UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 0-24796
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
(Exact name of registrant as specified in its charter)
BERMUDA
(State or other jurisdiction of incorporation and organization)
O'Hara House, 3 Bermudiana Road, Hamilton, Bermuda
(Address of principal executive offices)
98-0438382
(I.R.S. Employer Identification No.)
HM 08
(Zip Code)
Registrant's telephone number, including area code: (441) 296-1431
Title of each class
Name of each exchange on which registered
Securities registered pursuant to Section 12(b) of the Act:
CLASS A COMMON STOCK, $0.08 PAR VALUE
NASDAQ Global Select Market, Prague Stock Exchange
UNIT WARRANTS TO PURCHASE SHARES OF CLASS A COMMON STOCK
None.
Indicate by check mark if the registrant is a well known seasoned issuer, as defined in Rule 405 of the securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark whether registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
each shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of the registrants
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer”, “large
accelerated filer” or “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Accelerated filer ☒
Non-accelerated filer ☐
Smaller reporting company ☐
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act) Yes £ No T
The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2016 (based on the closing price of US$ 2.11 of the registrant's Class A Common Stock, as
reported by the NASDAQ Global Select Market on June 30, 2016 ) was US$ 128.1 million .
Number of shares of Class A Common Stock outstanding as of February 6, 2017 : 143,450,921
DOCUMENTS INCORPORATED BY REFERENCE
Document
Location in 10-K in Which Document is Incorporated
Registrant's Proxy Statement for the 2017 Annual General Meeting of Shareholders
Part III
Index
TABLE OF CONTENTS
PART I
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
FORM 10-K
For the year ended December 31, 2016
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
Item 5
Item 6
Item 7
PART II
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Item 8
Item 9
Item 9A
Item 9B
PART III
Item 10
Item 11
Item 12
Item 13
Item 14
PART IV
Item 15
Exhibits and Financial Statement Schedule s
SIGNATURES
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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 global economic uncertainty and
Eurozone instability in our markets and the extent, timing and duration of any recovery; levels of television advertising spending and the rate of development of the advertising markets in the
countries in which we operate; the extent to which our liquidity constraints and debt service obligations restrict our business; our exposure to additional tax liabilities as well as liabilities
resulting from regulatory or legal proceedings initiated against us; our ability to refinance our existing indebtedness; our success in continuing our initiatives to diversify and enhance our
revenue streams; our ability to make cost-effective investments in our television businesses, including investments in programming; our ability to develop and acquire necessary programming
and attract audiences; 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.
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Defined Terms
Unless the context otherwise requires, references in this report to the “Company”, “CME”, “we”, “us” or “our” refer to Central European Media Enterprises Ltd. (“CME Ltd.”) or CME Ltd. and
its consolidated subsidiaries listed in Exhibit 21.01 hereto. 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 in this report to “US$” or “dollars” are to U.S. dollars, all references to “BGN” are to Bulgarian lev, all references to “HRK” are to Croatian kuna, all
references to “CZK” are to Czech koruna, all references to “RON” are to the New Romanian lei and all references to “Euro” or “EUR” are to the European Union Euro. The exchange rates as at
December 31, 2016 used in this report are US$/BGN 1.86 ; US$/HRK 7.22 ; US$/CZK 25.64 ; US$/RON 4.30 ; and US$/EUR 0.95 .
The following defined terms are used in this Annual Report on Form 10-K:
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the term “ 2015 Convertible Notes ” refers to our 5.0% senior convertible notes due November 2015, redeemed in November 2015;
the term “ 2016 Fixed Rate Notes ” refers to our 11.625% senior notes due 2016, redeemed in June 2014;
the term “ 2017 Fixed Rate Notes ” refers to the 9.0% senior secured notes due 2017 issued by our wholly owned subsidiary, CET 21 spol. s r.o. (“CET 21”), redeemed in December
2014;
the term " 2017 PIK Notes " refers to our 15.0% senior secured notes due 2017, redeemed in April 2016;
the term " 2017 Term Loan " refers to our 15.0% term loan facility due 2017, repaid in April 2016;
the term " 2018 Euro Term Loan " refers to our floating rate senior unsecured term credit facility due 2018 guaranteed by Time Warner, dated as of November 14, 2014 and amended
on February 19, 2016;
the term " 2019 Euro Term Loan " refers to our floating rate senior unsecured term credit facility due 2019 guaranteed by Time Warner, dated as of September 30, 2015 and amended
on February 19, 2016;
the term " 2021 Euro Term Loan " refers to our floating rate senior unsecured term credit facility due 2021 entered into by CME BV (as defined below), guaranteed by Time Warner
and CME Ltd., dated as of February 19, 2016;
the term " Euro Term Loans " refers collectively to the 2018 Euro Term Loan, 2019 Euro Term Loan and 2021 Euro Term Loan;
the term " 2021 Revolving Credit Facility " refers to our amended and restated revolving credit facility dated as of February 28, 2014, as amended and restated as of November 14,
2014 and further amended and restated on February 19, 2016;
the term " Guarantee Fees " refers to amounts accrued and payable to Time Warner as consideration for Time Warner's guarantees of the Euro Term Loans;
the term “ Reimbursement Agreement " refers to an agreement with Time Warner which provides that we will reimburse Time Warner for any amounts paid by them under any
guarantee or through any loan purchase right exercised by Time Warner, dated as of November 14, 2014 and amended and restated on February 19, 2016;
the term " CME BV " refers to CME Media Enterprises B.V., our 100% owned subsidiary;
the term " CME NV " refers to Central European Media Enterprises N.V., our 100% owned subsidiary;
the term " Time Warner " refers to Time Warner Inc.; and
the term “ TW Investor ” refers to Time Warner Media Holdings B.V.
PART I
ITEM 1. BUSINESS
Central European Media Enterprises Ltd., a Bermuda company limited by shares, is a media and entertainment company operating in Central and Eastern Europe. Our assets are held through a
series of Dutch and Curaçao holding companies. We manage our business on a geographical basis, with six operating segments, Bulgaria, Croatia, the Czech Republic, Romania, the Slovak
Republic and Slovenia, which are also our reportable segments and our main operating countries. We own 94% of our Bulgaria operations and 100% of our broadcast operating and license
companies in our remaining countries.
Our main operating countries are members of the European Union (the “EU”). However, as emerging economies, they have adopted Western-style democratic forms of government within the
last twenty-five years and have economic structures, political and legal systems, systems of corporate governance and business practices that continue to evolve. As the economies of our
operating countries converge with more developed nations and their economic and commercial infrastructures continue to develop, we believe the business risks of operating in these countries
will continue to decline.
We operate market leading television networks in each of these six countries, broadcasting a total of 36 television channels to approximately 50 million people living in the region. Each
segment also develops and produces content for their television channels. We generate advertising revenues in our country operations primarily through entering into agreements with
advertisers, advertising agencies and sponsors to place advertising on the television channels that we operate. We generate additional revenues by collecting fees from cable, direct-to-home
(“DTH”) and internet protocol television ("IPTV") operators for carriage of our channels.
Our strategy is to maintain or increase our audience leadership in each of our countries in order to pursue sales strategies designed to maximize our revenues. We have built our audience
leadership in each of our markets by operating a multi-channel business model with a diversified portfolio of television channels which appeal to a broad audience.
Content that consistently generates high audience shares is crucial to maintaining the success of each of our country operations. While content acquired from the Hollywood studios remains
popular, our audiences increasingly demand content that is produced in their local language and reflects their society, attitudes and culture. We believe developing and producing local content is
key to being successful in prime time and supporting market-leading channels and that maintaining a regular stream of popular local content at the lowest possible cost is operationally important
over the long term.
As the distribution platforms in our region develop and become more diversified, our television channels and content will increasingly reach viewers through new distribution offerings, such as
internet TV and smart devices. We offer viewers the choice of watching premium television content through a series of portals, including through Voyo, our subscription video-on-demand
service, and advertising supported catch-up services on our websites.
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Sales
We generate advertising revenues primarily through entering into agreements with advertisers, advertising agencies and sponsors to place advertising on our television channels.
Our main unit of inventory is the commercial gross rating point (“GRP”), a measure of the number of people watching television when an advertisement is aired. We generally contract with a
client to provide an agreed number of GRPs for an agreed price (“cost per point” or “CPP”). Much less frequently, and usually only for small niche channels, we may sell on a fixed spot basis
where an advertisement is placed at an agreed time for a negotiated price that is independent of the number of viewers. The CPP varies depending on the season and time of day the
advertisement is aired, the volume of GRPs purchased, requests for special positioning of the advertisement, the demographic group that the advertisement is targeting and other factors. Our
larger advertising customers generally enter into annual contracts which set the pricing for a committed volume of GRPs.
We operate our television networks based on a business model of audience leadership, brand strength and strong local content. Our sales strategy is to maximize the monetization of our
advertising time by leveraging our high brand power and applying an optimal mix of pricing and sell-out rate. The effectiveness of our sales strategy is measured by our share of the television
advertising market, which represents the proportion of our television advertising revenues in the market compared to the total television advertising market. We also generate additional revenues
by collecting carriage fees from cable, satellite and IPTV operators for broadcasting our channels.
The public broadcasters in the countries in which we operate are restricted in the amount of advertising that they may sell. See “Regulation of Television Broadcasting” below for additional
information.
Programming
Our programming strategy in each country is tailored to match the expectations of key audience demographics by scheduling and marketing an optimal mix of programs in a cost effective
manner. The programming that we provide drives our audience shares and ratings (see "Audience Share and Ratings" below) and consists of locally-produced news, current affairs, fiction, and
reality and entertainment shows as well as acquired foreign movies, series and sports programming.
We focus our programming investments on securing leading audience share positions during prime time, where the majority of advertising revenues are delivered, and improving our cost
efficiency through optimizing the programming mix and limiting the cost of programming scheduled off-prime time while maintaining all day audience shares.
Audience Share and Ratings
The following sets forth the channels operated by each of our segments. The tables below provide a comparison of all day and prime time audience shares for 2016 in the target demographic of
each of our leading channels to the primary channels of our main competitors.
Audience share represents the viewers watching a channel in proportion to the total audience watching television. Ratings represent the number of people watching a channel in proportion to the
total population. Audience share and ratings information are measured in each market by international measurement agencies using peoplemeters, which quantify audiences for different
demographics and subgeographies of the population measured throughout the day. Our channels schedule programming intended to attract audiences within specific target demographics that we
believe will be attractive to advertisers.
Bulgaria
We operate one general entertainment channel, BTV, and five other channels, BTV CINEMA, BTV COMEDY, RING, BTV ACTION and BTV LADY.
Target Demographic
Channel
Ownership
All day audience share
Prime time audience share
BTV
NOVA TV
BNT 1
CME
MTG
Public television
2016
30.5%
19.2%
7.0%
2015
31.5%
19.4%
5.8%
2016
33.6%
21.1%
8.9%
2015
36.6%
21.8%
7.0%
18-49
Source: GARB
The combined all day and prime time audience shares of our Bulgaria operations in 2016 were 39.6% and 42.6% , respectively.
Croatia
We operate one general entertainment channel, NOVA TV (Croatia) and three other channels, DOMA (Croatia), NOVA WORLD and MINI TV.
Target Demographic
Channel
Ownership
All day audience share
Prime time audience share
18-54
Nova TV (Croatia)
RTL
HTV 1
CME
RTL
Public television
2016
20.9%
14.9%
11.5%
2015
21.8%
16.4%
12.5%
2016
27.0%
17.5%
10.1%
2015
28.3%
19.1%
11.6%
Source: AGB Nielsen Media Research
The combined all day and prime time audience shares of our Croatia operations in 2016 , excluding NOVA WORLD and MINI TV, were 27.2% and 34.0% , respectively.
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Czech Republic
We operate one general entertainment channel, TV NOVA (Czech Republic), and seven other channels, NOVA CINEMA, NOVA SPORT 1, NOVA SPORT 2, NOVA ACTION (formerly
FANDA), NOVA 2 (formerly SMICHOV), NOVA GOLD (formerly TELKA) and NOVA INTERNATIONAL, a general entertainment channel broadcasting in the Slovak Republic.
Target Demographic
Channel
Ownership
All day audience share
Prime time audience share
15-54
TV NOVA (Czech Republic)
CME
Prima
CT 1
MTG / GME
Public television
2016
23.7%
10.8%
12.3%
2015
24.9%
10.9%
12.2%
2016
28.2%
13.1%
14.7%
2015
29.2%
12.2%
14.5%
Source: ATO - Nielsen Admosphere; Mediaresearch
The combined all day and prime time audience shares of our Czech Republic operations in 2016 , excluding NOVA SPORT 1, NOVA SPORT 2 and NOVA INTERNATIONAL, were 34.1%
and 37.7% , respectively.
Romania
We operate one general entertainment channel, PRO TV, and eight other channels, ACASA, ACASA GOLD, PRO CINEMA, SPORT.RO, MTV ROMANIA, PRO TV INTERNATIONAL,
PRO TV CHISINAU, a general entertainment channel broadcasting in Moldova, and ACASA IN MOLDOVA.
Target Demographic
Channel
Ownership
All day audience share
Prime time audience share
18-49 Urban
PRO TV
Antena 1
TVR 1
CME
Intact group
Public television
2016
20.6%
15.7%
1.3%
2015
18.9%
14.7%
1.8%
2016
25.0%
15.9%
1.5%
2015
23.9%
14.0%
1.9%
Source: Kantar Media
The combined all day and prime time audience shares of our Romania operations in 2016 , excluding PRO TV INTERNATIONAL, PRO TV CHISINAU and ACASA IN MOLDOVA, were
25.1% and 29.1% , respectively.
Slovak Republic
We operate one general entertainment channel, TV MARKIZA, and three other channels, DOMA (Slovak Republic), DAJTO and MARKIZA INTERNATIONAL, a general entertainment
channel broadcasting in the Czech Republic.
Target Demographic
Channel
Ownership
All day audience share
Prime time audience share
12-54
TV MARKIZA
CME
TV JOJ
Jednotka
J&T Media Enterprises
Public Television
2016
22.3%
15.4%
7.8%
2015
22.9%
16.5%
7.5%
2016
23.3%
18.8%
9.5%
2015
24.9%
20.0%
8.8%
Source: PMT/ TNS SK
The combined all day and prime time audience shares of our Slovak Republic operations in 2016 , excluding MARKIZA INTERNATIONAL, were 30.7% and 32.2% , respectively.
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Slovenia
We operate two general entertainment channels, POP TV and KANAL A, and three other channels, KINO, BRIO and OTO.
Target Demographic
Channel
Ownership
All day audience share
Prime time audience share
18-54
POP TV
Planet TV
SLO 1
CME
Antenna Group / TSmedia
Public Television
2016
21.3%
8.1%
9.0%
2015
19.5%
8.6%
8.6%
2016
31.6%
10.4%
9.6%
2015
27.8%
11.7%
9.4%
Source: AGB Nielsen Media Research
The combined all day and prime time audience shares of our Slovenia operations in 2016 were 38.1% and 47.5% , respectively.
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 holiday season.
Regulation of Television Broadcasting
Television broadcasting in each of the countries in which we operate is regulated by a governmental authority or agency. In this report, we refer to such agencies individually as a “Media
Council” and collectively as “Media Councils”. Media Councils generally supervise broadcasters and their compliance with national broadcasting legislation, as well as control access to the
available frequencies through licensing regimes.
Programming and Advertising Regulation
Our main operating countries are member states of the EU, and as such, our broadcast operations in such countries are subject to relevant EU legislation relating to media.
The EU Audiovisual Media Services Directive (the “AVMS Directive”) came into force in March 2010 and provides the legal framework for audiovisual media services generally in the EU.
The AVMS Directive covers both linear (i.e., broadcasting) and non-linear (e.g., video-on-demand and catch-up) transmissions of audiovisual media services, with the latter subject to
significantly less stringent regulation. Among other things, the AVMS Directive requires broadcasters to comply with rules related to, but not limited to, program content, advertising content
and quotas, product placement, sponsorship, teleshopping, accessibility by persons with a visual or hearing disability, and minimum quotas with respect to “European works” (defined as
originating from an EU member state or a signatory to the Council of Europe's Convention on Transfrontier Television as well as being written and produced mainly by residents of the EU or
Council of Europe member states or pursuant to co-production agreements between such states and other countries). In addition, the AVMS Directive requires that at least 10% of either
broadcast time or programming budget is dedicated to programs made by European producers who are independent of broadcasters. News, sports, games, advertising, teletext services and
teleshopping are excluded from the calculation of these quotas. In respect of advertising, the AVMS Directive provides that the proportion of television advertising spots and teleshopping spots
within a given hour shall not exceed 20% (what is commonly referred to as the ‘12 minute per hour rule’). The AVMS Directive does not otherwise restrict when programming may be
interrupted by advertising in linear broadcasting, except in the case of films and news programming (where programming may be interrupted once every thirty minutes or more) and children’s
programming (where the same restriction applies providing that the program is greater than thirty minutes) and religious programming (where no advertising or teleshopping shall be inserted).
Under the AVMS Directive, product placement is prohibited subject to certain exceptions (for example it is permitted in films and series, sports programs and light entertainment programs) and
providing that the use of product placement is not ‘unduly’ prominent, is not promotional and is appropriately identified to viewers.
Legislation implementing the AVMS Directive has been adopted across our operating countries. On May 25, 2016, the European Commission adopted a proposal amending the AVMS
Directive. As proposed the legislation liberalises many of the AVMS Directive requirements, including, for example, in respect of hourly advertising limits, product placement, teleshopping and
sponsorship. The proposal is subject to consultation, review by the European Commission committees and voting in the European Parliament. Any amendments to the AVMS Directive would
then need to be implemented by our countries of operation.
Please see below for more detailed information on programming and advertising regulations that impact our channels.
Bulgaria : In Bulgaria, privately owned broadcasters are permitted to broadcast advertising for up to 12 minutes per hour. The public broadcaster, BNT, which is financed through a compulsory
television license fee and by the government, is restricted to broadcasting advertising for four minutes per hour and no more than 15 minutes per day, of which only five minutes may be in
prime time. There are also restrictions on the frequency of advertising breaks (for example, news and children's programs shorter than 30 minutes cannot be interrupted). These restrictions apply
to both publicly and privately owned broadcasters. Further restrictions relate to advertising content, including a ban on tobacco advertising and restrictions on alcohol advertising, regulations on
medical products advertising and regulations on advertising targeted at children or during children's programming. In addition, members of the news department of our channels are prohibited
from appearing in advertisements. Our channels in Bulgaria are required to comply with several restrictions on programming, including regulations on the origin of programming. These
channels must ensure that 50% of a channel's total annual broadcast time consists of EU- or locally-produced programming and 12% of such broadcast time consists of programming produced
by independent producers in the EU. News, sports, games and teleshopping programs, as well as advertising and teletext services, are excluded from these restrictions.
Croatia : In Croatia, privately owned broadcasters are permitted to broadcast advertising for up to 12 minutes per hour with no daily limit, and direct sales advertising has to last continuously for
at least 15 minutes. Additional restrictions apply to children's programming and movies. The public broadcaster, HRT, which is financed through a compulsory television license fee, is
restricted to broadcasting nine minutes of advertising per hour generally and four minutes per hour from 6 p.m. to 10 p.m. HRT is not permitted to broadcast spots for teleshopping. There are
other restrictions that relate to advertising content, including a ban on tobacco and alcohol advertising. NOVA TV (Croatia) is required to comply with several restrictions on programming,
including regulations on the origin of programming. These include the requirement that 20% of broadcast time consists of locally produced programming and 50% of such locally produced
programming be shown during prime time (between 4:00 p.m. and 10:00 p.m.). These restrictions are not applicable to DOMA (Croatia).
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Czech Republic : Privately owned broadcasters in the Czech Republic are permitted to broadcast advertising for up to 12 minutes per hour. In September 2011, legislation was implemented in
the Czech Republic which restricts the amount of advertising that may be shown on channels of the public broadcaster, CT. Pursuant to the regulation, no advertising may be shown on the
public channels CT 1 and CT 24, while the channels CT 2 and CT 4 may show a limited amount of advertising. Also included in the legislation is the requirement that national private
broadcasters must contribute annually to a Czech cinematography fund in an amount equal to 2% of their net advertising revenues. We are entitled to apply for financing from the fund. In the
Czech Republic, all broadcasters are restricted with respect to the frequency of advertising breaks during and between programs, as well as being subject to restrictions that relate to advertising
content, including a ban on tobacco advertising and limitations on advertisements of alcoholic beverages, pharmaceuticals, firearms and munitions.
Romania : Privately owned broadcasters in Romania are permitted to broadcast advertising and direct sales advertising for up to 12 minutes per hour. There are also restrictions on the frequency
of advertising breaks (for example, news and children's programs shorter than 30 minutes cannot be interrupted). Broadcasters are also required that from the total broadcasting time (except for
the time allocated to news, sports events, games, advertising and teleshopping) (a) at least 50% must be European-origin audio-visual works and (b) at least 10% (or, alternatively, at least 10%
of their programming budget) must be European audio-visual works produced by independent producers. The public broadcaster, TVR, is restricted to broadcasting advertising for eight minutes
per hour and only between programs. Further restrictions relate to advertising content, including a ban on tobacco advertising and restrictions on alcohol advertising, and regulations on
advertising targeted at children or during children's programming. In addition, news anchors of all channels are prohibited from appearing in advertisements and teleshopping programming.
Slovak Republic : Privately owned broadcasters in the Slovak Republic are permitted to broadcast advertising for up to 12 minutes per hour but not for more than 20% of their total daily
broadcast time. Since January 2013, the public broadcaster RTVS, which is financed through a compulsory license fee, can broadcast advertising for up to 0.5% of its total broadcast time (up to
2.5% of total broadcast time including teleshopping programming), but between 7:00 p.m. and 10:00 p.m. may broadcast only eight minutes of advertising per hour. There are restrictions on the
frequency of advertising breaks during and between programs. RTVS is not permitted to broadcast advertising breaks during programs. There are also restrictions that relate to advertising
content, including a ban on tobacco, pharmaceuticals, firearms and munitions advertising and a ban on advertisements of alcoholic beverages (excluding beer and wine) between 6:00 a.m. and
10:00 p.m. Our operations in the Slovak Republic are also required to comply with several restrictions on programming, including regulations on the origin of programming. These include the
requirement that 50% of the station's monthly broadcast time must be European-origin audio-visual works and at least 10% of a station's monthly broadcast time must be European audio-visual
works produced by independent producers, at least 10% of which must be broadcast within five years of production.
Slovenia : Privately owned broadcasters in Slovenia are allowed to broadcast advertising for up to 12 minutes in any hour. The public broadcaster, SLO, which is financed through a compulsory
television license fee and commercial activities, is allowed to broadcast advertising for up to 10 minutes per hour, but is only permitted up to seven minutes per hour between the hours of 6:00
p.m. and 11:00 p.m. There are also restrictions on the frequency of advertising breaks during programs and restrictions that relate to advertising content, including restrictions on food
advertising during children's programming and a ban on tobacco advertising and a prohibition on the advertising of any alcoholic beverages from 7:00 a.m. to 9:30 p.m. and generally for
alcoholic beverages with an alcoholic content of more than 15%. Our Slovenia operations are required to comply with several restrictions on programming, including regulations on the origin of
programming. These include the requirement that 20% of a station's daily programming consist of locally produced programming, of which at least 60 minutes must be broadcast between 6:00
p.m. and 10:00 p.m. In addition, 50% of our niche channels' annual broadcast time must be European-origin audio-visual works and at least 10% of such stations' annual broadcast time must be
European audio-visual works produced by independent producers.
Licensing Regulation
The license granting and renewal process in our operating countries varies by jurisdiction and by type of broadcast permitted by the license (i.e., terrestrial, cable, satellite). Depending on the
country, terrestrial licenses may be valid for an unlimited time period, may be renewed automatically upon application or may require a more lengthy renewal procedure, such as a tender
process. Generally cable and satellite licenses are granted or renewed upon application. We expect each of our licenses will continue to be renewed or new licenses to be granted as required to
continue to operate our business. All of the countries in which we operate have transitioned from analog to digital terrestrial broadcasting and we have obtained digital licenses where requested.
In January 2017, we ceased terrestrial distribution of our channels in the Slovak Republic and Slovenia, and channels in those countries are now available exclusively on cable, satellite and
IPTV platforms. We will apply for additional digital licenses where such applications are prudent and permissible. Please see below for more detailed information on licenses for our channels.
Bulgaria : BTV operates pursuant to a national digital terrestrial license issued by the Council for Electronic Media, the Bulgarian Media Council, that expires in July 2024. BTV ACTION
broadcasts pursuant to a national cable registration that is valid for an indefinite time period and also has a digital terrestrial license that expires in January 2025 which is not currently in use.
BTV CINEMA, BTV COMEDY, RING and BTV LADY, as well as BTV, each broadcast pursuant to a national cable registration that is valid for an indefinite time period.
Croatia : NOVA TV (Croatia) broadcasts pursuant to a national terrestrial license granted by the Croatian Media Council, the Electronic Media Council, which expires in April 2025. DOMA
(Croatia) broadcasts pursuant to a national terrestrial license that expires in January 2026. MINI TV broadcasts via satellite and cable pursuant to a license that expires in January 2022.
Czech Republic : Our channels in the Czech Republic operate under a variety of licenses granted by the Czech Republic Media Council, The Council for Radio and Television Broadcasting. TV
NOVA (Czech Republic) broadcasts under a national terrestrial license that expires in January 2025. TV NOVA (Czech Republic) may also broadcast pursuant to a satellite license that expires
in December 2020. NOVA CINEMA broadcasts pursuant to a national terrestrial digital license that expires in 2023. NOVA CINEMA also broadcasts via satellite pursuant to a license that is
valid until November 2019. NOVA SPORT 1 broadcasts pursuant to a license that allows for both satellite and cable transmission that expires in October 2020. NOVA SPORT 2 broadcasts
pursuant to a satellite license that expires in August 2027. In addition, NOVA SPORT 1 and NOVA SPORT 2 each have a license that permits internet transmission which expires in August
2027. NOVA ACTION (formerly known as FANDA) broadcasts pursuant to a satellite license that expires in July 2024 and a national terrestrial license that expires in September 2023. NOVA
2 (formerly known as SMICHOV) broadcasts pursuant to a national terrestrial license that expires in December 2024 and a satellite license that expires in February 2025. NOVA GOLD
(formerly known as TELKA) broadcasts pursuant to a national terrestrial license and a satellite license that each expire in February 2025. NOVA INTERNATIONAL broadcasts pursuant to a
license that permits internet transmission which expires in January 2028.
Romania : PRO TV broadcasts pursuant to a national satellite license granted by the Romanian Media Council, the National Audio-Visual Council. Our other Romanian channels (ACASA,
ACASA GOLD, PRO CINEMA, SPORT.RO, MTV ROMANIA and PRO TV INTERNATIONAL) each has a national satellite license. PRO TV also broadcasts through the electronic
communications networks pursuant to a series of local licenses and ACASA broadcasts in high-definition pursuant to a written consent from the Media Council. Licenses for our Romanian
operations expire on dates ranging from April 2018 to January 2025. PRO TV CHISINAU broadcasts pursuant to a cable license granted by the Audio-Visual Coordinating Council of the
Republic of Moldova that expires in November 2023 and ACASA IN MOLDOVA broadcasts pursuant to a cable license that expires in December 2017.
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Slovak Republic : TV MARKIZA, DOMA (Slovak Republic) and DAJTO each broadcast pursuant to a national license for digital broadcasting granted by the Council for Broadcasting and
Retransmission, the Media Council of the Slovak Republic, which is valid for an indefinite period. MARKIZA INTERNATIONAL is broadcast pursuant to the license granted to TV
MARKIZA.
Slovenia : Our Slovenian channels POP TV, KANAL A, KINO, BRIO and OTO each have licenses granted by the Post and Electronic Communications Agency of the Republic of Slovenia, the
Slovenia Media Council, that allow for broadcasting on any platform, including digital, cable and satellite. These licenses are valid for an indefinite time period.
OTHER INFORMATION
Employees
As of December 31, 2016 , we had a total of approximately 2,950 employees (including contractors).
Corporate Information
CME Ltd. was incorporated in 1994 under the laws of Bermuda. Our registered offices are located at O'Hara House, 3 Bermudiana Road, Hamilton HM 08, Bermuda, and our telephone number
is +1-441-296-1431. Communications can also be sent c/o CME Media Services Ltd. at Krizeneckeho nam. 1078/5, 152 00 Praha 5, Czech Republic, telephone number +420-242-465-605.
CME's Class A common stock is listed on the NASDAQ Global Select Market and the Prague Stock Exchange under the ticker symbol “CETV”.
Financial Information by Operating Segment and by Geographical Area
For financial information by operating segment and geographic area, see Part II, Item 8, Note 19, "Segment Data" .
Available Information
We make available, free of charge, on our website at http://www.cme.net our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to
those reports as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.
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ITEM 1A RISK FACTORS
This report and the following discussion of risk factors contain forward-looking statements as discussed on page 2 of this report. Our actual results may differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including the risks and uncertainties described below and elsewhere in this report. These risks and uncertainties are not the only
ones we may face. Additional risks and uncertainties of which we are not aware, or that we currently deem immaterial, may also become important factors that affect our financial condition,
results of operations and cash flows.
Risks Relating to Our Financial Position
Global or regional economic conditions and the credit crisis have adversely affected our financial position and results of operations. We cannot predict if the recovery in our operating
countries will continue or how long it may last. A failure to achieve lasting recoveries will continue to adversely affect our results of operations.
The results of our operations depend heavily on advertising revenue, and demand for advertising is affected by general economic conditions in the region and globally. The economic uncertainty
following the onset of the global financial crisis at the beginning of 2009 and the sustained recessionary period that followed had a prolonged adverse impact on consumer and business
spending, access to credit, liquidity, investment spending, asset values and employment rates. These adverse economic conditions had a material negative impact on advertising spending in our
markets, which negatively impacted our advertising revenues in the periods that followed. Since 2014, our markets have experienced overall growth in real GDP (as adjusted for inflation) and
advertising spending; however we cannot predict if the recovery that has begun will continue or how long it will last. Any significant deterioration of general economic conditions in our markets
would have an adverse economic impact on our advertising revenues. In addition, although we believe the advertising spend per capita of the countries in which we operate and advertising
intensity (the ratio of total ad spend per capita to nominal GDP per capita) will converge with the developed markets (as defined in Part II, Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations), such convergence may not occur in the time frame we expect, or at all. Moreover, the occurrence of disasters, acts of terrorism, civil or military
conflicts or general political instability and responses to it, such as the imposition of economic sanctions against Russia, may also cause a deterioration in general economic conditions that may
reduce advertising spending. Any of these developments would have a significant negative effect on our financial position, results of operations and cash flows.
Concerns regarding the Eurozone and the impact on the region of the United Kingdom’s exit from the European Union (“EU”) may adversely affect our financial position and results of
operations.
