,011,392
|
|
|
$
|
2.32
|
|
|
5.08
|
|
$
|
2,444
|
|
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 June 30, 2020, the maximum life of options that were issued under the 2015 Plan was ten years. Upon providing the appropriate written notification, holders pay the exercise price and receive shares. Shares delivered in respect of stock option exercises are newly issued shares.
The aggregate intrinsic value (the difference between the stock price on the last day of trading of the second quarter of 2020 and the exercise prices multiplied by the number of in-the-money options) represents the total intrinsic value that would have been received by the option holders had they exercised all in-the-money options as at June 30, 2020. This amount changes based on the fair value of our Class A common stock.
Restricted Stock Units with Time-Based Vesting
Each RSU represents a right to receive one share of Class A common stock of the Company for each RSU that vests in accordance with a time-based vesting schedule, generally between one to four years from the date of grant. Holders of RSU awards are not entitled to receive cash dividend equivalents prior to the vesting of awards and are not entitled to vote shares underlying awards.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
The following table summarizes information about unvested RSUs as at June 30, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares / Units
|
|
|
Weighted Average
Grant Date
Fair Value
|
|
|
Unvested at December 31, 2019
|
2,332,681
|
|
|
$
|
3.69
|
|
|
Vested
|
(994,270
|
)
|
|
3.58
|
|
|
Unvested at June 30, 2020
|
1,338,411
|
|
|
$
|
3.77
|
|
The intrinsic value of unvested RSUs was US$ 4.7 million as at June 30, 2020. Total unrecognized compensation cost related to unvested RSUs as at June 30, 2020 was US$ 4.3 million and is expected to be recognized over a weighted-average period of 2.07 years.
Restricted Stock Units with Performance Conditions
Each RSU with performance conditions (“PRSU”) represents a right to receive one share of Class A common stock of the Company for each PRSU that vests in accordance with a performance-based vesting schedule. The performance-based vesting schedule sets forth specified objectives for unlevered free cash flow and OIBDA over defined periods and by defined dates. Holders of PRSU awards are not entitled to receive cash dividend equivalents prior to the vesting of awards and are not entitled to vote shares underlying awards.
Vesting of the currently outstanding PRSUs is subject to the achievement of cumulative unlevered free cash flow and OIBDA targets corresponding to two, three or four-year performance periods ending December 31, 2020, 2021 and 2022, respectively. The maximum number of PRSUs that may be earned is 200% of the corresponding target. At June 30, 2020 and December 31, 2019 there were 501,572 unvested shares with a weighted-average grant date fair value of US$ 3.19. During the three and six months ended June 30, 2020 there were no new PRSU awards granted or vested.
The intrinsic value of unvested PRSUs was US$ 1.8 million as at June 30, 2020. Total unrecognized compensation cost related to unvested PRSUs as at June 30, 2020 was US$ 1.3 million of which US$ 0.1 million is related to performance targets currently considered probable of being achieved and will be recognized over a period of less than one year.
17. EARNINGS PER SHARE
We determined that the Series B Preferred Shares are a participating security, and accordingly, our basic and diluted net income / loss per share is calculated using the two-class method. Under the two-class method, basic net income / loss per common share is computed by dividing the net income available to common shareholders after deducting contractual amounts of accretion on our Series B Preferred Shares and the income allocated to these shares by the weighted-average number of common shares outstanding during the period. Diluted net income / loss per share is computed by dividing the adjusted net income by the weighted-average number of dilutive shares outstanding during the period after adjusting for the impact of those dilutive shares on the allocation of income to the Series B Preferred Shares.
The components of basic and diluted earnings per share are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Income from operations
|
$
|
31,102
|
|
|
$
|
44,078
|
|
|
$
|
40,072
|
|
|
$
|
55,829
|
|
|
Net loss / (income) attributable to noncontrolling interests
|
77
|
|
|
(119
|
)
|
|
148
|
|
|
(112
|
)
|
|
Less: income allocated to Series B Preferred Shares
|
(9,197
|
)
|
|
(13,003
|
)
|
|
(11,873
|
)
|
|
(16,490
|
)
|
|
Net income attributable to CME Ltd. available to common shareholders — basic
|
21,982
|
|
|
30,956
|
|
|
28,347
|
|
|
39,227
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
Dilutive effect of RSUs and employee stock options
|
27
|
|
|
47
|
|
|
45
|
|
|
54
|
|
|
Net income attributable to CME Ltd. available to common shareholders — diluted
|
$
|
22,009
|
|
|
$
|
31,003
|
|
|
$
|
28,392
|
|
|
$
|
39,281
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average outstanding shares of common stock — basic (1)
|
265,649
|
|
|
264,570
|
|
|
265,342
|
|
|
264,385
|
|
|
Dilutive effect of employee stock options and RSUs
|
1,127
|
|
|
1,362
|
|
|
1,448
|
|
|
1,243
|
|
|
Weighted average outstanding shares of common stock — diluted
|
266,776
|
|
|
265,932
|
|
|
266,790
|
|
|
265,628
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
Attributable to CME Ltd. — basic
|
$
|
0.08
|
|
|
$
|
0.12
|
|
|
$
|
0.11
|
|
|
$
|
0.15
|
|
|
Attributable to CME Ltd. — diluted
|
0.08
|
|
|
0.12
|
|
|
0.11
|
|
|
0.15
|
|
|
|
|
|
(1)
|
For the purpose of computing basic earnings per share, the 11,211,449 shares of Class A common stock underlying the Series A Preferred Share are included in the weighted average outstanding shares of common stock - basic, because the rights of the Series A Preferred Share are considered substantially similar to that of our Class A common stock.
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
Weighted-average equity awards and convertible shares are excluded from the calculation of diluted earnings per share if their effect would be anti-dilutive. The following instruments were anti-dilutive for the periods presented but may be dilutive in future periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
RSUs
|
836
|
|
|
1,233
|
|
|
836
|
|
|
1,233
|
|
|
Total
|
836
|
|
|
1,233
|
|
|
836
|
|
|
1,233
|
|
18. SEGMENT DATA
We manage our business on a geographical basis, with five operating segments: Bulgaria, the Czech Republic, Romania, the Slovak Republic and Slovenia, which are also our reportable segments and our main operating countries. These segments reflect how CME Ltd.’s operating performance is evaluated by our chief operating decision makers, who we have identified as our co-Chief Executive Officers; how operations are managed by segment managers; and the structure of our internal financial reporting.
Our segments generate revenues primarily from the sale of advertising and sponsorship on our channels and digital properties. This is supplemented by revenues from cable and satellite television service providers that carry our channels on their platforms and from revenues through the sale of distribution rights to third parties. We do not rely on any single major customer or group of major customers. Intersegment revenues and profits have been eliminated in consolidation.
We evaluate our consolidated results and the performance of our segments based on net revenues and OIBDA (as defined below). We believe OIBDA is useful to investors because it provides a meaningful representation of our performance as it excludes certain items that either do not impact our cash flows or do not impact the operating results of our operations. OIBDA is also used as a component in determining management bonuses.
OIBDA includes amortization and impairment of program rights and is calculated as operating income / loss before depreciation, amortization of intangible assets, impairments of assets and certain unusual or infrequent items that are not considered by our chief operating decision makers when evaluating our performance.
Below are tables showing our net revenues, OIBDA, total assets, capital expenditures and long-lived assets by segment for the three and six months ended June 30, 2020 and 2019 for condensed consolidated statements of operations and comprehensive income / loss data and condensed consolidated statements of cash flow data; and as at June 30, 2020 and December 31, 2019 for condensed consolidated balance sheet data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues:
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Bulgaria
|
$
|
15,276
|
|
|
$
|
22,607
|
|
|
$
|
32,231
|
|
|
$
|
41,900
|
|
|
Czech Republic
|
45,886
|
|
|
64,379
|
|
|
95,101
|
|
|
114,695
|
|
|
Romania
|
37,197
|
|
|
48,362
|
|
|
76,712
|
|
|
87,172
|
|
|
Slovak Republic
|
21,085
|
|
|
27,313
|
|
|
43,244
|
|
|
48,645
|
|
|
Slovenia
|
17,094
|
|
|
22,276
|
|
|
33,828
|
|
|
40,126
|
|
|
Intersegment revenues (1)
|
(993
|
)
|
|
(1,338
|
)
|
|
(1,755
|
)
|
|
(2,380
|
)
|
|
Total net revenues
|
$
|
135,545
|
|
|
$
|
183,599
|
|
|
$
|
279,361
|
|
|
$
|
330,158
|
|
|
|
|
|
(1)
|
Reflects revenues earned from the sale of content to other country segments in CME Ltd. All other revenues are third party revenues.
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDA:
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Bulgaria
|
$
|
4,462
|
|
|
$
|
7,888
|
|
|
$
|
9,280
|
|
|
$
|
14,009
|
|
|
Czech Republic
|
20,870
|
|
|
32,293
|
|
|
36,820
|
|
|
47,240
|
|
|
Romania
|
18,769
|
|
|
25,243
|
|
|
33,833
|
|
|
42,776
|
|
|
Slovak Republic
|
8,836
|
|
|
8,555
|
|
|
12,781
|
|
|
10,284
|
|
|
Slovenia
|
7,149
|
|
|
6,213
|
|
|
12,011
|
|
|
11,144
|
|
|
Elimination
|
9
|
|
|
(24
|
)
|
|
6
|
|
|
24
|
|
|
Total operating segments
|
60,095
|
|
|
80,168
|
|
|
104,731
|
|
|
125,477
|
|
|
Corporate
|
(5,586
|
)
|
|
(6,826
|
)
|
|
(13,051
|
)
|
|
(14,078
|
)
|
|
Total OIBDA
|
54,509
|
|
|
73,342
|
|
|
91,680
|
|
|
111,399
|
|
|
Depreciation of property, plant and equipment
|
(7,972
|
)
|
|
(8,154
|
)
|
|
(15,899
|
)
|
|
(16,380
|
)
|
|
Amortization of broadcast licenses and other intangibles
|
(2,110
|
)
|
|
(2,113
|
)
|
|
(4,277
|
)
|
|
(4,307
|
)
|
|
Other items (1)
|
(253
|
)
|
|
(2,613
|
)
|
|
(1,133
|
)
|
|
(2,613
|
)
|
|
Operating income
|
44,174
|
|
|
60,462
|
|
|
70,371
|
|
|
88,099
|
|
|
Interest expense (Note 14)
|
(5,754
|
)
|
|
(7,735
|
)
|
|
(12,349
|
)
|
|
(15,977
|
)
|
|
Other non-operating income / (expense), net (Note 15)
|
328
|
|
|
2,237
|
|
|
(5,808
|
)
|
|
(860
|
)
|
|
Income before tax
|
$
|
38,748
|
|
|
$
|
54,964
|
|
|
$
|
52,214
|
|
|
$
|
71,262
|
|
|
|
|
|
(1)
|
Other items during the three and six months ended June 30, 2020 reflects costs relating to the Merger, primarily legal and professional fees.
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets: (1)
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
Bulgaria
|
$
|
139,415
|
|
|
$
|
135,593
|
|
|
Czech Republic
|
713,393
|
|
|
758,479
|
|
|
Romania
|
263,696
|
|
|
289,968
|
|
|
Slovak Republic
|
141,352
|
|
|
150,806
|
|
|
Slovenia
|
81,702
|
|
|
92,144
|
|
|
Total operating segments
|
1,339,558
|
|
|
1,426,990
|
|
|
Corporate
|
122,984
|
|
|
20,872
|
|
|
Total assets
|
$
|
1,462,542
|
|
|
$
|
1,447,862
|
|
|
|
|
|
(1)
|
Segment assets exclude any intercompany balances.