Continued economic softness in the Eurozone, including a slowdown in the growth of consumer prices, prompted the European Central Bank to embark upon quantitative easing in 2015.
Economic events related to the sovereign debt crisis in several EU countries have also highlighted issues relating to the strength of the banking sector in Europe and the Euro. Although the EU
has created external funding and stability mechanisms to provide liquidity and financial assistance to Eurozone member states and financial institutions, there can be no assurance that the market
disruptions in Europe related to sovereign debt and the banking sector or otherwise, including the increased cost of funding for certain governments and financial institutions, will not continue
and there can be no assurance that funding and stability packages utilized previously will be available or, if provided, will be sufficient to stabilize affected economies or institutions.
Economic conditions in the EU will be further impacted by the results of the referendum held in the United Kingdom on June 23, 2016 whereby the United Kingdom electorate voted in favor of
the United Kingdom leaving the EU, commonly referred to as “Brexit”. While the overall economic impact of Brexit on the EU and the Euro is difficult to estimate at present, decisions to
conserve cash and reduce spending by consumers and businesses in the United Kingdom would have a negative impact on economic growth rates in the United Kingdom and, to a lesser extent,
in the EU, in particular those countries that are significant exporters to the United Kingdom. There is also significant uncertainty regarding the timing and terms on which the United Kingdom
would leave the EU, and it is expected that a more protracted process to set those terms would have a more prolonged economic impact. In addition, there is concern that other countries may
seek to leave the EU following the Brexit decision, increasing uncertainty in the region, which may have a further negative impact on investment and economic growth rates. Furthermore, the
departure of the United Kingdom from the EU may affect the budgetary contributions and allocations among the EU member states in the medium term, including the countries in which we
operate, which are net recipients of EU funding. Economic uncertainty caused by Brexit or other instability in the EU could cause significant volatility in EU markets and reduce economic
growth rates in the countries in which we operate, which would negatively impact our business.
Our operating results will be adversely affected if we cannot generate strong advertising sales.
We generate the majority of our revenues from the sale of advertising airtime on our television channels. The reduction in advertising spending in our markets following the onset of the global
financial crisis at the beginning of 2009 and the sustained recessionary period that followed had a negative effect on television advertising spending and prices. While we have attempted to
combat this fall in prices by implementing new pricing strategies, the success of these strategies has varied from market to market and continues to be challenged by pressure from advertisers
and discounting by competitors. In addition to advertising pricing, other factors that may affect our advertising sales include general economic conditions (described above), competition from
other broadcasters and operators of other distribution platforms, changes in programming strategy, changes in distribution strategy, our channels’ technical reach, technological developments
relating to media and broadcasting, seasonal trends in the advertising market, changing audience preferences and in how and when people view content and the accompanying advertising,
increased competition for the leisure time of audiences and shifts in population and other demographics. Our advertising revenues also depend on our ability to maintain audience ratings and to
generate GRPs. This requires us to have a distribution strategy that reaches a significant audience as well as to maintain investments in programming at a sufficient level to continue to attract
audiences. Changes in the distribution of our channels, such as our decision to cease broadcasting on DTT in the Slovak Republic and Slovenia, may reduce the number of people who can view
our channels, which may negatively impact our audience share and GRPs generated. Furthermore, significant or sustained reductions in investments in programming or other operating costs in
response to reduced advertising revenues had and, if continued or repeated, may have an adverse impact on our television viewing levels. Reductions in advertising spending in our markets and
resistance to price increases as well as competition for ratings from broadcasters seeking to attract similar audiences have had and may continue to have an adverse impact on our ability to
maintain our advertising sales. A failure to maintain and increase advertising sales could have a material adverse effect on our financial position, results of operations and cash flows.
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Our liquidity constraints and debt service obligations may restrict our ability to fund our operations.
We have significant debt service obligations under the Euro Term Loans as well as the 2021 Revolving Credit Facility (when drawn). Furthermore, we are paying Guarantee Fees to Time
Warner as consideration for its guarantees of the Euro Term Loans (collectively, the "TW Guarantees"). Although the entire Guarantee Fee in respect of the 2018 Euro Term Loan and the 2019
Euro Term Loan are, and a portion of the Guarantee Fee in respect of the 2021 Euro Term Loan can be, non-cash pay at our option, accruing such fees will further increase the amounts to be
repaid at the maturity of these facilities. Accordingly, the payment of Guarantee Fees in kind will increase our already significant leverage. As a result of our debt service obligations and
covenants contained in the related loan agreements, we are restricted under the Reimbursement Agreement and the 2021 Revolving Credit Facility (when drawn) in the manner in which our
business is conducted, including but not limited to our ability to obtain additional debt financing to refinance existing indebtedness or to fund future working capital, capital expenditures,
business opportunities or other corporate requirements. We may have a proportionally higher level of debt than our competitors, which may put us at a competitive disadvantage by limiting our
flexibility in planning for, or reacting to, changes in our business, economic conditions or our industry. For additional information regarding the Reimbursement Agreement and the TW
Guarantees, see Part II, Item 8, Note 4, "Long-term Debt and Other Financing Arrangements" .
We may be unable to refinance our existing indebtedness and may not be able to obtain favorable refinancing terms.
We have a substantial amount of indebtedness. Under the Reimbursement Agreement and the 2021 Revolving Credit Facility (when drawn), we can incur only limited amounts of additional
indebtedness, other than indebtedness incurred to refinance existing indebtedness. In addition, pursuant to the Reimbursement Agreement, the all-in rates on the 2021 Euro Term Loan and the
2018 Euro Term Loan increase to 13% and 11%, respectively, on the date that is 180 days following a change of control of CME Ltd. (as defined therein); and pursuant to the 2021 Revolving
Credit Facility, all commitments terminate following a change of control (as defined therein) and the interest rate on amounts outstanding increases to 13% on the date that is 180 days following
such change of control. We intend to repay the 2018 Euro Term Loan at maturity with cash flows from operations and the expected proceeds from warrant exercises. In the event the warrants
are not exercised in full or cash flows from operations do not meet our forecasts, we would be required to refinance the 2018 Euro Term Loan in whole or in part. Pursuant to the Reimbursement
Agreement, all commitments under the 2021 Revolving Credit Facility terminate on the refinancing of any Euro Term Loan. We face the risk that we will not be able to renew, repay or
refinance our indebtedness when due, or that the terms of any renewal or refinancing will not be on better terms than those of such indebtedness being refinanced. In the event we are not able to
refinance our indebtedness, we might be forced to dispose of assets on disadvantageous terms or reduce or suspend operations, any of which would materially and adversely affect our financial
condition, results of operations and cash flows.
We may be subject to changes in tax rates and exposure to additional tax liabilities.
We are subject to taxes in a number of foreign jurisdictions, including in respect of our operations as well as capital transactions undertaken by us. We are subject to regular review and audit by
tax authorities, and in the ordinary course of our business there are transactions and calculations where the ultimate tax determination is unknown. Significant judgment is required in
determining our provision for taxes. The final determination of our tax liabilities resulting from tax audits, related proceedings or otherwise could be materially different from our tax provisions.
Economic and political pressures to increase receipts in various jurisdictions may make taxation and tax rates subject to significant change and the satisfactory resolution of any tax disputes
more difficult. The occurrence of any of these events could have a material adverse effect on our financial position, results of operations and cash flows.
A default by us in connection with our obligations under our outstanding indebtedness could result in our inability to continue to conduct our business.
Pursuant to the terms of the agreements governing the Reimbursement Agreement and the 2021 Revolving Credit Facility, we pledged all of the shares of CME NV and of CME BV, which
together own substantially all of the interests in our operating subsidiaries, as security for this indebtedness. If we or these subsidiaries were to default under the terms of any of the relevant
agreements, the secured parties under such agreements would have the ability to sell all or a portion of the assets pledged to them in order to pay amounts outstanding under such debt
instruments. This could result in our inability to conduct our business.
Fluctuations in exchange rates may continue to adversely affect our results of operations.
Our reporting currency is the dollar and CME Ltd.'s functional currency is the Euro. Our consolidated revenues and costs are divided across a range of European currencies. The strengthening of
the dollar had a negative impact on reported revenues in 2016 when translated from the functional currencies of our operations. Continued strengthening of the dollar would have a negative
impact on our reported revenues. Furthermore, fluctuations in exchange rates may negatively impact programming costs. While local programming is generally purchased in local currencies, a
significant portion of our content costs relates to foreign programming purchased pursuant to dollar-denominated agreements. If the dollar appreciates against the functional currencies of our
operating segments, the cost of acquiring such content would be adversely affected, which could have a material adverse effect on our results of operations and cash flows.
Our strategies to enhance our carriage fees and diversify our revenues may not be successful.
We are focused on creating additional revenue streams from our broadcast operations as well as increasing revenues generated from broadcast advertising, which is how we generate most of our
revenues. Our main efforts with respect to this strategy are on increasing carriage fees from cable, satellite and IPTV operators for carriage of our channels as well as continuing to seek
improvements in advertising pricing. Agreements with operators generally have a term of one or more years, at which time agreements must be renewed. There can be no assurance that we will
be successful in renewing carriage fee agreements on similar or better terms. During negotiations to implement our carriage fees strategy in prior years, some cable and satellite operators
suspended the broadcast of our channels, which negatively affected the reach and audience shares of those operations and, as a result, advertising revenues. There is a risk that operators may
refuse to carry our channels while carriage fee negotiations are ongoing, which would temporarily reduce the reach of those channels and may result in clients withdrawing advertising from our
channels. The occurrence of any of these events may have an adverse impact on our financial position, results of operations and cash flows. If we are ineffective in negotiations with carriers or
in achieving further carriage fee increases, our profitability will continue to be dependent primarily on television advertising revenues, which increases the importance placed on our ability to
improve advertising pricing and generate advertising revenues. In addition to carriage fees, we are also working to build-out our offerings of advertising video-on-demand products and other
opportunities for advertising online. There can be no assurances that our revenue diversification initiatives will ultimately be successful, and if unsuccessful, this may have an adverse impact on
our financial position, results of operations and cash flows.
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A downgrading of our ratings may adversely affect our ability to raise additional financing.
Moody’s Investors Service rates our corporate credit as B2 with a stable outlook. Standard & Poor’s rates our corporate credit B+ with a stable outlook. Our ratings show each agency's opinion
of our financial strength, operating performance and ability to meet our debt obligations as they become due. These ratings take into account the particular emphasis the ratings agencies place on
metrics such as leverage ratio and cash flow, which they use as measurements of a company's liquidity and financial strength. They also reflect an emphasis placed by the ratings agencies on a
track record of strong financial support from Time Warner. We may be subject to downgrades if our operating performance deteriorates or we fail to maintain adequate levels of liquidity. In
addition, our ratings may be downgraded if the agencies form a view that material support from Time Warner is not as strong, or the strategic importance of CME to Time Warner is not as
significant as it has been in the past. In the event our corporate credit ratings are lowered by the rating agencies, it will be more difficult for us to refinance our existing indebtedness or raise new
indebtedness that may be permitted under the Reimbursement Agreement and the 2021 Revolving Credit Facility (when drawn), and we will have to pay higher interest rates, which would have
an adverse effect on our financial position, results of operations and cash flows.
If our goodwill, other intangible assets and long-lived assets become impaired, we may be required to record significant charges to earnings.
We review our long-lived assets for impairment when events or changes in circumstances indicate the carrying amount may not be recoverable. Goodwill and indefinite-lived intangible assets
are required to be assessed for impairment at least annually. Factors that may be considered a change in circumstances indicating that the carrying amount of our goodwill, indefinite-lived
intangible assets or long-lived assets may not be recoverable include slower growth rates in our markets, reduced expected future cash flows, increased country risk premium as a result of
political uncertainty and a decline in stock price and market capitalization. We consider available current information when calculating our impairment charge. If there are indicators of
impairment, our long-term cash flow forecasts for our operations deteriorate or discount rates increase, we may be required to recognize additional impairment charges in later periods. See Part
II, Item 8, Note 3, "Goodwill and Intangible Assets" for the carrying amounts of goodwill in each of our reporting units.
Risks Relating to Our Operations
Content may become more expensive to produce or acquire or we may not be able to develop or acquire content that is attractive to our audiences.
Television programming is one of the most significant components of our operating costs. The ability of our programming to generate advertising revenues depends substantially on our ability
to develop, produce or acquire programming that matches audience tastes and attracts high audience shares, which is difficult to predict. The commercial success of a program depends on
several tangible and intangible factors, including the impact of competing programs, the availability of alternate forms of entertainment and leisure time activities, our ability to anticipate and
adapt to changes in consumer tastes and behavior, and general economic conditions. While we have been successful in reducing content costs compared to prior periods, the cost of acquiring
content attractive to our viewers, such as feature films and popular television series and formats, may increase in the future. Our expenditures in respect of locally produced programming may
also increase due to competition for talent and other resources, changes in audience tastes in our markets or from the implementation of any new laws and regulations mandating the broadcast of
a greater number of locally produced programs. In addition, we typically acquire syndicated programming rights under multi-year commitments before knowing how such programming will
perform in our markets. In the event any such programming does not attract adequate audience share, it may be necessary to increase our expenditures by investing in additional programming,
subject to the availability of adequate financial resources, as well as to write down the value of any underperforming programming. Any material increase in content costs could have a material
adverse effect on our financial condition, results of operations or cash flows.
Our operations are vulnerable to significant changes in viewing habits and technology that could adversely affect us.
The television broadcasting industry is affected by rapid innovations in technology. The implementation of these new technologies and the introduction of non-traditional content distribution
systems have increased competition for audiences and advertisers. Platforms such as direct-to-home cable and satellite distribution systems, the Internet, subscription and advertising video-on-
demand, user-generated content sites and the availability of content on portable digital devices have changed consumer behavior by increasing the number of entertainment choices available to
audiences and the methods for the distribution, storage and consumption of content. This development has fragmented television audiences in more developed markets and could adversely affect
our ability to retain audience share and attract advertisers as such technologies penetrate our markets. As we adapt to changing viewing patterns, it may be necessary to expend substantial
financial and managerial resources to ensure necessary access to new technologies or distribution systems. Such initiatives may not develop into profitable business models. Furthermore,
technologies that enable viewers to choose when, how, where and what content to watch, as well as to fast-forward or skip advertisements, may cause changes in consumer behavior that could
have a negative impact on our advertising revenues. In addition, compression techniques and other technological developments allow for an increase in the number of channels that may be
broadcast in our markets and expanded programming offerings that may be offered to highly targeted audiences. Reductions in the cost of launching new channels could lower entry barriers and
encourage the development of increasingly targeted niche programming on various distribution platforms. This could increase the competitive demand for popular programming, resulting in an
increase in content costs as we compete for audiences and advertising revenues. A failure to successfully adapt to changes in our industry as a result of technological advances may have an
adverse effect on our financial position, results of operations and cash flows.
Our operating results are dependent on the importance of television as an advertising medium.
We generate most of our revenues from the sale of our advertising airtime on television channels in our markets. Television competes with various other media, such as print, radio, the internet
and outdoor advertising, for advertising spending. In all of the countries in which we operate, television constitutes the single largest component of all advertising spending. There can be no
assurances that the television advertising market will maintain its current position among advertising media in our markets. Furthermore, there can be no assurances that changes in the
regulatory environment or improvements in technology will not favor other advertising media or other television broadcasters. Increases in competition among advertising media arising from
the development of new forms of advertising media and distribution could result in a decline in the appeal of television as an advertising medium generally or of our channels specifically. A
decline in television advertising spending as a component of total advertising spending in any period or in specific markets would have an adverse effect on our financial position, results of
operations and cash flows.
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We are subject to legal compliance risks and the risk of legal or regulatory proceedings being initiated against us.
We are required to comply with a wide variety of laws and other regulatory obligations in the jurisdictions in which we operate and compliance by our businesses is subject to scrutiny by
regulators and other government authorities in these jurisdictions. Compliance with foreign as well as applicable U.S. laws and regulations related to our businesses, such as broadcasting content
and advertising regulations, competition regulations, tax laws, employment laws, data protection requirements, and anti-corruption laws, increases the costs and risks of doing business in these
jurisdictions. We believe we have implemented appropriate risk management and compliance policies and procedures that are designed to ensure our employees, contractors and agents comply
with these laws and regulations; however, a violation of such laws and regulations or the Company’s policies and procedures could occur. A failure or alleged failure to comply with applicable
laws and regulations, whether inadvertent or otherwise, may result in legal or regulatory proceedings being initiated against us.
We have become aware of provisions in the tax regulations of one of our markets that shift the liability for taxes on gains resulting from certain capital transactions from the seller to the buyer.
This provision may have been applicable to an acquisition made by us, although we do not believe we have any liability connected to this transaction. In addition, the prosecuting authorities in
Romania have requested information in respect of an investigation into certain transactions entered into by Pro TV in 2014 primarily with certain related parties. We believe that the transactions
under review are fully supported and are cooperating with the authorities in responding to the information request. In Slovenia, the competition authorities have launched an investigation into
whether our Slovenian subsidiary is dominant and abused its dominant position when concluding carriage fee agreements with platform operators. The investigation is in an early stage and there
has been no determination that a breach of competition law has occurred; notwithstanding that, the competition authorities may seek to apply interim measures prior to any formal determination.
If these or other contingencies result in legal or regulatory proceedings being initiated against us, or if developments occur in respect of our compliance with existing laws or regulations, or there
are changes in the interpretation or application of such laws or regulations, we may incur substantial costs, be required to change our business practices, our reputation may be damaged or we
may be exposed to unanticipated civil or criminal liability, including fines and other penalties that may be substantial. This could have a material adverse effect on our business, financial
position, results of operations and cash flows.
Piracy of our content may decrease revenues we can earn from our content and adversely impact our business and profitability.
Piracy of our content poses significant challenges in our markets. Technological developments, including digital copying, file compressing, the use of international proxies and the growing
penetration of high bandwidth internet connections, have made it easier to create, transmit and distribute high quality unauthorized copies of content in unprotected digital formats. Furthermore,
there are a growing number of video streaming sites, increasing the risk of online transmission of our content without consent. The proliferation of such sites broadcasting content pirated from
us could result in a reduction of revenues that we receive from the legitimate distribution of our content, including through video-on-demand and other services. Protection of our intellectual
property is in large part dependent on the manner in which applicable intellectual property laws in the countries in which we operate are construed and enforced. We seek to limit the threat of
content piracy. However, detecting and policing the unauthorized use of our intellectual property is often difficult and remedies may be limited under applicable law. Steps we take may not
prevent the infringement by third parties. There can be no assurance that our efforts to enforce our rights and protect our intellectual property will be successful in preventing piracy, which
limits our ability to generate revenues from our content.
Our operations are in developing markets where there are additional risks related to political and economic uncertainty, biased treatment and compliance with evolving legal and regulatory
systems.
Our revenue-generating operations are located in Central and Eastern Europe and we may be significantly affected by risks that may be different to those posed by investments in more
developed markets. These risks include, but are not limited to, social and political instability, inconsistent regulatory or judicial practice, and increased taxes and other costs. The economic and
political systems, legal and tax regimes, regulatory practices, standards of corporate governance and business practices of countries in this region continue to develop. Policies and practices may
be subject to significant adjustments, including following changes in political leadership. This may result in social or political instability or disruptions and the potential for political influence on
the media as well as inconsistent application of tax and legal regulations, arbitrary treatment before regulatory or judicial authorities and other general business risks. Other potential risks
inherent in markets with evolving economic and political environments include exchange controls, higher taxes, tariffs and other levies as well as longer payment cycles. The relative level of
development of our markets and the influence of local politics also present a potential for biased treatment of us before regulators or courts in the event of disputes. If such a dispute occurs,
those regulators or courts might favor local interests over our interests. Ultimately, this could have a material adverse impact on our business, financial position, results of operations and cash
flows.
We rely on network and information systems and other technology that may be subject to disruption or misuse, which could harm our business or our reputation.
We make extensive use of network and information systems and other technologies, including those related to our internal network management as well as our broadcasting operations. These
systems are central to many of our business activities. Network and information systems-related events, such as computer hackings, computer viruses, worms or other destructive or disruptive
software, process breakdowns, malicious activities or other security breaches could result in a disruption or degradation of our services, the loss of information or the improper disclosure of
personal data. The occurrence of any of these events could negatively impact our business by requiring us to expend resources to remedy such a security breach or by harming our reputation. In
addition, improper disclosure of personal data could subject us to liability under laws that protect personal data in the countries in which we operate. The development and maintenance of
systems to prevent these events from occurring requires ongoing monitoring and updating as efforts to overcome security measures become more sophisticated. As technologies evolve, we will
need to expend additional resources to protect our technology and information systems, which could have an adverse impact on our results of operations.
Our broadcasting licenses may not be renewed and may be subject to revocation.
We require broadcasting and, in some cases, other operating licenses as well as other authorizations from national regulatory authorities in our markets in order to conduct our broadcasting
business. While our broadcasting licenses for our operations in Slovenia and the Slovak Republic are valid for indefinite time periods, our other broadcasting licenses expire at various times
through 2028. While we expect that our material licenses and authorizations will be renewed or extended as required to continue to operate our business, we cannot guarantee that this will occur
or that they will not be subject to revocation, particularly in markets where there is relatively greater political risk as a result of less developed political and legal institutions. The failure to
comply in all material respects with the terms of broadcasting licenses or other authorizations or with applications filed in respect thereto may result in such licenses or other authorizations not
being renewed or otherwise being terminated. Furthermore, no assurances can be given that renewals or extensions of existing licenses will be issued on the same terms as existing licenses or
that further restrictions or conditions will not be imposed in the future. Any non-renewal or termination of any other broadcasting or operating licenses or other authorizations or material
modification of the terms of any renewed licenses may have a material adverse effect on our financial position, results of operations and cash flows.
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Our success depends on attracting and retaining key personnel.
Our success depends partly upon the efforts and abilities of our key personnel and our ability to attract and retain key personnel. Our management teams have significant experience in the media
industry and have made important contributions to our growth and success. Although we have been successful in attracting and retaining such people in the past, competition for highly skilled
individuals is intense. There can be no assurance that we will continue to be successful in attracting and retaining such individuals in the future. The loss of the services of any of these
individuals could have an adverse effect on our businesses, results of operations and cash flows.
Risks Relating to Enforcement Rights
We are a Bermuda company and enforcement of civil liabilities and judgments may be difficult.
We are a Bermuda company. Substantially all of our assets and all of our operations are located, and all of our revenues are derived, outside the United States. In addition, several of our
directors and officers are non-residents of the United States, and all or a substantial portion of the assets of such persons are or may be located outside the United States. As a result, investors
may be unable to effect service of process within the United States upon such persons, or to enforce against them judgments obtained in the United States courts, including judgments predicated
upon the civil liability provisions of the United States federal and state securities laws. There is uncertainty as to whether the courts of Bermuda and the countries in which we operate would
enforce (a) judgments of United States courts obtained against us or such persons predicated upon the civil liability provisions of the United States federal and state securities laws or (b) in
original actions brought in such countries, liabilities against us or such persons predicated upon the United States federal and state securities laws.
Our Bye-laws restrict shareholders from bringing legal action against our officers and directors.
Our Bye-laws contain a broad waiver by our shareholders of any claim or right of action in Bermuda, both individually and on our behalf, against any of our officers or directors. The waiver
applies to any action taken or concurred in by an officer or director, or the failure of an officer or director to take any action, in the performance of his or her duties, except with respect to any
matter involving any fraud or dishonesty on the part of the officer or director. This waiver limits the right of shareholders to assert claims against our officers and directors unless the act or
failure to act involves fraud or dishonesty.
Risks Relating to our Common Stock
Our share price may be adversely affected by sales of unregistered shares or future issuances of our shares.
Time Warner is the largest holder of shares of our Class A common stock, holding 61,407,775 unregistered shares of Class A common stock, one share of Series A preferred stock, 200,000
shares of Series B preferred stock and warrants to acquire 100,926,996 shares of our Class A common stock (the "TW Warrants"). The share of Series A preferred stock is convertible into
11,211,449 shares of Class A common stock and the shares of Series B preferred stock are convertible into shares of Class A common stock at the option of Time Warner (subject to certain
exceptions). As of December 31, 2016 , the 200,000 shares of Series B preferred stock were convertible into approximately 105.2 million shares of Class A common stock. The TW Warrants
are exercisable for shares of Class A common stock until May 2, 2018 at an exercise price of US$ 1.00 per share. Time Warner has registration rights with respect to all its shares of Class A
common stock now held or hereafter acquired. Furthermore, there are additional unregistered shares of our Class A common stock outstanding that we may be obligated to register and shares of
Class A common stock underlying other warrants that may enter into trading. For additional information on the Series A preferred stock, Series B preferred stock and TW Warrants, see Part II,
Item 8, Note 11, "Convertible Redeemable Preferred Shares" and Note 12, "Equity" . In October 2016, Time Warner announced it has entered into a definitive merger agreement with AT&T
Inc. under which AT&T Inc. will acquire Time Warner. The merger is subject to approval by Time Warner shareholders and approval by a number of regulatory authorities, including the U.S.
Department of Justice. Following a successful completion of such merger, AT&T Inc. will become the beneficial owner of equity securities currently beneficially owned by Time Warner and
the successor to rights related to such securities granted to Time Warner.
We cannot predict what effect, if any, the entry into trading of previously issued unregistered shares of Class A common stock will have on the market price of our shares. We may also issue
additional shares of Class A common stock or securities convertible into our equity in the future. If more shares of our Class A common stock (or securities convertible into or exchangeable for
shares of our Class A common stock) are issued to Time Warner, the economic interests of current shareholders may be diluted and the price of our shares may be adversely affected.
The interests of Time Warner may conflict with the interests of other investors.
Time Warner is able to exercise voting power in us with respect to 47.0% of our outstanding shares of Class A common stock. As such, Time Warner is in a position to exercise significant
influence over the outcome of corporate actions requiring shareholder approval, such as the election of directors or certain transactions. Following the issuance of the TW Warrants, the
aggregate economic interest of Time Warner in us is approximately 76.0% (without giving effect to the accretion of the Series B preferred stock after December 31, 2016 ). Furthermore, Time
Warner has the right to appoint one less than the number required to constitute a majority of our board of directors, provided that Time Warner continues to own not less than 40% of the voting
power of the Company.
We are also party to an amended investor rights agreement with Time Warner and the other parties thereto under which, among other things, Time Warner was granted a contractual preemptive
right (subject to certain exclusions) with respect to issuances of the Company’s equity securities, which permits it to maintain its pro rata economic interest as well as a right to top any offer that
would result in a change of control of the Company. Under Bermuda law, there is no takeover code or similar legislation requiring an acquirer of a certain percentage of our Class A common
stock to tender for the remaining publically held shares. In addition to being our largest shareholder, Time Warner is our largest secured creditor, as it guarantees 100% of our outstanding senior
indebtedness and is the lender under the 2021 Revolving Credit Facility. The 2021 Revolving Credit Facility and the Reimbursement Agreement contain maintenance covenants in respect of
interest cover, cash flow cover and total leverage ratios and includes covenants in respect of the incurrence of indebtedness (including refinancing indebtedness), the provision of guarantees,
acquisitions and disposal and granting security. As such, Time Warner may be in a position to determine whether to permit transactions, waive defaults or accelerate such indebtedness or take
other steps in its capacity as a secured creditor in a manner that might not be consistent with the interests of the holders of our Class A common stock. Furthermore, in certain circumstances, the
interests of Time Warner as our largest shareholder could be in conflict with the interests of minority shareholders.
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The price of our Class A common stock is likely to remain volatile.
The market price of shares of our Class A common stock may be influenced by many factors, some of which are beyond our control, including but not limited to those described above under
“Risks Relating to Our Operations” as well as the following: general economic and business trends, variations in quarterly operating results, license renewals, regulatory developments in our
operating countries and the European Union, the condition of the media industry in our operating countries, the volume of trading in shares of our Class A common stock, future issuances of
shares of our Class A common stock and investors’ and securities analysts’ perception of us and other companies that investors or securities analysts deem comparable in the television
broadcasting industry. In addition, stock markets in general have experienced extreme price and volume fluctuations that have often been unrelated to and disproportionate to the operating
performance of broadcasting companies. These broad market and industry factors may materially reduce the market price of shares of our Class A common stock, regardless of our operating
performance.
Our business could be negatively impacted as a result of shareholder activism.
On January 17, 2017, TCS Capital Management, LLC ("TCS Capital"), a beneficial owner of more than 12% of our shares, filed an amendment to its Schedule 13D disclosing its opinion that
the Company should hire an investment bank to run a process to sell the Company as well as replace current members of the Company's Board of Directors with new directors recommended by
TCS Capital. In recent years, shareholder activists, such as TCS Capital, have become involved in numerous public companies. Shareholder activists frequently propose to involve themselves in
the governance, strategic direction and operations of the Company. Such proposals may disrupt our business and divert the attention of our management and employees, and any perceived
uncertainties as to our future direction resulting from such a situation could result in the loss of potential business opportunities, be exploited by our competitors, cause concern to our current or
potential customers, and make it more difficult to attract and retain qualified personnel and business partners, all of which could adversely affect our business. In addition, actions of activist
shareholders may cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying
fundamentals and prospects of our business.
ITEM 1B. UNRE SOLVED STAFF COMMEN TS
None.
ITEM 2. PROPERTIES
We own and lease properties in the countries in which we operate. These facilities are fully utilized for current operations, are in good condition and are adequately equipped for purposes of
conducting broadcasting, content production or such other operations as we require. We believe that suitable additional space is available on acceptable terms in the event of an expansion of our
businesses. The table below provides a brief description of our significant properties.
Location
Hamilton, Bermuda
Amsterdam, The Netherlands
Sofia, Bulgaria
Zagreb, Croatia
Prague, Czech Republic
Bucharest, Romania
Bratislava, Slovak Republic
Ljubljana, Slovenia
Property
Leased office
Leased office
Leased buildings
Owned and leased buildings
Owned and leased buildings
Owned and leased buildings
Owned buildings
Owned and leased buildings
Use
Registered office, Corporate
Corporate office, Corporate
Office and studio space (Bulgaria segment)
Office and studio space (Croatia segment)
Administrative center, Corporate;
Office and studio space (Czech Republic segment)
Office and studio space (Romania segment)
Office and studio space (Slovak Republic segment)
Office and studio space (Slovenia segment)
For further information on the cash resources that fund these facility-related costs, see Part II, Item 7, III, "Liquidity and Capital Resources."
ITEM 3. LEGAL PROCEEDINGS
General
We are from time to time party to legal proceedings, arbitrations and regulatory proceedings arising in the normal course of our business operations, including the proceeding described below.
We evaluate, on a quarterly basis, developments in such matters and provide accruals for such matters, as appropriate. In making such decisions, we consider the degree of probability of an
unfavorable outcome and our ability to make a reasonable estimate of the amount of a loss. An unfavorable outcome in any such proceedings, if material, could have an adverse effect on our
business or consolidated financial statements.