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
For the Six Months Ended June 30,
|
|
|
2020
|
|
|
2019
|
|
|
Bulgaria
|
$
|
1,518
|
|
|
$
|
1,635
|
|
|
Czech Republic
|
3,608
|
|
|
3,072
|
|
|
Romania
|
1,483
|
|
|
1,033
|
|
|
Slovak Republic
|
720
|
|
|
442
|
|
|
Slovenia
|
1,394
|
|
|
1,912
|
|
|
Total operating segments
|
8,723
|
|
|
8,094
|
|
|
Corporate
|
36
|
|
|
178
|
|
|
Total capital expenditures
|
$
|
8,759
|
|
|
$
|
8,272
|
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets: (1)
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
Bulgaria
|
$
|
11,865
|
|
|
$
|
13,538
|
|
|
Czech Republic
|
32,142
|
|
|
36,760
|
|
|
Romania
|
29,300
|
|
|
31,115
|
|
|
Slovak Republic
|
14,819
|
|
|
16,201
|
|
|
Slovenia
|
13,740
|
|
|
15,207
|
|
|
Total operating segments
|
101,866
|
|
|
112,821
|
|
|
Corporate
|
512
|
|
|
1,080
|
|
|
Total long-lived assets
|
$
|
102,378
|
|
|
$
|
113,901
|
|
|
|
|
|
(1)
|
Reflects property, plant and equipment, net.
|
Revenues from contracts with customers comprised the following for the three and six months ended June 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenue by type:
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Television advertising
|
$
|
98,755
|
|
|
$
|
147,184
|
|
|
$
|
205,210
|
|
|
$
|
258,231
|
|
|
Carriage fees and subscriptions
|
31,510
|
|
|
29,239
|
|
|
63,094
|
|
|
58,789
|
|
|
Other
|
5,280
|
|
|
7,176
|
|
|
11,057
|
|
|
13,138
|
|
|
Total net revenues
|
$
|
135,545
|
|
|
$
|
183,599
|
|
|
$
|
279,361
|
|
|
$
|
330,158
|
|
Management reviews the performance of our operations based on the above revenue types as well as on a geographic basis as described above. Management does not review other disaggregations of revenues from contracts with customers.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
19. COMMITMENTS AND CONTINGENCIES
Commitments
Programming Rights Agreements and Other Commitments
At June 30, 2020, we had total commitments of US$ 79.2 million (December 31, 2019: US$ 103.5 million) in respect of future programming, including contracts signed with license periods starting after the balance sheet date. In addition, we have digital transmission obligations and other commitments as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Programming purchase obligations
|
|
|
Other commitments
|
|
|
Capital expenditures
|
|
|
2020
|
$
|
17,299
|
|
|
$
|
8,039
|
|
|
$
|
713
|
|
|
2021
|
20,494
|
|
|
5,990
|
|
|
32
|
|
|
2022
|
19,074
|
|
|
5,748
|
|
|
32
|
|
|
2023
|
13,293
|
|
|
5,393
|
|
|
—
|
|
|
2024
|
6,264
|
|
|
—
|
|
|
—
|
|
|
2025 and thereafter
|
2,768
|
|
|
—
|
|
|
—
|
|
|
Total
|
$
|
79,192
|
|
|
$
|
25,170
|
|
|
$
|
777
|
|
Contingencies
Litigation
We are from time to time party to legal proceedings, arbitrations and regulatory proceedings arising in the normal course of our business operations, including the proceeding described below. We evaluate, on a quarterly basis, developments in such matters and provide accruals for such matters, as appropriate. In making such decisions, we consider the degree of probability of an unfavorable outcome and our ability to make a reasonable estimate of the amount of a loss. An unfavorable outcome in any such proceedings, if material, could have an adverse effect on our business or condensed consolidated financial statements.
In the fourth quarter of 2016, our Slovak subsidiary MARKIZA-SLOVAKIA, spol. s.r.o. ("Markiza") was notified of claims that were filed in June 2016 in a court of first instance in Bratislava, the Slovak Republic to collect amounts allegedly owing under four promissory notes that have a collective face value of approximately EUR 69.0 million. These four promissory notes were purportedly issued in June 2000 by Pavol Rusko in his personal capacity and were purportedly guaranteed by Markiza under the signature of Mr. Rusko, who was an executive director of Markiza at that time as well as one of its shareholders. Two of the notes purport to be issued in favor of Marian Kocner, a controversial Slovak businessman, and the other two to a long-time associate of Mr. Kocner. All four notes were supposedly assigned several times, for no apparent consideration, to companies owned by or associated with Mr. Kocner and ultimately to Sprava a inkaso zmeniek, s.r.o., a company owned by Mr. Kocner that initiated the claims for payment in these proceedings.
Two of the notes, each of which purportedly has a face value of approximately EUR 8.3 million, allegedly matured in 2015. The other two notes, which were purportedly issued in blank, had the amount of approximately EUR 26.2 million inserted on each of them by Mr. Kocner or someone associated with him in mid-2016, shortly before their alleged maturity. The four notes accrue interest from their purported maturity dates. We do not believe that the notes were signed in June 2000 or that any of the notes are authentic.
During the first quarter of 2018, the court of first instance began to schedule hearings in respect of the first promissory note having a face value of approximately EUR 8.3 million (the "First PN Case"), the second promissory note having a face value of approximately EUR 8.3 million (the "Second PN Case") and one of the promissory notes having a face value of approximately EUR 26.2 million (the "Third PN Case"). Proceedings on the claim in respect of the other promissory note having a face value of approximately EUR 26.2 million (the "Fourth PN Case") were terminated on two separate occasions in 2017 because the plaintiff failed to pay the required court fees.
On April 26, 2018, the judge in the First PN Case ruled in favor of the plaintiff. Markiza appealed that decision.
On May 14, 2018, Markiza filed a criminal complaint with the Special Prosecutor's Office of the Slovak Republic (the "Special Prosecutor’s Office") alleging that Mr. Kocner and Mr. Rusko committed the offenses of (1) counterfeiting, falsification, and illegal production of money and securities and (2) obstruction or perversion of justice. Following the opening of criminal proceedings in the matter, the Special Prosecutor’s Office issued a decision on June 20, 2018 to formally charge Mr. Kocner and Mr. Rusko with counterfeiting, falsification and illegal production of securities and obstruction of justice and Mr. Kocner was taken into pre-trial custody by the Slovak authorities. Subsequently, the Special Prosecutor’s Office charged Mr. Kocner’s long-time associate, who received two of the alleged promissory notes as the original beneficial owner and purported to endorse those notes to a company controlled by Mr. Kocner, with counterfeiting, falsification, and illegal production of money and securities.
Proceedings were subsequently suspended in respect of the First PN Case by the appellate court and by the court of first instance in the remaining cases (including the Fourth PN Case which the plaintiff refiled in May 2019 and paid the required court fees) until a final and enforceable decision has been rendered in the criminal proceedings.
Following the conclusion of the pre-trial investigation, the Special Prosecutor’s Office formally indicted Mr. Kocner and Mr. Rusko on March 19, 2019 with counterfeiting, falsification, and illegal production of securities and obstruction of justice and filed the indictment with the Special Criminal Court of the Slovak Republic.
On February 27, 2020, following the conclusion of criminal proceedings, the Special Criminal Court found Mr. Kocner and Mr. Rusko guilty of the crimes charged and sentenced each of them to 19 years in prison. Both Mr. Kocner and Mr. Rusko have appealed the sentence to the Supreme Court of the Slovak Republic and the Special Prosecutor’s Office has filed an appeal in respect of the length of the sentence as well as the ruling on the forfeiture of property by Mr. Kocner.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)
Markiza will continue to vigorously defend the claims in the event any of the civil proceedings are not dismissed as a result of the successful conclusion of the criminal proceedings.
Based on the facts and circumstances of these cases, we have not accrued any amounts in respect of these claims.
20. RELATED PARTY TRANSACTIONS
We consider our related parties to be our officers, directors and shareholders who have direct control and/or influence over the Company as well as other parties that can significantly influence management. We have identified transactions with individuals or entities associated with AT&T, which is represented on our Board of Directors and holds a 44.1% voting interest in CME Ltd. (see Note 13, "Equity") as at June 30, 2020, as material related party transactions.
AT&T
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Cost of revenues
|
$
|
4,697
|
|
|
$
|
4,659
|
|
|
$
|
10,330
|
|
|
$
|
9,635
|
|
|
Interest expense
|
3,776
|
|
|
4,615
|
|
|
7,558
|
|
|
9,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
Programming liabilities
|
$
|
11,714
|
|
|
$
|
10,553
|
|
|
Other accounts payable and accrued liabilities
|
128
|
|
|
267
|
|
|
Accrued interest payable (1)
|
1,084
|
|
|
1,103
|
|
|
Other non-current liabilities (2)
|
33,465
|
|
|
33,465
|
|
|
|
|
|
(1)
|
Amount represents accrued Guarantee Fees which are not due. See Note 4, "Long-term Debt and Other Financing Arrangements".
|
|
|
|
|
(2)
|
Amount represents Guarantee Fees related to the 2023 Euro Loan for which we had previously made an election to pay in kind.
|
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following defined terms are used in this Quarterly Report on Form 10-Q:
|
|
|
|
•
|
"2021 Euro Loan" refers to our floating rate senior unsecured term credit facility due November 1, 2021, guaranteed by Warner Media (as defined below), dated as of September 30, 2015, as amended on February 19, 2016, June 22, 2017 and April 25, 2018;
|
|
|
|
|
•
|
"2023 Euro Loan" refers to our floating rate senior unsecured term credit facility due April 26, 2023, entered into by CME BV (as defined below), guaranteed by Warner Media and CME Ltd., dated as of February 19, 2016, as amended on June 22, 2017 and April 25, 2018;
|
|
|
|
|
•
|
"Euro Loans" refers collectively to the 2021 Euro Loan and 2023 Euro Loan;
|
|
|
|
|
•
|
"2023 Revolving Credit Facility" refers to our revolving credit facility due April 26, 2023, dated as of May 2, 2014, as amended and restated as of February 19, 2016, and as further amended and restated on April 25, 2018;
|
|
|
|
|
•
|
"Guarantee Fees" refers to amounts accrued and payable to Warner Media as consideration for Warner Media's guarantees of the Euro Loans;
|
|
|
|
|
•
|
"Reimbursement Agreement" refers to our reimbursement agreement with Warner Media which provides that we will reimburse Warner Media for any amounts paid by them under any guarantee or through any loan purchase right exercised by Warner Media, dated as of November 14, 2014, as amended and restated on February 19, 2016, and as further amended and restated on April 25, 2018;
|
|
|
|
|
•
|
"CME BV" refers to CME Media Enterprises B.V., our 100% owned subsidiary;
|
|
|
|
|
•
|
"AT&T" refers to AT&T, Inc.;
|
|
|
|
|
•
|
"Warner Media" refers to Warner Media, LLC. (formerly Time Warner, Inc.), a wholly owned subsidiary of AT&T;
|
|
|
|
|
•
|
"TW Investor" refers to Time Warner Media Holdings B.V., a wholly owned subsidiary of Warner Media;
|
|
|
|
|
•
|
"Merger" refers to the merger of Merger Sub (as defined below) with and into the Company pursuant to the Merger Agreement (as defined below);
|
|
|
|
|
•
|
"Merger Agreement" refers to the agreement and plan of merger dated October 27, 2019 by and among the Company, Parent (as defined below) and Merger Sub (as defined below);
|
|
|
|
|
•
|
"Merger Sub" refers TV Bermuda Ltd., a Bermuda exempted company limited by shares and a wholly-owned subsidiary of Parent (as defined below);
|
|
|
|
|
•
|
"Parent" refers TV Bidco B.V., a Netherlands private limited liability company; and
|
|
|
|
|
•
|
"PPF" refers PPF Group N.V., a Netherlands public limited liability company.
|
The exchange rates used in this report are as at June 30, 2020, unless otherwise indicated.