In late November and December 2016, CME’s Slovak subsidiary MARKIZA-SLOVAKIA, spol. s.r.o. (“Markiza”) was notified of claims that were filed in June 2016 in a court of first instance
in Bratislava, the Slovak Republic to collect amounts allegedly owing under four promissory notes. These four promissory notes were purportedly issued in June 2000 by Pavol Rusko in his
personal capacity and were purportedly guaranteed by Markiza under the signature of Mr. Rusko, who was an executive director of Markiza at that time as well as one of its shareholders. The
notes purport to be issued in favour of Marian Kocner, a controversial Slovak businessman, and to a former associate of Mr. Kocner, and were supposedly assigned several times, ultimately to
Sprava a inkaso zmeniek, s.r.o., a company owned by Mr. Kocner that is the plaintiff in these proceedings. The four notes purport to be in the aggregate amount of approximately EUR 69
million . A court of first instance in Bratislava has suspended proceedings in respect of one of the promissory notes (in the amount of approximately EUR 26 million) because the plaintiff failed
to pay court fees. Two of the remaining notes allegedly matured in 2015 and the third in 2016. Despite a random case assignment system at the Bratislava court, the three cases dealing with the
other notes have all been assigned to the same judge. We do not believe that any of the promissory notes are authentic and are vigorously defending the claims.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Shares of Class A common stock of Central European Media Enterprises Ltd. began trading on the NASDAQ National Market (since renamed the NASDAQ Global Select Market) on October
13, 1994 and began trading on the Prague Stock Exchange on June 27, 2005. On each market, the shares are traded under the ticker symbol "CETV".
On February 6, 2017 , the last reported sales price for shares of our Class A common stock was US$ 2.70 .
The following table sets forth the high and low prices for shares of our Class A common stock for each quarterly period during the last two fiscal years as reported by NASDAQ.
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
(US$ / Share)
$
2016
$
2.88
2.48
2.96
2.71
Low
(US$ / Share)
High
(US$ / Share)
Low
(US$ / Share)
2015
2.15 $
2.05
2.03
2.17
2.80 $
2.50
2.83
3.22
1.92
1.84
1.97
2.55
At February 6, 2017 , there were approximately 57 holders of record (including brokerage firms and other nominees) of shares of Class A common stock.
Under our 2015 Stock Incentive Plan (the "2015 Plan"), 6,000,000 shares of Class A are authorized for issuance in respect of equity awards. In addition, any shares available under our Amended
and Restated Stock Incentive Plan (which expired on June 1, 2015), including in respect of any awards that expire, terminate or are forfeited, will be available for awards under the 2015 Plan
(see Item 8, Note 16, "Stock-based Compensation" ). See Part III, Item 12, "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" for further
information.
DIVIDEND POLICY
We have not declared or paid and have no present intention to declare or pay in the foreseeable future any cash dividends in respect to any class of our shares of common stock.
PURCHASE OF OWN STOCK
We did not purchase any of our own stock in 2016 .
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PERFORMANCE GRAPH
The following performance graph is a line graph comparing the change in the cumulative total shareholder return of the Class A common stock against the cumulative total return of the
NASDAQ Composite Index and the Dow Jones Europe Stock Index between December 31, 2011 and December 31, 2016 . The graph below assumes the investment of US$ 100 on December
31, 2011 in our Class A common stock, the NASDAQ Composite and the Dow Jones Europe Stock Index, assuming dividends, if any, are reinvested.
Value of US$ 100 invested at December 31, 2011 as of December 31, 2016 :
Central European Media Enterprises Ltd.
NASDAQ Composite Index
Dow Jones Europe Stock Index
ITEM 6. SELECTED FINANCIAL DATA
$
$
$
39.11
206.63
122.29
Our selected consolidated financial data should be read together with our consolidated financial statements and related notes included in Item 8, “Financial Statements and Supplementary Data”
of this Annual Report on Form 10-K.
The following tables set forth the selected consolidated financial data for each of the years in the five-year period ended December 31, 2016 . The selected consolidated financial data is qualified
in its entirety and should be read in conjunction with Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” and Item 8, “Financial Statements and
Supplementary Data”. We have derived the consolidated statements of operations and comprehensive income / loss data for the years ended December 31, 2016 , 2015 and 2014 and the
consolidated balance sheet data as of December 31, 2016 and 2015 from the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The consolidated
statements of operations and comprehensive income / loss data for the years ended December 31, 2013 and 2012 and the balance sheet data as of December 31, 2014 , 2013 and 2012 were
derived from consolidated financial statements that are not included in this Annual Report on Form 10-K.
The consolidated balance sheet data as of December 31, 2015, 2014, 2013 and 2012 has been retrospectively adjusted in connection with our adoption of FASB Accounting Standards Update
No. 2015-03 which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction of the carrying amount of that liability. As a result
of adopting this guidance our current and non-current assets decreased with a corresponding decrease in our current and non-current liabilities.
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CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME / LOSS DATA:
Net revenues
Operating income / (loss)
Loss from continuing operations
Loss from discontinued operations, net of tax
Net loss attributable to CME Ltd.
PER SHARE DATA:
Net loss per common share from:
For The Year Ended December 31,
(US$ 000's, except per share data)
2016
2015
2014
2013
2012
$
638,013
$
605,841
$
111,589
(180,597)
—
94,583
(102,285)
(13,287)
$
(180,291)
$
(114,901)
$
680,793 $
38,280
(151,465)
(80,431)
(227,428) $
633,134 $
(180,017)
(276,434)
(5,099)
(277,651) $
705,999
(479,789)
(535,708)
(10,685)
(535,680)
Continuing operations attributable to CME Ltd. - Basic and diluted
Discontinued operations attributable to CME Ltd. - Basic and diluted
Net loss attributable to CME Ltd. - Basic and diluted
$
(1.28)
$
(0.81)
$
—
(1.28)
(0.09)
(0.90)
(1.11) $
(0.55)
(1.66)
(2.23) $
(0.04)
(2.27)
(6.83)
(0.13)
(6.96)
Weighted average common shares used in computing per share amounts (000’s):
Basic and diluted
151,017
146,866
146,509
125,723
76,919
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents
Other current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Temporary equity
CME Ltd. shareholders' (deficit) / equity
Noncontrolling interests
Total liabilities and equity
As at December 31,
(US$ 000's)
2016
2015
As adjusted
2014
As adjusted
2013
As adjusted
2012
As adjusted
$
43,459
$
61,679
$
296,961
296,605
1,050,297
1,082,133
$
1,390,717
$
1,440,417
$
34,298 $
340,330
1,230,200
1,604,828 $
102,322 $
421,208
1,425,321
1,948,851 $
136,543
455,415
1,561,129
2,153,087
$
171,564
$
146,308
$
1,070,786
254,899
(107,804)
1,272
974,270
241,198
77,260
1,381
$
1,390,717
$
1,440,417
$
450,286 $
653,434
223,926
279,794
(2,612)
1,604,828 $
318,931 $
981,029
207,890
440,108
893
293,306
1,228,514
—
626,061
5,206
1,948,851 $
2,153,087
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Please refer to page 2 of this Annual Report on Form 10-K for a list of defined terms used herein.
The exchange rates used in this report are as at December 31, 2016 , unless otherwise indicated.
I. Overview
CME Strategy
Our operations comprise a unique collection of television networks across Central and Eastern Europe, each of which enjoys a strong competitive position due to audience share leadership,
brand strength, strong local content, and the depth and experience of country management. The reach and affinity we provide advertisers supports our model of pricing inventory at a premium to
our competition. We believe these competitive advantages position the company to benefit if forecast economic growth leads to continued growth of the television advertising markets in the
countries in which we operate.
We are focused on enhancing the performance of our television networks in each country, which we expect will continue improving operating margins and cash generation over the short- and
medium-term. The main elements of our strategy are as follows:
•
•
•
•
•
leveraging popular content to maintain or increase our audience share leadership and advertising market shares in all of our operating countries;
driving growth in advertising revenues through our pricing strategies;
increasing carriage fees and subscription revenues to reduce reliance on advertising revenues;
optimizing content costs while safeguarding our brands and competitive strengths; and
maintaining a strict cost discipline by controlling other expenses.
As market leaders with experienced management teams in each country, we believe we are well positioned to identify new challenges in a timely manner and adjust our strategy as new
opportunities or threats arise.
We manage our business on a geographical basis with six operating segments: Bulgaria, Croatia, the Czech Republic, Romania, the Slovak Republic and Slovenia. These operating segments,
which are also our reportable segments, reflect how our operating performance is evaluated by our chief operating decision makers, who we have identified as our co-Chief Executive Officers
("co-CEOs"); how our operations are managed by segment managers; and the structure of our internal financial reporting.
Non-GAAP Financial Measures
In this report we refer to several non-GAAP financial measures, including OIBDA, OIBDA margin, free cash flow and unlevered free cash flow. We believe that each of these metrics is useful
to investors for the reasons outlined below. Non-GAAP financial measures may not be comparable to similar measures reported by other companies. Non-GAAP financial measures should be
evaluated in conjunction with, and are not a substitute for, US GAAP financial measures.
We evaluate our consolidated results and the performance of our segments based on net revenues and OIBDA. We believe OIBDA is useful to investors because it provides a meaningful
representation of our performance, as it excludes certain items that do not impact either our cash flows or the operating results of our operations. OIBDA and unlevered free cash flow are also
used as components in determining management bonuses.
OIBDA includes amortization and impairment of program rights and is calculated as operating income / loss before depreciation, amortization of intangible assets and impairments of assets and
certain unusual or infrequent items that are not considered by our co-CEOs when evaluating our performance. Stock-based compensation and certain other items are not allocated to our
segments for purposes of evaluating their performance and therefore are not included in their respective OIBDA. Our key performance measure of the efficiency of our consolidated operations
and our segments is OIBDA margin. We define OIBDA margin as the ratio of OIBDA to net revenues.
We have previously used free cash flow as a measure of the ability of our operations to generate cash. We define free cash flow as 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-CEOs when evaluating performance. Following the refinancing transaction completed in April 2016, the amount of
interest and related Guarantee Fees on our outstanding indebtedness that is paid in cash has increased. In addition to this obligation to pay more interest and related Guarantee Fees in cash, we
expect to use cash generated by the business to pay Guarantee Fees that are payable in kind, including accrued Guarantee Fees. 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, better illustrates the cash generated by our operations when
comparing periods.
For additional information regarding our business segments, including a reconciliation of OIBDA to US GAAP financial measures, see Item 8, Note 19, "Segment Data" . For a reconciliation of
free cash flow and unlevered free cash flow to a US GAAP financial measure, see "Free Cash Flow and Unlevered Free Cash Flow" below.
While our reporting currency is the dollar, our consolidated revenues and costs are divided across a range of European currencies and CME Ltd.’s function 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 (“% Act”) percentage
movements, which includes the effect of foreign exchange, as well as like-for-like percentage movements (“% Lfl”). The like-for-like percentage movement references reflect the impact of
applying the current period average exchange rates to the prior period revenues and costs. Since the difference between like-for-like and actual percentage movements is solely the impact of
movements in foreign exchange rates, our discussion in the following analysis is focused on constant currency percentage movements in order to highlight those factors influencing operational
performance. The incremental impact of foreign exchange rates is presented in the tables preceding such analysis.
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Executive Summary
Our operational and financial results in 2016 reflect significant progress in executing our strategy and position the company for continued growth in 2017 and beyond. We maintained our
audience share leadership and television advertising market shares by leveraging our competitive advantages and making targeted investments in local programming in certain markets amid
heavy competition. Building on our momentum from recent years, overall growth in our television advertising markets and our efforts to increase non-advertising based revenues, combined with
our success in keeping overall costs broadly flat, contributed to a further improvement in profitability. As a result, our net leverage ratio (as defined in the Reimbursement Agreement) at the end
of 2016 was less than seven times, which is down from eleven times at the start of 2015. We expect the net leverage ratio to decrease further due to sustained improvements in OIBDA, as well
as a lower level of net debt from cash generated by the business, which will be used, together with expected proceeds from warrant exercises, to substantially repay our nearest debt maturity.
Following the refinancing transaction completed in April 2016, further specified decreases in our net leverage ratio will automatically lower the cost of borrowing on approximately half of our
debt, and in turn support further improvement in our free cash flow through lower Guarantee Fee obligations.
The following tables provide a summary of our consolidated results for the years ended December 31, 2016 , 2015 and 2014 :
For The Year Ended December 31, (US$ 000's)
Movement
Movement
Net revenues
Operating income
Operating margin
OIBDA
OIBDA margin
2016
$
638,013
$
111,589
17.5%
2015
605,841
94,583
15.6%
$
150,049
$
122,815
23.5%
20.3%
% Act
% Lfl
2015
5.3%
18.0%
1.9 p.p.
22.2%
3.2 p.p.
5.4%
17.3%
1.8 p.p.
21.4%
3.1 p.p.
$
605,841
$
94,583
15.6%
2014
680,793
38,280
5.6%
$
122,815
$
95,446
20.3%
14.0%
% Act
(11.0)%
147.1 %
10.0 p.p.
28.7 %
6.3 p.p.
% Lfl
5.9%
198.2%
10.1 p.p.
52.9%
6.2 p.p.
Our consolidated net revenues increased 5% at actual and constant exchange rates in 2016 compared to 2015 due to an increase in both television advertising revenues and carriage fee and
subscription revenues. Television advertising spending in the markets of the countries in which we operate grew an estimated 6% at constant rates in 2016 compared to 2015. Our consolidated
television advertising revenues grew 5% at actual and constant rates driven primarily by improvement in four out of six countries in which we operate, including our three largest markets, the
Czech Republic, Romania and the Slovak Republic. Carriage fees and subscription revenues increased 8% at actual rates and 9% at constant rates due primarily to growth in the number of
subscribers reported by cable, satellite and Internet protocol television ("IPTV") operators as well as high definition channels and new channels available exclusively on these platforms.
On an actual and constant currency basis, costs charged in arriving at OIBDA increased 1% in 2016 compared to 2015. We controlled costs overall, while spending more on popular local
content, by offsetting this investment with savings in foreign fiction as well as reducing other operating and overhead costs.
Our focus on controlling costs while improving revenues led to another year of OIBDA margin expansion, which increased to 24% in 2016 from 20% in 2015. We expect the trend of revenues
growing at a faster pace than costs will continue for the next several years, leading to further margin expansion.
The improvement in operating income in 2016 compared to 2015 primarily reflects the year-on-year increase in OIBDA, excluding the US$ 12.0 million benefit in operating income from the
reversal of charges in 2015 related to tax audits in Romania, which were accrued in the fourth quarter of 2014 and in the first quarter of 2015 and fully released in the third quarter of 2015. Since
these charges were not included in OIBDA in 2014, our reversal of these charges during 2015 was similarly excluded from OIBDA.
We remained audience share leaders during 2016 in all of the countries in which we operate and improved our relative position in all day audience share in four countries. These audience shares
give us a strong offering for advertisers, and we believe we continue to provide the most efficient medium to reach consumers.
The progress made during 2016 and the continued improvement expected in the coming years positions the company for even higher profitability of our operations. Looking ahead to 2017 and
beyond:
•
•
Analysts estimate that GDP growth in the countries in which we operate will continue to outpace that of the developed markets (as defined below), and projections from the
International Monetary Fund forecast Romania to have the highest GDP growth rate in the European Union again in 2017. We anticipate the television advertising market in each of
our countries will grow in 2017.
The increase in demand we have seen for television advertising in 2016 is leading to higher list prices in our sales policies for 2017. This is particularly true in Romania and the
Slovak Republic, as both our operations and the respective markets were largely sold-out in 2016. Average realized prices for the year will ultimately depend on a number of factors,
including the timing of commitments made for spending in 2017, the portion of those commitments that is prepaid, the volume of those commitments relative to 2016, and the
seasonality of advertisements actually placed in 2017.
• We expect non-advertising based carriage fees and subscription revenues to increase further. From January 2017, our channels in both the Slovak Republic and Slovenia have been
available exclusively on cable, satellite and IPTV platforms. This may initially result in lower audience shares in these countries, which could negatively impact our television
advertising revenues in 2017. However, we expect an increase in carriage fees and subscription revenues in 2017, as well as a significant decrease in transmission costs, which we
believe will more than offset any negative impact on television advertising revenues and improve margins in each country. We also expect increases across our markets in the number
of subscribers to cable, satellite and IPTV platforms to continue, which would benefit profitability in all countries.
•
Local content continues to attract larger audiences and competition for audience share remains significant. As a result, we continually refine our program grids and intend to maintain
targeted investments in local content in a cost effective manner. As part of this strategy, we recently rebranded our niche channels in the Czech Republic to bring them under the
umbrella of our flagship brand, NOVA. We intend to expand our offering of local content on some of these smaller channels, which historically have broadcast more foreign content,
to make them more attractive to viewers. Although these investments will cause our content costs to increase in 2017, we expect much of this to be offset by other cost savings.
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•
•
•
Management remains focused on long-term value creation and in the near term we should continue to benefit from specified decreases in our net leverage ratio from less than seven
times at the end of 2016, which automatically reduces our cost of borrowing as well as our sensitivity to external shocks, and adds to our increasing cash flow generation. We
anticipate using cash generated by the business, together with expected proceeds from warrant exercises and savings from lower debt service obligations, to substantially repay our
nearest debt maturity in November 2018. We intend to commence repayment of such maturity beginning November 2017. To that end, we expect to pay all Guarantee Fees related to
the 2018 Euro Term Loan in cash as they come due. We anticipate paying Guarantee Fees related to the 2019 Euro Term Loan and 2021 Euro Term Loan in kind, where we have the
option.
In recent years, our liabilities for income taxes have not been significant. However, as the operating companies in each jurisdiction return to generating profits and previous net
operating losses are utilized, the amount of cash paid for income taxes is expected to increase.
Competition from subscription video on demand ("SVOD") platforms may increase as Amazon Prime has recently joined Netflix in providing a primarily English language version of
their service to viewers in our countries. We believe this will benefit each market in terms of conditioning consumers to pay for content they watch online. However, similar to
television viewing trends in our countries, we expect local content to have better success in attracting SVOD audiences. Therefore, Voyo, our SVOD product launched in 2011, is
better positioned to capitalize on any changes in viewing habits since the local productions that have made our television channels market leaders are also available in local language
to Voyo subscribers. We will continue to monitor developments in the SVOD market for profitable investment strategies, including opportunities to offer Voyo with our linear
channels for cable, satellite and IPTV operators, as well as build-out our offering of advertising video on demand products and other offerings for advertising online, supported by our
investments in local content.
• While some analysts forecast spending for online advertising to overtake television advertising in the United States during 2017, we don't expect to see a similar dynamic in our
markets in the short- to medium-term due to various factors, including lower rates of broadband penetration, the type of products advertised and the broad reach that television
provides in the desired target audiences.
•
Foreign exchange rates may again have a significant impact on our results when reported in dollars. Due to inflation in the Czech Republic hitting 2% in December 2016 and
increasing inflation expectations for 2017, the Czech National Bank is expected to begin withdrawing its floor related to the EUR/CZK exchange rate during 2017, subject to fiscal
policies of developed countries and monetary policies of other central banks. On its own, this is expected to cause the Czech Koruna to strengthen relative to the dollar and therefore
improve the results of our largest operation in dollar terms. Fluctuations in exchange rates for our currencies will otherwise not have a significant impact on either our day-to-day
operations because revenues and operating expenses are generally denominated in local currencies or on our net leverage ratio. Following completion of the refinancing transactions
in April 2016, the principal amount of our outstanding senior debt is denominated in Euros.
Free Cash Flow and Unlevered Free Cash Flow
Net cash generated from / (used in) operating activities
$
Capital expenditures, net
Free cash flow
Cash paid for interest (including mandatory cash-pay Guarantee
Fees)
Cash paid for Guarantee Fees that may be paid in kind
Unlevered free cash flow
(1) Number is not meaningful.
Cash and cash equivalents
$
For The Year Ended December 31, (US$ 000's)
2016
33,917 $
(29,356)
4,561
53,982
37,440
95,983 $
2015
85,877
(30,426)
55,451
18,457
—
73,908
Movement
(60.5)% $
3.5 %
(91.8)%
192.5 %
NM (1)
29.9 % $
2015
85,877 $
(30,426)
55,451
18,457
—
73,908 $
2014
(65,242)
(28,548)
(93,790)
76,154
—
(17,636)
Movement
NM (1)
(6.6)%
159.1 %
(75.8)%
— %
NM (1)
December 31, 2016
$
43,459 $
December 31, 2015
61,679
Movement
(29.5)%
Our unlevered free cash flow increased 30% to US$ 96.0 million in 2016 from US$ 73.9 million in 2015, due primarily to the increase in OIBDA. Free cash flow in 2016 decreased 92%
compared to 2015 because we paid more interest in cash and elected to pay a total of US$ 37.4 million of Guarantee Fees in cash, including US$ 27.5 million of Guarantee Fees previously paid
in kind. We ended the year with cash of US$ 43.5 million and access to another US$ 115.0 million of liquidity provided by the 2021 Revolving Credit Facility, which remains undrawn.
Capital Structure and Allocation
The refinancing transaction completed in April 2016 significantly reduced the company's cost of borrowing and improved the maturity profile of our debt. We anticipate using increased cash
generated by the business, along with expected proceeds from warrant exercises and savings from lower debt service obligations to substantially repay our nearest debt maturity in November
2018. We intend to commence repayment of such maturity beginning November 2017.
As part of the transaction completed on April 8, 2016:
•
•
•
The new EUR 468.8 million 2021 Euro Term Loan was used, together with corporate cash, to repay the US$ 502.5 million aggregate principal amount of the 2017 PIK Notes and
repay the US$ 38.2 million 2017 Term Loan, as well as accrued and unpaid interest.
The maturity date of the existing EUR 250.8 million term loan was extended by one year so the Company’s nearest debt maturity is November 2018.
The maturity date of our existing US$ 115.0 million revolving credit facility was extended from 2017 to 2021, with access to US$ 50.0 million of liquidity from 2018.
19
Index
Following the transaction:
•
•
•
All outstanding long-term debt is denominated in Euros.
The all-in rate applicable to the 2021 Euro Term Loan and associated guarantee by Time Warner currently stands at 9.0%, an improvement of 600 basis points on the debt it replaced,
and can go as low as 7.0% depending on our net leverage ratio, automatically decreasing the cost of borrowing as the Company’s net leverage ratio improves.
The cost of the 2021 Revolving Credit Facility, which is currently undrawn, similarly ranges from approximately 9.0% to 7.0%, depending on our net leverage ratio.
• We recorded a non-cash loss on extinguishment of debt amounting to US$ 150.2 million in the second quarter of 2016.
With the flexibility afforded to us from this and previous financing transactions, we continue to look at ways to improve our capital structure. We expect our net leverage ratio, which was less
than seven times at the end of 2016, to decrease in the coming years.
Market Information
After adjusting for inflation, we estimate that overall real GDP in the countries in which we operate grew on average more than 3% in 2016, almost double the growth rate of the developed
markets, which grew at less than 2%. In this respect, "developed markets" refers to a combined group of 11 countries from within the European Union, predominantly from Western Europe, and
the United States. The economies of the countries in which we operate continue to depend on exports as a driver of economic growth. However, domestic demand is becoming an increasingly
large component of GDP, especially in our largest markets, thereby slightly reducing their sensitivity to external shocks and contributing to higher levels of macro-economic growth in recent
years. It has been reported that growth in real private consumption has been driven by higher retail sales, which have been supported by various factors in different countries. These range from
fiscal stimulus due to lower VAT rates in Romania to wage growth in the Czech Republic resulting in part from a historically low rate of unemployment in the country that is among the lowest
in the European Union.
In 2017, analysts estimate that GDP growth in the countries in which we operate will continue to outpace that of the developed markets, with projections from the International Monetary Fund
forecasting Romania to have the highest growth rate in Europe for a second year in a row. Retail sales and consumer confidence are expected to continue as a driver of growth in real private
consumption, and in particular for Romania where lower income tax rates in 2017 should result in higher disposable income. We anticipate the macro-economic backdrop will support television
advertising market growth in each of our countries in 2017.
Over the long-term, we believe that the convergence of GDP per capita in our markets with that of the developed markets will continue as economic conditions improve and sustained periods of
higher growth return. The higher rates of economic growth compared to the developed markets should result in even higher rates of growth in advertising spending, which is driven by a number
of factors:
•
•
•
•
Per capita nominal GDP at purchasing power parity in our markets remains approximately half that of the developed markets;
Total advertising spend per capita remains less than 10% of levels in the developed markets;
The ratio of total advertising spend per capita to nominal GDP per capita, also known as advertising intensity, was approximately a third that of the developed markets in 2016; and
In the markets in which we operate, basic products such as food, beverages and household cleaning supplies comprise the main source of advertising revenues, whereas in the
developed markets, the marketing of premium products, including finance, automotive, entertainment and travel products, makes up the majority of current television advertising
spending.
Since television was commercialized in our markets at the same time as other forms of media, television advertising generally accounts for a higher proportion of total advertising spend than in
the developed markets, where newspapers, magazines and radio were established as advertising media well before the advent of television. And contrary to trends in developed markets,
television advertising spend as a percentage of total advertising spend has grown in our markets during recent years, and was estimated to be 54% in 2016 compared to 40% in the developed
markets.
We believe that television advertising will continue to hold its share of total advertising spend in our markets because of its greater reach and effective measurement capabilities, which makes
this medium more appealing to advertisers compared to print, radio and outdoor advertising. Television is especially attractive to advertisers because it delivers high reach at low cost compared
to other forms of media. More recently, internet advertising has grown at the expense of print and outdoor advertising, and we offer additional advertising opportunities when clients seek to
complement their television campaigns with campaigns online. While spending for digital advertising is expected to overtake spending on television in the near-term in the developed markets,
we believe the strength of television as an advertising medium in our markets will continue for the forseeable future due to the reach it provides as well as lower rates of broadband penetration
in the countries in which we operate.
20
Index
The following table sets out our estimates of television advertising spending net of discounts by country (in US$ millions) for the years set forth below:
Country
Bulgaria
Croatia
Czech Republic
Romania*
Slovak Republic
Slovenia
Total CME Markets
Growth rate
* Romania market excludes Moldova.
Source: CME estimates, using the 2016 average exchange rate for all periods presented above.
$
$
2016
87
91
286
216
134
64
878
$
$
2015
87
89
275
191
124
60
826
$
$
2014
90
86
265
177
107
57
782
6%
6%
3%
On a constant currency basis, we estimate television advertising spending in our markets increased by 6% in 2016 compared to the previous year. In Bulgaria the market was flat as heavy
competition for market share continued to negatively impact average market prices, offsetting an increase in the volume of gross ratings points ("GRPs") sold. The market growth of 2% in
Croatia was due to an increase in both average market prices and GRPs sold. In the Czech Republic sell-out rates increased in 2016 as advertisers placed more advertising than in 2015, but
average prices were lower due to significant discounting by the competition to sell their incremental inventory so the market increased an estimated 4% . In Romania, the market maintained
significant growth in the last nine months of the year and was largely sold-out during that period, so the combination of an increase in GRPs sold and higher average prices resulted in 13%
growth in 2016. In the Slovak Republic, estimated market growth of 8% was driven by higher prices. Demand in the Slovak Republic in the first half of the year was also influenced by an
increase in spending on informational and political campaigns, but this spending declined year-on-year in the third quarter and fourth quarters so fewer GRPs were sold in 2016 since this
spending started in late 2015. In Slovenia, a more positive macro-economic environment has encouraged advertisers to increase investments resulting in an estimated 7% market growth driven
by higher prices.
Segment Performance
Bulgaria
Croatia
Czech Republic
Romania
Slovak Republic
Slovenia
Intersegment revenues
Total Net Revenues
(1) Number is not meaningful.
2016
72,651 $
55,607
190,372
172,951
90,549
56,912
(1,029)
638,013 $
2015
73,090
55,912
182,636
157,578
84,434
54,233
(2,042)
605,841
$
$
NET REVENUES
For The Year Ended December 31, (US$ 000's)
Movement
% Act
% Lfl
(0.6)%
(0.5)%
4.2 %
9.8 %
7.2 %
4.9 %
$
(0.3)%
(1.6)%
3.5 %
11.3 %
7.5 %
5.2 %
NM (1)
5.3 %
NM (1)
5.4 %
$
2015
73,090 $
55,912
182,636
157,578
84,434
54,233
(2,042)
605,841 $
2014
87,078
62,026
202,779
178,614
90,556
61,370
(1,630)
680,793
Movement
% Act
% Lfl
(16.1)%
(9.9)%
(9.9)%
(11.8)%
(6.8)%
(11.6)%
NM (1)
(11.0)%
0.2%
7.8%
6.3%
5.4%
11.0%
5.5%
NM (1)
5.9%
21
Index
Bulgaria
Croatia
Czech Republic
Romania
Slovak Republic
Slovenia
Eliminations
Total operating segments
Corporate
Total OIBDA
(1) Number is not meaningful.
Bulgaria
2016
12,242 $
8,578
77,018
62,016
15,947
4,801
2
180,604
(30,555)
150,049 $
2015
15,479
7,880
71,697
41,176
10,585
6,057
(229)
152,645
(29,830)
122,815
$
$
OIBDA
For The Year Ended December 31, (US$ 000's)
Movement
% Act
(20.9)%
8.9 %
7.4 %
50.6 %
50.7 %
(20.7)%
NM (1)
18.3 %
(2.4)%
22.2 %
% Lfl
(20.7)%
5.6 %
6.2 %
51.7 %
47.8 %
(20.6)%
NM (1)
17.7 %
(2.4)%
21.4 %
$
$
2015
15,479 $
7,880
71,697
41,176
10,585
6,057
(229)
2014
9,367
7,835
61,964
37,259
4,586
5,331
(16)
152,645
(29,830)
122,815 $
126,326
(30,880)
95,446
Movement
% Act
% Lfl
65.3%
0.6%
15.7%
10.5%
130.8%
13.6%
NM (1)
20.8%
3.4%
28.7%
96.1 %
21.9 %
35.1 %
31.9 %
164.5 %
33.6 %
NM (1)
42.5 %
(11.4)%
52.9 %
Television advertising
Carriage fees and subscriptions
Other
Net revenues
Costs charged in arriving at
OIBDA
OIBDA
$
$
2016
49,111
18,703
4,837
72,651
60,409
12,242
$
$
2015
50,717
17,853
4,520
73,090
57,611
15,479
For the Year Ended December 31, (US$ 000's)
Movement
% Act
% Lfl
(3.2)%
4.8 %
7.0 %
(0.6)%
4.9 %
(20.9)%
(3.0)%
5.3 %
7.3 %
(0.3)%
5.2 %
(20.7)%
$
$
2015
50,717
17,853
4,520
73,090
57,611
15,479
$
$
2014
61,464
19,808
5,806
87,078
77,711
9,367
Movement
% Act
% Lfl
(17.5)%
(9.9)%
(22.1)%
(16.1)%
(25.9)%
65.3 %
(1.6)%
7.8 %
(6.9)%
0.2 %
(11.4)%
96.1 %
OIBDA margin
16.9%
21.2%
(4.3) p.p.
(4.3) p.p.
21.2%
10.8%
10.4 p.p.
10.4 p.p.
The television advertising market in Bulgaria was estimated to be the same size at constant rates in 2016 as it was in 2015.
Television advertising revenues declined slightly in 2016 compared to 2015 as significant competition for market share has flooded the market with inexpensive inventory, which continues to
negatively impact our average prices and this has more than offset an increase in the volume of our GRPs sold. Carriage fees and subscription revenues increased because the number of cable,
satellite and IPTV subscribers has grown during the course of the year and a distribution agreement was renewed at higher prices during the third quarter.
Television advertising revenues decreased at constant rates in 2015 compared to 2014 primarily due to spending on election campaigns in 2014, and also reflected some reduction in budgets
from certain advertisers in 2015. The lack of spending on election campaigns in 2015 impacted the market more than it did our results, therefore excluding spending on election campaigns, our
television advertising revenues increased almost 1% year-on-year due to an increase in GRPs sold, which more than offset lower average prices. The decrease in television advertising revenues
during 2015 was offset by an increase in carriage fees and subscription revenues on a constant currency basis primarily due to growth in the number of cable, satellite and IPTV subscribers.
Costs charged in arriving at OIBDA increased at constant rates in 2016 compared to 2015 due primarily to a US$ 3.4 million bad debt charge related to our decision to cease cooperation with
one agency during the fourth quarter of 2016 and instead started working directly with the clients that agency represented. We replaced the segment manager in December 2016 and continue to
seek to recover the uncollected receivables. Content costs decreased less than 4% at constant rates, which was driven by savings in foreign acquired programming that more than offset a slight
increase in sports rights.
On a constant currency basis, costs decreased significantly in 2015 compared to 2014 primarily due to lower bad debt expense, restructuring charges incurred during 2014 that were not repeated
in 2015, and lower transmission costs, as two of our niche channels were available exclusively on cable and satellite platforms starting in 2015.
22
Index
Croatia
2016
Television advertising
$
49,096
$
Carriage fees and subscriptions
Other
Net revenues
Costs
OIBDA
charged in arriving at
2,561
3,950
55,607
47,029
OIBDA
$
8,578
$
2015
49,616
2,331
3,965
55,912
48,032
7,880
For the Year Ended December 31, (US$ 000's)
Movement
% Act
% Lfl
2015
(1.0)%
9.9 %
(0.4)%
(0.5)%
(2.1)%
8.9 %
(2.2)%
9.2 %
(0.9)%
(1.6)%
(2.8)%
5.6 %
$
49,616
$
2,331
3,965
55,912
48,032
$
7,880
$
2014
56,260
1,993
3,773
62,026
54,191
7,835
Movement
% Act
% Lfl
(11.8)%
17.0 %
5.1 %
(9.9)%
(11.4)%
0.6 %
5.5%
39.8%
25.7%
7.8%
5.8%
21.9%
OIBDA margin
15.4%
14.1%
1.3 p.p.
1.0 p.p.
14.1%
12.6%
1.5 p.p.
1.6 p.p.
The television advertising market in Croatia increased an estimated 2% at constant rates in 2016 compared to 2015.
Our television advertising revenues decreased at constant rates in 2016 as we sold a lower volume of GRPs compared to 2015, albeit at a higher average price. There was also a decrease in
sponsorship revenues.
The increase in television advertising revenues at constant rates in 2015 compared to 2014 was driven primarily by an increase in average prices due to advertisers spending more since the
country exited recession in the second quarter of 2015.
Costs charged in arriving at OIBDA in 2016 decreased on a constant currency basis compared to 2015 due to a 1% decrease in content costs, as savings in the costs related to foreign acquired
content more than offset additional local entertainment in the schedule compared to 2015. There was also a decrease in non-programming costs related to the reversal of a tax provision in 2016,
which is not expected to repeat in future periods.
On a constant currency basis, costs increased in 2015 compared to 2014 due to an increase in content costs resulting from additional entertainment formats in the fall schedule and other targeted
investments made to address an increase in competition for audience share.
23
Index
Czech Republic
For the Year Ended December 31, (US$ 000's)
Movement
Movement
2016
2015
% Act
% Lfl
2015
2014
% Act
% Lfl
Television advertising
$
172,392
$
166,158
Carriage fees and subscriptions
Other
Net revenues
Costs charged in arriving at
OIBDA
10,325
7,655
190,372
113,354
OIBDA
$
77,018
$
7,176
9,302
182,636
110,939
71,697
3.8 %
43.9 %
(17.7)%
4.2 %
2.2 %
7.4 %
3.0 %
43.0 %
(18.1)%
3.5 %
1.7 %
6.2 %
$
166,158
$
184,369
7,176
9,302
182,636
110,939
$
71,697
$
7,679
10,731
202,779
140,815
61,964
(9.9)%
(6.6)%
(13.3)%
(9.9)%
(21.2)%
15.7 %
6.3 %
11.1 %
2.9 %
6.3 %
(6.6)%
35.1 %
OIBDA margin
(1) Number is not meaningful.
40.5%
39.3%
1.2 p.p.
1.1 p.p.
39.3%
30.6%
8.7 p.p.
8.4 p.p.
The television advertising market in the Czech Republic increased an estimated 4% at constant rates in 2016 compared to 2015.
Advertisers bought more GRPs in 2016 resulting in higher television advertising revenues compared to 2015, however our average price for advertising was lower due to significant discounting
by the competition to sell incremental inventory provided by channels they launched late in 2015, which partially offset the additional volumes sold. Carriage fees and subscription revenues
increased due to high definition versions of our channels that were available exclusively on cable and satellite platforms for the entire year, as well as the contribution of NOVA SPORT 2,
launched in September 2015, and the launch of NOVA INTERNATIONAL during the first quarter of 2016.
Television advertising revenues increased on a constant currency basis in 2015 compared to 2014 due primarily to an increase in GRPs sold. Our relative pricing also strengthened. Carriage fees
and subscription revenues also increased on a constant currency basis during 2015, as high definition versions of our channels were included in most cable and satellite platforms during the
course of the year and also due to the launch of NOVA SPORT 2.
Costs charged in arriving at OIBDA in 2016 increased slightly on a constant currency basis compared to 2015 due to an increase in content costs. Additional spending to introduce several
entertainment formats in the program grid during 2016, including Your Face Sounds Familiar , was mostly offset by savings in local fiction, foreign acquired programming, and other non-
programming costs.
We recently rebranded our niche channels in the Czech Republic to bring them under the umbrella of our flagship brand, NOVA, and will expand our offering of local content on some of these
smaller channels, which historically have broadcast more foreign content, to make them more attractive to viewers. Although these investments will cause our content costs to increase in 2017,
we expect much of this to be offset by other overall cost savings.
On a constant currency basis, costs decreased in 2015 compared to 2014 as a result of a 9% decrease in content costs due to more efficient own production, better use of the program library, and
broadcasting more cost effective formats. There were also restructuring charges incurred in 2014 that were not repeated in 2015, which also decreased personnel costs in 2015. These savings
more than offset some additional investments in local productions.
24
Index
Romania
For the Year Ended December 31, (US$ 000's)
Movement
Movement
2016
2015
% Act
Television advertising
$
128,814
$
113,460
Carriage fees and subscriptions
Other
Net revenues
Costs charged in arriving at
OIBDA
40,202
3,935
172,951
110,935
OIBDA
$
62,016
$
40,292
3,826
157,578
116,402
41,176
13.5 %
(0.2)%
2.8 %
9.8 %
(4.7)%
50.6 %
% Lfl
14.9 %
1.5 %
4.2 %
11.3 %
(3.2)%
51.7 %
2015
2014
% Act
% Lfl
$
113,460
$
125,736
40,292
3,826
157,578
116,402
$
41,176
$
45,851
7,027
178,614
141,355
37,259
(9.8)%
(12.1)%
(45.6)%
(11.8)%
(17.7)%
10.5 %
7.7 %
5.3 %
(34.9)%
5.4 %
(1.6)%
31.9 %
OIBDA margin
35.9%
26.1%
9.8 p.p.
9.6 p.p.
26.1%
20.9%
5.2 p.p.
5.2 p.p.
The television advertising market in Romania increased an estimated 13% at constant rates in 2016 compared to 2015.
A fiscal stimulus is believed to have fueled improved consumer confidence and spending, which helped increase demand for advertising on television during the course of 2016. We fully
monetized additional inventory generated by our main channel compared to the prior year, which led to a higher sell-out rate in 2016. Contributing to this was the broadcasting of UEFA
European Championship matches in the second and third quarters. Since we sold more GRPs at significantly higher prices, our television advertising revenues increased during the year.
Carriage fees and subscription revenues grew slightly on a constant currency basis due to an increase in the number of cable and satellite subscribers.
Our television advertising revenues increased on a constant currency basis in 2015 compared to 2014 due to an increase in GRPs sold. Net revenues during 2015 also benefited from an increase
in carriage fees and subscription revenues due to an increase in the number of subscribers and improved prices from certain contracts that only took effect during the first quarter of 2014.
Costs charged in arriving at OIBDA in 2016 decreased at constant rates compared to 2015 . Non-programming costs decreased, primarily as a result of lower bad debts and professional fees,
savings from restructuring efforts, and lower transmission costs. This more than offset an increase in content costs as we invested more in the schedule to generate additional inventory, which
included the costs associated with broadcasting UEFA European Championship matches.
On a constant currency basis, costs decreased in 2015 compared to 2014 due to a decrease in content costs from fewer hours of foreign programming in the schedule and a reduction in the cost
of abandoned development projects, which more than offset an increase in the number of hours of local programming during 2015 compared to 2014. There were also fewer restructuring
charges in 2015 than in 2014.
25
Index
Slovak Republic
2016
Television advertising
$
84,779
$
Carriage fees and subscriptions
Other
Net revenues
Costs charged in arriving at
OIBDA
OIBDA
$
2,101
3,669
90,549
74,602
15,947
$
2015
79,135
1,324
3,975
84,434
73,849
10,585
For the Year Ended December 31, (US$ 000's)
Movement
% Act
% Lfl
2015
7.1 %
58.7 %
(7.7)%
7.2 %
1.0 %
50.7 %
7.4 %
59.0 %
(7.5)%
7.5 %
1.6 %
47.8 %
$
79,135
$
1,324
3,975
84,434
73,849
10,585
$
$
2014
85,355
980
4,221
90,556
85,970
4,586
Movement
% Act
% Lfl
(7.3)%
35.1 %
(5.8)%
(6.8)%
(14.1)%
130.8 %
10.3%
61.9%
13.0%
11.0%
2.5%
164.5%
OIBDA margin
17.6%
12.5%
5.1 p.p.
4.8 p.p.
12.5%
5.1%
7.4 p.p.
7.2 p.p.
The television advertising market in the Slovak Republic increased an estimated 8% at constant rates in 2016 compared to 2015.
Our television advertising revenues grew in 2016 compared to 2015 due primarily to higher prices, reflecting strong demand for advertising on television while the market remained largely sold-
out. Spending on informational and political campaigns during the first half of 2016 began to decline in the third quarter and due to the level of this spending that began in the second half of
2015, fewer GRPs were sold in 2016 compared to 2015, which reduced the benefit of the increase in prices. Carriage fees and subscription revenues increased in 2016 as we entered into new
agreements with a number of carriers and launched MARKIZA INTERNATIONAL during the first quarter of 2016.
Television advertising revenues grew on a constant currency basis in 2015 compared to 2014 due to higher prices and an increase in GRPs sold. The second half of 2015 also included an
increase in spending on informational campaigns by the public sector.
From January 1, 2017 our channels in the Slovak Republic have been exclusively available on cable, satellite and IPTV platforms following our decision not to renew our contract for the
terrestrial distribution of our channels there. This may initially result in lower audience shares, which could negatively impact our television advertising revenues in 2017 given our elevated sell-
out rate. However, we expect a significant increase in carriage fees and subscription revenues in 2017, as well as a significant decrease in transmission costs, which we believe will more than
offset any negative impact on television advertising revenues and contribute to higher margins for the segment.
Costs charged in arriving at OIBDA in 2016 increased slightly compared to 2015 due to increases in various non-programming costs. Content costs were flat year-on-year as investments in local
content were offset by savings from foreign acquired programming.
On a constant currency basis, costs increased in 2015 compared to 2014 due to an increase in the quality and number of hours of own production following increased competition for audience
share which was only partially offset by savings from lower transmission and marketing costs.
26
Index
Slovenia
2016
Television advertising
$
48,408
$
Carriage fees and subscriptions
Other
Net revenues
Costs charged in arriving at
OIBDA
4,714
3,790
56,912
52,111
OIBDA
$
4,801
$
2015
46,412
4,082
3,739
54,233
48,176
6,057
For the Year Ended December 31, (US$ 000's)
Movement
% Act
% Lfl
2015
4.3 %
15.5 %
1.4 %
4.9 %
8.2 %
(20.7)%
4.5 %
16.0 %
1.6 %
5.2 %
8.4 %
(20.6)%
$
46,412
$
4,082
3,739
54,233
48,176
$
6,057
$
2014
52,417
4,176
4,777
61,370
56,039
5,331
Movement
% Act
% Lfl
(11.5)%
(2.3)%
(21.7)%
(11.6)%
(14.0)%
13.6 %
5.8 %
16.9 %
(7.1)%
5.5 %
2.8 %
33.6 %
OIBDA margin
8.4%
11.2%
(2.8) p.p.
(2.8) p.p.
11.2%
8.7%
2.5 p.p.
2.4 p.p.
The television advertising market in Slovenia increased an estimated 7% at constant rates in 2016 compared to 2015.
Television advertising revenue increased during 2016 compared to 2015 as a result of higher average prices and a slight increase in GRPs sold as advertisers invested more in their campaigns.
Carriage fees and subscription revenues increased due to an increase in the monthly price for our Voyo subscription video on demand offering, as well as an increase in the number of cable and
satellite subscribers.
Net revenues increased at constant rates in 2015 compared to 2014 primarily due to an increase in television advertising revenues. Following growth in private consumption, the demand for
television advertising accelerated during 2015.
From January 16, 2017, our channels in Slovenia have been exclusively available on cable, satellite and IPTV platforms. This may initially result in lower audience shares, which could
negatively impact our television advertising revenues in 2017. However, we expect a significant increase in carriage fees and subscription revenues in 2017, as well as a decrease in transmission
costs, which we believe will more than offset any negative impact on television advertising revenues and contribute to higher margins for the segment.
Costs charged in arriving at OIBDA in 2016 increased at constant rates compared to 2015 primarily due to a 10% increase in content costs as the schedule in 2016 contained the most hours of
local programming in the last ten years.
On a constant currency basis, costs increased in 2015 compared to 2014 due to investment in more hours of own produced programming, which was partially offset by savings in other costs as a
result of restructuring efforts.
27
Index
II. Analysis of the Results of Operations and Financial Position
2016
2015
% Act
% Lfl
2015
2014
% Act
% Lfl
For The Year Ended December 31, (US$ 000's)
Movement
Movement
532,600 $
78,606
26,807
638,013
306,013
69,353
30,190
8,270
413,826
112,598
—
111,589 $
505,498
73,058
27,285
605,841
292,602
69,727
27,943
12,271
402,543
107,001
1,714
94,583
5.4 %
7.6 %
(1.8)%
5.3 %
4.6 %
(0.5)%
8.0 %
(32.6)%
2.8 %
5.2 %
(100.0)%
18.0 %
$
5.3 %
8.7 %
(1.7)%
5.4 %
505,498 $
73,058
27,285
605,841
4.9 %
(0.3)%
8.2 %
(32.6)%
3.1 %
292,602
69,727
27,943
12,271
402,543
5.3 %
(100.0)%
17.3 %
$
107,001
1,714
94,583 $
565,601
80,487
34,705
680,793
358,379
85,478
32,836
12,348
489,041
143,616
9,856
38,280
(10.6)%
(9.2)%
(21.4)%
(11.0)%
(18.4)%
(18.4)%
(14.9)%
(0.6)%
(17.7)%
(25.5)%
(82.6)%
147.1 %
6.2 %
8.6 %
(6.4)%
5.9 %
(2.7)%
(2.8)%
1.2 %
18.1 %
(1.9)%
(12.2)%
(78.8)%
198.2 %
Revenue:
Television advertising
$
Carriage fees and subscriptions
Other revenue
Net Revenues
Operating expenses:
Content costs
Other operating costs
Depreciation of property, plant
and equipment
Amortization of intangibles
Cost of revenues
Selling, general and
administrative expenses
Restructuring costs
Operating income
$
(1) Number is not meaningful.
Revenue:
Television advertising revenues: On a constant currency basis, television advertising revenues increased by 5% in 2016 compared to 2015 , while television advertising spending in our
markets is estimated to have increased by 6% . On a constant currency basis, television advertising revenues increased by 6% in 2015 compared to 2014 , in line with the increase in television
advertising spending for the same period.
Carriage fees and subscriptions: Carriage fees and subscription revenues increased during 2016 compared to 2015 , primarily due to the inclusion of high definition versions of certain of our
channels in our offering and the launch of additional channels in the Czech Republic. Carriage fees revenues also increased across a number of other segments due to higher cable, satellite and
IPTV subscriber counts. On a constant currency basis, carriage fees and subscription revenues increased in 2015 compared to 2014 , primarily due to higher subscriber numbers reported by the
carriers, the full year benefit from certain contracts that took effect during the first quarter of 2014 in Romania and the new carriage fee contracts in the Czech and Slovak Republics.
Other revenues: Other revenues, which includes primarily internet advertising, licensing and other services revenues, decreased during 2016 compared to 2015 and in 2015 compared to 2014
primarily due to lower license and sublicense revenues.
See "Segment Performance" above for additional information on trends in revenues.
Operating Expenses:
Content costs: Content costs (including production costs and amortization of programming rights) increased during 2016 compared to 2015 due to including an increased volume of fiction and
local programming in our broadcast schedules as well as our broadcasting of UEFA European Championship matches in Romania. Content costs decreased during 2015 compared to 2014 due to
cost savings realized through better utilization of the program library and negotiation with suppliers, which was partly offset by an increase of programming costs in several of our countries,
where heightened competition has required the use of more premium programming to maintain our audience share.
Other operating costs: Other operating costs during 2016 were broadly in line with 2015 as cost savings from lower transmission costs were offset by higher authors’ rights association
charges. Other operating costs for 2015 decreased compared to 2014 primarily due to lower transmission costs in Bulgaria, as two of our channels ceased terrestrial broadcasting in 2015 , as
well as full year savings of our restructuring efforts.
Depreciation of property, plant and equipment: On a constant currency basis, depreciation of property, plant and equipment increased in 2016 compared to 2015 and in 2015 compared to
2014 due to higher capital expenditures, which we had decreased significantly in prior years.
Amortization of intangibles: Amortization of intangibles decreased in 2016 compared to 2015 . The decrease is due to higher amortization expense in 2015 for certain of our trademarks in
Romania that we determined were no longer indefinite-lived and began amortizing from January 1, 2015 which were subsequently divested with the sale of our Romanian studios in the fourth
quarter of 2015. The lower amortization expense also reflects certain intangible assets in Bulgaria which were fully amortized in the fourth quarter of 2015. On a constant currency basis,
amortization of intangibles increased in 2015 compared to 2014 , primarily due to the amortization expense for certain of our Romanian trademarks noted above.
Selling, general and administrative expenses: Selling, general and administrative expenses increased during 2016 compared to 2015 primarily due to the reversal in the third quarter of 2015
of a charge related to certain tax audits in Romania. Excluding the impact of the reversal of this charge, selling, general and administrative expenses decreased due to lower professional fees and
the reversal of a tax provision in 2016 in Croatia. These decreases were offset by increased bad debt in Bulgaria as we ceased cooperation with one agency during the fourth quarter of 2016 and
instead started working directly with the clients that agency represented. Selling, general and administrative expenses decreased in 2015 compared to 2014 , primarily due to the reversal of a
charge related to the tax audits of Romania mentioned above.
28
Index
Selling, general and administrative expenses in 2016 include a charge of US$ 3.5 million in respect of non-cash stock-based compensation, an increase of US$ 1.1 million compared to 2015 (see
Item 8, Note 16, "Stock-based Compensation" ). Non-cash stock-based compensation charges were US$ 1.3 million in 2014 .
Restructuring costs: There were no restructuring charges in 2016 . The decrease in restructuring charges in 2015 compared to 2014 was primarily due to the elimination of fewer positions in
our 2015 plan as compared to the 2014 plan.
Operating income: On a constant currency basis, operating income increased from 2014 through 2016 largely due to increased television advertising and carriage fee revenues while
maintaining effective cost control efforts. Excluding the effect of the charge related to the Romanian tax audits, operating income in 2015 was US$ 82.6 million .
Our operating margin, which is determined as operating income / loss divided by net revenues, was 17.5% in 2016 , compared to 15.6% in 2015 and 5.6% in 2014 . Excluding the effects of the
charge and the release of the reserves related to the Romanian tax audits, operating margin in 2015 and 2014 was 13.6% and 7.4%, respectively.
Other income / expense items for the years ended December 31, 2016 , 2015 and 2014
Interest expense
Loss on extinguishment of debt
Non-operating expense, net:
Interest income
Foreign currency exchange gain / (loss), net
Change in fair value of derivatives
Other income / (expense), net
(Provision) / credit for income taxes
Loss from discontinued operations, net of tax
Net loss attributable to noncontrolling interests
Other comprehensive loss:
Currency translation adjustment, net
Unrealized loss on derivative instruments
(1) Number is not meaningful.
Other Income / (Expense)
For The Year Ended December 31, (US$ 000's)
$
2016
(132,224) $
(150,158)
2015
(171,444)
—
% Act
22.9 % $
(100.0)%
2015
(171,444) $
—
2014
(142,005)
(39,203)
592
6,648
(10,213)
486
(7,317)
—
306
1,649
(3,031)
440
(13,481)
4,848
(17,746)
515
(13,287)
671
(89,714)
(839)
34.5 %
NM (1)
NM (1)
NM (1)
NM (1)
100.0 %
(54.4)%
NM (1)
NM (1)
440
(13,481)
4,848
(17,746)
515
(13,287)
671
(89,714)
(839)
294
(12,767)
2,311
267
1,358
(80,431)
4,468
(156,236)
(581)
% Act
(20.7)%
100.0 %
49.7 %
(5.6)%
109.8 %
NM (1)
(62.1)%
83.5 %
(85.0)%
42.6 %
(44.4)%
Interest expense: Interest expense decreased in 2016 compared to 2015 , primarily due to lower amortization of debt discount and issuance costs following the extinguishment of the 2017 PIK
Notes and 2017 Term Loan and due to a lower cost of borrowing following the refinancing of such indebtedness (each bearing interest of 15% per annum) with the 2021 Euro Term Loan (with
an all-in rate of 9.0% per annum as at December 31, 2016). Interest expense increased in 2015 compared to 2014 , primarily due to the full year interest expense and amortization of debt
issuance costs and original issuance discount related to refinancing transactions conducted in 2015(see Item 8, Note 14, "Interest Expense" ).
Loss on extinguishment of debt: In 2016 , we recognized a loss on extinguishment of debt related to the redemption and discharge of the 2017 PIK Notes, repayment of the 2017 Term Loan
and modifications of the 2018 Euro Term Loan and the 2019 Euro Term Loan, which were accounted for in a similar manner as a debt extinguishment. In 2014 , we recognized losses on the
redemption of the remaining outstanding portion of our 2016 Fixed Rate Notes and the redemption of the 2017 Fixed Rate Notes.
Interest income: Our interest income is generated solely by interest accrued on our cash deposits.
Foreign currency exchange gain / (loss), net: We are exposed to fluctuations in foreign exchange rates on the revaluation of monetary assets and liabilities denominated in currencies other
than the local functional currency of the relevant subsidiary. This includes third party receivables and payables, including certain of our intercompany loans which are not considered of a long-
term investment nature. Our subsidiaries generally receive funding via loans that are denominated in currencies other than the dollar, and any change in the relevant exchange rate will require us
to recognize a transaction gain or loss on revaluation. Certain of our intercompany loans are classified as long-term in nature, and therefore gains or losses on revaluation are not recorded
through the statement of operations and comprehensive income / loss. See the discussion under "Currency translation adjustment, net" below.
In 2016 , we recognized a net gain of US$ 6.6 million , comprised of transaction gains of US$ 38.1 million relating to the revaluation of intercompany loans, transaction losses of approximately
US$ 28.4 million on our long-term debt and other financing arrangements and transaction losses of US$ 3.1 million relating to the revaluation of monetary assets and liabilities denominated in
currencies other than the local functional currency of the relevant subsidiary.
In 2015 , we recognized a net loss of US$ 13.5 million , comprised of transaction losses of US$ 29.7 million relating to the revaluation of intercompany loans, transaction gains of approximately
US$ 31.5 million on our long-term debt and other financing arrangements and transaction losses of US$ 15.3 million relating to the revaluation of monetary assets and liabilities denominated in
currencies other than the local functional currency of the relevant subsidiary.
In 2014 , we recognized a net loss of US$ 12.8 million , comprised of transaction gains of US$ 1.3 million relating to the revaluation of intercompany loans, transaction gains of approximately
US$ 4.3 million on our long-term debt and other financing arrangements and transaction losses of US$ 18.4 million relating to the revaluation of monetary assets and liabilities denominated in
currencies other than the local functional currency of the relevant subsidiary.
29
Index
Change in fair value of derivatives: During 2016 , we recognized a net loss primarily due to a loss on USD/EUR foreign currency forward contracts entered into in connection with the
refinancing of the 2017 PIK Notes and 2017 Term Loan. During 2015 , we recognized a net gain primarily as a result of a gain on a foreign currency forward contract entered into in connection
with the refinancing of the 2015 Convertible Notes at maturity, which was partly offset by losses on certain other foreign currency forward contracts relating to certain dollar-denominated
programming payments made in 2015 . During 2014 , we recognized a net gain as a result of a gain on a foreign currency forward contract entered into in connection with the refinancing of the
2016 Fixed Rate Notes. See Item 8, Note 13, "Financial Instruments and Fair Value Measurements" .
Other income / (expense), net: Other income / expense, net was not material in 2016 or 2014. Other expense in 2015 was primarily due to the loss on sale of the parent company of our former
Romanian studio operation, which did not meet the definition of a discontinued operation, and on the loss on sale of an excess facility in Bulgaria.
(Provision) / credit for income taxes: The provision for income taxes during 2016 reflects tax charges on profits in the Czech Republic and Romania offset by the release of the valuation
allowances in Bulgaria and the Slovak Republic.
The credit for income taxes during 2015 reflects the release of a valuation allowance in Romania offset by deferred tax charges on profits in the Czech Republic and Croatia.
The credit for income taxes during 2014 reflects the value of the deferred tax benefit that we have realized on the operating loss incurred by our Czech Republic segment, which was
substantially lower in 2014 compared to 2013 .
Our operating subsidiaries are subject to income taxes at statutory rates ranging from 10.0% in Bulgaria to 22.0% in Slovakia (see Item 8, Note 17, "Income Taxes" ). From January 1, 2017, the
statutory income tax rate in the Slovak Republic is 21%.
Net loss attributable to noncontrolling interests: The net losses attributable to noncontrolling interests relate to the noncontrolling interest share of the comprehensive losses in our Bulgaria
operations.
Currency translation adjustment, net: The underlying equity value of our investments (which are denominated in the functional currency of the relevant entity) are converted into dollars at
each balance sheet date, with any change in value of the underlying assets and liabilities being recorded as a currency translation adjustment to the balance sheet rather than net income / loss.
In 2016 , we recognized other comprehensive income of US$ 1.6 million compared to other comprehensive losses of US$ 89.7 million and US$ 156.2 million in 2015 and 2014 . Included in
these amounts are foreign exchange gains and losses on the retranslation of certain of our intercompany loans which are considered to be of a long-term investment nature, and as such, are
included in accumulated other comprehensive income / loss, a component of shareholders' equity. For the years ended December 31, 2016 , 2015 and 2014 , we recognized a gain of US$
8.8 million and losses of US$ 89.0 million and US$ 164.4 million , respectively, in accumulated other comprehensive income / loss. In addition, management determined that CME Ltd.'s
functional currency is the Euro with effect from April 1, 2016. As a result of this change, we recognized a charge of US$ 4.2 million of currency translation adjustment in the second quarter of
2016 due to the translation of non-monetary assets into Euro as of the date of the change.
The following charts depict the movement of the dollar versus the functional currencies of our operations, based on monthly closing rates, during 2016 , 2015 and 2014 .
Percent Change During the Year Ended December 31, 2016
30
Index
Percent Change During the Year Ended December 31, 2015
Percent Change During the Year Ended December 31, 2014
Unrealized loss on derivative instruments: The unrealized loss on derivatives is due to the effective portion of changes in the fair value of our interest rate swaps classified as cash flow
hedges and recognized in accumulated other comprehensive income / loss.
31
Index
Summarized consolidated balance sheets as at December 31, 2016 and December 31, 2015
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Temporary equity
CME Ltd. shareholders’ (deficit) / equity
Noncontrolling interests in consolidated subsidiaries
(1) Number is not meaningful.
December 31, 2016
$
340,420 $
1,050,297
171,564
1,070,786
254,899
(107,804)
1,272
December 31, 2015
358,284
1,082,133
146,308
974,270
241,198
77,260
1,381
Movement
(5.0)%
(2.9)%
17.3 %
9.9 %
5.7 %
NM (1)
(7.9)%
Note: The analysis below is intended to highlight the key factors that led to the movements from December 31, 2015 , excluding the impact of foreign currency translation.
Current assets: Current assets at December 31, 2016 decreased compared to December 31, 2015 due to lower cash, which was primarily used to pay Guarantee Fees in respect of the 2018
Euro Term Loan (including Guarantee Fees previously paid in kind) and lower deferred tax assets which were reclassified to non-current upon the prospective adoption of new accounting
guidance. These decreases were partly offset by higher accounts receivable as a result of increased revenue.
Non-current assets: Excluding the effects of foreign currency translation, non-current assets at December 31, 2016 increased slightly compared to December 31, 2015 , primarily due to an
increase in the amount of local productions ahead of the spring schedule as well as capital expenditures made during 2016. The increases are partly offset by amortization expense related to debt
issuance costs and our finite-lived intangible assets.
Current liabilities: Current liabilities at December 31, 2016 increased compared to December 31, 2015 , primarily as a result of higher accrued interest (including Guarantee Fees) payable,
programming payables and income taxes payable.
Non-current liabilities: Non-current liabilities at December 31, 2016 increased compared to December 31, 2015 , primarily due to the refinancing of the 2017 PIK Notes and the 2017 Term
Loan, both of which had significant issuance discounts, with the 2021 Euro Term Loan, which had no such discount (see Item 8, Note 4, "Long-term Debt and Other Financing Arrangements" ).