Please note that we may announce information using SEC filings, press releases, public conference calls, webcasts and posts to the "Investors" section of our website, www.cme.net. We intend to continue to use these channels to communicate important information about CME Ltd. and our operations. We encourage investors, the media, our customers and others interested in the Company to review the information we post at www.cme.net.
I. Forward-looking Statements
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 22E of the Securities Exchange Act of 1934 (the "Exchange Act"), including those relating to our capital needs, business strategy, expectations and intentions. Statements that use the terms "believe", "anticipate", "trend", "expect", "plan", "estimate", "forecast", "should", "intend" and similar expressions of a future or forward-looking nature identify forward-looking statements for purposes of the U.S. federal securities laws or otherwise. In particular, information appearing under the sections entitled "Business," "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" includes forward looking-statements. For these statements and all other forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy or are otherwise beyond our control and some of which might not even be anticipated. Forward-looking statements reflect our current views with respect to future events and because our business is subject to such risks and uncertainties, actual results, our strategic plan, our financial position, results of operations and cash flows could differ materially from those described in or contemplated by the forward-looking statements contained in this report.
Important factors that contribute to such risks include, but are not limited to, those factors set forth under "Risk Factors” as well as the following: the effect of the ongoing COVID-19 pandemic and actions taken by governmental authorities in response to the pandemic; the effect of the proposed Merger on our business; the risks that the closing conditions to the proposed Merger may not be satisfied or that necessary governmental approvals are not obtained or are obtained with conditions; the impact of any failure to complete the proposed Merger on our business; the effect of changes in global and regional economic conditions; the effect of the quantitative easing programs and the stability mechanism implemented by the European Central Bank on our business; the economic, political and monetary impacts of Brexit; levels of television advertising spending and the rate of development of the advertising markets in the countries in which we operate; our ability to refinance our existing indebtedness; the extent to which our debt service obligations and covenants may restrict our business; our exposure to additional tax liabilities as well as liabilities resulting from regulatory or legal proceedings initiated against us; our success in continuing our initiatives to diversify and enhance our revenue streams; our ability to make cost-effective investments in our television businesses, including investments in programming; our ability to develop and acquire necessary programming and attract audiences; and changes in the political and regulatory environments where we operate and in the application of relevant laws and regulations.
The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included in this report. All forward-looking statements speak only as of the date of this report. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments or otherwise, except as required by law.
II. Overview
Central European Media Enterprises Ltd. ("CME Ltd.") is a media and entertainment company operating mainly in five countries in Central and Eastern Europe. We manage our business on a geographical basis, with five operating segments: Bulgaria, the Czech Republic, Romania, the Slovak Republic and Slovenia, which are also our reportable segments. These operating segments reflect how CME Ltd.’s operating performance is evaluated by our chief operating decision makers, who we have identified as our co-Chief Executive Officers, how our operations are managed by segment managers, and the structure of our internal financial reporting.
On October 27, 2019, the Company entered into the Merger Agreement with Parent and Merger Sub, pursuant to which Merger Sub will merge with and into the Company, with the Company continuing as the surviving company in the proposed Merger as a wholly-owned subsidiary of Parent. The closing of the proposed Merger is subject to several conditions, including, but not limited to, the requisite vote of the Company’s shareholders in favor of the Merger Agreement and the proposed Merger, the receipt of certain competition and other regulatory approvals, compliance with covenants and agreements in the Merger Agreement (subject to certain materiality qualifications) and the absence of any governmental order prohibiting completion of the proposed Merger. A special general meeting of shareholders of the Company was held on February 27, 2020, where more than 99% of the votes cast by shareholders were in favor of approving the Merger Agreement, the related statutory merger agreement and the Merger. In addition, regulatory approvals required under the Merger Agreement in Romania and Slovenia have been obtained. For additional information on the Merger, please see the proxy statement of the Company related to the special general meeting of shareholders, filed with the SEC on January 10, 2020. Parent is currently expecting to file the required notification with the European Commission in the third quarter, and based on our expected timing of that, we expect the proposed Merger to be completed prior to October 27, 2020.
Non-GAAP Financial Measures
In this report we refer to several non-GAAP financial measures, including OIBDA, OIBDA margin, free cash flow and unlevered free cash flow. We believe that each of these metrics is useful to investors for the reasons outlined below. Non-GAAP financial measures may not be comparable to similar measures reported by other companies. Non-GAAP financial measures should be evaluated in conjunction with, and are not a substitute for, US GAAP financial measures.
We evaluate our consolidated results and the performance of our segments based on net revenues and OIBDA. We believe OIBDA is useful to investors because it provides a meaningful representation of our performance, as it excludes certain items that do not impact either our cash flows or the operating results of our operations. OIBDA and unlevered free cash flow are also used as components in determining management bonuses.
OIBDA includes amortization and impairment of program rights and is calculated as operating income / loss before depreciation, amortization of intangible assets and impairments of assets and certain unusual or infrequent items that are not considered by our co-Chief Executive Officers when evaluating our performance. Our key performance measure of the efficiency of our consolidated operations and our segments is OIBDA margin. We define OIBDA margin as the ratio of OIBDA to net revenues.
Following a repricing of our Guarantee Fees in March 2017 and April 2018, we pay interest and related Guarantee Fees on our outstanding indebtedness in cash. In addition to this obligation to pay Guarantee Fees in cash, we expect to use cash generated by the business to pay certain Guarantee Fees that were previously paid in kind. These cash payments are all reflected in free cash flow; accordingly, we believe unlevered free cash flow, defined as free cash flow before cash payments for interest and Guarantee Fees, best illustrates the cash generated by our operations when comparing periods. We define free cash flow as net cash generated from continuing operating activities less purchases of property, plant and equipment, net of disposals of property, plant and equipment and excluding the cash impact of certain unusual or infrequent items that are not included in costs charged in arriving at OIBDA because they are not considered by our co-Chief Executive Officers when evaluating performance.
For additional information regarding our business segments, including a reconciliation of OIBDA to US GAAP financial measures, see Item 1, Note 18, "Segment Data". For a reconciliation of free cash flow and unlevered free cash flow to US GAAP financial measures, see "Free Cash Flow and Unlevered Free Cash Flow" below.
While our reporting currency is the dollar, our consolidated revenues and costs are divided across a range of European currencies and CME Ltd.’s functional currency is the Euro. Given the significant movement of the currencies in the markets in which we operate against the dollar, we believe that it is useful to provide percentage movements based on actual percentage movements (“% Act”), which includes the effect of foreign exchange, as well as like-for-like percentage movements (“% Lfl”) on a constant currency basis. The like-for-like percentage movement references reflect the impact of applying the current period average exchange rates to the prior period revenues and costs. Since the difference between like-for-like and actual percentage movements is solely the impact of movements in foreign exchange rates, our discussion in the following analysis is focused on constant currency percentage movements in order to highlight those factors influencing operational performance. The incremental impact of foreign exchange rates is presented in the tables preceding such analysis. Unless otherwise stated, all percentage increases or decreases in the following analysis refer to year-on-year percentage changes between the three and six months ended June 30, 2020 and 2019.
Executive Summary
The following table provides a summary of our consolidated results of our continuing operations for the three and six months ended June 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, (US$ 000's)
|
|
For the Six Months Ended June 30, (US$ 000's)
|
|
|
|
|
|
|
Movement
|
|
|
|
|
|
Movement
|
|
|
2020
|
|
|
2019
|
|
|
% Act
|
|
|
% Lfl
|
|
|
2020
|
|
|
2019
|
|
|
% Act
|
|
|
% Lfl
|
|
|
Net revenues
|
$
|
135,545
|
|
|
$
|
183,599
|
|
|
(26.2
|
)%
|
|
(23.2
|
)%
|
|
$
|
279,361
|
|
|
$
|
330,158
|
|
|
(15.4
|
)%
|
|
(12.1
|
)%
|
|
Operating income
|
44,174
|
|
|
60,462
|
|
|
(26.9
|
)%
|
|
(23.8
|
)%
|
|
70,371
|
|
|
88,099
|
|
|
(20.1
|
)%
|
|
(16.5
|
)%
|
|
Operating margin
|
32.6
|
%
|
|
32.9
|
%
|
|
(0.3) p.p.
|
|
|
(0.2) p.p.
|
|
|
25.2
|
%
|
|
26.7
|
%
|
|
(1.5) p.p.
|
|
|
(1.3) p.p.
|
|
|
OIBDA
|
$
|
54,509
|
|
|
$
|
73,342
|
|
|
(25.7
|
)%
|
|
(22.5
|
)%
|
|
$
|
91,680
|
|
|
$
|
111,399
|
|
|
(17.7
|
)%
|
|
(14.1
|
)%
|
|
OIBDA margin
|
40.2
|
%
|
|
39.9
|
%
|
|
0.3 p.p.
|
|
|
0.3 p.p.
|
|
|
32.8
|
%
|
|
33.7
|
%
|
|
(0.9) p.p.
|
|
|
(0.8) p.p.
|
|
Our consolidated net revenues decreased at actual and constant rates in the three and six months ended June 30, 2020, compared to the corresponding periods in 2019. This was due to declines in television advertising revenues of 30% and 17% at constant rates in the three and six months ended June 30, 2020, respectively, which was partially offset by increases in carriage fees and subscription revenues of 11% at constant rates in both the quarter- and year-to-date periods. Television advertising spending overall in the markets in which we operate decreased an estimated 17% at constant rates in the first six months of 2020 compared to 2019 due to lower demand for advertising, as clients reduced, postponed, or canceled their advertising campaigns in response to restrictive measures imposed in March to address the COVID-19 pandemic and the resulting economic uncertainty. These declines were partially offset by higher demand for advertising in the first two months of 2020 compared to the same period in 2019 in our three largest markets. Across all markets, the decline in ad spending was more significant in the months of April and May, with spending beginning to recover in June in connection with the lifting of restrictive measures in our markets and the resumption of economic activity that had been suspended earlier in the quarter. Carriage fees and subscriptions revenue increased on a constant currency basis in the quarter- and year-to-date periods due to an increase in both overall prices and the number of subscribers.
Costs charged in arriving at OIBDA in the second quarter of 2020 decreased 27% at actual rates and 24% at constant rates compared to the corresponding period in 2019, due primarily to savings from content costs, which decreased 36% at constant rates. The spring schedule in each of our country segments was adjusted in response to the COVID-19 pandemic to utilize more of our existing program library, as well as foreign acquired content and news programming that was more cost effective, which replaced premier episodes of local fiction and entertainment, including productions that we were required to temporarily suspend. In addition, virtually all live sporting events in the quarter were postponed, and as a result there were fewer costs from sports rights in the period. Costs charged in arriving at OIBDA in the first half of 2020 decreased 11% at constant rates, as savings in the second quarter were partially offset by an increase of 2% at constant rates in the first three months of the year, which was driven by the reversal of provisions in the comparative period and higher staff costs.
By making adjustments to the cost base in response to changes in television advertising spending patterns, our consolidated OIBDA margin of 40% in the three months ended June 30, 2020 remained consistent with the same period in 2019, and decreased by less than 100 basis points in the first half of 2020. The declines in operating income were consistent with the decreases in OIBDA in the quarter- and year-to-date periods, although operating income declined less than OIBDA due to fewer costs related to the proposed Merger, which are not included within OIBDA, being incurred in 2020 compared to 2019.