Temporary equity: Temporary equity at December 31, 2016 and 2015 represents the accreted value of the Series B Preferred Shares issued to TW Investor on June 25, 2013.
CME Ltd. shareholders’ (deficit) / equity: CME Ltd. shareholders’ equity decreased to a deficit in 2016 , primarily due to the net loss attributable to CME Ltd., accretion of the preferred
dividend paid in kind on our Series B Preferred Shares and unrealized losses on derivative instruments designated as interest rate hedges of the Euro Term Loans. These decreases were partly
offset by exercises of common stock warrants and stock-based compensation charges.
Noncontrolling interests in consolidated subsidiaries: The noncontrolling interests in consolidated subsidiaries represents the noncontrolling interest share of our Bulgaria operations.
32
Index
III. Liquidity and Capital Resources
III(a) Summary of Cash Flows
Cash and cash equivalents decreased by US$ 18.2 million during 2016 . The change in cash and cash equivalents for the periods presented below is summarized as follows:
Net cash generated from / (used in) continuing operating activities
Net cash used in continuing investing activities
Net cash (used in) / provided by continuing financing activities
Net cash provided by / (used in) discontinued operations
Impact of exchange rate fluctuations on cash
Net (decrease) / increase in cash and cash equivalents
Operating Activities
For The Year Ended December 31, (US$ 000's)
$
$
2016
33,917
$
(29,356)
(22,743)
1,194
(1,232)
(18,220)
$
2015
85,877 $
(30,426)
(28,906)
3,503
(2,667)
27,381 $
2014
(65,242)
(28,548)
38,995
(2,578)
(10,651)
(68,024)
Cash generated from continuing operations during 2016 decreased as compared to 2015 as higher revenue and OIBDA were offset by higher cash payments for interest and for Guarantee Fees,
including Guarantee Fees previously paid in kind. Cash generated from continuing operations during 2015 increased compared to 2014 due to better OIBDA performance and lower interest
payments paid in cash. Additionally, the level of payments for programming was more normalized in 2015 than in prior years, which also contributed to the improvement in free cash flow.
We paid cash interest (including in respect of Guarantee Fees) of US$ 91.4 million , US$ 18.5 million and US$ 76.2 million on our long-term debt and credit facilities in 2016 , 2015 and 2014 ,
respectively.
Investing Activities
Net cash used in continuing investing activities consists primarily of capital expenditures for property, plant and equipment.
Financing Activities
The net cash used in continuing financing activities in 2016 primarily reflected the refinancing of the 2017 PIK Notes and the 2017 Term Loan with the proceeds of the 2021 Euro Term Loan
and cash on hand, including payments for transaction fees and to settle a foreign currency forward contract we entered into in connection with the refinancing. We received proceeds of US$ 7.0
million from the exercise of common stock warrants.
The net cash used in continuing financing activities in 2015 primarily reflected the repayment of the amounts outstanding under the 2021 Revolving Credit Facility and the refinancing of the
2015 Convertible Notes with the 2019 Euro Term Loan. We also received net proceeds of US$ 8.0 million from a foreign currency forward contract we entered into in connection with the
refinancing of the 2015 Convertible Notes.
The net cash provided by continuing financing activities during 2014 primarily reflected the proceeds of the rights offering conducted in 2014 and related financing transactions and a drawdown
on the 2021 Revolving Credit Facility, partially offset by the payment made to redeem and discharge the 2016 Fixed Rate Notes and the 2017 Fixed Rate Notes.
Discontinued Operations
The net cash provided by discontinued operations during 2016 and 2015 primarily reflected proceeds from the divestiture of businesses, including deferred proceeds. The net cash used in
discontinued operations in 2014 primarily reflected the net cash used in our businesses classified as discontinued operations.
III(b) Sources and Uses of Cash
Our ongoing source of cash is primarily the receipt of payments from advertisers, advertising agencies and distributors of our television channels. We also have available the 2021 Revolving
Credit Facility (see Item 8, Note 4, "Long-term Debt and Other Financing Arrangements" ). As at December 31, 2016 , the undrawn aggregate principal amount available under the 2021
Revolving Credit Facility was US$ 115.0 million, which will be reduced to US$ 50.0 million from January 1, 2018. Surplus cash, after funding ongoing operations, may be remitted to us, where
appropriate, by our subsidiaries in the form of debt interest payments and capital repayments, dividends, and other distributions and loans from our subsidiaries.
Corporate law in the Central and Eastern European countries in which we operate stipulates generally that dividends may be declared by 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% ) be allocated to a reserve, which reserve is capped at a proportion of the registered capital of a company (ranging from 5% to
20% ). There are no third-party restrictions that limit our subsidiaries' ability to transfer amounts to us in the form of loans or advances.
33
Index
III(c) Contractual Obligations, Commitments and Off-Balance Sheet Arrangements
Our future contractual obligations as at December 31, 2016 were as follows:
Long-term debt – principal
Long-term debt – interest
Unconditional purchase obligations
Operating leases
Capital lease obligations
Other long-term obligations
Total contractual obligations
Long-Term Debt
Payments due by period (US$ 000’s)
Total
Less than 1 year
1,006,597
$
— $
369,398
128,821
8,610
4,450
34,275
35,497
44,071
3,374
1,570
17,545
1,552,151
$
102,057
$
1-3 years
512,435 $
186,626
66,963
3,000
2,342
16,008
787,374 $
$
$
More than 5 years
3-5 years
494,162 $
147,275
15,506
803
538
678
658,962 $
—
—
2,281
1,433
—
44
3,758
For more information on our long-term debt, see Item 8, Note 4, "Long-term Debt and Other Financing Arrangements" . Interest payable on our long-term debt is calculated using interest rates
and exchange rates as at December 31, 2016 . For the purposes of the above table, it is assumed that the Guarantee Fees will be paid in kind at each interest payment date until the maturity dates
of the related Euro Term Loan and such amounts are included under "Long-term debt - interest.".
Unconditional Purchase Obligations
Unconditional purchase obligations primarily comprise future programming commitments. At December 31, 2016 , we had commitments in respect of future programming of US$ 128.2 million
. This includes contracts signed with license periods starting after December 31, 2016 .
Operating Leases
For more information on our operating lease commitments see Item 8, Note 20, "Commitments and Contingencies" .
Other Long-Term Obligations
Other long-term obligations are primarily comprised of digital transmission commitments.
Other
Top Tone Media Holdings Limited has exercised its right to acquire additional equity in CME Bulgaria. However, the closing of this transaction has not yet occurred because purchaser
financing is still pending. If consummated, we would own 90.0% of our Bulgaria broadcast operations. The option strike price is the fair value of the equity in CME Bulgaria, as determined by
an independent valuation.
III(d) Cash Outlook
Because cash flows from operating activities were negative in 2012, 2013 and 2014, we relied on equity and debt financings to ensure adequate funding for our operations. While cash flows
from operating activities were positive in 2015 and 2016, our election to pay interest on the 2017 PIK Notes and the 2017 Term Loan (prior to their repayment) and Guarantee Fees in kind
increased our gross leverage. In response, we have sought other capital resources to fund our operations, our debt service and other obligations, including the refinancing transaction below.
On April 7, 2016, we drew on the EUR 468.8 million (approximately US$ 534.0 million as at the transaction date) 2021 Euro Term Loan, the proceeds of which, together with cash on hand,
were applied toward the repayment of the 2017 Term Loan plus accrued interest and the redemption and discharge of the 2017 PIK Notes plus accrued interest thereon. We also extended the
maturity date of the 2018 Euro Term Loan by one year to November 1, 2018. In addition, we amended the interest rate applicable to amounts drawn on the 2021 Revolving Credit Facility such
that interest is determined on the basis of our net leverage ratio (as defined in the Reimbursement Agreement) and ranges from LIBOR (subject to a floor of 1.0%) plus 9.0% if our net leverage
ratio is greater than or equal to seven times, to LIBOR (subject to a floor of 1.0%) plus 6.0% per annum if our net leverage ratio is less than five times; and extended the maturity date of the
2021 Revolving Credit Facility to February 19, 2021, with a reduction in the borrowing capacity from US$ 115.0 million to US$ 50.0 million from January 1, 2018. Following these
transactions, our nearest debt maturity is November 1, 2018 and our cost of borrowing has decreased.
We are continuing to take actions to improve cash flow including maintaining strict cost discipline and improving working capital management, with the intention of using cash generated by the
business, together with expected proceeds from warrant exercises and savings from lower debt service obligations, to substantially repay our nearest debt maturity in November 2018. We intend
to commence repayment of such maturity beginning November 2017. In this respect, in 2016 we paid US$ 37.4 million of Guarantee Fees related to the 2018 Euro Term Loan, including
amounts previously paid in kind, and we expect to pay all Guarantee Fees related to the 2018 Euro Term Loan in cash as they come due. We anticipate paying Guarantee Fees related to the 2019
Euro Term Loan and the 2021 Euro Term Loan, in kind where we have the option. We are also continuing to evaluate possibilities to further deleverage the business.
In addition, we expect the amounts of cash paid for income taxes to increase and begin converging with local statutory tax rates as our operating companies in each jurisdiction return to
generating profits and previous net operating losses are utilized.
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Index
Credit ratings and future debt issuances
Our corporate credit is rated B2 by Moody's Investors Service and B+ by Standard & Poor's, both with stable outlook. Our ratings show each agency's opinion of our financial strength, operating
performance and ability to meet our debt obligations as they become due. These ratings take into account the particular emphasis the ratings agencies place on metrics such as leverage ratio and
cash flow, which they use as measurements of a company's liquidity and financial strength. They also reflect an emphasis by the ratings agencies on the track record of strong financial support
from Time Warner. We may be subject to downgrades if our operating performance deteriorates or we fail to maintain adequate levels of liquidity. In addition, our ratings may be downgraded if
the agencies form a view that material support from Time Warner is not as strong, or the strategic importance of CME to Time Warner is not as significant as it has been in the past.
Credit risk of financial counterparties
We have entered into a number of significant contracts with financial counterparties as follows:
Interest Rate Swap
We are party to interest rate swap agreements to mitigate our exposure to interest rate fluctuations on our Euro Term Loans. These interest rate swaps, designated as cash flow hedges, provide
the Company with variable-rate cash receipts in exchange for fixed-rate payments over the lives of the agreements, with no exchange of the underlying notional amount.
Foreign Exchange Forwards
We are exposed to movements in the USD to EUR exchange rates related to contractual payments under dollar-denominated agreements. To reduce this exposure, from time to time we enter
into pay-Euro receive-dollar forward foreign exchange contracts. We had no such agreements outstanding at December 31, 2016.
Cash Deposits
We deposit cash in the global money markets with a range of bank counterparties and review the counterparties we choose weekly. The maximum period of deposit is three months but we have
more recently held amounts on deposit for shorter periods, from overnight to one month. The credit rating of a bank is a critical factor in determining the size of cash deposits and we will only
deposit cash with banks of investment grade. 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.
III(e) Off-Balance Sheet Arrangements
None.
IV. Critical Accounting Policies and Estimates
Our accounting policies affecting our financial condition and results of operations are more fully described in Item 8, Note 2, "Basis of Presentation and Summary of Significant Accounting
Policies" . 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 amounts 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 the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
Program Rights
Program rights consist of programming (film and television) acquired from third parties and produced locally, which together form an important component of our station broadcasting
schedules. Acquired program rights and the related liabilities are recorded at their gross value when the license period begins and the programs are available for use. Where the initial airing of
content allowed by a license is expected to provide more value than subsequent airings, program rights are amortized over their expected useful lives in a manner which reflects the pattern we
expect to use and benefit from the programming. These films and series are amortized with the amortization charged in respect of each airing calculated in accordance with a schedule that
reflects our estimate of the relative economic value of each run. We review our programming amortization policy when events occur or circumstances change that would so require.
The program library is evaluated at least quarterly to determine if expected revenues are sufficient to cover the unamortized portion of each program. To the extent that the revenues we expect to
earn from broadcasting a program are lower than the book value, the program rights are written down to their net realizable value by recording an impairment charge. Accordingly, our estimates
of future advertising and other revenues, and our future broadcasting schedules have a significant impact on the value of our program rights on the consolidated balance sheet and the annual
programming amortization charge recorded in the consolidated statement of operations and comprehensive income / loss.
Produced Program Rights
We also produce and license a variety of filmed content. The majority of this is television movies and series which are predominantly expected to be utilized by transmission on our broadcast
stations. Produced program rights, which include direct costs, production overhead and development costs, are stated at the lower of cost, net of accumulated amortization, or net realizable
value.
When we recognize revenue on a title, we also recognize a proportion of the capitalized film costs in the respective statements of operations using the individual film forecast model. The
proportion of costs recognized is equal to the proportion of the revenue recognized compared to the total revenue expected to be generated throughout the title's life cycle (the "ultimate
revenues").
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Index
The process of evaluating a title's ultimate revenues requires management judgment and is inherently subjective. The calculation of ultimate revenue can be a complex one, however, the level of
complexity and subjectivity is correlated to the number of revenue streams that management believes will be earned. Our process for evaluating ultimate revenues is tailored to the potential we
believe a title has for generating multiple types of revenues. As already mentioned, the majority of our production is intended primarily for exploitation by our own broadcasters and we have
few supportable expectations of generating revenue from other sources. In such cases, we consider mainly the free television window in our calculation of the ultimate revenue. Changes in
estimates of ultimate revenues from period to period affect the amount of film costs amortized in a given period and, therefore, could have an impact on our results for that period.
When the estimated ultimate revenues, less additional costs to be incurred (including exploitation costs), are less than the carrying amount of the film costs, the value of a film is deemed to be
not recoverable and thus, an immediate write-off of unrecoverable film costs is recorded in the consolidated statements of operations and comprehensive income / loss.
Impairment of goodwill, indefinite-lived intangible assets and long-lived assets
We assess the carrying amount of goodwill and other intangible assets with indefinite lives on an annual basis, or more frequently if events or changes in circumstances indicate that such
carrying amount may not be recoverable. Other than our annual review, factors we consider important which could trigger an impairment review include: under-performance of reporting units
or changes in projected results, changes in the manner of utilization of the asset, a severe and sustained decline in the price of our shares and negative market conditions or economic trends.
Therefore, our judgment as to the future prospects of each business has a significant impact on our results and financial condition. We believe that our assumptions are appropriate. If future cash
flows do not materialize as expected or there is a future adverse change in market conditions, we may be unable to recover the carrying amount of an asset, resulting in future impairment losses.
Impairment tests of our goodwill are performed at the reporting unit level. If potential impairments of goodwill exist, the fair value of the reporting unit is subsequently measured against the fair
value of its underlying assets and liabilities, excluding goodwill, to estimate an implied fair value of the reporting unit's goodwill. An impairment loss is recognized for any excess of the
carrying amount of the reporting unit's goodwill over the implied fair value. If goodwill and another asset or asset group are tested for impairment at the same time, the other assets are tested for
impairment before goodwill. If the other asset or asset group is impaired, this impairment loss is recognized prior to goodwill being tested for impairment. Impairment tests of other intangible
assets with indefinite lives are performed at the asset level. An impairment loss is recognized for any excess of the carrying amount of the intangible asset over the fair value.
The fair value of each reporting unit, and consequently the implied fair value of the reporting unit's goodwill, is determined using an income methodology estimating projected future cash flows
related to each reporting unit. These projected future cash flows are discounted back to the valuation date. Significant assumptions inherent in the methodology used include estimates of
discount rates, future revenue growth rates and a number of other factors, all of which are based on our assessment of the future prospects and the risks inherent at the respective reporting units.
We have identified six reporting units which consist of our six geographic operating segments: Bulgaria, Croatia, Czech Republic, Romania, Slovak Republic and Slovenia.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the
respective asset. The same estimates are also used in planning for our long- and short-range business planning and forecasting. We assess the reasonableness of the inputs and outcomes of our
undiscounted cash flow analysis against available comparable market data. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is
recognized for the amount by which the carrying amount exceeds the fair value of the respective asset.
The table below shows the key measurements involved and the valuation methods applied:
Measurement
Recoverability of carrying amounts
Fair value of broadcast licenses
Fair value of indefinite-lived trademarks
Fair value of reporting units
Valuation Method
Undiscounted future cash flows
Build-out method
Relief from royalty method
Discounted cash flow model
Our estimate of the cash flows our operations will generate in future periods forms the basis for most of the significant assumptions inherent in our impairment reviews. Our expectations of
these cash flows are developed during our long- and short-range business planning processes, which are designed to address the uncertainties inherent in the forecasting process by capturing a
range of possible views about key trends which govern future cash flow growth.
Each method noted above involves a number of significant assumptions over an extended period of time which could materially change our decision as to whether assets are impaired. The most
significant of these assumptions include: the discount rate applied, the total advertising market size, achievable levels of market share, forecast OIBDA and capital expenditure and the rate of
growth into perpetuity, each described in more detail below:
•
•
Cost of capital: The cost of capital reflects the return a hypothetical market participant would require for a long-term investment in an asset and can be viewed as a proxy for the risk
of that asset. We calculate the cost of capital according to the Capital Asset Pricing Model using a number of assumptions, the most significant of which is a Country Risk Premium
(“CRP”). The CRP reflects the excess risk to an investor of investing in markets other than the United States and generally fluctuates with expectations of changes in a country's
macro-economic environment. The costs of capital that we have applied to cash flows for our 2016 annual impairment test are generally lower than those we had used in the 2015
impairment test due to a decrease in the US risk free rate. Further decreases were noted in Bulgaria, a result of an upgrade in risk rating, and in Romania due to reduced concerns over
deflationary pressures.
Total advertising market: The size of the television advertising market effectively places an upper limit on the advertising revenue we can expect to earn in each country. Our estimate
of the total advertising market is developed from a number of external sources, in combination with a process of on-going consultation with our segment management teams. In our
2016 annual impairment review, we increased our medium- and long-term view of the size of the television advertising markets compared to the estimates used in the 2015 annual
impairment review based on our estimate of the macro economic outlook of our operating markets.
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Index
•
•
•
•
Market share: This is a function of the audience share we expect our stations to generate, and the relative price at which we can sell advertising. Our estimate of the total advertising
market is developed from a number of external sources, in combination with a process of on-going consultation with our segment management teams. Our estimates for our market
share in our 2016 annual impairment review decreased slightly from those in our 2015 impairment review, however, revenues are expected to increase due to the estimated growth in
the total advertising market.
Forecast OIBDA: The level of cash flow generated by each operation is ultimately governed by the extent to which we manage the relationship between revenues and costs. We
forecast the level of operating costs by reference to (a) the historical absolute and relative levels of costs we have incurred in generating revenue in each reporting unit, (b) the
operating strategy of each business and (c) specific forecast costs to be incurred. Our annual impairment review includes assumptions to reflect benefits of cost control measures taken
to date, and contemplated further cost control efforts.
Forecast capital expenditure: The size and phasing of capital expenditure, both recurring expenditure to replace retired assets and investments in new projects, has a significant impact
on cash flows. We forecast the level of future capital expenditure based on current strategies and specific forecast costs to be incurred. The absolute levels of capital expenditure
forecast have generally increased since the prior year impairment review due to the replacement of end of life production equipment.
Growth rate into perpetuity: This reflects the level of economic growth in each of our markets from the final year in our discrete forecast period into perpetuity and is the sum of an
estimated real growth rate, which reflects our belief that macro-economic growth in our markets will ultimately converge to Western European markets, and long-term expectations
for inflation. Our estimates of these rates are based on observable market data and, in most operating countries, have remained broadly consistent with those used in our 2015 annual
impairment test.
Assessing goodwill and indefinite-lived intangible assets for impairment is a complex process that requires significant judgment and involves a great deal of detailed quantitative and qualitative
business-specific analysis and many individual assumptions which fluctuate with the passage of time. Our estimate of the cash flows our operations will generate in future periods forms the
basis for most of the significant assumptions inherent in our impairment reviews. Our expectations of these cash flows are developed during our long- and short-range business planning
processes, which are designed to address the uncertainties inherent in the forecasting process by capturing a range of possible views about key trends which govern future cash flow growth. We
have observed over many years a strong positive correlation between the macro economic performance of our markets and the size of the television advertising market and the cash flows we
generate. With this in mind, we have considered macro economic trends in determining our cash flow forecasts. If our cash flow forecasts for our operations deteriorate, or if uncertainty
surrounding the Eurozone and its periphery returns causing costs of capital to increase, we may be required to recognize impairment charges in later periods.
Upon conclusion of our 2016 annual review, we determined that the fair values of our goodwill and indefinite-lived intangible assets were substantially in excess of their respective carrying
values. We concluded that the total estimated fair values used for purposes of the test are reasonable by comparing our market capitalization to the results of the discounted cash flow analysis of
our reporting units, as adjusted for unallocated corporate assets and liabilities. The balance of goodwill allocated to each reporting unit is presented in Item 8, Note 3, "Goodwill and Intangible
Assets" .
Revenue Recognition
Net revenues predominantly comprise revenues from the sale of advertising time less discounts and agency commissions, and fees charged to cable and satellite operators for carriage of our
channels. Net revenues are recognized when the advertisement is aired as long as there is persuasive evidence that an arrangement with a customer exists, the price of the delivered advertising
time is fixed or determinable, and collection of the arrangement fee is reasonably assured. In the event that a customer falls significantly behind its contractual payment terms, revenue is
deferred until the customer has resumed normal payment terms.
We maintain a bad debt provision for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate,
additional allowances may be required in future periods. We review the accounts receivable balances periodically and our historical bad debt, customer concentrations and customer
creditworthiness when evaluating the adequacy of our provision.
Income Taxes
The provision for income taxes includes local and foreign taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences of temporary differences between the
financial statement carrying amounts and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in
which the temporary differences are expected to be recovered or settled. We evaluate the realizability of our deferred tax assets and establish a valuation allowance when it is more likely than
not that all or a portion of deferred tax assets will not be realized.
In evaluating the realizability of our deferred tax assets, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected
future taxable income, tax planning strategies and recent financial operations. Any reduction in estimated forecasted results may require that we record additional valuation allowances against
our deferred tax assets. Once a valuation allowance has been established, it will be maintained until there is sufficient positive evidence to conclude that it is more likely than not that such assets
will be realized. An ongoing pattern of sustained profitability will generally be considered as sufficient positive evidence. If the allowance is reversed in a future period, our income tax
provision will be reduced to the extent of the reversal. Accordingly, the establishment and reversal of valuation allowances has had and could continue to have a significant negative or positive
impact on our future earnings.
We measure deferred tax assets and liabilities using enacted tax rates that, if changed, would result in either an increase or decrease in the provision for income taxes in the period of change.
From time to time, we engage in transactions, such as business combinations and dispositions, in which the tax consequences may be subject to uncertainty. Significant judgment is required in
assessing and estimating the tax consequences of these transactions. We prepare and file tax returns based on interpretation of tax laws and regulations. In the normal course of business, our tax
returns are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessments by these taxing authorities. We only recognize tax benefits
taken on tax returns when we believe they are “more likely than not” of being sustained upon examination based on their technical merits. There is considerable judgment involved in
determining whether positions taken on the tax return are “more likely than not” of being sustained.
We recognize, when applicable, both accrued interest and penalties related to unrecognized benefits in income tax expense in the accompanying consolidated statements of operations and
comprehensive income / loss.
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Foreign exchange
Our reporting currency is the dollar but a significant portion of our consolidated revenues and costs are in other currencies, including programming rights expenses and, following the financing
transactions concluded in April 2016, interest on all of our long-term debt. Following the financing transactions, CME Ltd.'s income and expenses are primarily denominated in Euro. It is
anticipated that CME Ltd.'s cash flows will primarily be in Euro. Accordingly, management has determined that CME Ltd.'s functional currency is the Euro with effect from April 1, 2016. Our
other operations have functional currencies other than the dollar.
We record assets and liabilities denominated in a currency other than our functional currency using the exchange rate prevailing at each balance sheet date, with any change in value between
reporting periods being recognized as a transaction gain or loss in our consolidated statements of operations and comprehensive income / loss. We are exposed to foreign currency on the
revaluation of monetary assets and liabilities denominated in currencies other than the local functional currency of the relevant subsidiary. This includes third party receivables and payables, as
well as certain intercompany loans, which are generally provided in currencies other than the dollar.
Certain of our intercompany loans 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. For the
years ended December 31, 2016 , 2015 and 2014 , we recorded a gain of US$ 8.8 million and losses of US$ 89.0 million and US$ 164.4 million , respectively, on the retranslation of these
intercompany loans as an adjustment to accumulated other comprehensive income / loss, a component of shareholders' equity.
The financial statements of our operations are translated to dollars at the exchange rates in effect at the balance sheet date for assets and liabilities, and at weighted average rates for the period
for revenues and expenses, including gains and losses. Translational gains and losses are charged or credited to accumulated other comprehensive income / loss, a component of equity.
Determination of the functional currency of an entity requires considerable management judgment. This includes our assessment of a series of indicators, such as the currency in which a
majority of sales transactions are negotiated, expense incurred or financing secured. If the nature of our business operations changes, such as by changing the currency in which sales
transactions are denominated or by incurring significantly more expenditure in a different currency, we may be required to change the functional currency of some of our operations, potentially
changing the amounts we report as transaction gains and losses in the consolidated statements of operations and comprehensive income / loss as well as the translational gains and losses charged
or credited to accumulated other comprehensive income / loss. In establishing functional currency, specific facts and circumstances are considered carefully, and judgment is exercised as to
what types of information might be most useful to investors.
Contingencies
We are, from time to time, involved in certain legal proceedings and, as required, accrue our estimate of the probable costs for the resolution for these claims. These estimates are developed in
consultation with legal counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. It is possible, however, that future results of
operations for any particular period could be materially affected by changes in our assumptions or the effectiveness of our strategies related to these proceedings. See Item 8, Note 20,
"Commitments and Contingencies" for more detailed information on our litigation and other contingencies.
Recent Accounting Pronouncements
See Item 8, Note 2, "Basis of Presentation and Summary of Significant Accounting Policies" for a discussion of accounting standards adopted and recently issued accounting standards not yet
adopted.
V. Related Party Matters
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. As stated in Accounting Standards Codification 850, Related Party Disclosures, transactions involving related parties cannot necessarily be presumed to be carried out on an arm's-
length basis, as the requisite conditions of competitive, free-market dealings may not exist. We have entered into related party transactions in all of our markets, mainly for the purchase of
program rights. In addition, Time Warner guarantees 100% of our outstanding senior indebtedness and is the lender under the 2021 Revolving Credit Facility. For a detailed discussion of all
such transactions, see Item 8, Note 21, "Related Party Transactions" and Part III, Item 13, "Certain Relationships and Related Transactions, and Director Independence."
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Index
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We engage in activities that expose us to various market risks, including the effect of changes in foreign currency exchange rates and interest rates. We do not engage in speculative transactions,
nor do we hold or issue financial instruments for trading purposes. The table below sets forth our market risk sensitive instruments as at the following dates:
December 31, 2016 :
Expected Maturity Dates
Long-term Debt (000's):
Variable rate (EUR) 1
Average interest rate
Interest Rate Swaps (000's):
Variable to fixed (EUR)
Average pay rate
Average receive rate
2017
2018
2019
2020
2021
Thereafter
—
—
250,800
1.50%
235,335
1.50%
250,800
250,800
(2)
235,335
0.21%
—%
0.14%
—%
0.31%
—%
—
—
—
—
—
468,800
1.50%
468,800
0.28%
—%
—
—
—
—
—
(1) As discussed in Item 8, Note 4, "Long-term Debt and Other Financing Arrangements" , as consideration for Time Warner's guarantee of the Euro Term Loans, we pay Guarantee Fees to
Time Warner based on the amounts outstanding on the Euro Term Loans, each calculated such that the all-in borrowing rate on each the 2018 Euro Term Loan and the 2019 Euro Term
Loan is 8.5% per annum and the all-in borrowing rate on the 2021 Euro Term Loan is 9.0% per annum.
(2) The interest rate swaps maturing in 2018 are forward starting to coincide with the maturity date of the interest rate swaps maturing in 2017. See Item 8, Note 13, "Financial Instruments and
Fair Value Measurements" .
December 31, 2015 :
Expected Maturity Dates
Long-term Debt (000's):
Variable rate (EUR) 1
Average interest rate
Fixed rate (US$)
Average interest rate
Interest Rate Swaps (000's):
Variable to fixed (EUR)
Average pay rate
Average receive rate
2016
2017
2018
2019
2020
Thereafter
—
—
—
—
—
—
—
250,800
1.50%
540,698
15.00%
250,800
0.21%
—%
—
—
—
—
—
—
—
235,335
1.50%
—
—
235,335
0.31%
—%
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1) As discussed in Item 8, Note 4, "Long-term Debt and Other Financing Arrangements" , as consideration for Time Warner's guarantee of the Euro Term Loans, we pay Guarantee Fees to
Time Warner based on the amounts outstanding on the 2018 Euro Term Loan and the 2019 Euro Term Loan, each calculated such that the all-in borrowing rate on each is 8.5%.
Foreign Currency Exchange Risk Management
We conduct business in a number of currencies other than our functional currencies. As a result, we are subject to foreign currency exchange rate risk due to the effects that foreign exchange
rate movements of these currencies have on our costs and on the cash flows we receive from our subsidiaries. In limited instances, we enter into forward foreign exchange contracts to minimize
foreign currency exchange rate risk. We had no such agreements outstanding at December 31, 2016.
On January 31, 2017, we entered into a forward foreign exchange contract to reduce our exposure to movements in the USD to EUR exchange rates related to contractual payments under dollar-
denominated agreements to be made during 2017 with an aggregate notional amount of approximately US$ 24.1 million.
We have not attempted to hedge the foreign currency exchange risk on the Euro Term Loans and therefore may continue to experience significant gains and losses on the translation of these
instruments into dollars due to movements in exchange rates between the Euro and the dollar.
Interest Rate Risk Management
The Euro Term Loans each bear interest at a variable rate based on EURIBOR plus an applicable margin. We are party to a number of interest rate swap agreements intended to reduce our
exposure to interest rate movements (see Item 8, Note 13, "Financial Instruments and Fair Value Measurements" ).
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements and Supplementary data begin on the following page and end on the page immediately preceding Item 9.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Central European Media Enterprises Ltd.
We have audited the accompanying consolidated balance sheet of Central European Media Enterprises Ltd. as of December 31, 2016, and the related consolidated statements of operations and
comprehensive income / loss, equity and cash flows for the year ended December 31, 2016. Our audit also included the financial statement schedule listed in the Index at Item 15(a). These
financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Central European Media Enterprises Ltd. at December 31,
2016, and the consolidated results of its operations and its consolidated cash flows for the year ended December 31, 2016, in conformity with U.S. generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Central European Media Enterprises Ltd.’s internal control over
financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organisations of the Treadway
Commission (2013 Framework) and our report dated February 9, 2017 expressed an unqualified opinion thereon.
ERNST & YOUNG LLP
London, United Kingdom
February 9, 2017
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Index
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Central European Media Enterprises Ltd.
We have audited, before the effects of the adjustments to retrospectively apply the change in accounting discussed in Note 2 to the consolidated financial statements related to the adoption of
ASU 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, the consolidated balance sheet of Central European Media Enterprises Ltd.
and subsidiaries (the "Company") as of December 31, 2015, and the related consolidated statements of operations and comprehensive income, equity, and cash flows for the years ended
December 31, 2015 and 2014 (the 2015 and 2014 consolidated financial statements before the effects of the adjustments discussed in Note 2 to the consolidated financial statements are not
presented herein). Our audits also included the financial statement schedule listed in the Index at Item 15 as it relates to 2015 and 2014. These financial statements and the financial statement
schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such 2015 and 2014 consolidated financial statements, before the effects of the adjustments to retrospectively apply the change in accounting discussed in Note 2 to the
consolidated financial statements, present fairly, in all material respects, the financial position of Central European Media Enterprises Ltd. and subsidiaries as of December 31, 2015, and the
results of their operations and their cash flows for the years ended December 31, 2015 and 2014, in conformity with accounting principles generally accepted in the United States of America.
Also, in our opinion, the financial statement schedule, as it relates to 2015 and 2014, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the change in accounting discussed in Note 2 to the consolidated financial statements
and, accordingly, we do not express an opinion or any other form of assurance about whether such retrospective adjustments are appropriate and have been properly applied. Those retrospective
adjustments were audited by other auditors.
DELOITTE LLP
London, United Kingdom
February 22, 2016
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Index
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED BALANCE SHEETS
(US$ 000’s, except share and per share data)
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable, net (Note 6)
Program rights, net (Note 5)
Other current assets (Note 7)
Total current assets
Non-current assets
Property, plant and equipment, net (Note 8)
Program rights, net (Note 5)
Goodwill (Note 3)
Other intangible assets, net (Note 3)
Other non-current assets (Note 7)
Total non-current assets
Total assets
LIABILITIES AND EQUITY
Current liabilities
Accounts payable and accrued liabilities (Note 9)
Current portion of long-term debt and other financing arrangements (Note 4)
Other current liabilities (Note 10)
Total current liabilities
Non-current liabilities
Long-term debt and other financing arrangements (Note 4)
Other non-current liabilities (Note 10)
Total non-current liabilities
Commitments and contingencies (Note 20)
TEMPORARY EQUITY
$
$
$
December 31, 2016
December 31, 2015
43,459 $
178,339
86,151
32,471
340,420
109,089
179,356
602,069
138,340
21,443
1,050,297
1,390,717 $
160,981
$
1,494
9,089
171,564
1,002,028
68,758
1,070,786
61,679
167,427
85,972
43,206
358,284
108,522
169,073
622,243
151,162
31,133
1,082,133
1,440,417
134,705
1,155
10,448
146,308
908,521
65,749
974,270
200,000 shares of Series B Convertible Redeemable Preferred Stock of $0.08 each (December 31, 2015 - 200,000) (Note
11)
254,899
241,198
EQUITY
CME Ltd. shareholders’ equity (Note 12):
One share of Series A Convertible Preferred Stock of $0.08 each (December 31, 2015 – one)
143,449,913 shares of Class A Common Stock of $0.08 each (December 31, 2015 – 135,804,221)
Nil shares of Class B Common Stock of $0.08 each (December 31, 2015 – nil)
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total CME Ltd. shareholders’ (deficit) / equity
Noncontrolling interests
Total (deficit) / equity
Total liabilities and equity
—
11,476
—
1,910,244
(1,785,536)
(243,988)
(107,804)
1,272
(106,532)
—
10,864
—
1,914,050
(1,605,245)
(242,409)
77,260
1,381
78,641
1,440,417
The accompanying notes are an integral part of these consolidated financial statements.
$
1,390,717
$
42
Index
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME / LOSS
(US$ 000’s, except share and per share data)
For The Year Ended December 31,
Net revenues
Operating expenses:
Content costs
Other operating costs
Depreciation of property, plant and equipment
Amortization of intangibles
Cost of revenues
Selling, general and administrative expenses
Restructuring costs
Operating income
Interest expense (Note 14)
Loss on extinguishment of debt (Note 4)
Non-operating expense, net (Note 15)
Loss before tax
(Provision) / credit for income taxes (Note 17)
Loss from continuing operations
Loss from discontinued operations, net of tax
Net loss
Net loss attributable to noncontrolling interests
Net loss attributable to CME Ltd.
Net loss
Other comprehensive loss:
Currency translation adjustment
Unrealized loss on derivative instruments (Note 13)
Total other comprehensive loss
Comprehensive loss
Comprehensive loss / (income) attributable to noncontrolling interests
Comprehensive loss attributable to CME Ltd.
PER SHARE DATA (Note 18):
Net loss per share:
Continuing operations attributable to CME Ltd. - Basic and diluted
Discontinued operations attributable to CME Ltd. - Basic and diluted
Net loss attributable to CME Ltd. - Basic and diluted
2016
$
638,013
$
306,013
69,353
30,190
8,270
413,826
112,598
—
111,589
(132,224)
(150,158)
(2,487)
(173,280)
(7,317)
(180,597)
—
(180,597)
306
(180,291)
$
2015
605,841 $
292,602
69,727
27,943
12,271
402,543
107,001
1,714
94,583
(171,444)
—
(25,939)
(102,800)
515
(102,285)
(13,287)
(115,572)
671
(114,901) $
2014
680,793
358,379
85,478
32,836
12,348
489,041
143,616
9,856
38,280
(142,005)
(39,203)
(9,895)
(152,823)
1,358
(151,465)
(80,431)
(231,896)
4,468
(227,428)
(180,597)
$
(115,572) $
(231,896)
1,649
(3,031)
(1,382)
(181,979)
109
(181,870)
$
(89,714)
(839)
(90,553)
(206,125)
(712)
(206,837) $
(156,236)
(581)
(156,817)
(388,713)
3,505
(385,208)
(1.28) $
—
(1.28)
(0.81) $
(0.09)
(0.90)
(1.11)
(0.55)
(1.66)
$
$
$
$
Weighted average common shares used in computing per share amounts (000’s):
Basic and diluted
151,017
146,866
146,509
The accompanying notes are an integral part of these consolidated financial statements.
43
Index
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED STATEMENTS OF EQUITY
(US$ 000’s, except share data)
Series A Convertible
Preferred Stock
Class A
Common Stock
CME Ltd.
Class B
Common Stock
Number of
shares
Par value
Number of
shares
Par value
Number of
shares
Par value
Additional
Paid-In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Noncontrolling
Interest
Total Equity /
(Deficit)
1
$
—
—
—
—
—
—
—
1
$
—
—
—
—
—
—
—
1
$
—
—
—
—
—
—
—
1
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
134,837,442
$ 10,787
— $
— $
1,704,066
$
(1,262,916) $
(11,829) $
893
$
441,001
—
—
497,816
—
—
—
—
—
—
40
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,344
239,586
(40)
(16,036)
—
—
—
—
—
—
—
(227,428)
—
—
—
—
—
—
—
(581)
(157,199)
—
—
—
—
1,344
239,586
—
(16,036)
(4,468)
(231,896)
—
963
(581)
(156,236)
135,335,258
$ 10,827
— $
— $
1,928,920
$
(1,490,344) $
(169,609) $
(2,612) $
277,182
—
468,963
—
—
—
—
—
—
37
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,439
(37)
(17,272)
—
—
—
—
—
—
—
(114,901)
—
—
—
—
—
—
—
(839)
(91,097)
19,136
—
—
—
2,439
—
(17,272)
(671)
(115,572)
—
1,383
3,281
(839)
(89,714)
22,417
135,804,221
$ 10,864
— $
— $
1,914,050
$
(1,605,245) $
(242,409) $
1,381
$
78,641
—
—
6,996,955
560
648,737
—
—
—
—
52
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,510
6,437
(52)
(13,701)
—
—
—
—
—
—
—
(180,291)
—
—
—
—
—
—
—
(3,031)
1,452
—
—
—
—
3,510
6,997
—
(13,701)
(306)
(180,597)
—
197
(3,031)
1,649
143,449,913
$ 11,476
— $
— $
1,910,244
$
(1,785,536) $
(243,988) $
1,272
$
(106,532)
The accompanying notes are an integral part of these consolidated financial statements.
BALANCE
December 31, 2013
Stock-based compensation
Warrant issuance, net
Share issuance, stock based
compensation
Preferred dividend paid in kind
Net loss
Unrealized loss on derivative
instruments
Currency translation adjustment
BALANCE
December 31, 2014
Stock-based compensation
Share issuance, stock based
compensation
Preferred dividend paid in kind
Net loss
Unrealized loss on derivative
instruments
Currency translation adjustment
Reclassified to net income upon sale of
subsidiaries
BALANCE
December 31, 2015
Stock-based compensation
Exercise of warrants (Note 12)
Share issuance, stock-based
compensation
Preferred dividend paid in kind
Net loss
Unrealized loss on derivative
instruments
Currency translation adjustment
BALANCE
December 31, 2016
44
Index
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(US$ 000’s)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
Adjustments to reconcile net loss to net cash generated from / (used in) continuing operating activities:
For The Year Ended December 31,
2016
2015
2014
$
(180,597)
$
(115,572) $
(231,896)
Loss from discontinued operations, net of tax
Amortization of program rights
Depreciation and other amortization
Interest paid in kind
Loss on extinguishment of debt
(Gain) / loss on disposal of fixed assets
Stock-based compensation (Note 16)
Change in fair value of derivatives (Note 13)
Foreign currency exchange (gain) / loss, net
Net change in (net of effects of disposals of businesses):
Accounts receivable, net
Accounts payable and accrued liabilities
Program rights
Other assets and liabilities
Accrued interest
Income taxes payable
Deferred revenue
Deferred taxes
VAT and other taxes payable
Net cash generated from / (used in) continuing operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment
Disposal of property, plant and equipment
Net cash used in continuing investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt
Repayments of debt
Debt transactions costs
Proceeds from credit facilities
Payment of credit facilities and capital leases
Issuance of common stock
Settlement of forward currency swaps
Proceeds from exercise of warrants
Other
Net cash (used in) / provided by continuing financing activities
Net cash used in discontinued operations - operating activities
Net cash provided by / (used in) discontinued operations - investing activities
Net cash used in discontinued operations - financing activities
Impact of exchange rate fluctuations on cash
Net (decrease) / increase in cash and cash equivalents
CASH AND CASH EQUIVALENTS, beginning of period
CASH AND CASH EQUIVALENTS, end of period
—
306,013
60,557
45,289
150,158
(299)
3,510
11,473
(8,604)
(18,142)
2,601
(317,328)
628
(27,240)
5,319
(2,000)
1,494
1,085
33,917
$
(29,567)
$
211
(29,356)
$
533,963
(540,699)
$
(9,541)
—
(1,357)
—
(12,106)
6,997
—
(22,743)
$
—
1,194
—
(1,232)
(18,220)
$
61,679
43,459
$
13,287
292,602
96,928
81,529
—
17,617
2,439
(7,333)
1,491
(8,077)
6,161
(303,111)
(7,384)
14,101
(303)
3,913
(1,671)
(740)
85,877 $
(33,517) $
3,091
(30,426) $
253,051
(261,034) $
(1,541)
—
(27,365)
—
7,983
—
—
(28,906) $
(3,019)
6,598
(76)
(2,667)
27,381 $
34,298
61,679 $
80,431
349,819
82,619
37,884
39,203
(112)
1,344
—
(5,952)
(26,539)
(10,549)
(388,436)
721
(9,995)
2,948
(1,012)
(2,206)
16,486
(65,242)
(28,685)
137
(28,548)
550,421
(712,919)
(14,206)
25,000
(1,080)
191,825
—
—
(46)
38,995
(1,408)
(228)
(942)
(10,651)
(68,024)
102,322
34,298
$
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
45
Index
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(US$ 000’s)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest (including mandatory cash-pay Guarantee Fees)
Cash paid for Guarantee Fees that may be paid in kind
Cash paid / (received) for income taxes, net of refunds
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES:
Accretion on Series B Convertible Redeemable Preferred Stock
Acquisition of property, plant and equipment under capital lease
$
$
53,982
$
37,440
290
18,457 $
—
805
76,154
—
(2,234)
13,701
$
1,193
17,272 $
1,511
16,036
1,088
The accompanying notes are an integral part of these consolidated financial statements.
46
Index
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
1. ORGANIZATION AND BUSINESS
Central European Media Enterprises Ltd., a Bermuda company limited by shares, is a media and entertainment company operating in Central and Eastern Europe. Our assets are held through a
series of Dutch and Curaçao holding companies. We manage our business on a geographical basis, with six operating segments, Bulgaria, Croatia, the Czech Republic, Romania, the Slovak
Republic and Slovenia, which are also our reportable segments and our main operating countries. See Note 19, "Segment Data" for financial information by segment.
We have market leading broadcast operations in six countries in Central and Eastern Europe broadcasting a total of 36 television channels. Each country also develops and produces content for
their television channels. We generate advertising revenues in our country operations primarily through entering into agreements with advertisers, advertising agencies and sponsors to place
advertising on the television channels that we operate. We generate additional revenues by collecting fees from cable, direct-to-home (“DTH”) and IPTV operators for carriage of our channels.
Unless otherwise indicated, we own 100% of our broadcast operating and license companies in each country.
Bulgaria
We operate one general entertainment channel, BTV, and five other channels, BTV CINEMA, BTV COMEDY, RING, BTV ACTION and BTV LADY. We own 94% of CME Bulgaria B.V.
("CME Bulgaria"), the subsidiary that owns our Bulgaria operations.
Croatia
We operate one general entertainment channel, NOVA TV (Croatia) and three other channels, DOMA (Croatia), NOVA WORLD and MINI TV.
Czech Republic
We operate one general entertainment channel, TV NOVA (Czech Republic), and seven other channels, NOVA CINEMA, NOVA SPORT 1, NOVA SPORT 2, NOVA ACTION (formerly
FANDA), NOVA 2 (formerly SMICHOV), NOVA GOLD (formerly TELKA) and NOVA INTERNATIONAL, a general entertainment channel broadcasting in the Slovak Republic.
Romania
We operate one general entertainment channel, PRO TV, and eight other channels, ACASA, ACASA GOLD, PRO CINEMA, SPORT.RO, MTV ROMANIA, PRO TV INTERNATIONAL,
PRO TV CHISINAU, a general entertainment channel broadcasting in Moldova, and ACASA IN MOLDOVA.
Slovak Republic
We operate one general entertainment channel, TV MARKIZA, and three other channels, DOMA (Slovak Republic), DAJTO, and MARKIZA INTERNATIONAL, a general entertainment
channel broadcasting in the Czech Republic.
Slovenia
We operate two general entertainment channels, POP TV and KANAL A, and three other channels, KINO, BRIO and OTO.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The terms the “Company”, “we”, “us”, and “our” are used in this Form 10-K to refer collectively to the parent company, Central European Media Enterprises Ltd. (“CME Ltd.”), and the
subsidiaries through which our various businesses are conducted. Unless otherwise noted, all statistical and financial information presented in this report has been converted into U.S. dollars
using period-end exchange rates. All references to “US$”, “USD” or “dollars” are to U.S. dollars, all references to “BGN” are to Bulgarian leva, all references to “HRK” are to Croatian kuna,
all references to “CZK” are to Czech koruna, all references to “RON” are to the New Romanian lei and all references to “Euro” or “EUR” are to the European Union Euro.
Basis of Consolidation
The consolidated financial statements include the accounts of CME Ltd. and our subsidiaries, after the elimination of intercompany accounts and transactions. Entities in which we hold less than
a majority voting interest but over which we have the ability to exercise significant influence are accounted for using the equity method.
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ
from those estimates and assumptions.
Summary of Critical and Significant Accounting Policies
The following is a discussion of each of the Company’s critical accounting policies, including information and analysis of estimates and assumptions involved in their application, and other
significant accounting policies.
Revenue Recognition
Revenue is recognized when there is persuasive evidence of an arrangement, delivery of products has occurred or services have been rendered, the price is fixed or determinable and
collectibility is reasonably assured. A bad debt provision is maintained for estimated losses resulting from our customers' subsequent inability to make payments.
47
Index
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
Revenues are recognized net of discounts and customer sales incentives. Our principal revenue streams and their respective accounting treatments are discussed below:
Advertising revenue
Revenues primarily result from the sale of advertising time. Television advertising revenue is recognized as the commercials are aired. In many countries, we commit to provide advertisers with
certain rating levels in connection with their advertising. Revenue is recorded net of estimated shortfalls, which are usually settled by providing the advertiser additional advertising time.
Discounts and agency commissions are recognized at the point when the advertising is broadcast and are reflected as a reduction to gross revenue. Display advertising on our websites is
recognized as impressions are delivered. Impressions are delivered when an advertisement appears in pages viewed by users.
Carriage fees and subscription revenues
Carriage fees from cable operators and direct-to-home broadcasters are recognized as revenue over the period for which the channels are provided and to which the fees relate. Subscriber
revenue is recognized as contracted, based upon the number of subscribers.
Barter transactions
We enter into barter transactions which represent advertising time or other services exchanged for non-cash goods and/or other services, such as promotional items, advertising, supplies and
equipment. Revenue from barter transactions is recognized as income when the services have been provided. Expenses are recognized when goods or services are received or used. We record
barter transactions at the fair value of goods or services received or advertising surrendered, whichever is more readily determinable. Barter revenue amounted to US$ 2.0 million , US$ 1.5
million and US$ 1.5 million for the years ended December 31, 2016 , 2015 and 2014 , respectively.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and marketable securities with original maturities of three months or less. Cash that is subject to restrictions is classified as restricted cash, if
applicable.
Program Rights
Purchased program rights
Purchased program rights and the related liabilities are recorded at their gross value when the license period begins and the programs are available for broadcast.
Purchased program rights are classified as current or non-current assets based on anticipated usage, while the related program rights liability is classified as current or non-current according to
the payment terms of the license agreement.
Program rights are evaluated to determine if expected revenues are sufficient to cover the unamortized portion of the program. To the extent that expected revenues are insufficient, the program
rights are written down to their expected net realizable value. These programming impairment charges, along with programming impairment charges related to own-produced content, are
presented as a component of content costs in our consolidated statements of operations and comprehensive income / loss.
The costs incurred to acquire program rights are capitalized and amortized over their expected useful lives in a manner which reflects the pattern we expect to use and benefit from the
programming. If the initial airing of content allowed by a license is expected to provide more value than subsequent airings, we apply an accelerated method of amortization. These accelerated
methods of amortization depend on the estimated number of runs the content is expected to receive, and are determined based on a study of historical results for similar programming. For
programming that is not advertising supported, each program's costs are amortized on a straight-line basis over the license period. For content that is expected to be aired only once, the entire
cost is recognized as expense on the first run.
Produced program rights
Program rights that are produced by us consist of deferred film and television costs including direct costs, production overhead and development costs. The costs are stated at the lower of cost,
net of accumulated amortization, or fair value. The amount of capitalized production costs recognized as cost of revenues for a given production as it is exhibited in various markets is
determined using the film forecast method. The proportion of costs recognized is equal to the proportion of the revenue recognized compared to the total revenue expected to be generated
throughout the product's life cycle (the “ultimate revenues”). Our process for evaluating ultimate revenues is tailored to the potential we believe a title has for generating multiple revenues. The
majority of our production is intended primarily for exploitation by our own broadcasters. In such cases, we consider mainly the free television window in our calculation of the ultimate
revenues. Changes in estimates of ultimate revenues from period to period affect the amount of film costs amortized in a given period and, therefore, could have an impact on our results for that
period.
Produced program rights are amortized on an individual production basis using the ratio of the current period's gross revenues to estimated remaining total ultimate revenues from such
programs. Produced program rights are evaluated to determine if expected revenues, less additional costs to be incurred (including exploitation costs) are sufficient to cover the unamortized
portion of the program. To the extent that expected revenues are insufficient, the program rights are written down to their fair value.
48
Index
Property, Plant and Equipment
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
Property, plant and equipment is carried at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives assigned to each major
asset category as below:
Asset category
Land
Buildings
Machinery, fixtures and equipment
Other equipment
Software
Estimated useful life
Indefinite
25 years
4 - 8 years
3 - 8 years
3 - 5 years
Construction-in-progress is not depreciated until put into use. Capital leases are depreciated on a straight-line basis over the shorter of the estimated useful life of the asset or the lease term.
Leasehold improvements are depreciated over the shorter of the related lease term or the life of the asset. Assets to be disposed of are reported at the lower of carrying amount or fair value, less
expected costs of disposal.
Long-Lived Assets Including Intangible Assets with Finite Lives
Long-lived assets include property, plant, equipment and intangible assets with finite lives. We evaluate the remaining useful life of intangible assets with finite lives each reporting period. We
review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Long-lived assets are evaluated at the
asset group level when there is an indication that they may be impaired. The carrying amounts of long-lived assets are considered impaired when the anticipated undiscounted cash flows from
such assets are less than their carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair value.
Goodwill and Indefinite-Lived Intangible Assets
Historically, we have assessed the carrying amount of our goodwill and other indefinite-lived intangibles for impairment annually as of December 31, or more frequently if events or changes in
circumstances indicate that such carrying amount may not be recoverable. During the third quarter of 2016, we elected to change the date of our assessment for all of our reporting units from
December 31 to October 1. We believe this change will more closely align the assessment with our long- and short-range business planning and forecasting process. The voluntary change in
accounting principle related to the annual testing date will not delay, accelerate or avoid an impairment charge. This change was not applied retrospectively as it was impracticable to do so
because retrospective application would require application of significant estimates and assumptions with the use of hindsight. Accordingly, the change was applied prospectively.
We evaluate goodwill and indefinite-lived intangible assets for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Such
events and changes in circumstances include:
•
•
•
•
•
under-performance of operating segments or changes in projected results;
changes in the manner of utilization of an asset;
severe and sustained declines in the trading price of shares of our Class A common stock that are not attributable to factors other than the underlying value of our assets;
negative market conditions or economic trends; and
specific events, such as new legislation, new market entrants, changes in technology or adverse legal judgments that we believe could have a negative impact on our business.
Goodwill is evaluated at the reporting unit level, which we have determined is each of our six operating segments. We have elected to bypass the qualitative assessment for all of our reporting
units in 2016 and proceed directly to performing the first step of the goodwill impairment test. The fair value of our reporting units is determined based on estimates of future cash flows
discounted at appropriate rates and on publicly available information, where appropriate. In the assessment of discounted future cash flows the following data is used: management's long-term
plan, a terminal value at the end of the forecasted periods assuming an inflationary perpetual growth rate, and a discount rate selected with reference to the relevant cost of capital. An
impairment exists when the carrying amount of a reporting unit (including its goodwill), exceeds its fair value after adjusting for any impairments of long-lived assets or indefinite-lived
intangible assets.
We evaluate the remaining useful life of each indefinite-lived intangible asset each reporting period. Each indefinite-lived intangible asset is evaluated for impairment individually. The fair
value of our indefinite-lived intangible assets are determined using the relief from royalty method. An impairment loss is recognized if the carrying amount of an indefinite-lived intangible asset
exceeds its fair value.
Income Taxes
We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax
bases of assets and liabilities and their reported amounts. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which the
temporary differences are expected to be recovered or settled. Valuation allowances are established when necessary to reduce deferred tax assets to amounts which are more likely than not to be
realized. In evaluating the realizability of our deferred tax assets, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences,
projected future taxable income, tax planning strategies and recent financial operations.
We recognize in the consolidated financial statements those tax positions determined to be “more likely than not” of being sustained upon examination, based on the technical merits of the
positions and we recognize, when applicable, both accrued interest and penalties related to uncertain tax positions in income tax expense in the accompanying consolidated statements of
operations and comprehensive income / loss.
49
Index
Foreign Currency
Functional Currency
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
Following the refinancing of the remaining outstanding dollar-denominated debt with Euro-denominated debt in April 2016, CME Ltd.'s income and expenses are primarily denominated in
Euro. It is anticipated that CME Ltd.'s cash flows will primarily be in Euro. Accordingly, management has determined that CME Ltd.'s functional currency is the Euro with effect from April 1,
2016. As a result of this change, we recognized a loss of US$ 4.2 million of currency translation adjustment in the second quarter of 2016 due to the translation of non-monetary assets into Euro
as of the date of the change. Our reporting currency continues to be the U.S. dollar.
Translation of financial statements
Our reporting currency is the dollar. The financial statements of our operations whose functional currency is other than the dollar are translated from such functional currency to dollars at the
exchange rates in effect at the balance sheet date for assets and liabilities, and at weighted average rates for the period for revenues and expenses, including gains and losses. Translational gains
and losses are charged or credited to accumulated other comprehensive income / loss, a component of equity.
Certain of our intercompany loans to our subsidiaries are of a long-term investment nature. We recorded a gain of US$ 8.8 million and losses of US$ 89.0 million and US$ 164.4 million for the
years ended December 31, 2016 , 2015 , and 2014 , respectively, on the retranslation of these intercompany loans as an adjustment to accumulated other comprehensive income / loss, a
component of shareholders' equity, as settlement of these loans is not planned or anticipated in the foreseeable future.
Transactions in foreign currencies
Gains and losses from foreign currency transactions are included in foreign currency exchange gain / loss, net in the consolidated statements of operations and comprehensive income / loss in
the period during which they arise.
Leases
Leases are classified as either capital or operating. Those leases that transfer substantially all benefits and risks of ownership of the property to us are accounted for as capital leases. All other
leases are accounted for as operating leases.
Capital leases are accounted for as assets and are depreciated on a straight-line basis over the shorter of the estimated useful life of the asset or the lease term. Commitments to repay the
principal amounts arising under capital lease obligations are included in current liabilities to the extent that the amount is repayable within one year; otherwise the principal is included in non-
current liabilities. The capitalized lease obligation reflects the present value of future lease payments. The financing element of the lease payments is charged to interest expense over the term of
the lease.
Operating lease costs are expensed on a straight-line basis over the term of the lease.
Financial Instruments
Fair value of financial instruments
The carrying amount of financial instruments, including cash, accounts receivable, and accounts payable and accrued liabilities, approximate their fair value due to the short-term nature of these
items. The fair value of our long-term (as defined hereinafter) is included in Note 4, "Long-term Debt and Other Financing Arrangements" .
Fair value is the price an asset or liability could be exchanged in an arm’s-length orderly transaction between knowledgeable, able and willing parties that is not a forced sale or liquidation. US
GAAP requires significant management estimates in determining fair value. The extent of management’s judgments is highly dependent on the valuation model employed and the observability
of inputs to the fair value model. The level of management judgment required in establishing fair value of financial instruments is more significant where there is no active market in which the
instrument is traded. For financial instruments that are not remeasured through net income, we estimate fair value at issuance and account for the instrument at amortized cost. For financial
instruments that are remeasured through net income, we assess the fair value of the instrument at each period end or earlier when events occur or circumstances change that would so require (see
Note 13, "Financial Instruments and Fair Value Measurements" ).
Derivative financial instruments
We use derivative financial instruments for the purpose of mitigating currency and interest rate risks, which exist as part of ongoing business operations and financing activities. As a policy, we
do not engage in speculative or leveraged transactions, nor do we hold or issue derivative financial instruments for trading purposes.
Forward exchange contracts and currency swaps are used to mitigate exposures to currency fluctuations on certain short-term transactions generally denominated in currencies other than our
functional currency. These contracts are marked to market at the balance sheet date, and the resultant unrealized gains and losses are recorded in the consolidated statements of operations and
comprehensive income / loss, together with realized gains and losses arising on settlement of these contracts.
Interest rate swaps and other instruments may be used to mitigate exposures to interest rate fluctuations on certain of our long-term debt instruments with variable interest rates. These contracts
are marked to market at the balance sheet date, and the resultant unrealized gains and losses are recorded in the consolidated statements of operations and comprehensive income / loss, together
with realized gains and losses arising on settlement of these contracts. From time to time, we may designate certain of these instruments as hedges and apply hedge accounting as discussed in
Note 13, "Financial Instruments and Fair Value Measurements" .
Stock-Based Compensation
Stock-based compensation is recognized at fair value. We calculate the fair value of stock option awards using the Black-Scholes option pricing model on the grant date. The grant date fair
value of restricted stock units ("RSUs") is calculated as the closing price of our Class A common stock on the date of grant. Stock-based compensation expense is recognized on a straight-line
basis over the vesting period of the award. Stock-based compensation awards are accounted for as equity-settled transactions.
50
Index
Contingencies
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
The estimated loss from a loss contingency such as a legal proceeding or other claim is recorded in the consolidated statements of operations and comprehensive income / loss if it is probable
that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. Disclosure of a loss contingency is made if there is at least a reasonable
possibility that a loss has been incurred.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense incurred for the years ended December 31, 2016 , 2015 and 2014 totaled US$ 5.4 million , US$ 3.0 million and US$ 3.7 million
, respectively.
Earnings Per Share
Basic and diluted net income / loss per share is calculated using the two-class method. Under the two-class method, basic net income / loss per common share is computed by dividing the net
income available to common shareholders after deducting contractual amounts of accretion on our Series B Preferred Shares by the weighted-average number of common shares outstanding
during the period. Diluted net income / loss per share is computed by dividing the adjusted net income by the weighted-average number of dilutive shares outstanding during the period.
Recent Accounting Pronouncements
Accounting Pronouncements Adopted
On January 1, 2016 we adopted the following guidance issued by the Financial Accounting Standards Board (the “FASB”):
In November 2014, the FASB issued guidance which standardizes the method used in the accounting for hybrid financial instruments issued in the form of a share. The guidance requires an
entity to consider all relevant terms and features in evaluating the nature of the host contract in a hybrid financial instrument, including the embedded derivative feature being evaluated for
bifurcation. The adoption of this guidance did not have a material impact on our consolidated financial statements.
In April 2015, the FASB issued guidance which simplifies the balance sheet presentation of debt issuance costs. The guidance requires that debt issuance costs related to a recognized debt
liability be presented in the balance sheet as a direct reduction of the carrying amount of that liability. The retrospective adoption of this guidance decreased our other non-current assets as at
December 31, 2015 by US$ 13.8 million , with a corresponding decrease in our long-term debt and other financing arrangements in our consolidated balance sheet, with no impact to our
consolidated statements of operations and comprehensive income / loss or consolidated statements of cash flows.
In November 2015, the FASB issued guidance which requires that deferred tax balances be classified as non-current in our consolidated balance sheet. The prospective adoption of this guidance
did not have any effect on our net deferred income tax liability. Prior period amounts have not been adjusted.
In the third quarter of 2016, we adopted the FASB guidance issued in March 2016 intended to simplify accounting for share-based payment transactions, specifically with regard to accounting
for forfeitures, income taxes, the classification as either equity or liabilities and the presentation in the statement of cash flows. We have made a policy election to account for forfeitures as they
occur. The cumulative-effect adjustment to equity as a result of adopting this guidance was not material. The adoption of this guidance did not have any other material impacts on our
consolidated financial statements or disclosures.