In March 2020, governments in our markets declared various forms of states of emergency in response to the COVID-19 pandemic, social distancing measures, including closures of schools and non-essential businesses, and restrictions around the free movement of people. At the end of April and the beginning of May, governmental authorities in our markets began to relax these measures and restrictions to varying degrees according to plans set by the respective governments reflecting their ability to manage the health effects of the COVID-19 pandemic, which has permitted the resumption of previously suspended economic activity. In certain limited instances where rates of COVID-19 infections have again increased, governmental authorities have re-imposed certain measures and restrictions, although both the geographical scope and duration have been more limited.
While the COVID-19 pandemic had a negative impact on advertising spending in the second quarter of 2020, the level of the declines in April and May were more significant than in June, as advertising spending began to recover in connection with the relaxation of measures and restrictions and the resumption, in large part, of previously suspended economic activity. Based on current bookings in July and August, overall advertising spending appears to be returning to comparable levels seen in the same periods in 2019, and it is possible that a portion of the advertising spending not placed in the six months ended June 30, 2020 could be deferred until the second half of this year. We anticipate the increase in carriage fees and subscription revenues realized in the first half of 2020 will continue for the remainder of the year and help mitigate the impact of lower advertising spending on net revenue. We also expect ongoing content cost saving measures will offset a portion of any shortfalls in television advertising revenue in the remainder of 2020.
In response to the COVID-19 pandemic, each of our operations adopted precautionary procedures in March designed to safeguard the health and wellbeing of our employees and business partners, including key personnel critical to the function of our television channels to ensure the ongoing broadcast of our networks. Personnel have been encouraged to work remotely whenever possible, and we do not believe there has been a significant adverse impact on either our operations or our internal control over financial reporting as a result of this remote work policy. Our businesses incurred costs in the second quarter and first half of 2020 adjusting to these changes in the operating environment, although the amounts were not material.
As more restrictive social distancing measures, including limitations on the size of gatherings, were introduced in March, we were required to temporarily suspend all in-process production of own-produced titles. In addition to the associated changes in the program schedules to replace or reduce the number of premier episodes of local content broadcasted, our stations increased the amount of news and current affairs programming covering the COVID-19 pandemic. Following the relaxation of social distancing measures, we have resumed production of local titles in each of our country operations and adjusted our scheduling and procedures in order to do so in a safe manner. We believe this content, together with our existing extensive program library of already completed own-produced titles as well as acquired content, is more than sufficient to provide attractive programming line-ups for the fall season and maintain or increase audience leadership in our markets.
Our financial position and cash generation remains robust and we do not expect any near-term liquidity constraints. Net cash generated from operations and unlevered free cash flow during the first half of 2020 increased 11% and 8% at actual rates, respectively, reflecting a significant decline in payments for own-produced programming, including during the temporary suspension of productions between March and May 2020, as well as lower cash paid for taxes as we utilized national stimulus plans, such as provisions relating to delaying the payment of corporate income tax. While cash flow is normally lower in the second half of the year and we expect cash collections will be lower compared to 2019 from the year-on-year decline in second quarter net revenues, we are able to take steps to bolster our cash position, including through changes in programming and production described above, as well as the deferral of all non-essential capital expenditures and reductions in discretionary spending.
As a result of significant debt repayments in the last few years, our nearest long-term debt maturity is only EUR 60.3 million (approximately US$ 67.6 million at June 30, 2020 rates) and is not due until November 2021. Our net leverage ratio was 2.4x at the end of the second quarter, which is unchanged from the start of 2020. Our cost of borrowing depends on our net leverage ratio; and if that increases above 3.0x in a future period then our interest expense would increase (see Item 1, Note 4, "Long-term Debt and Other Financing Arrangements").
We ended the second quarter of 2020 with US$ 176.1 million of cash and cash equivalents. Additionally, we have access to US$ 75.0 million under the 2023 Revolving Credit Facility, which remained undrawn as of June 30, 2020.
Free Cash Flow and Unlevered Free Cash Flow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, (US$ 000's)
|
|
|
2020
|
|
|
2019
|
|
|
Movement
|
|
|
Net cash generated from operating activities
|
$
|
154,995
|
|
|
$
|
140,280
|
|
|
10.5
|
%
|
|
Capital expenditures, net
|
(8,658
|
)
|
|
(8,266
|
)
|
|
4.7
|
%
|
|
Other items (1)
|
291
|
|
|
—
|
|
|
NM (2)
|
|
|
Free cash flow
|
146,628
|
|
|
132,014
|
|
|
11.1
|
%
|
|
Cash paid for interest (including Guarantee Fees)
|
10,507
|
|
|
14,017
|
|
|
(25.0
|
)%
|
|
Unlevered free cash flow
|
$
|
157,135
|
|
|
$
|
146,031
|
|
|
7.6
|
%
|
|
|
|
|
(1)
|
Reflects costs relating to the proposed Merger, primarily financial and professional fees.
|
|
|
|
|
(2)
|
Number is not meaningful.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(US$ 000's)
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
Movement
|
|
|
Cash and cash equivalents
|
$
|
176,094
|
|
|
$
|
36,621
|
|
|
380.9
|
%
|
Unlevered free cash flow increased during the six months ended June 30, 2020 compared to the same period in 2019 due to lower payments for own-produced programming and lower cash paid for taxes as we utilized national stimulus plans, such as provisions relating to delaying the payment of corporate income tax. Net cash generated from operating activities also benefited from lower cash paid for interest and Guarantee Fees.
Market Information
The following table sets out our estimates of the year-on-year changes in real GDP, real private consumption and the television advertising market, net of discounts, in the countries in which we operate for the six months ended June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2020
|
|
Country
|
Real GDP Growth
|
|
|
Real Private Consumption Growth
|
|
|
Net TV Ad Market Growth
|
|
|
Bulgaria
|
(5.9
|
)%
|
|
(4.1
|
)%
|
|
(28.0
|
)%
|
|
Czech Republic
|
(7.0
|
)%
|
|
(4.0
|
)%
|
|
(13.4
|
)%
|
|
Romania*
|
(5.3
|
)%
|
|
(3.2
|
)%
|
|
(17.7
|
)%
|
|
Slovak Republic
|
(9.8
|
)%
|
|
(6.8
|
)%
|
|
(12.9
|
)%
|
|
Slovenia
|
(8.1
|
)%
|
|
(8.0
|
)%
|
|
(19.6
|
)%
|
|
Total CME Ltd. Markets
|
(6.8
|
)%
|
|
(4.5
|
)%
|
|
(16.8
|
)%
|
* Romanian market excludes Moldova.
Sources: Real GDP Growth and Real Private Consumption Growth, CME Ltd. estimates based on market consensus; TV Ad Market Growth, CME Ltd. estimates at constant exchange rates.
After adjusting for inflation, in the first six months of 2020, it is estimated that GDP contracted in each of the countries in which we operate. A positive outlook in terms of growth in GDP and private consumption for 2020 changed in March with the onset of the COVID-19 pandemic. Since then, analyst expectations were revised downward, and now a contraction is forecast in all our markets in 2020 due to the severity of the contraction in the second quarter. Composite economic sentiment indicators, based on industrial, service, consumer, construction and retail trade confidence indicators, have risen in June as compared to May 2020, and the outlook for GDP recovery in all our markets is positive with growth forecast by the European Commission in the second half of 2020 compared to the second quarter of 2020, and continuing with a strong rebound in 2021.
We estimate that television advertising spending in the countries in which we operate declined by 17% on average at constant rates in the six months ended June 30, 2020 compared to the same period in 2019. The decline in television advertising markets in all countries has resulted from lower demand for advertising, as advertisers reduced spending in response to restrictive measures imposed to address the COVID-19 pandemic and the resulting economic uncertainty. In Bulgaria, this was reflected primarily in lower average market prices, due to promotions offered to small and medium sized businesses with discounted gross rating points ("GRPs"). In the Czech and Slovak Republics, in the first half of 2020 the reduced spending in the second quarter was partially offset by higher demand in the first two months of 2020 compared to the same period in 2019. Similarly, in Romania, the decline in spending in the second quarter was partially offset by higher spending in the first two months of 2020 from clients in certain sectors of the economy, including telecommunications and banking, which had reduced spending in the same period in 2019 following the introduction of new incremental sector specific taxes in Romania in early 2019. In Slovenia, the change in advertiser behavior resulted in fewer GRPs sold, however higher television viewership increased the inventory available so average prices also decreased.
Segment Performance
Our total Net Revenues and OIBDA by segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET REVENUES
|
|
|
For the Three Months Ended June 30, (US$ 000's)
|
|
For the Six Months Ended June 30, (US$ 000's)
|
|
|
|
|
|
|
Movement
|
|
|
|
|
|
Movement
|
|
|
2020
|
|
|
2019
|
|
|
% Act
|
|
|
% Lfl
|
|
|
2020
|
|
|
2019
|
|
|
% Act
|
|
|
% Lfl
|
|
|
Bulgaria
|
$
|
15,276
|
|
|
$
|
22,607
|
|
|
(32.4
|
)%
|
|
(31.2
|
)%
|
|
$
|
32,231
|
|
|
$
|
41,900
|
|
|
(23.1
|
)%
|
|
(21.1
|
)%
|
|
Czech Republic
|
45,886
|
|
|
64,379
|
|
|
(28.7
|
)%
|
|
(23.7
|
)%
|
|
95,101
|
|
|
114,695
|
|
|
(17.1
|
)%
|
|
(12.5
|
)%
|
|
Romania
|
37,197
|
|
|
48,362
|
|
|
(23.1
|
)%
|
|
(20.3
|
)%
|
|
76,712
|
|
|
87,172
|
|
|
(12.0
|
)%
|
|
(8.4
|
)%
|
|
Slovak Republic
|
21,085
|
|
|
27,313
|
|
|
(22.8
|
)%
|
|
(21.4
|
)%
|
|
43,244
|
|
|
48,645
|
|
|
(11.1
|
)%
|
|
(8.9
|
)%
|
|
Slovenia
|
17,094
|
|
|
22,276
|
|
|
(23.3
|
)%
|
|
(21.9
|
)%
|
|
33,828
|
|
|
40,126
|
|
|
(15.7
|
)%
|
|
(13.6
|
)%
|
|
Intersegment revenues
|
(993
|
)
|
|
(1,338
|
)
|
|
NM (1)
|
|
|
NM (1)
|
|
|
(1,755
|
)
|
|
(2,380
|
)
|
|
NM (1)
|
|
|
NM (1)
|
|
|
Total net revenues
|
$
|
135,545
|
|
|
$
|
183,599
|
|
|
(26.2
|
)%
|
|
(23.2
|
)%
|
|
$
|
279,361
|
|
|
$
|
330,158
|
|
|
(15.4
|
)%
|
|
(12.1
|
)%
|
|
|
|
|
(1)
|
Number is not meaningful.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDA
|
|
|
For the Three Months Ended June 30, (US$ 000's)
|
|
For the Six Months Ended June 30, (US$ 000's)
|
|
|
|
|
|
|
Movement
|
|
|
|
|
|
Movement
|
|
|
2020
|
|
|
2019
|
|
|
% Act
|
|
|
% Lfl
|
|
|
2020
|
|
|
2019
|
|
|
% Act
|
|
|
% Lfl
|
|
|
Bulgaria
|
$
|
4,462
|
|
|
$
|
7,888
|
|
|
(43.4
|
)%
|
|
(42.5
|
)%
|
|
$
|
9,280
|
|
|
$
|
14,009
|
|
|
(33.8
|
)%
|
|
(32.2
|
)%
|
|
Czech Republic
|
20,870
|
|
|
32,293
|
|
|
(35.4
|
)%
|
|
(30.9
|
)%
|
|
36,820
|
|
|
47,240
|
|
|
(22.1
|
)%
|
|
(17.3
|
)%
|
|
Romania
|
18,769
|
|
|
25,243
|
|
|
(25.6
|
)%
|
|
(22.9
|
)%
|
|
33,833
|
|
|
42,776
|
|
|
(20.9
|
)%
|
|
(17.7
|
)%
|
|
Slovak Republic
|
8,836
|
|
|
8,555
|
|
|
3.3
|
%
|
|
5.1
|
%
|
|
12,781
|
|
|
10,284
|
|
|
24.3
|
%
|
|
26.8
|
%
|
|
Slovenia
|
7,149
|
|
|
6,213
|
|
|
15.1
|
%
|
|
17.2
|
%
|
|
12,011
|
|
|
11,144
|
|
|
7.8
|
%
|
|
10.5
|
%
|
|
Eliminations
|
9
|
|
|
(24
|
)
|
|
NM (1)
|
|
|
NM (1)
|
|
|
6
|
|
|
24
|
|
|
NM (1)
|
|
|
NM (1)
|
|
|
Total operating segments
|
60,095
|
|
|
80,168
|
|
|
(25.0
|
)%
|
|
(21.8
|
)%
|
|
104,731
|
|
|
125,477
|
|
|
(16.5
|
)%
|
|
(12.9
|
)%
|
|
Corporate
|
(5,586
|
)
|
|
(6,826
|
)
|
|
18.2
|
%
|
|
13.6
|
%
|
|
(13,051
|
)
|
|
(14,078
|
)
|
|
7.3
|
%
|
|
3.3
|
%
|
|
Consolidated OIBDA
|
$
|
54,509
|
|
|
$
|
73,342
|
|
|
(25.7
|
)%
|
|
(22.5
|
)%
|
|
$
|
91,680
|
|
|
$
|
111,399
|
|
|
(17.7
|
)%
|
|
(14.1
|
)%
|
|
|
|
|
(1)
|
Number is not meaningful.