Recent Accounting Pronouncements Issued
In May 2014, the FASB issued new guidance which is intended to improve the comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets. The
guidance supersedes existing revenue recognition guidance and requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance is effective for our fiscal year beginning January 1, 2018. We are
currently in the process of evaluating the impact of the adoption of this guidance on our consolidated financial statements.
In February 2016, the FASB issued new guidance to increase transparency and comparability among organizations by recognizing leasing assets and liabilities on the balance sheet and requiring
additional disclosures about an entity's leasing arrangements. The guidance requires that a lessee recognize a liability to make lease payments and a right-of-use asset, with an available
exception for leases shorter than twelve months. The guidance is effective for our fiscal year beginning January 1, 2019. We are currently in the process of evaluating the impact of the adoption
of this guidance on our consolidated financial statements.
In August 2016, the FASB issued new guidance which is intended to reduce the existing diversity in practice related to specific cash flow issues. As applicable to CME, the guidance requires
that cash flows at the settlement of zero-coupon debt instruments or debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing be
bifurcated between cash outflows for operating activities for the portion attributable to accrued interest, and cash outflows for financing activities for the portion attributable to the principal. The
guidance requires a retrospective transition method and is effective for our fiscal year beginning January 1, 2018, with early adoption permitted. We expect to adopt this guidance as of January
1, 2018. Upon adoption, our net cash flows generated from / used in continuing operating activities will decrease by US$ 110.7 million and US$ 1.1 million for the years ended December 31,
2016 and 2015, respectively, with a corresponding increase in net cash used in / provided by continuing financing activities.
In October 2016, the FASB issued new guidance which is intended to improve the accounting for the income tax consequences of intercompany transfers of assets other than inventory. The
guidance would require an entity to recognize the income tax consequences of such transfers in the period in which the transfer occurs, rather than defer recognition of current and deferred
income taxes for the transfer until the asset is sold to a third party. The guidance requires a modified retrospective transition method through a cumulative-effect adjustment to retained earnings.
The guidance is effective for our fiscal year beginning January 1, 2018, with early adoption permitted. The cumulative-effect adjustment to equity as a result of early adopting this guidance as of
January 1, 2017 will not have a material impact on our consolidated financial statements.
In January 2017, the FASB issued new guidance which is intended to simplify goodwill impairment testing by eliminating Step 2, and instead recognize an impairment charge for the amount by
which the carrying amount of the reporting unit exceeds the fair value of the reporting unit. The guidance also eliminates the requirement to perform a qualitative analysis for reporting units
with a negative carrying value. The guidance is effective for us for annual and interim impairment tests after January 1, 2020, with early adoption permitted for interim and annual impairment
tests performed from January 1, 2017. We are currently in the process of evaluating the impact of the adoption of this guidance on our consolidated financial statements and whether we will
early adopt.
51
Index
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
3. GOODWILL AND INTANGIBLE ASSETS
Goodwill:
Goodwill by reporting unit as at December 31, 2016 and December 31, 2015 is summarized as follows:
Gross Balance, December 31, 2014
$
Accumulated impairment losses
Balance, December 31, 2014
Foreign currency
Balance, December 31, 2015
Bulgaria
Croatia
175,494
$
(144,639)
30,855
(3,129)
27,726
11,065
(10,454)
611
(60)
551
Accumulated impairment losses
(144,639)
(10,454)
Czech Republic
$
800,640
$
(287,545)
513,095
(41,149)
471,946
(287,545)
172,365
$
11,005
$
759,491
$
$
$
Gross Balance, December 31, 2015
Gross Balance, December 31, 2015
Accumulated impairment losses
Balance, December 31, 2015
Foreign currency
Balance, December 31, 2016
Bulgaria
Croatia
172,365
$
(144,639)
27,726
(976)
26,750
11,005
(10,454)
551
(17)
534
Czech Republic
$
759,491
$
(287,545)
471,946
(15,008)
456,938
(287,545)
Accumulated impairment losses
(144,639)
(10,454)
Gross Balance, December 31, 2016
$
171,389
$
10,988
$
744,483
$
Romania
Slovak Republic
Slovenia
Total
94,777 $
(11,028)
83,749
(9,334)
74,415
(11,028)
85,443 $
53,088 $
—
53,088
(5,483)
47,605
—
47,605 $
19,400 $
(19,400)
—
—
—
(19,400)
19,400 $
1,154,464
(473,066)
681,398
(59,155)
622,243
(473,066)
1,095,309
Romania
Slovak Republic
Slovenia
Total
85,443 $
(11,028)
74,415
(2,657)
71,758
(11,028)
82,786 $
47,605 $
—
47,605
(1,516)
46,089
—
46,089 $
19,400 $
(19,400)
—
—
—
(19,400)
19,400 $
1,095,309
(473,066)
622,243
(20,174)
602,069
(473,066)
1,075,135
Other intangible assets:
Changes in the net book value of our other intangible assets as at December 31, 2016 and December 31, 2015 is summarized as follows:
December 31, 2016
Accumulated
Amortization
Gross
Net
Gross
December 31, 2015
Accumulated
Amortization
Net
Indefinite-lived:
Trademarks
Amortized:
Broadcast licenses
Trademarks
Customer relationships
Other
Total
$
$
80,324 $
— $
80,324 $
83,188 $
— $
83,188
185,686
591
51,338
1,522
(130,325)
(591)
(48,997)
(1,208)
319,461
$
(181,121)
$
55,361
—
2,341
314
138,340 $
191,860
614
53,120
2,138
330,920 $
(127,613)
(614)
(49,672)
(1,859)
(179,758) $
64,247
—
3,448
279
151,162
Broadcast licenses consist of our TV NOVA license in the Czech Republic, which is amortized on a straight-line basis through the expiration date of the license in 2025. Our customer
relationships are deemed to have an economic useful life of, and are amortized on a straight-line basis, over five years to fifteen years .
The estimated amortization expense for our intangible assets with finite lives as of December 31, 2016 is as follows:
2017
2018
2019
2020
2021
$
7,777
7,703
7,240
7,020
6,960
52
Index
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
Impairment of goodwill and other intangible assets:
As discussed in Note 2, "Basis of Presentation and Summary of Significant Accounting Policies" , we elected to change the date of our assessment for all of our reporting units from December
31 to October 1, with effect from October 1, 2016. Upon conclusion of this assessment, we determined that the fair values of our goodwill were substantially in excess of their respective
carrying values.
We did not recognize any impairment charges in respect of goodwill and other intangible assets during the years ended December 31, 2016, 2015 or 2014.
4. LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS
Summary
Long-term debt
Other credit facilities and capital leases
Total long-term debt and other financing arrangements
Less: current maturities
Total non-current long-term debt and other financing arrangements
Financing Transactions
December 31, 2016
December 31, 2015
$
$
999,209 $
4,313
1,003,522
(1,494)
1,002,028 $
906,028
3,648
909,676
(1,155)
908,521
On April 7, 2016, we drew the EUR 468.8 million (approximately US$ 534.0 million as at the transaction date) 2021 Euro Term Loan in full, the proceeds of which, together with cash on hand,
were applied toward the repayment of the outstanding US$ 38.2 million of the 15.0% term loan facility due 2017 (the "2017 Term Loan"), plus US$ 1.5 million of accrued and unpaid interest
thereon, and toward the redemption and discharge of the outstanding US$ 502.5 million of the 15.0% Senior Secured Notes due 2017 (the "2017 PIK Notes"), plus US$ 26.6 million of accrued
and unpaid interest thereon.
Also on April 7, 2016, we extended the maturity date of the 2018 Euro Term Loan by one year to November 1, 2018. In addition, we extended the maturity date of the 2021 Revolving Credit
Facility to February 19, 2021, with the borrowing capacity reduced from US$ 115.0 million to US$ 50.0 million from January 1, 2018. We also amended the 2021 Revolving Credit Facility
such that interest is determined on the basis of our net leverage ratio (as defined in the Reimbursement Agreement) and ranges from LIBOR (subject to a floor of 1.0% ) plus 9.0% if our net
leverage ratio is greater than or equal to seven times, to LIBOR (subject to a floor of 1.0% ) plus 6.0% per annum if our net leverage ratio is less than five times. The modifications of the 2018
Euro Term Loan and the 2019 Euro Term Loan were accounted for in the same manner as a debt extinguishment.
As a result of the above transactions, we recognized a loss on extinguishment of debt of US$ 150.2 million in the second quarter of 2016.
During the year ended December 31, 2016 , we paid US$ 48.6 million of Guarantee Fees (as defined below) related to the 2018 Euro Term Loan and the 2021 Euro Term Loan. The Guarantee
Fee payments are presented as cash outflows from operating activities in our consolidated statements of cash flows.
Overview
Total long-term debt and credit facilities comprised the following at December 31, 2016 :
2018 Euro Term Loan
2019 Euro Term Loan
2021 Euro Term Loan
2021 Revolving Credit Facility
Total long-term debt and credit facilities
Principal Amount of
Liability Component
Debt Issuance Costs (1)
Net Carrying Amount
264,368
248,067
494,162
—
$
1,006,597
$
(634)
(473)
(6,281)
—
(7,388) $
263,734
247,594
487,881
—
999,209
(1) Debt issuance costs related to the 2018 Euro Term Loan, 2019 Euro Term Loan and 2021 Euro Term Loan are being amortized on a straight-line basis, which approximates the effective
interest method, over the life of the respective instruments. Debt issuance costs related to the 2021 Revolving Credit Facility are classified as non-current assets in our consolidated balance
sheet and are being amortized on a straight-line basis over the life of the 2021 Revolving Credit Facility.
53
Index
Long-term Debt
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
Our long-term debt comprised the following at December 31, 2016 and December 31, 2015 :
2017 PIK Notes
2017 Term Loan
2018 Euro Term Loan
2019 Euro Term Loan
2021 Euro Term Loan
2018 Euro Term Loan
Carrying Amount
December 31, 2016
—
—
263,734
247,594
487,881
999,209 $
December 31, 2015
359,789
27,592
272,189
246,458
—
906,028
$
As at December 31, 2016 , the principal amount of our floating rate senior unsecured term credit facility (as amended, the "2018 Euro Term Loan") outstanding was EUR 250.8 million
(approximately US$ 264.4 million ). The 2018 Euro Term Loan bears interest at three-month EURIBOR (fixed pursuant to customary hedging arrangements (see Note 13, "Financial
Instruments and Fair Value Measurements" )) plus a margin of between 1.1% and 1.9% depending on the credit rating of Time Warner Inc. ("Time Warner"). As at December 31, 2016 , the all-
in borrowing rate on amounts outstanding under the 2018 Euro Term Loan was 8.5% (the components of which are shown in the table below under the heading "Interest Rate Summary").
Interest on the 2018 Euro Term Loan is payable quarterly in arrears on each March 12, June 12, September 12 and December 12. The 2018 Euro Term Loan matures on November 1, 2018 and
may be prepaid at our option, in whole or in part, without premium or penalty, upon the occurrence of certain events, including if our net leverage (as defined in the Reimbursement Agreement)
decreases to below five times for two consecutive quarters, or at any time from November 1, 2017. The 2018 Euro Term Loan is a senior unsecured obligation of CME Ltd., and is
unconditionally guaranteed by our 100% owned subsidiary CME Media Enterprises B.V. ("CME BV") and by Time Warner and certain of its subsidiaries.
The fair values of the 2018 Euro Term Loan of US$ 233.3 million and US$ 273.0 million as at December 31, 2016 and December 31, 2015 , respectively, were determined based on comparable
instruments that trade in active markets. This measurement of estimated fair value uses Level 2 inputs as described in Note 13, "Financial Instruments and Fair Value Measurements" . Certain
derivative instruments, including contingent event of default and change of control put options, have been identified as being embedded in the 2018 Euro Term Loan. The embedded derivatives
are considered clearly and closely related to the 2018 Euro Term Loan, and as such are not required to be accounted for separately.
2019 Euro Term Loan
As at December 31, 2016 , the principal amount of our floating rate senior unsecured term credit facility (the "2019 Euro Term Loan") outstanding was EUR 235.3 million (approximately US$
248.1 million ). The 2019 Euro Term Loan bears interest at three-month EURIBOR (fixed pursuant to customary hedging arrangements (see Note 13, "Financial Instruments and Fair Value
Measurements" )) plus a margin of between 1.1% and 1.9% depending on the credit rating of Time Warner. As at December 31, 2016 , the all-in borrowing rate on amounts outstanding under
the 2019 Euro Term Loan was 8.5% (the components of which are shown in the table below under the heading "Interest Rate Summary").
Interest on the 2019 Euro Term Loan is payable quarterly in arrears on each February 13, May 13, August 13 and November 13. The 2019 Euro Term Loan matures on November 1, 2019 and
may currently be prepaid at our option, in whole or in part, without premium or penalty. The 2019 Euro Term Loan is a senior unsecured obligation of CME Ltd., and is unconditionally
guaranteed by CME BV and by Time Warner and certain of its subsidiaries.
The fair values of the 2019 Euro Term Loan of US$ 203.3 million and US$ 256.2 million as at December 31, 2016 and December 31, 2015 , respectively, were determined based on comparable
instruments that trade in active markets, plus an applicable spread. This measurement of estimated fair value uses Level 2 inputs as described in Note 13, "Financial Instruments and Fair Value
Measurements" . Certain derivative instruments, including contingent event of default and change of control put options, have been identified as being embedded in the 2019 Euro Term Loan.
The embedded derivatives are considered clearly and closely related to the 2019 Euro Term Loan, and as such are not required to be accounted for separately.
2021 Euro Term Loan
As at December 31, 2016 , the principal amount of our floating rate senior unsecured term credit facility (the "2021 Euro Term Loan") outstanding was EUR 468.8 million (approximately US$
494.2 million ). The 2021 Euro Term Loan bears interest at three-month EURIBOR (fixed pursuant to customary hedging arrangements (see Note 13, "Financial Instruments and Fair Value
Measurements" )) plus a margin of between 1.1% and 1.9% depending on the credit rating of Time Warner. The all-in borrowing rate including the Guarantee Fee ranges from 10.5% (if our net
leverage ratio is greater than or equal to eight times) to 7.0% per annum (if our net leverage ratio is less than five times). As at December 31, 2016 , the all-in borrowing rate on amounts
outstanding under the 2021 Euro Term Loan was 9.0% (the components of which are shown in the table below under the heading "Interest Rate Summary").
Interest on the 2021 Euro Term Loan is payable quarterly in arrears on each April 7, July 7, October 7 and January 7. The 2021 Euro Term Loan matures on February 19, 2021 and may be
prepaid at our option, in whole or in part, without premium or penalty, upon the earlier of the occurrence of certain events, including if our net leverage (as defined in the Reimbursement
Agreement) decreases to below five times for two consecutive quarters, or at any time from February 19, 2020. The 2021 Euro Term Loan is a senior unsecured obligation of CME BV, and is
unconditionally guaranteed by CME Ltd. and by Time Warner and certain of its subsidiaries.
The fair value of the 2021 Euro Term Loan of US$ 369.7 million as at December 31, 2016 was determined based on comparable instruments that trade in active markets, plus an applicable
spread. This measurement of estimated fair value uses Level 2 inputs as described in Note 13, "Financial Instruments and Fair Value Measurements" . Certain derivative instruments, including
contingent event of default and change of control put options, have been identified as being embedded in the 2021 Euro Term Loan. The embedded derivatives are considered clearly and closely
related to the 2021 Euro Term Loan, and as such are not required to be accounted for separately.
54
Index
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
Reimbursement Agreement and Guarantee Fees
In connection with Time Warner’s guarantees of the 2018 Euro Term Loan, 2019 Euro Term Loan and 2021 Euro Term Loan (collectively, the “Euro Term Loans”), we entered into a
reimbursement agreement (as amended and restated, the “Reimbursement Agreement") with Time Warner which provides for the payment of guarantee fees (collectively, the "Guarantee Fees")
to Time Warner as consideration for those guarantees, and that we will reimburse Time Warner for any amounts paid by them under any guarantee or through any loan purchase right exercised
by Time Warner. The loan purchase right allows Time Warner to purchase any amount outstanding under the Euro Term Loans from the lenders following an event of default under the Euro
Term Loans or the Reimbursement Agreement. The Reimbursement Agreement is jointly and severally guaranteed by both our 100% owned subsidiaries Central European Media Enterprises
N.V. ("CME NV") and CME BV and is secured by a pledge over 100% of the outstanding shares of each of CME NV and CME BV. The covenants and events of default under the
Reimbursement Agreement are substantially the same as under the 2021 Revolving Credit Facility.
We pay Guarantee Fees to Time Warner based on the amounts outstanding on the Euro Term Loans calculated on a per annum basis as shown in the table below. For the year s ended
December 31, 2016 , 2015 and 2014 , we recognized US$ 68.0 million , US$ 21.5 million and US$ 1.2 million , respectively, of Guarantee Fees as interest expense in our consolidated
statements of operations and comprehensive income / loss.
The Guarantee Fees relating to the 2018 Euro Term Loan and the 2019 Euro Term Loan are payable semi-annually in arrears on each May 1 and November 1, in cash or in kind (by adding such
semi-annual Guarantee Fees to any such amount then outstanding). The Guarantee Fees relating to the 2021 Euro Term Loan are payable semi-annually in arrears on each June 1 and December
1 with the first 5.0% (including the base rate and the rate paid pursuant to the hedging arrangements) paid in cash and the remainder payable at our election in cash or in kind.
The Guarantee Fees paid in kind are presented as a component of other non-current liabilities (see Note 10, "Other Liabilities" ) and bear interest per annum at their respective Guarantee Fee
rate (as set forth in the table below), payable semi-annually in arrears in cash or in kind (by adding such semi-annual Guarantee Fees to any such amount then outstanding) on each respective
payment date. Guarantee Fees paid in cash are included in cash flows from operating activities in our consolidated statements of cash flows.
Interest Rate Summary
2018 Euro Term Loan
2019 Euro Term Loan
2021 Euro Term Loan
2021 Revolving Credit Facility (2)
Base Rate
1.50%
1.50%
1.50%
9.00%
Rate Fixed
Pursuant to
Interest Rate
Hedges
0.21% (1)
0.31%
0.28%
—
Guarantee Fee
Rate
6.79%
6.69%
7.22%
—
All-in Borrowing
Rate
8.50%
8.50%
9.00%
9.00%
(1) Effective until November 1, 2017. From November 1, 2017 through maturity on November 1, 2018, the rate fixed pursuant to interest rate hedges will decrease to 0.14% , with a
corresponding increase in the guarantee fee rate, such that the all-in borrowing rate remains 8.50% .
(2) As at December 31, 2016 , the aggregate principal amount available under the 2021 Revolving Credit Facility was undrawn.
2021 Revolving Credit Facility
We had no balance outstanding under the US$ 115.0 million revolving credit facility (the “2021 Revolving Credit Facility”), all of which was available to be drawn as at December 31, 2016 .
The 2021 Revolving Credit Facility bears interest at a rate per annum based on, at our option, an alternate base rate plus 8.0% or an amount equal to the greater of (i) an adjusted LIBO rate and
(ii) 1.0% , plus, in each case, 9.0% , with the first 5.0% paid in cash and the remainder payable at our election in cash or in kind by adding such accrued interest to the applicable principal
amount outstanding under the 2021 Revolving Credit Facility. The interest rate on the 2021 Revolving Credit Facility is determined on the basis of our net leverage ratio (as defined in the
Reimbursement Agreement) and ranges from LIBOR (subject to a floor of 1.0% ) plus 9.0% if our net leverage is greater than or equal to seven times, to LIBOR (subject to a floor of 1.0% )
plus 6.0% per annum if our net leverage ratio is less than five times. The maturity date of the 2021 Revolving Credit Facility is February 19, 2021 with the available amount decreasing to US$
50.0 million from January 1, 2018. When drawn, the 2021 Revolving Credit Facility permits prepayment at our option in whole or in part without penalty.
The 2021 Revolving Credit Facility is jointly and severally guaranteed by CME NV and CME BV and is secured by a pledge over 100% of the outstanding shares of each of CME NV and
CME BV. The 2021 Revolving Credit Facility agreement contains limitations on CME’s ability to incur indebtedness, incur guarantees, grant liens, pay dividends or make other distributions,
enter into certain affiliate transactions, consolidate, merge or effect a corporate reconstruction, make certain investments acquisitions and loans, and conduct certain asset sales. The agreement
also contains maintenance covenants in respect of interest cover, cash flow cover and total leverage ratios, and has covenants in respect of incurring indebtedness, the provision of guarantees,
making investments and disposals, granting security and certain events of defaults.
55
Index
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
Other Credit Facilities and Capital Lease Obligations
Other credit facilities and capital lease obligations comprised the following at December 31, 2016 and December 31, 2015 :
Credit facilities (1) – (3)
Capital leases
Total credit facilities and capital leases
Less: current maturities
Total non-current credit facilities and capital leases
December 31, 2016
December 31, 2015
$
$
— $
4,313
4,313
(1,494)
2,819 $
—
3,648
3,648
(1,155)
2,493
(1) We have a cash pooling arrangement with Bank Mendes Gans (“BMG”), a subsidiary of ING Bank N.V. (“ING”), which enables us to receive credit across the group in respect of cash
balances which our subsidiaries deposit with BMG. Cash deposited by our subsidiaries with BMG is pledged as security against the drawings of other subsidiaries up to the amount
deposited.
As at December 31, 2016 , we had deposits of US$ 16.4 million in and no drawings on the BMG cash pool. Interest is earned on deposits at the relevant money market rate. As at
December 31, 2015 , we had deposits of US$ 19.6 million in and no drawings on the BMG cash pool.
(2) As at December 31, 2016 and December 31, 2015 , there were no drawings outstanding under a CZK 735.0 million (approximately US$ 28.7 million ) factoring framework agreement with
Factoring Ceska Sporitelna (“FCS”). Under this facility, up to CZK 735.0 million (approximately US$ 28.7 million ) of receivables from certain customers in the Czech Republic may be
factored on a recourse or non-recourse basis. The facility has a factoring fee of 0.3% of any factored receivable and bears interest at one-month PRIBOR plus 2.5% per annum for the
period that receivables are factored and outstanding.
(3) As at December 31, 2016 there were RON 105.7 million (approximately US$ 24.6 million ) of receivables factored under a factoring framework agreement with Global Funds IFN S.A.
entered into in the first quarter of 2016. Under this facility, receivables from certain customers in Romania may be factored on a non-recourse basis. The facility has a factoring fee of 4.0%
of any factored receivable and bears interest at 6.0% per annum from the date the receivables are factored to the due date of the factored receivable.
Total Group
At December 31, 2016 , the maturity of our long-term and credit facilities was as follows:
2017
2018
2019
2020
2021
2022 and thereafter
Total long-debt and credit facilities
Debt issuance costs
Carrying amount of long-debt and credit facilities
Capital Lease Commitments
$
$
—
264,368
248,067
—
494,162
—
1,006,597
(7,388)
999,209
We lease certain of our office and broadcast facilities as well as machinery and equipment under various leasing arrangements. The future minimum lease payments, by year and in the
aggregate, under capital leases with initial or remaining non-cancellable lease terms in excess of one year, consisted of the following at December 31, 2016 :
2017
2018
2019
2020
2021
2022 and thereafter
Total undiscounted payments
Less: amount representing interest
Present value of net minimum lease payments
56
$
$
1,570
1,339
1,003
525
13
—
4,450
(137)
4,313
Index
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
5. PROGRAM RIGHTS
Program rights comprised the following at December 31, 2016 and December 31, 2015 :
Program rights:
Acquired program rights, net of amortization
Less: current portion of acquired program rights
Total non-current acquired program rights
Produced program rights – Feature Films:
Released, net of amortization
Produced program rights – Television Programs:
Released, net of amortization
Completed and not released
In production
Development and pre-production
Total produced program rights
Total non-current acquired program rights and produced program rights
6. ACCOUNTS RECEIVABLE
Accounts receivable comprised the following at December 31, 2016 and December 31, 2015 :
Third-party customers
Less: allowance for bad debts and credit notes
Total accounts receivable
December 31, 2016
December 31, 2015
183,303 $
(86,151)
97,152
1,039
54,149
2,593
23,712
711
82,204
179,356 $
179,632
(85,972)
93,660
1,298
56,125
3,500
13,783
707
75,413
169,073
December 31, 2016
December 31, 2015
187,937 $
(9,598)
178,339 $
176,628
(9,201)
167,427
$
$
$
$
Bad debt expense for the year ended December 31, 2016 , 2015 and 2014 was US$ 3.6 million , US$ 2.1 million , and US$ 4.2 million , respectively.
7. OTHER ASSETS
Other current and non-current assets comprised the following at December 31, 2016 and December 31, 2015 :
Current:
Prepaid acquired programming
Other prepaid expenses
Deferred tax
VAT recoverable
Income taxes recoverable
Other
Total other current assets
Non-current:
Capitalized debt costs
Deferred tax
Other
Total other non-current assets
December 31, 2016
December 31, 2015
22,511 $
5,270
—
713
206
3,771
32,471 $
22,761
6,941
10,425
733
249
2,097
43,206
December 31, 2016
December 31, 2015
15,018 $
4,570
1,855
21,443 $
27,060
124
3,949
31,133
$
$
$
$
Capitalized debt costs are being amortized over the term of the related debt instruments using the straight-line method, which approximates the effective interest method.
57
Index
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment comprised the following at December 31, 2016 and December 31, 2015 :
December 31, 2016
December 31, 2015
Land and buildings
Machinery, fixtures and equipment
Other equipment
Software
Construction in progress
Total cost
Less: accumulated depreciation
Total net book value
Assets held under capital leases (included in the above)
Land and buildings
Machinery, fixtures and equipment
Total cost
Less: accumulated depreciation
Total net book value
$
$
$
$
90,988 $
202,110
33,752
55,542
5,316
387,708
(278,619)
109,089 $
3,684 $
6,338
10,022
(4,316)
5,706 $
Depreciation expense for the years ended December 31, 2016 , 2015 and 2014 was US$ 30.2 million , US$ 27.9 million and US$ 32.8 million , respectively.
The movement in the net book value of property, plant and equipment during the years ended December 31, 2016 and 2015 is comprised of:
Opening balance
Additions
Disposals
Depreciation
Foreign currency movements
Other
Ending balance
9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities comprised the following at December 31, 2016 and December 31, 2015 :
Accounts payable and accrued expenses
Related party accounts payable
Programming liabilities
Related party programming liabilities
Duties and other taxes payable
Accrued staff costs
Accrued interest payable
Related party accrued interest payable (including Guarantee Fees)
Income taxes payable
Other accrued liabilities
Total accounts payable and accrued liabilities
58
$
$
$
$
For The Year Ended December 31,
2016
108,522 $
34,371
(88)
(30,190)
(3,526)
—
109,089 $
December 31, 2016
December 31, 2015
59,522 $
192
29,249
18,959
13,446
20,565
2,941
9,588
5,514
1,005
160,981 $
57,042
53
24,901
14,583
12,856
20,709
914
477
249
2,921
134,705
92,237
164,503
32,314
55,656
3,001
347,711
(239,189)
108,522
3,805
4,646
8,451
(3,556)
4,895
2015
114,335
34,523
(290)
(27,943)
(10,810)
(1,293)
108,522
Index
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
10. OTHER LIABILITIES
Other current and non-current liabilities comprised the following at December 31, 2016 and December 31, 2015 :
Current:
Deferred revenue
Derivative liabilities
Restructuring provision
Legal provisions
Other
Total other current liabilities
Non-current:
Deferred tax
Related party commitment fee payable (1)
Related party Guarantee Fee payable (Note 4)
Accrued interest
Related party accrued interest
Other
Total other non-current liabilities
December 31, 2016
December 31, 2015
5,333 $
477
—
2,680
599
9,089 $
7,546
650
458
1,520
274
10,448
December 31, 2016
December 31, 2015
20,335 $
9,905
34,492
—
—
4,026
68,758 $
25,990
9,240
22,655
977
5,304
1,583
65,749
$
$
$
$
(1) Represents the commitment fee ("Commitment Fee") payable to Time Warner, including accrued interest, in respect of its obligation under a commitment letter dated November 14, 2014
between Time Warner and us whereby Time Warner agreed to provide or assist with arranging a loan facility to repay our 5.0% senior convertible notes at maturity in November 2015. The
Commitment Fee is payable by November 1, 2019, the maturity date of the 2019 Euro Term Loan, or earlier if the repayment of the 2019 Euro Term Loan is accelerated. The Commitment
Fee bears interest at 8.5% per annum and such interest is payable in arrears on each May 1 and November 1, and may be paid in cash or in kind, at our election.
11. CONVERTIBLE REDEEMABLE PREFERRED SHARES
200,000 shares of our Series B Convertible Redeemable Preferred Stock, par value US$ 0.08 per share (the “Series B Preferred Shares”) were issued and outstanding as at December 31, 2016
and 2015 . As at December 31, 2016 and December 31, 2015 , the carrying value of the Series B Preferred Shares was US$ 254.9 million and US$ 241.2 million , respectively. The Series B
Preferred Shares are held by Time Warner Media Holdings B.V. ("TW Investor"). As of December 31, 2016 , the 200,000 shares of Series B preferred stock were convertible into approximately
105.2 million shares of Class A common stock.
The initial stated value of the Series B Preferred Shares was US$ 1,000 per share. The Series B Preferred Shares accrete at an annual rate of 3.75% , compounded quarterly, from and including
June 25, 2016 to but excluding June 25, 2018. We have the right to pay cash to the holder in lieu of any further accretion. Each Series B Preferred Share may, at the holder's option, be converted
into the number of shares of our Class A common stock determined by dividing (i) the accreted stated value plus accrued but unpaid dividends, if any, in each case as of the conversion date, by
(ii) the conversion price, which was approximately US$ 2.42 at December 31, 2016 , but is subject to adjustment from time to time pursuant to customary weighted-average anti-dilution
provisions with respect to our issuances of equity or equity-linked securities at a price below the then-applicable conversion price (excluding any securities issued under our benefit plans at or
above fair market value). We have the right to redeem the Series B Preferred Shares in whole or in part upon 30 days' written notice. The redemption price of each outstanding Series B Preferred
Share is equal to its accreted stated value plus accrued but unpaid dividends, if any, in each case as of the redemption date specified in the redemption notice. After receipt of a redemption
notice, each holder of Series B Preferred Shares will have the right to convert, prior to the date of redemption, all or part of such Series B Preferred Shares to be redeemed by us into shares of
our Class A common stock in accordance with the terms of conversion described above.
Holders of the Series B Preferred Shares will have no voting rights on any matter presented to holders of any class of our capital stock, with the exception that they may vote with holders of
shares of our Class A common stock (i) with respect to a change of control event or (ii) as provided by our bye-laws or applicable Bermuda law. Holders of Series B Preferred Shares will
participate in any dividends declared or paid on our Class A common stock on an as-converted basis. The Series B Preferred Shares will rank pari passu with our Series A Convertible Preferred
Stock and senior to all other equity securities of the Company in respect of payment of dividends and distribution of assets upon liquidation. The Series B Preferred Shares have such other
rights, powers and preferences as are set forth in the Certificate of Designation for the Series B Preferred Shares.