|
Bulgaria
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, (US$ 000's)
|
|
For the Six Months Ended June 30, (US$ 000's)
|
|
|
|
|
|
|
Movement
|
|
|
|
|
|
Movement
|
|
|
2020
|
|
|
2019
|
|
|
% Act
|
|
|
% Lfl
|
|
|
2020
|
|
|
2019
|
|
|
% Act
|
|
|
% Lfl
|
|
|
Television advertising
|
$
|
9,197
|
|
|
$
|
15,951
|
|
|
(42.3
|
)%
|
|
(41.3
|
)%
|
|
$
|
19,372
|
|
|
$
|
28,541
|
|
|
(32.1
|
)%
|
|
(30.4
|
)%
|
|
Carriage fees and subscriptions
|
5,391
|
|
|
5,283
|
|
|
2.0
|
%
|
|
3.9
|
%
|
|
10,975
|
|
|
10,604
|
|
|
3.5
|
%
|
|
6.2
|
%
|
|
Other
|
688
|
|
|
1,373
|
|
|
(49.9
|
)%
|
|
(49.0
|
)%
|
|
1,884
|
|
|
2,755
|
|
|
(31.6
|
)%
|
|
(29.9
|
)%
|
|
Net revenues
|
15,276
|
|
|
22,607
|
|
|
(32.4
|
)%
|
|
(31.2
|
)%
|
|
32,231
|
|
|
41,900
|
|
|
(23.1
|
)%
|
|
(21.1
|
)%
|
|
Costs charged in arriving at OIBDA
|
10,814
|
|
|
14,719
|
|
|
(26.5
|
)%
|
|
(25.1
|
)%
|
|
22,951
|
|
|
27,891
|
|
|
(17.7
|
)%
|
|
(15.6
|
)%
|
|
OIBDA
|
$
|
4,462
|
|
|
$
|
7,888
|
|
|
(43.4
|
)%
|
|
(42.5
|
)%
|
|
$
|
9,280
|
|
|
$
|
14,009
|
|
|
(33.8
|
)%
|
|
(32.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDA margin
|
29.2
|
%
|
|
34.9
|
%
|
|
(5.7) p.p.
|
|
|
(5.8) p.p.
|
|
|
28.8
|
%
|
|
33.4
|
%
|
|
(4.6) p.p.
|
|
|
(4.7) p.p.
|
|
The television advertising market in Bulgaria declined an estimated 28% at constant rates in the six months ended June 30, 2020 compared to the same period in 2019.
Our television advertising revenues decreased on a constant currency basis in the second quarter and first half of 2020 compared to the same periods in 2019 due to selling fewer GRPs, as advertisers reduced spending in response to restrictive measures imposed to address the COVID-19 pandemic and the resulting economic uncertainty. Carriage fees and subscription revenues increased on a constant currency basis in the quarter- and year-to-date periods primarily due to higher prices.
On a constant currency basis, costs charged in arriving at OIBDA decreased in the second quarter and first half of 2020 due primarily to a decline in content costs. The spring programming line-up was adjusted in response to the COVID-19 pandemic to utilize more of our existing program library. As a result, there were fewer broadcasts of new entertainment titles, as we reduced the frequency of new episodes of certain local titles, and the production of other projects was stopped. There were also savings from changes to our refreshed late night show, which was relaunched in January 2020 with a new host and updated format, and fewer costs from sports rights due to the postponement of virtually all live sporting events.
Czech Republic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, (US$ 000's)
|
|
For the Six Months Ended June 30, (US$ 000's)
|
|
|
|
|
|
|
Movement
|
|
|
|
|
|
Movement
|
|
|
2020
|
|
|
2019
|
|
|
% Act
|
|
|
% Lfl
|
|
|
2020
|
|
|
2019
|
|
|
% Act
|
|
|
% Lfl
|
|
|
Television advertising
|
$
|
38,601
|
|
|
$
|
56,586
|
|
|
(31.8
|
)%
|
|
(27.0
|
)%
|
|
$
|
79,970
|
|
|
$
|
99,750
|
|
|
(19.8
|
)%
|
|
(15.4
|
)%
|
|
Carriage fees and subscriptions
|
4,774
|
|
|
4,333
|
|
|
10.2
|
%
|
|
17.8
|
%
|
|
9,708
|
|
|
8,601
|
|
|
12.9
|
%
|
|
18.6
|
%
|
|
Other
|
2,511
|
|
|
3,460
|
|
|
(27.4
|
)%
|
|
(22.3
|
)%
|
|
5,423
|
|
|
6,344
|
|
|
(14.5
|
)%
|
|
(9.8
|
)%
|
|
Net revenues
|
45,886
|
|
|
64,379
|
|
|
(28.7
|
)%
|
|
(23.7
|
)%
|
|
95,101
|
|
|
114,695
|
|
|
(17.1
|
)%
|
|
(12.5
|
)%
|
|
Costs charged in arriving at OIBDA
|
25,016
|
|
|
32,086
|
|
|
(22.0
|
)%
|
|
(16.5
|
)%
|
|
58,281
|
|
|
67,455
|
|
|
(13.6
|
)%
|
|
(9.3
|
)%
|
|
OIBDA
|
$
|
20,870
|
|
|
$
|
32,293
|
|
|
(35.4
|
)%
|
|
(30.9
|
)%
|
|
$
|
36,820
|
|
|
$
|
47,240
|
|
|
(22.1
|
)%
|
|
(17.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDA margin
|
45.5
|
%
|
|
50.2
|
%
|
|
(4.7) p.p.
|
|
|
(4.7) p.p.
|
|
|
38.7
|
%
|
|
41.2
|
%
|
|
(2.5) p.p.
|
|
|
(2.2) p.p.
|
|
The television advertising market in the Czech Republic declined an estimated 13% at constant rates in the six months ended June 30, 2020 compared to the same period in 2019.
Our television advertising revenues decreased on a constant currency basis in the second quarter and first half of 2020 compared to the same periods in 2019 due to selling fewer GRPs, as advertisers reduced spending in response to restrictive measures imposed to address the COVID-19 pandemic and the resulting economic uncertainty. In the first half of 2020 this was partially offset by higher demand for GRPs in the first two months of 2020 compared to the same period in 2019. Carriage fees and subscriptions revenue increased on a constant currency basis in the quarter- and year-to-date periods due to price increases in existing contracts as well as an increase in the number of subscribers.
Costs charged in arriving at OIBDA decreased at constant rates in the second quarter and first half of 2020 due primarily to savings from content costs. The spring programming line-up was adjusted in response to the COVID-19 pandemic to substitute existing library content for certain local fiction productions that were suspended due to social distancing measures implemented. There were also fewer entertainment formats than the schedule in 2019, as well as fewer costs from sports rights due to the postponement of virtually all live sporting events. These savings were partially offset by an increase in our allowances for credit losses due to the insolvency of a local advertising agency.
Romania
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, (US$ 000's)
|
|
For the Six Months Ended June 30, (US$ 000's)
|
|
|
|
|
|
|
Movement
|
|
|
|
|
|
Movement
|
|
|
2020
|
|
|
2019
|
|
|
% Act
|
|
|
% Lfl
|
|
|
2020
|
|
|
2019
|
|
|
% Act
|
|
|
% Lfl
|
|
|
Television advertising
|
$
|
23,654
|
|
|
$
|
36,553
|
|
|
(35.3
|
)%
|
|
(32.9
|
)%
|
|
$
|
50,055
|
|
|
$
|
63,103
|
|
|
(20.7
|
)%
|
|
(17.5
|
)%
|
|
Carriage fees and subscriptions
|
12,475
|
|
|
10,906
|
|
|
14.4
|
%
|
|
18.5
|
%
|
|
24,602
|
|
|
22,183
|
|
|
10.9
|
%
|
|
15.5
|
%
|
|
Other
|
1,068
|
|
|
903
|
|
|
18.3
|
%
|
|
22.5
|
%
|
|
2,055
|
|
|
1,886
|
|
|
9.0
|
%
|
|
13.3
|
%
|
|
Net revenues
|
37,197
|
|
|
48,362
|
|
|
(23.1
|
)%
|
|
(20.3
|
)%
|
|
76,712
|
|
|
87,172
|
|
|
(12.0
|
)%
|
|
(8.4
|
)%
|
|
Costs charged in arriving at OIBDA
|
18,428
|
|
|
23,119
|
|
|
(20.3
|
)%
|
|
(17.4
|
)%
|
|
42,879
|
|
|
44,396
|
|
|
(3.4
|
)%
|
|
0.6
|
%
|
|
OIBDA
|
$
|
18,769
|
|
|
$
|
25,243
|
|
|
(25.6
|
)%
|
|
(22.9
|
)%
|
|
$
|
33,833
|
|
|
$
|
42,776
|
|
|
(20.9
|
)%
|
|
(17.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDA margin
|
50.5
|
%
|
|
52.2
|
%
|
|
(1.7) p.p.
|
|
|
(1.7) p.p.
|
|
|
44.1
|
%
|
|
49.1
|
%
|
|
(5.0) p.p.
|
|
|
(5.0) p.p.
|
|
The television advertising market in Romania declined an estimated 18% at constant rates in the six months ended June 30, 2020 compared to the same period in 2019.
Our television advertising revenues decreased on a constant currency basis in the second quarter and first half of 2020 compared to the same periods in 2019 due to selling fewer GRPs, as advertisers reduced spending in response to restrictive measures imposed to address the COVID-19 pandemic and the resulting economic uncertainty. The decline in the first half of 2020 was less than it was in the second quarter because the decline in spending in the second quarter was partially offset by higher spending in the first two months of 2020 from clients in certain sectors of the economy, including telecommunications and banking, who reduced spending in the same period in 2019 following the introduction of new incremental sector specific taxes in early 2019. Carriage fees and subscriptions revenue increased in the quarter- and year-to-date periods due to higher prices and an increase in the average number of subscribers.
On a constant currency basis, costs charged in arriving at OIBDA decreased in the second quarter primarily due to a decline in content costs compared to 2019. The spring programming line-up was adjusted in response to the COVID-19 pandemic to utilize foreign fiction, as well as existing library content, to replace premier episodes of local fiction and entertainment. There were also fewer costs from sports rights due to the postponement of virtually all live sporting events. In the first six months of 2020, costs were broadly flat at constant rates as the change in programming mix since March was offset by higher content costs overall in the first quarter compared to the same period in 2019, when we implemented cost saving measures in the schedule as a result of lower spending from the sectors impacted by incremental taxes early last year. Expenses were also lower in the first quarter of 2019 from the reversal of provisions that did not repeat in the first quarter of 2020.
Slovak Republic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, (US$ 000's)
|
|
For the Six Months Ended June 30, (US$ 000's)
|
|
|
|
|
|
|
Movement
|
|
|
|
|
|
Movement
|
|
|
2020
|
|
|
2019
|
|
|
% Act
|
|
|
% Lfl
|
|
|
2020
|
|
|
2019
|
|
|
% Act
|
|
|
% Lfl
|
|
|
Television advertising
|
$
|
17,390
|
|
|
$
|
23,516
|
|
|
(26.1
|
)%
|
|
(24.7
|
)%
|
|
$
|
36,228
|
|
|
$
|
41,449
|
|
|
(12.6
|
)%
|
|
(10.4
|
)%
|
|
Carriage fees and subscriptions
|
2,531
|
|
|
2,291
|
|
|
10.5
|
%
|
|
12.4
|
%
|
|
5,020
|
|
|
4,563
|
|
|
10.0
|
%
|
|
12.9
|
%
|
|
Other
|
1,164
|
|
|
1,506
|
|
|
(22.7
|
)%
|
|
(21.2
|
)%
|
|
1,996
|
|
|
2,633
|
|
|
(24.2
|
)%
|
|
(22.3
|
)%
|
|
Net revenues
|
21,085
|
|
|
27,313
|
|
|
(22.8
|
)%
|
|
(21.4
|
)%
|
|
43,244
|
|
|
48,645
|
|
|
(11.1
|
)%
|
|
(8.9
|
)%
|
|
Costs charged in arriving at OIBDA
|
12,249
|
|
|
18,758
|
|
|
(34.7
|
)%
|
|
(33.5
|
)%
|
|
30,463
|
|
|
38,361
|
|
|
(20.6
|
)%
|
|
(18.5
|
)%
|
|
OIBDA
|
$
|
8,836
|
|
|
$
|
8,555
|
|
|
3.3
|
%
|
|
5.1
|
%
|
|
$
|
12,781
|
|
|
$
|
10,284
|
|
|
24.3
|
%
|
|
26.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDA margin
|
41.9
|
%
|
|
31.3
|
%
|
|
10.6 p.p.
|
|
|
10.6 p.p.
|
|
|
29.6
|
%
|
|
21.1
|
%
|
|
8.5 p.p.
|
|
|
8.4 p.p.
|
|
The television advertising market in the Slovak Republic declined an estimated 13% at constant rates in the six months ended June 30, 2020 compared to the same period in 2019.
Our television advertising revenues decreased on a constant currency basis in the second quarter and first half of 2020 compared to the same periods in 2019 due to selling fewer GRPs, as advertisers reduced spending in response to restrictive measures imposed to address the COVID-19 pandemic and the resulting economic uncertainty. In the first half of 2020 this was partially offset by higher demand for GRPs in the first two months of 2020 compared to the same period in 2019. Carriage fees and subscriptions revenue increased in the quarter- and year-to-date periods from higher prices in new and existing contracts.
On a constant currency basis, costs charged in arriving at OIBDA decreased in the second quarter and first half of 2020 due primarily to a decline in content costs. While we had to modify the format of our popular entertainment format in order to safely produce new episodes without an audience and finish the season, overall the spring programming line-up was adjusted in March in response to the COVID-19 pandemic. As a result, the number of premier episodes of local content in the second quarter declined significantly compared to the same period last year, which were replaced by existing library titles.
Slovenia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, (US$ 000's)
|
|
For the Six Months Ended June 30, (US$ 000's)
|
|
|
|
|
|
|
Movement
|
|
|
|
|
|
Movement
|
|
|
2020
|
|
|
2019
|
|
|
% Act
|
|
|
% Lfl
|
|
|
2020
|
|
|
2019
|
|
|
% Act
|
|
|
% Lfl
|
|
|
Television advertising
|
$
|
9,913
|
|
|
$
|
14,578
|
|
|
(32.0
|
)%
|
|
(30.8
|
)%
|
|
$
|
19,585
|
|
|
$
|
25,388
|
|
|
(22.9
|
)%
|
|
(20.9
|
)%
|
|
Carriage fees and subscriptions
|
6,339
|
|
|
6,426
|
|
|
(1.4
|
)%
|
|
0.4
|
%
|
|
12,789
|
|
|
12,838
|
|
|
(0.4
|
)%
|
|
2.2
|
%
|
|
Other
|
842
|
|
|
1,272
|
|
|
(33.8
|
)%
|
|
(32.6
|
)%
|
|
1,454
|
|
|
1,900
|
|
|
(23.5
|
)%
|
|
(21.7
|
)%
|
|
Net revenues
|
17,094
|
|
|
22,276
|
|
|
(23.3
|
)%
|
|
(21.9
|
)%
|
|
33,828
|
|
|
40,126
|
|
|
(15.7
|
)%
|
|
(13.6
|
)%
|
|
Costs charged in arriving at OIBDA
|
9,945
|
|
|
16,063
|
|
|
(38.1
|
)%
|
|
(37.0
|
)%
|
|
21,817
|
|
|
28,982
|
|
|
(24.7
|
)%
|
|
(22.8
|
)%
|
|
OIBDA
|
$
|
7,149
|
|
|
$
|
6,213
|
|
|
15.1
|
%
|
|
17.2
|
%
|
|
$
|
12,011
|
|
|
$
|
11,144
|
|
|
7.8
|
%
|
|
10.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDA margin
|
41.8
|
%
|
|
27.9
|
%
|
|
13.9 p.p.
|
|
|
13.9 p.p.
|
|
|
35.5
|
%
|
|
27.8
|
%
|
|
7.7 p.p.
|
|
|
7.7 p.p.
|
|
The television advertising market in Slovenia declined an estimated 20% at constant rates in the six months ended June 30, 2020 compared to the same period in 2019.
Our television advertising revenues decreased on a constant currency basis in the second quarter and first half of 2020 compared to the same periods in 2019 due to selling fewer GRPs, as advertisers reduced spending in response to restrictive measures imposed to address the COVID-19 pandemic and the resulting economic uncertainty. Carriage fees and subscription revenues were flat on a constant currency basis in the second quarter and increased in the first half of 2020 from an increase in the overall number of subscribers.
On a constant currency basis, costs charged in arriving at OIBDA decreased in the second quarter and first half of 2020 due primarily to a decline in content costs. The spring programming line-up was adjusted in response to the COVID-19 pandemic to utilize more existing library titles. As a result, there were fewer broadcasts of premier local content. There were also fewer costs from sports rights due to the postponement of virtually all live sporting events.
III. Analysis of the Results of Operations and Financial Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, (US$ 000's)
|
|
|
|
|
|
|
Movement
|
|
|
2020
|
|
|
2019
|
|
|
% Act
|
|
|
% Lfl
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
Television advertising
|
$
|
98,755
|
|
|
$
|
147,184
|
|
|
(32.9
|
)%
|
|
(30.1
|
)%
|
|
Carriage fees and subscriptions
|
31,510
|
|
|
29,239
|
|
|
7.8
|
%
|
|
11.2
|
%
|
|
Other revenue
|
5,280
|
|
|
7,176
|
|
|
(26.4
|
)%
|
|
(23.6
|
)%
|
|
Net Revenues
|
135,545
|
|
|
183,599
|
|
|
(26.2
|
)%
|
|
(23.2
|
)%
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Content costs
|
43,693
|
|
|
70,356
|
|
|
(37.9
|
)%
|
|
(35.6
|
)%
|
|
Other operating costs
|
12,549
|
|
|
13,806
|
|
|
(9.1
|
)%
|
|
(5.3
|
)%
|
|
Depreciation of property, plant and equipment
|
7,972
|
|
|
8,154
|
|
|
(2.2
|
)%
|
|
1.7
|
%
|
|
Amortization of broadcast licenses and other intangibles
|
2,110
|
|
|
2,113
|
|
|
(0.1
|
)%
|
|
6.6
|
%
|
|
Cost of revenues
|
66,324
|
|
|
94,429
|
|
|
(29.8
|
)%
|
|
(27.1
|
)%
|
|
Selling, general and administrative expenses
|
25,047
|
|
|
28,708
|
|
|
(12.8
|
)%
|
|
(9.1
|
)%
|
|
Operating income
|
$
|
44,174
|
|
|
$
|
60,462
|
|
|
(26.9
|
)%
|
|
(23.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, (US$ 000's)
|
|
|
|
|
|
|
Movement
|
|
|
2020
|
|
|
2019
|
|
|
% Act
|
|
|
% Lfl
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
Television advertising
|
$
|
205,210
|
|
|
$
|
258,231
|
|
|
(20.5
|
)%
|
|
(17.3
|
)%
|
|
Carriage fees and subscriptions
|
63,094
|
|
|
58,789
|
|
|
7.3
|
%
|
|
11.1
|
%
|
|
Other revenue
|
11,057
|
|
|
13,138
|
|
|
(15.8
|
)%
|
|
(12.7
|
)%
|
|
Net Revenues
|
279,361
|
|
|
330,158
|
|
|
(15.4
|
)%
|
|
(12.1
|
)%
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Content costs
|
108,725
|
|
|
140,716
|
|
|
(22.7
|
)%
|
|
(19.9
|
)%
|
|
Other operating costs
|
26,196
|
|
|
27,054
|
|
|
(3.2
|
)%
|
|
0.5
|
%
|
|
Depreciation of property, plant and equipment
|
15,899
|
|
|
16,380
|
|
|
(2.9
|
)%
|
|
0.7
|
%
|
|
Amortization of broadcast licenses and other intangibles
|
4,277
|
|
|
4,307
|
|
|
(0.7
|
)%
|
|
4.2
|
%
|
|
Cost of revenues
|
155,097
|
|
|
188,457
|
|
|
(17.7
|
)%
|
|
(14.7
|
)%
|
|
Selling, general and administrative expenses
|
53,893
|
|
|
53,602
|
|
|
0.5
|
%
|
|
4.4
|
%
|
|
Operating income
|
$
|
70,371
|
|
|
$
|
88,099
|
|
|
(20.1
|
)%
|
|
(16.5
|
)%
|
Revenue:
Television advertising revenues: We estimate television advertising spending in our markets decreased on average by 17% at constant rates in the six months ended June 30, 2020 as compared to the same period in 2019. Television advertising revenues decreased during the three and six months ended June 30, 2020, as compared to the same periods in 2019 as many advertisers reduced, postponed, or canceled their advertising campaigns in response to the economic uncertainty caused by governmental responses to the COVID-19 pandemic. See "Overview - Segment Performance" above for additional information on television advertising revenues for each of our operating segments.
Carriage fees and subscriptions: Carriage fees and subscriptions revenues during the three and six months ended June 30, 2020 grew approximately 11% at constant rates as compared to the same periods in 2019, primarily due to price increases in existing contracts as well as an increase in the number of subscribers. See "Overview - Segment Performance" above for additional information on carriage fees and subscription revenues for each of our operating segments.
Other revenues: Other revenues include primarily internet advertising revenues and revenues generated through the licensing of our own productions. Other revenues decreased during the three and six months ended June 30, 2020 as compared to the same periods in 2019, in connection with the economic uncertainty caused by the governmental responses to the COVID-19 pandemic.
Operating Expenses:
Content costs: Content costs (including production costs and amortization and impairment of program rights) decreased during the three and six months ended June 30, 2020, compared to the same periods in 2019 primarily due to the use of lower cost programming following the postponement of certain productions due to measures imposed to address the COVID-19 pandemic.
Other operating costs: Other operating costs (excluding content costs, depreciation of property, plant and equipment, amortization of broadcast licenses and other intangibles as well as selling, general and administrative expenses) decreased during the three months ended June 30, 2020 as compared to the same period in 2019 primarily due to lower copyright fees in Romania and lower salaries and staff-related costs in the Czech Republic and the Slovak Republic. This decrease was partially offset by operating lease expense for production facilities that remained idle due to the governmental restrictions related to the COVID-19 pandemic and therefore were not capitalized into the cost of a program.
At constant rates, other operating costs during the six months ended June 30, 2020, was in line with the same period in 2019.
Depreciation of property, plant and equipment: At constant rates, total depreciation of property, plant and equipment during the three and six months ended June 30, 2020 remained in line with the same periods in 2019.
Amortization of broadcast licenses and other intangibles: At constant rates, total amortization of broadcast licenses and other intangibles for the three and six months ended June 30, 2020 increased compared to the same periods in 2019 due to the amortization of software acquired in 2020 and 2019.
Selling, general and administrative expenses: Selling, general and administrative expenses decreased during the three months ended June 30, 2020 as compared to the same period in 2019 primarily due to costs incurred in 2019 as a result of the proposed Merger and due to lower salaries and staff-related costs. These decreases were partially offset by increases in our allowance for credit losses in the Czech Republic and Bulgaria.
For the six months ended June 30, 2020 the selling, general and administrative expenses increased compared to the same period in 2019 primarily due to an increase in our allowances for credit losses in the Czech Republic, Romania and Bulgaria as well as due to the 2019 reversal of a legal accrual in Romania and the release of bad debt in Romania and Bulgaria in 2019. The increase was partially offset by costs incurred in 2019 as a result of the proposed Merger and due to reductions in advertising, marketing and corporate salary and staff-related costs in 2020.
Non-cash stock-based compensation charges for the three and six months ended June 30, 2020 and 2019 were US$ 0.8 million and US$ 1.7 million and US$ 1.1 million and US$ 2.1 million, respectively. See Item 1, Note 16, "Stock-based Compensation".
Operating income: Operating income decreased during the three and six months ended June 30, 2020 as compared to the same periods in 2019 primarily due to the impact of the COVID-19 pandemic on our television advertising revenues.
Our operating margin, which is determined as operating income divided by net revenues, was 32.6% and 25.2% for the three and six months ended June 30, 2020, respectively, compared to 32.9% and 26.7% for the three and six months ended June 30, 2019 respectively.
Other income / (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, (US$ 000's)
|
|
For the Six Months Ended June 30, (US$ 000's)
|
|
|
2020
|
|
|
2019
|
|
|
% Act
|
|
|
2020
|
|
|
2019
|
|
|
% Act
|
|
|
Interest expense
|
$
|
(5,754
|
)
|
|
$
|
(7,735
|
)
|
|
25.6
|
%
|
|
$
|
(12,349
|
)
|
|
$
|
(15,977
|
)
|
|
22.7
|
%
|
|
Other non-operating income / (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
151
|
|
|
115
|
|
|
31.3
|
%
|
|
293
|
|
|
267
|
|
|
9.7
|
%
|
|
Foreign currency exchange gain / (loss), net
|
7
|
|
|
2,155
|
|
|
NM (1)
|
|
|
(6,335
|
)
|
|
(922
|
)
|
|
NM (1)
|
|
|
Change in fair value of derivatives
|
—
|
|
|
—
|
|
|
NM (1)
|
|
|
—
|
|
|
(36
|
)
|
|
NM (1)
|
|
|
Loss on extinguishment of debt
|
—
|
|
|
(84
|
)
|
|
NM (1)
|
|
|
—
|
|
|
(235
|
)
|
|
NM (1)
|
|
|
Other income, net
|
170
|
|
|
51
|
|
|
233.3
|
%
|
|
234
|
|
|
66
|
|
|
254.5
|
%
|
|
Provision for income taxes
|
(7,646
|
)
|
|
(10,886
|
)
|
|
29.8
|
%
|
|
(12,142
|
)
|
|
(15,433
|
)
|
|
21.3
|
%
|
|
Net loss / (income) attributable to noncontrolling interests
|
77
|
|
|
(119
|
)
|
|
NM (1)
|
|
|
148
|
|
|
(112
|
)
|
|
NM (1)
|
|
|
|
|
|
(1)
|
Number is not meaningful.
|
Interest expense: Interest expense during the three and six months ended June 30, 2020 decreased compared to the same periods in 2019, primarily due to the partial repayment of the 2021 Euro Loan in 2019 as well as reduced borrowing costs following a reduction in our net leverage ratio as defined within the Reimbursement Agreement. See Item 1, Note 4, "Long-term Debt and Other Financing Arrangements".
Interest income: Interest income primarily reflects earnings on cash balances and was not material in either period presented.
Foreign currency exchange gain / (loss), net: We are exposed to fluctuations in foreign exchange rates on the revaluation of monetary assets and liabilities denominated in currencies other than the local functional currency of the relevant subsidiaries. This includes third party receivables and payables, as well as those intercompany loans which are not considered to be of a long-term investment nature. Our subsidiaries generally receive funding via loans that are denominated in currencies other than the functional currency of the lender, therefore any change in the relevant exchange rate will require us to recognize a transaction gain or loss on revaluation. Certain of our intercompany loans are classified as long-term in nature, and therefore gains or losses on revaluation are not recorded through the statement of operations and comprehensive income / loss. See the discussion under "Currency translation adjustment, net" below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Revaluation of intercompany loans
|
$
|
338
|
|
|
$
|
939
|
|
|
$
|
(284
|
)
|
|
$
|
759
|
|
|
Transaction gains / (losses) on long-term debt and other financing arrangements
|
814
|
|
|
422
|
|
|
(76
|
)
|
|
(305
|
)
|
|
Transaction (losses) / gains on revaluation of monetary assets and liabilities
|
(1,145
|
)
|
|
794
|
|
|
(5,975
|
)
|
|
(1,376
|
)
|
|
Foreign currency exchange gains / (losses), net
|
$
|
7
|
|
|
$
|
2,155
|
|
|
$
|
(6,335
|
)
|
|
$
|
(922
|
)
|
Change in fair value of derivatives: For the six months ended June 30, 2019, we recognized losses as a result of the partial settlement of our interest rate swaps in connection with the repayment of debt. We did not settle any portion of our interest rate swaps during the six months ended June 30, 2020.
Loss on extinguishment of debt: During the three and six months ended June 30, 2019, we recognized losses on extinguishment of debt related to partial repayments of the 2021 Euro Loan. We did not prepay any principal amounts of our Euro Loans during the three and six months ended June 30, 2020.
Other income, net: Our other income, net during the three and six months ended June 30, 2020 increased compared with the same period in 2019 primarily due to the sale of used company vehicles in Bulgaria.
Provision for income taxes: The provision for income taxes for the three and six months ended June 30, 2020 was calculated using the discrete method and reflects income tax charges on profits in each of our operating segments and the impact of losses on which no tax benefit has been received.
The provision for income taxes for the three months ended June 30, 2019 reflects income taxes on profits in each of our segments and the impact of losses on which no tax benefit has been received.
Our operating subsidiaries are subject to income taxes at statutory rates of 10% in Bulgaria, 16% in Romania, 19% in the Czech Republic, 19% in Slovenia and 21% in the Slovak Republic.
Net loss / (income) attributable to noncontrolling interests: The results attributable to noncontrolling interests for the three and six months ended June 30, 2020 and 2019 relate to the noncontrolling interest share of our Bulgaria operations.
Other comprehensive (loss) / income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, (US$ 000's)
|
|
For the Six Months Ended June 30, (US$ 000's)
|
|
|
2020
|
|
|
2019
|
|
|
% Act
|
|
2020
|
|
|
2019
|
|
|
% Act
|
|
Currency translation adjustment, net
|
$
|
25,583
|
|
|
$
|
17,002
|
|
|
NM (1)
|
|
$
|
(35,466
|
)
|
|
$
|
1,159
|
|
|
NM (1)
|
|
Unrealized gain / (loss) on derivative instruments
|
122
|
|
|
(1,220
|
)
|
|
NM (1)
|
|
342
|
|
|
(4,551
|
)
|
|
NM (1)
|
|
|
|
|
(1)
|
Number is not meaningful.
|
Currency translation adjustment, net: The underlying equity value of our investments (which are denominated in the functional currency of the relevant entity) are converted into dollars at each balance sheet date, with any change in value of the underlying assets and liabilities being recorded as a currency translation adjustment to the balance sheet rather than net income / loss. Certain of our intercompany loans are denominated in currencies other than the functional currency of the lender and are considered to be of a long-term investment nature as the repayment of these loans is neither planned nor anticipated for the foreseeable future. The foreign exchange gains on the remeasurement of these intercompany loans to the lender's functional currency are treated in the same manner as currency translation adjustments. Other comprehensive (loss) / income due to currency translation adjustment, net comprised the following for the three and six months ended June 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, (US$ 000's)
|
|
For the Six Months Ended June 30, (US$ 000's)
|
|
|
2020
|
|
|
2019
|
|
|
% Act
|
|
2020
|
|
|
2019
|
|
|
% Act
|
|
Foreign exchange gain / (loss) on intercompany loans
|
$
|
5,180
|
|
|
$
|
2,868
|
|
|
NM (1)
|
|
$
|
(12,894
|
)
|
|
$
|
2,256
|
|
|
NM (1)
|
|
Foreign exchange gain / (loss) on the Series B Preferred Shares
|
5,884
|
|
|
3,455
|
|
|
NM (1)
|
|
(866
|
)
|
|
(1,651
|
)
|
|
NM (1)
|
|
Currency translation adjustment
|
14,519
|
|
|
10,679
|
|
|
NM (1)
|
|
(21,706
|
)
|
|
554
|
|
|
NM (1)
|
|
Currency translation adjustment, net
|
$
|
25,583
|
|
|
$
|
17,002
|
|
|
NM (1)
|
|
$
|
(35,466
|
)
|
|
$
|
1,159
|
|
|
NM (1)
|
|
|
|
|
(1)
|
Number is not meaningful.
|
The following charts depict the movement of the dollar versus the functional currencies of our operations, based on monthly closing rates, during the six months ended June 30, 2020 and 2019.
Percent Change During the Six Months Ended June 30, 2020
Percent Change During the Six Months Ended June 30, 2019
Unrealized gain / (loss) on derivative instruments: The unrealized gain / (loss) on derivatives is due to the portion of changes in the fair value of our interest rate swaps designated as cash flow hedges and recognized in other comprehensive income/ (loss). See Item 1, Note 11, "Financial Instruments and Fair Value Measurements".
Condensed consolidated balance sheets as at June 30, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Balance Sheet (US$ 000’s)
|
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
% Act
|
|
|
% Lfl
|
|
|
Current assets
|
$
|
340,895
|
|
|
$
|
349,980
|
|
|
(2.6
|
)%
|
|
(0.6
|
)%
|
|
Non-current assets
|
1,121,647
|
|
|
1,097,882
|
|
|
2.2
|
%
|
|
7.3
|
%
|
|
Current liabilities
|
167,145
|
|
|
156,001
|
|
|
7.1
|
%
|
|
12.3
|
%
|
|
Non-current liabilities
|
677,200
|
|
|
680,273
|
|
|
(0.5
|
)%
|
|
1.2
|
%
|
|
Temporary equity
|
269,370
|
|
|
269,370
|
|
|
—
|
%
|
|
—
|
%
|
|
CME Ltd. shareholders’ equity
|
348,441
|
|
|
341,705
|
|
|
NM (1)
|
|
|
NM (1)
|
|
|
Noncontrolling interests in consolidated subsidiaries
|
386
|
|
|
513
|
|
|
(24.8
|
)%
|
|
(27.9
|
)%
|
|
|
|
|
(1)
|
Number is not meaningful.
|
Note: The analysis below is intended to highlight the key factors at constant rates that led to the movements from December 31, 2019 to June 30, 2020, excluding the impact of foreign currency translation.
Current assets: Current assets at June 30, 2020 decreased from December 31, 2019 primarily due to the adoption of new accounting guidance which no longer requires programming content to be classified as current based on its expected timing of usage as well as the impact of the COVID-19 pandemic and seasonality on sales.
Non-current assets: Non-current assets at June 30, 2020 increased from December 31, 2019 primarily due to the adoption of new accounting guidance as noted above, offset by depreciation and amortization of assets purchased or leased in both 2020 and 2019.
Current liabilities: Current liabilities at June 30, 2020 increased from December 31, 2019 primarily due to higher deferred revenue from customer prepayments and higher programming-related payables, offset by fewer production and fixed asset related payables and the payment of accrued bonuses related to 2019 performance.
Non-current liabilities: On a constant currency basis, non-current liabilities at June 30, 2020 remained in line with December 31, 2019. See Item 1, Note 4, "Long-term Debt and Other Financing Arrangements".
Temporary equity: Temporary equity represents the accreted value of the Series B Preferred Shares.
CME Ltd. shareholders’ equity: The increase in shareholders' equity during the six months ended June 30, 2020 primarily reflects the impact of currency translation adjustment, offset by net income attributable to CME Ltd.
Noncontrolling interests in consolidated subsidiaries: Noncontrolling interests in consolidated subsidiaries represents the noncontrolling interest in Bulgaria.
IV. Liquidity and Capital Resources
IV (a) Summary of Cash Flows
Cash and cash equivalents increased by US$ 139.5 million during the six months ended June 30, 2020. The change in cash and cash equivalents for the period presented below is summarized as follows:
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For the Six Months Ended June 30, (US$ 000's)
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2020
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|
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2019
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|
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Net cash generated from operating activities
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$
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154,995
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|
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$
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140,280
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|
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Net cash used in investing activities
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(8,658
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)
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(8,266
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)
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Net cash used in financing activities
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(3,929
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)
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|
(118,929
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)
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Impact of exchange rate fluctuations on cash and cash equivalents
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(2,935
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)
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(477
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)
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Net increase in cash and cash equivalents
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$
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139,473
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|
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$
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12,608
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Operating Activities
Net cash generated from operating activities increased during the six months ended June 30, 2020 when compared to the same period in 2019 primarily due to lower payments for own-produced programming and taxes. We paid cash interest (including Guarantee Fees) of US$ 10.5 million during the six months ended June 30, 2020 compared to US$ 14.0 million during the six months ended June 30, 2019.
Investing Activities
Net cash used in investing activities for the six months ended June 30, 2020 and 2019 primarily reflects capital expenditures for production-related facilities and equipment in Bulgaria, the Czech Republic and Romania.
Financing Activities
Net cash used in financing activities during the six months ended June 30, 2020 primarily reflects payments on our finance leases. Cash used in financing activities during the six months ended June 30, 2019 primarily reflects principal repayments on our obligations under the 2021 Euro Loan.
IV (b) Sources and Uses of Cash
Our ongoing source of cash is primarily the receipt of payments from advertisers, advertising agencies and distributors of our television channels. As at June 30, 2020, we also had available the aggregate principal amount of US$ 75.0 million under the 2023 Revolving Credit Facility (see Item 1, Note 4, "Long-term Debt and Other Financing Arrangements"). Surplus cash, after funding ongoing operations, may be remitted to us, where appropriate, by our subsidiaries in the form of debt interest payments, principal repayments, dividends, and other distributions and loans from our subsidiaries.
Corporate law in the Central and Eastern European countries in which we operate stipulates generally that dividends may be declared by the partners or shareholders out of yearly profits subject to the maintenance of registered capital, required reserves (if applicable) and after the recovery of accumulated losses. The reserve requirement restriction generally provides that before dividends may be distributed, a portion of annual net profits (typically at least 5.0%) be allocated to a reserve, which is capped at a proportion of the registered capital of a company (ranging from 5.0% to 20.0%). There are no third-party restrictions that limit our subsidiaries' ability to transfer amounts to us in the form of loans or advances.
IV (c) Contractual Obligations, Commitments and Off-Balance Sheet Arrangements
Our future contractual obligations as at June 30, 2020 were as follows:
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Payments due by period (US$ 000’s)
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Total
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Less than 1 year
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1-3 years
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3-5 years
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More than 5 years
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Long-term debt – principal
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$
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592,526
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$
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—
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$
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592,526
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$
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—
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|
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$
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—
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Long-term debt – interest
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94,647
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21,312
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|
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73,335
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—
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—
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Unconditional purchase obligations
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79,969
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24,670
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38,016
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|
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14,831
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|
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2,452
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Operating lease obligations
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13,421
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3,831
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|
|
5,004
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|
|
2,823
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|
|
1,763
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Finance lease obligations
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15,012
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|
7,185
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6,973
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|
|
854
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—
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Other long-term obligations
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25,170
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|
|
11,296
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|
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11,202
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|
|
2,672
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—
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Total contractual obligations
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$
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820,745
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|
|
$
|
68,294
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|
|
$
|
727,056
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|
|
$
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21,180
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|
|
$
|
4,215
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|
Long-Term Debt
For more information on our long-term debt, see Item 1, Note 4, "Long-term Debt and Other Financing Arrangements". Interest payable on our long-term debt is calculated using interest rates and exchange rates in effect as at June 30, 2020.
Unconditional Purchase Obligations
Unconditional purchase obligations primarily comprise future programming commitments. At June 30, 2020, we had commitments in respect of future programming of US$ 79.2 million. This includes signed contracts with license periods starting after June 30, 2020.
Operating and Finance Leases
For more information on our operating and finance lease commitments, see Item 1, Note 10, "Leases".
Other Long-Term Obligations
Other long-term obligations are primarily comprised of digital transmission commitments.
Other
Top Tone Media Holdings Limited has exercised its right to acquire additional equity in CME Bulgaria. However, the closing of this transaction has not yet occurred because purchaser financing is still pending. If consummated, we would own 90.0% of our Bulgaria operations. The option strike price is the fair value of the equity in CME Bulgaria, as determined by an independent valuation.
IV (d) Cash Outlook
For the six months ended June 30, 2020, net cash generated from operating activities and unlevered free cash flow was US$ 155.0 million and US$ 157.1 million, respectively, compared to US$ 140.3 million and US$ 146.0 million, respectively, for the six months ended June 30, 2019 (See Section II, Overview). As at June 30, 2020, we had US$ 176.1 million in cash and cash equivalents and US$ 75.0 million of available aggregate principal amount under the 2023 Revolving Credit Facility. Our nearest debt maturity of EUR 60.3 million (US$ 67.6 million) is in November 2021.
As at June 30, 2020, our net leverage ratio was 2.4x which resulted in a weighted average all-in rate applicable to the Euro Loans and Guarantee Fees previously paid in kind of approximately 3.4%. In 2019, we repaid US$ 168.9 million of debt. As a result, we expect cash paid for interest and Guarantee Fees to decline in 2020 compared to 2019.
Our financial position and cash generation remains robust and we do not expect any near-term liquidity constraints. Cash flows during the first half of 2020 reflect a significant decline in payments for own-produced programming, including during the temporary suspension of productions between March and May 2020, as well as lower cash paid for taxes as we utilized national stimulus plans, such as provisions relating to delaying the payment of corporate income tax. While cash flow is normally lower in the second half of the year and we expect cash collections will be lower compared to 2019 from the year-on-year decline in second quarter net revenues, we are able to take steps to bolster our cash position, including through changes in programming and production, as well as the deferral of all non-essential capital expenditures and reductions in discretionary spending.
Credit ratings and future debt issuances
Our corporate credit is rated B1 by Moody's Investors Service with a stable outlook and B+ by Standard & Poor's, on watch with negative implications due to the proposed Merger. Our ratings show each agency's opinion of our financial strength, operating performance and ability to meet our debt obligations as they become due, as well as the proposed Merger and the uncertainty around the magnitude and timing of the disruptions caused by the COVID-19 outbreak. These ratings take into account the particular emphasis the ratings agencies place on metrics such as leverage ratio and cash flow, which they use as measurements of a company's liquidity and financial strength. They also reflect the consideration placed by the rating agencies on the historically strong financial support from Warner Media. We may be subject to downgrades if our operating performance deteriorates or we fail to maintain adequate levels of liquidity.
Credit risk of financial counterparties
We have entered into a number of significant contracts with financial counterparties as follows:
Interest Rate Swaps
We are party to interest rate swap agreements to mitigate our exposure to interest rate fluctuations on our Euro Loans. These interest rate swaps are designated as cash flow hedges and provide the Company with variable-rate cash receipts in exchange for fixed-rate payments over the lives of the agreements, with no exchange of the underlying notional amount.
Foreign Exchange Forwards
We are exposed to movements in the exchange rates of USD to the functional currencies of our operating segments related to contractual payments under dollar-denominated agreements. To reduce this exposure, we may decide to enter into forward foreign exchange contracts. We had no such agreements outstanding during the period ending June 30, 2020.
Cash Deposits
We may deposit cash in the global money markets with a range of bank counterparties and review the counterparties we choose regularly. The maximum period of deposit is three months, but we have more recently held amounts on deposit for shorter periods, up to one week. The credit rating of a bank is a critical factor in determining the size of cash deposits and we will only deposit cash with banks of investment grade rating. In addition, we also closely monitor the credit default swap spreads and other market information for each of the banks with which we consider depositing or have deposited funds.
IV (e) Off-Balance Sheet Arrangements
None.
V. Critical Accounting Policies and Estimates
Our accounting policies that have a material effect on our financial condition and results of operations are more fully described in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission ("SEC") on February 6, 2020. The preparation of these financial statements requires us to make judgments in selecting appropriate assumptions for calculating financial estimates, which inherently contain some degree of uncertainty. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable. Using these estimates, we make judgments about the carrying values of assets and liabilities and the reported amounts of revenues and expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe our critical accounting policies are as follows: program rights, goodwill and intangible assets, impairment or disposal of long-lived assets, revenue recognition, leases, income taxes, foreign exchange, determination of the fair value of financial instruments, and contingencies. These critical accounting policies affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements. See Item 1, Note 2, "Basis of Presentation" for a discussion of accounting standards adopted in the period, and recently issued accounting standards not yet adopted.