We concluded that the Series B Preferred Shares were not considered a liability and that the embedded conversion feature in the Series B Preferred Shares was clearly and closely related to the
host contract and therefore did not need to be bifurcated. The Series B Preferred Shares are required to be classified outside of permanent equity because such shares can be redeemed for cash in
certain circumstances. The Series B Preferred Shares are carried on the balance sheet at redemption value. As the Series B Preferred Shares are redeemable, we have accreted changes in the
redemption value since issuance. For the years ended December 31, 2016 , 2015 and 2014 , we recognized accretion on the Series B Preferred Shares of US$ 13.7 million , US$ 17.3 million and
US$ 16.0 million , respectively, with corresponding decreases in additional paid-in capital, net of the effect of foreign exchange.
59
Index
12. EQUITY
Preferred Stock
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
5,000,000 shares of Preferred Stock were authorized as at December 31, 2016 and 2015 .
One share of Series A Convertible Preferred Stock (the “Series A Preferred Share”) was issued and outstanding as at December 31, 2016 and 2015 . The Series A Preferred Share is convertible
into 11,211,449 shares of Class A common stock on the date that is 61 days after the date on which the ownership of our outstanding shares of Class A common stock by a group that includes
TW Investor and its affiliates would not be greater than 49.9% . The Series A Preferred Share is entitled to one vote per each share of Class A common stock into which it is convertible and has
such other rights, powers and preferences, including potential adjustments to the number of shares of Class A common stock to be issued upon conversion, as are set forth in the Certificate of
Designation for the Series A Preferred Share.
200,000 shares of Series B Preferred Shares were issued and outstanding as at December 31, 2016 and 2015 . (see Note 11, "Convertible Redeemable Preferred Shares" ). As of December 31,
2016 , the 200,000 Series B Preferred Shares were convertible into approximately 105.2 million shares of Class A common stock.
Class A and B Common Stock
440,000,000 shares of Class A common stock and 15,000,000 shares of Class B common stock were authorized as at December 31, 2016 and December 31, 2015 . The rights of the holders of
Class A common stock and Class B common stock are identical except for voting rights. The shares of Class A common stock are entitled to one vote per share and the shares of Class B
common stock are entitled to ten votes per share. Shares of Class B common stock are convertible into shares of Class A common stock on a one -for- one basis for no additional consideration.
Holders of each class of shares are entitled to receive dividends and upon liquidation or dissolution are entitled to receive all assets available for distribution to holders of our common stock.
Under our bye-laws, the holders of each class have no preemptive or other subscription rights and there are no redemption or sinking fund provisions with respect to such shares.
There were 143.4 million and 135.8 million shares of Class A common stock outstanding at December 31, 2016 and 2015 , respectively, and no shares of Class B common stock outstanding at
December 31, 2016 or 2015 .
As at December 31, 2016 , TW Investor owns 42.8% of the outstanding shares of Class A common stock and has a 47.0% voting interest in the Company due to its ownership of the Series A
Preferred Share.
Warrants
On May 2, 2014, we issued 114,000,000 warrants in connection with a rights offering. Each warrant may be exercised until May 2, 2018 and entitles the holder thereof to receive one share of
our Class A common stock at an exercise price of US$ 1.00 per share in cash. During 2016 , 6,996,955 warrants were exercised resulting in proceeds to us of approximately US$ 7.0 million . As
at December 31, 2016 , 107,003,045 warrants remain outstanding. Time Warner and TW Investor collectively hold 100,926,996 of these warrants. The warrants are classified in additional paid-
in capital, a component of equity, and are not subject to subsequent revaluation.
13. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
ASC 820, “Fair Value Measurements and Disclosure”, establishes a hierarchy that prioritizes the inputs to those valuation techniques used to measure fair value. The hierarchy gives the highest
priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three
levels of the fair value hierarchy are:
Basis of Fair Value Measurement
Level 1
Level 2
Level 3
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted instruments.
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.
Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
We evaluate the position of each financial instrument measured at fair value in the hierarchy individually based on the valuation methodology we apply. The carrying amount of financial
instruments, including cash and cash equivalents, accounts receivable, and accounts payable and accrued liabilities, approximate their fair value due to the short-term nature of these items. The
fair value of our long-term debt is included in Note 4, "Long-term Debt and Other Financing Arrangements" .
60
Index
Hedge Accounting Activities
Cash Flow Hedges of Interest Rate Risk
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
We are party to interest rate swap agreements to mitigate our exposure to interest rate fluctuations on the outstanding principal amount of our Euro Term Loans. These interest rate swaps,
designated as cash flow hedges, provide us with variable-rate cash receipts in exchange for fixed-rate payments over the lives of the agreements, with no exchange of the underlying notional
amount. These instruments are carried at fair value on our consolidated balance sheets, and the effective portion of changes in the fair value is recorded in accumulated other comprehensive
income / loss and subsequently reclassified to interest expense when the hedged item affects earnings. The ineffective portion of changes in the fair value is recognized immediately in the
change in fair value of derivatives in our consolidated statements of operations and comprehensive income / loss. For the years ended December 31, 2016 and 2015 and 2014 , we did not
recognize any charges related to hedge ineffectiveness.
Information relating to financial instruments is as follows:
Trade Date
Number of
Contracts
Description
Aggregate Notional
Amount
Maturity Date
Objective
Fair Value as at
December 31, 2016
April 5, 2016
April 5, 2016
November 10, 2015
November 14, 2014
5
4
3
2
Interest rate swap €
468,800
February 21, 2021
Interest rate swap €
250,800
November 1, 2018
Interest rate swap €
235,335
November 1, 2019
Interest rate swap €
250,800
November 1, 2017
Interest rate hedge underlying 2021 Euro
Term Loan $
Interest rate hedge underlying 2018 Euro
Term Loan, forward starting on
November 1, 2017 $
Interest rate hedge underlying 2019 Euro
Term Loan $
Interest rate hedge underlying 2018 Euro
Term Loan $
(1,711)
(284)
(1,658)
(477)
We value the interest rate swap agreements using a valuation model which calculates the fair value on the basis of the net present value of the estimated future cash flows. The most significant
input used in the valuation model is the expected EURIBOR-based yield curve. These instruments were allocated to Level 2 of the fair value hierarchy because the critical inputs to this model,
including current interest rates, relevant yield curves and the known contractual terms of the instruments, were readily observable.
Accumulated Other Comprehensive Loss
BALANCE December 31, 2015
Loss on interest rate swaps
Reclassified to interest expense
BALANCE December 31, 2016
Non-Hedge Accounting Activities
$
$
The change in fair value of derivatives not designated as hedging instruments comprised the following for the years ended December 31, 2016 , 2015 and 2014 :
Currency swaps
Foreign Currency Risk
For The Year Ended December 31,
$
2016
(10,213)
$
2015
4,848 $
(1,420)
(5,447)
2,416
(4,451)
2014
2,311
From time to time, we have entered into forward foreign exchange contracts to reduce our exposure to movements in foreign exchange rates related to contractual payments under certain dollar-
denominated agreements. As at December 31, 2016 , we had no forward foreign exchange contracts outstanding.
14. INTEREST EXPENSE
Interest expense comprised the following for the years ended December 31, 2016 , 2015 and 2014 :
Interest on long-term debt and other financing arrangements
Amortization of capitalized debt issuance costs
Amortization of debt issuance discount
Total interest expense
For The Year Ended December 31,
2016
110,127
$
9,152
12,945
132,224
$
2015
114,730 $
15,484
41,230
171,444 $
2014
104,570
18,297
19,138
142,005
$
$
We paid cash interest (including mandatory cash-pay Guarantee Fees) of US$ 54.0 million , US$ 18.5 million and US$ 76.2 million for years ended December 31, 2016 , 2015 and 2014 ,
respectively. In addition, we paid US$ 37.4 million of Guarantee Fees during the year ended December 31, 2016 , for which we had the option to pay in kind.
61
Index
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
15. OTHER NON-OPERATING INCOME / EXPENSE
Other non-operating income / expense comprised the following for the years ended December 31, 2016 , 2015 and 2014 :
Interest income
Foreign currency exchange gain / (loss), net
Change in fair value of derivatives (Note 13)
Other income / (expense), net
Total other non-operating expense
16. STOCK-BASED COMPENSATION
For The Year Ended December 31,
2016
592
$
6,648
(10,213)
486
(2,487)
$
2015
440 $
(13,481)
4,848
(17,746)
(25,939)
$
2014
294
(12,767)
2,311
267
(9,895)
$
$
Under our 2015 Stock Incentive Plan (the "2015 Plan"), 6,000,000 shares of Class A common stock are authorized for grants of stock options, restricted stock units ("RSU"), restricted stock and
stock appreciation rights to employees and non-employee directors. In addition, any shares available under our Amended and Restated Stock Incentive Plan (which expired on June 1, 2015),
including in respect of any awards that expire, terminate or are forfeited, will be available for awards under the 2015 Plan. Under the 2015 Plan, awards are made to employees and directors at
the discretion of the Compensation Committee. Any awards previously issued under the Amended and Restated Stock Incentive Plan will continue to be governed by the terms of that plan.
For the years ended December 31, 2016 , 2015 and 2014 , we recognized charges for stock-based compensation of US$ 3.5 million , US$ 2.4 million and US$ 1.3 million , respectively,
presented as a component of selling, general and administrative expenses in our consolidated statements of operations and comprehensive income / loss.
Stock Options
Grants of options allow the holders to purchase shares of Class A common stock at an exercise price, which is generally the market price prevailing at the date of the grant, with vesting between
one and four years after the awards are granted. A summary of option activity for the year ended December 31, 2016 is presented below:
Outstanding at December 31, 2015
Granted
Expired
Outstanding at December 31, 2016
Vested or expected to vest at December 31, 2016
Exercisable at December 31, 2016
Weighted Average
Exercise Price per
Share
Weighted Average
Remaining
Contractual Term
(years)
Aggregate Intrinsic
Value
3.53
2.46
33.66
2.32
2.32
2.29
9.07 $
8.58 $
8.58 $
8.42 $
640
453
453
104
Shares
1,666,000 $
411,392
(66,000)
2,011,392 $
2,011,392 $
400,000 $
When options are vested, holders may exercise them at any time up to the maximum contractual life of the instrument which is specified in the option agreement. At December 31, 2016 , the
maximum life of options that had been issued under the Plan was ten years . Upon providing the appropriate written notification, holders pay the exercise price and receive shares. Shares
delivered in respect of stock option exercises are newly issued shares.
The fair value of stock options is estimated on the grant date using the Black-Scholes option-pricing model and recognized ratably over the requisite service period as a component of selling,
general and administrative expenses. The weighted average grant date fair value of stock options granted during 2016 was $ 1.56 per option.
The aggregate intrinsic value (the difference between the stock price on the last day of trading of the fourth quarter of 2016 and the exercise prices multiplied by the number of in-the-money
options) represents the total intrinsic value that would have been received by the option holders had they exercised all in-the-money options as at December 31, 2016 . This amount changes
based on the fair value of our Class A common stock.
62
Index
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
The weighted average assumptions used in the Black-Scholes model for grants made in the year ended December 31, 2016 and 2015 were as follows:
Risk-free interest rate
Expected term (years)
Expected volatility
Dividend yield
Weighted-average fair value
For The Year Ended December 31,
2016
1.61%
6.25
69.22%
0%
1.56
$
2015
1.86%
6.25
75.18%
0%
1.54
$
As at December 31, 2016 , there was US$ 2.0 million unrecognized compensation expense related to stock options which is expected to be recognized over a weighted-average period of 2.6
years .
The following table summarizes information about stock option activity during 2016 , 2015 , and 2014 :
2016
2015
2014
Shares
1,666,000 $
411,392
—
(66,000)
2,011,392 $
Weighted Average
Exercise Price (per
share)
3.53
2.46
—
33.66
2.32
Shares
155,000 $
1,600,000
(20,000)
(69,000)
1,666,000 $
Weighted Average
Exercise Price (per
share)
29.88
2.29
23.12
28.23
3.53
Weighted Average
Exercise Price (per
share)
27.26
—
30.87
20.48
29.88
Shares
390,500 $
—
(114,500)
(121,000)
155,000 $
Outstanding at January 1
Awards granted
Awards forfeited
Awards expired
Outstanding at December 31
Restricted Stock Units
Each RSU represents a right to receive one share of Class A common stock of the Company for each RSU that vests in accordance with a time-based vesting schedule, generally between one to
four years from the date of grant. Upon vesting, shares of Class A common stock are issued from authorized but unissued shares. Holders of RSU awards are not entitled to receive cash dividend
equivalents and are not entitled to vote. The grant date fair value of RSUs is calculated as the closing price of our Class A common shares on the date of grant. For awards with market
conditions, the grant date fair value is calculated using a Monte Carlo simulation model. The Monte Carlo simulation model requires the input of subjective assumptions, including the expected
volatility of our common stock, interest rates, dividend yields and correlation coefficient between our common stock and the relevant market index.
The following table summarizes information about unvested RSUs as at December 31, 2016 :
Unvested at December 31, 2015
Granted
Vested
Forfeited
Unvested at December 31, 2016
Number of
Shares / Units
Weighted-Average
Grant Date Fair Value
2,554,597 $
705,166
(626,126)
(91,012)
2,542,625 $
2.72
2.41
2.83
2.47
2.61
As at December 31, 2016 , the intrinsic value of unvested RSUs was US$ 6.5 million . Total unrecognized compensation cost related to unvested RSUs as at December 31, 2016 was US$ 2.9
million and is expected to be recognized over a weighted-average period of 1.9 years .
63
Index
17. INCOME TAXES
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
As our investments are predominantly owned by Dutch holding companies, the components of the provision / credit for income taxes and of the loss before tax have been analyzed between their
Netherlands and non-Netherlands components. Similarly the Dutch corporate income tax rates have been used in the reconciliation of income taxes.
Loss from continuing operations before income taxes
The Netherlands and non-Netherlands components of loss from continuing operations before income taxes are:
Domestic
Foreign
Total
For The Year Ended December 31,
$
$
2016
(66,226)
$
(107,054)
(173,280)
$
2015
(73,132) $
(29,668)
(102,800) $
2014
(117,247)
(35,576)
(152,823)
Total tax (provision) / credit for the years ended December 31, 2016 , 2015 and 2014 was allocated as follows:
Income tax (provision) / credit from continuing operations
Income tax credit from discontinued operations
Total (provision) / tax credit
Provision / Credit for Income Taxes
For The Year Ended December 31,
$
$
2016
(7,317)
$
—
(7,317)
$
2015
515 $
91
606 $
The Netherlands and non-Netherlands components of the provision / credit for income taxes from continuing operations consist of:
For The Year Ended December 31,
Current income tax provision:
Domestic
Foreign
Deferred tax (provision) / credit:
Domestic
Foreign
(Provision) / credit for income taxes
2016
— $
(5,261)
(5,261)
—
(2,056)
(2,056)
(7,317)
$
$
$
2015
— $
(550)
(550)
—
1,065
1,065
515 $
2014
1,358
1,987
3,345
2014
—
(558)
(558)
—
1,916
1,916
1,358
In 2016 , 2015 and 2014 , the net (provision) / credit for income taxes is less than the (provision) / credit computed at statutory tax rates primarily due to losses on which no tax benefit has been
received.
64
Index
Reconciliation of Effective Income Tax Rate
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
The following is a reconciliation of income taxes, calculated at statutory Netherlands rates, to the (provision) / credit for income taxes included in the accompanying Consolidated Statements of
Operations and Comprehensive Income / Loss for the years ended December 31, 2016 , 2015 and 2014 :
Income taxes at Netherlands rates (25%)
Jurisdictional differences in tax rates
Unrecognized tax benefits
Losses expired
Change in valuation allowance
Non-deductible expenses
Other
(Provision) / credit for income taxes
For The Year Ended December 31,
$
$
2016
43,310
$
(43,049)
(925)
(1,847)
(5,863)
(395)
1,452
(7,317)
$
2015
25,689 $
(17,462)
—
(4,009)
3,614
(1,859)
(5,458)
515 $
2014
38,193
(12,965)
—
(4,899)
(7,012)
(5,624)
(6,335)
1,358
In 2016 , 2015 and 2014, the jurisdictional rate difference mainly arises as a result of a loss in Bermuda where there is no income tax.
Components of Deferred Tax Assets and Liabilities
The following table shows the significant components included in deferred income taxes as at December 31, 2016 and 2015 :
Assets:
Tax benefit of loss carry-forwards and other tax credits
Programming rights
Property, plant and equipment
Accrued expenses
Other
Gross deferred tax assets
Valuation allowance
Net deferred tax assets
Liabilities:
Broadcast licenses, trademarks and customer relationships
Property, plant and equipment
Programming rights
Other
Total deferred tax liabilities
Net deferred income tax liability
December 31, 2016
December 31, 2015
$
$
$
$
112,585 $
2,935
3,427
4,699
1,623
125,269
(110,920)
14,349 $
22,704 $
142
7,182
86
30,114
15,765 $
111,526
4,052
4,427
4,544
1,718
126,267
(109,481)
16,786
24,897
173
7,082
75
32,227
15,441
65
Index
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
Deferred tax is recognized on the consolidated balance sheet as follows:
Net current deferred tax assets (1)
Net non-current deferred tax assets
Net current deferred tax liabilities (1)
Net non-current deferred tax liabilities
Net deferred income tax liability
December 31, 2016
December 31, 2015
$
$
— $
4,570
4,570
—
20,335
20,335
15,765 $
10,425
124
10,549
—
25,990
25,990
15,441
(1) Reflects the prospective adoption in 2016 of accounting guidance requiring that deferred tax balances be classified as non-current in our consolidated balance sheets. See Note 2, "Basis of
Presentation and Summary of Significant Accounting Policies" .
We provided a valuation allowance against potential deferred tax assets of US$ 110.9 million and US$ 109.5 million as at December 31, 2016 and 2015 , respectively, since it has been
determined by management, based on the weight of all available evidence, that it is more likely than not that the benefits associated with these assets will not be realized. During 2016 , valuation
allowances of US$ 2.7 million and US$ 7.1 million were released in Bulgaria and the Slovak Republic, respectively, following a period of consistent profitability which resulted in a net credit to
the income statement of US$ 7.4 million .
During 2016 , we had the following movements on valuation allowances:
Balance at December 31, 2015
Created during the period
Utilized
Released due to changes in future profitability
Foreign exchange
Other
Balance at December 31, 2016
As of December 31, 2016 we had operating loss carry-forwards that will expire in the following periods:
$
$
109,481
15,738
(2,519)
(7,356)
(4,674)
250
110,920
Bulgaria
Czech Republic
The Netherlands
Slovak Republic
Slovenia
United Kingdom
Total
2017
2018
2019
$
— $
— $
559
27,190
5,749
—
—
3
25,832
—
—
—
— $
—
57,430
—
—
—
$
33,498
$
25,835
$
57,430
$
2020
6,182 $
—
46,427
—
—
—
52,609 $
2021-36
Indefinite
— $
—
268,060
—
—
—
268,060 $
—
—
—
—
21,898
1,395
23,293
The losses are subject to examination by the tax authorities and to restriction on their utilization. In particular, the losses can only be utilized against profits arising in the legal entity in which
they arose.
We have provided valuation allowances against most of the above loss carry-forwards. However, valuation allowances have not been provided against the loss carry-forwards in our main
operating company in Bulgaria and in the Slovak Republic on the basis of future reversals of existing taxable temporary differences and taxable income from future trading. The tax benefits
associated with the tax losses in the United Kingdom were recognized following the adoption of the FASB guidance simplifying accounting for share-based payment transactions. However, a
valuation allowance was also recognized due to a lack of foreseeable future UK income.
As at December 31, 2016 and 2015 , we had no undistributed earnings in subsidiaries giving rise to a temporary difference.
66
Index
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Balance at December 31, 2013
Decreases resulting from the expiry of the statute of limitations
Other
Balance at December 31, 2014
Decreases resulting from the expiry of the statute of limitations
Balance at December 31, 2015
Increases for tax positions taken during a prior period
Increases for tax positions taken during the current period
Balance at December 31, 2016
$
$
108
(51)
(4)
53
(53)
—
766
159
925
We do not anticipate a material increase or decrease in unrecognized tax benefits within the next 12 months.
Our subsidiaries file income tax returns in the Netherlands and various other tax jurisdictions. As at December 31, 2016 , our subsidiaries are generally no longer subject to income tax
examinations for years before:
Tax Jurisdiction
Bulgaria
Croatia
Czech Republic
The Netherlands
Romania
Slovak Republic
Slovenia
United Kingdom
Year
2010
2012
2011
2014
2014
2010
2008
2015
We recognize, when applicable, both accrued interest and penalties related to unrecognized tax benefits in income tax expense in the accompanying consolidated statements of operations and
comprehensive income / loss. There were no significant interest or penalties accrued in the years ended December 31, 2016 , 2015 and 2014 .
18. EARNINGS PER SHARE
We determined that the Series B Preferred Shares are a participating security, and accordingly, our basic and diluted net income / loss per share is calculated using the two-class method. Under
the two-class method, basic net income / loss per common share is computed by dividing the net income available to common shareholders after deducting contractual amounts of accretion on
our Series B Preferred Shares by the weighted-average number of common shares outstanding during the period. Diluted net income / loss per share is computed by dividing the adjusted net
income by the weighted-average number of dilutive shares outstanding during the period.
67
Index
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
The components of basic and diluted earnings per share are as follows:
Loss from continuing operations
Net loss attributable to noncontrolling interests
Less: preferred dividend paid in kind (Note 11)
Loss from continuing operations available to common shareholders, net of noncontrolling interest
Loss from discontinued operations, net of tax
Net loss attributable to CME Ltd. available to common shareholders - Basic
Effect of dilutive securities
Preferred dividend paid in kind
Net loss attributable to CME Ltd. available to common shareholders - Diluted
Weighted average outstanding shares of common stock - Basic (1)
Dilutive effect of employee stock options and RSUs
Weighted average outstanding shares of common stock - Diluted
Net loss per share:
Continuing operations attributable to CME Ltd. - Basic and diluted
Discontinued operations attributable to CME Ltd. - Basic and diluted
Net loss attributable to CME Ltd. - Basic and diluted
$
$
$
$
For The Year Ended December 31,
2016
(180,597)
$
306
(13,701)
(193,992)
—
(193,992)
$
2015
(102,285) $
671
(17,272)
(118,886)
(13,287)
(132,173) $
2014
(151,465)
4,468
(16,036)
(163,033)
(80,431)
(243,464)
—
—
(193,992)
$
(132,173) $
—
(243,464)
151,017
—
151,017
146,866
—
146,866
(1.28)
$
—
(1.28)
(0.81) $
(0.09)
(0.90)
146,509
—
146,509
(1.11)
(0.55)
(1.66)
(1) For the purpose of computing basic earnings per share, the 11,211,449 shares of Class A common stock underlying the Series A Preferred Share are included in the weighted average
outstanding shares of common stock - basic, because the holder of the Series A Preferred Share is entitled to receive any dividends payable when dividends are declared by the Board of
Directors with respect to any shares of the common stock.
At December 31, 2016 , 108,396,778 ( December 31, 2015 : 3,221,575 ) warrants, stock options, RSUs and shares underlying the Series B Preferred Shares were antidilutive to income from
continuing operations and excluded from the calculation of earnings per share. These instruments may become dilutive in the future. As set forth in the Certificate of Designation for the Series B
Preferred Shares, the holders of our Series B Preferred Shares are not contractually obligated to share in our losses.
19. SEGMENT DATA
We manage our business on a geographical basis, with six operating segments: Bulgaria, Croatia, the Czech Republic, Romania, the Slovak Republic and Slovenia, which are also our reportable
segments and our main operating countries. These segments reflect how CME Ltd.’s operating performance is evaluated by our chief operating decision makers, who we have identified as our
co-Chief Executive Officers; how operations are managed by segment managers; and the structure of our internal financial reporting.
Our segments generate revenues primarily from the sale of advertising and sponsorship on our channels. This is supplemented by revenues from cable and satellite television service providers to
carry our channels on their platforms and from revenues through the sale of distribution rights to third parties. Intersegment revenues and profits have been eliminated in consolidation.
We evaluate our consolidated results and the performance of our segments based on net revenues and OIBDA (as defined below). We believe OIBDA is useful to investors because it provides a
meaningful representation of our performance as it excludes certain items that either do not impact our cash flows or the operating results of our operations. OIBDA is also used as a component
in determining management bonuses.
OIBDA includes amortization and impairment of program rights and is calculated as operating income / loss before depreciation, amortization of intangible assets, impairments of assets and
certain unusual or infrequent items that are not considered by our chief operating decision makers when evaluating our performance. Stock-based compensation and certain other items are not
allocated to our segments for purposes of evaluating their performance and therefore are not included in their respective OIBDA.
68
Index
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
Below are tables showing our net revenues, OIBDA, total assets, capital expenditures and long-lived assets for our continuing operations by segment for the years ended December 31, 2016 ,
2015 and 2014 for consolidated statements of operations and comprehensive income / loss data and consolidated statements of cash flow data; and as at December 31, 2016 and 2015 for
consolidated balance sheet data.
Net revenues:
Bulgaria
Croatia
Czech Republic
Romania
Slovak Republic
Slovenia
Intersegment revenues (1)
Total net revenues
For The Year Ended December 31,
2016
72,651
$
55,607
190,372
172,951
90,549
56,912
(1,029)
638,013
$
2015
73,090 $
55,912
182,636
157,578
84,434
54,233
(2,042)
605,841 $
$
$
(1) Reflects revenues earned from the sale of content to other country segments in CME Ltd. All other revenues are third party revenues.
OIBDA:
Bulgaria
Croatia
Czech Republic
Romania
Slovak Republic
Slovenia
Elimination
Total operating segments
Corporate
Total OIBDA
Depreciation of property, plant and equipment
Amortization of intangibles
Other items (1)
Operating income
Interest expense (Note 14)
Loss on extinguishment of debt (Note 4)
Non-operating expense, net (Note 15)
Loss before tax
For The Year Ended December 31,
2016
12,242
$
$
8,578
77,018
62,016
15,947
4,801
2
180,604
(30,555)
$
150,049
$
(30,190)
(8,270)
—
111,589
(132,224)
(150,158)
(2,487)
$
(173,280)
$
2015
15,479 $
7,880
71,697
41,176
10,585
6,057
(229)
152,645
(29,830)
122,815
(27,943)
(12,271)
11,982
94,583
(171,444)
—
(25,939)
(102,800) $
2014
87,078
62,026
202,779
178,614
90,556
61,370
(1,630)
680,793
2014
9,367
7,835
61,964
37,259
4,586
5,331
(16)
126,326
(30,880)
95,446
(32,836)
(12,348)
(11,982)
38,280
(142,005)
(39,203)
(9,895)
(152,823)
(1) Other items consists solely of the charges related to tax audits of our Romanian operations, which were accrued in the fourth quarter of 2014 and fully released in the third quarter of 2015.
Total assets (1) :
Bulgaria
Croatia
Czech Republic
Romania
Slovak Republic
Slovenia
Total operating segments
Corporate
Total assets
(1) Segment assets exclude any intercompany balances.
69
December 31, 2016
December 31, 2015
$
$
130,873 $
49,135
700,190
266,132
131,220
72,381
1,349,931
40,786
1,390,717 $
134,418
52,306
746,269
261,984
121,122
70,911
1,387,010
53,407
1,440,417
Index
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
Capital Expenditures:
For The Year Ended December 31,
Bulgaria
Croatia
Czech Republic
Romania
Slovak Republic
Slovenia
Total operating segments
Corporate
Total capital expenditures
Long-lived assets (1) :
Bulgaria
Croatia
Czech Republic
Romania
Slovak Republic
Slovenia
Total operating segments
Corporate
Total long-lived assets
(1) Reflects property, plant and equipment.
Revenue by type:
Television advertising
Carriage fees and subscriptions
Other
Total net revenues
$
$
2016
3,304
2,593
8,043
6,863
1,693
4,128
26,624
2,943
$
29,567
$
2015
3,517 $
3,215
10,982
5,794
2,921
3,197
29,626
3,891
33,517 $
2014
2,627
2,701
9,139
4,686
2,240
3,502
24,895
3,790
28,685
December 31, 2016
December 31, 2015
$
$
6,280 $
5,832
39,529
22,796
15,326
14,177
103,940
5,149
109,089 $
For The Year Ended December 31,
2016
532,600
$
78,606
26,807
638,013
$
2015
505,498 $
73,058
27,285
605,841 $
$
$
5,602
5,497
39,907
20,873
15,606
15,082
102,567
5,955
108,522
2014
565,601
80,487
34,705
680,793
We do not rely on any single major customer or group of major customers.
20. COMMITMENTS AND CONTINGENCIES
Commitments
a) Programming Rights Agreements and Other Commitments
At December 31, 2016 , we had total commitments of US$ 128.2 million ( December 31, 2015 : US$ 144.9 million ) in respect of future programming, including contracts signed with license
periods starting after the balance sheet date. In addition, we have digital transmission obligations, future minimum operating lease payments for non-cancellable operating leases with remaining
terms in excess of one year (net of amounts to be recharged to third parties) and other commitments as follows:
Programming purchase
obligations
Other
commitments
2017
2018
2019
2020
2021
2022 and thereafter
Total
$
$
43,462 $
34,889
32,074
14,003
1,503
2,281
128,212 $
17,545 $
5,157
10,851
356
322
44
34,275 $
Operating
leases
3,374 $
2,077
923
476
327
1,433
8,610 $
Capital
expenditures
609
—
—
—
—
—
609
For the years ended December 31, 2016 , 2015 and 2014 , we incurred aggregate rent expense on all facilities of US$ 9.4 million , US$ 7.8 million and US$ 10.0 million , respectively.
70
Index
b) Factoring of Trade Receivables
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
CET 21 has a CZK 735.0 million (approximately US$ 28.7 million ) factoring framework agreement with FCS. Under this facility up to CZK 735.0 million (approximately US$ 28.7 million )
may be factored on a recourse or non-recourse basis. As at December 31, 2016 , there were CZK 462.9 million (approximately US$ 18.1 million ) ( December 31, 2015 : CZK 478.9 million ,
approximately US$ 18.7 million based on December 31, 2016 rates), of receivables subject to the factoring framework agreement.
In the first quarter of 2016, Pro TV entered into a RON 109.0 million (approximately US$ 25.3 million ) factoring framework agreement with Global Funds IFN S.A. Under this facility up to
RON 109.0 million (approximately US$ 25.3 million ) may be factored on a non-recourse basis. As at December 31, 2016 , there were RON 105.7 million (approximately US$ 24.6 million ) of
receivables subject to the factoring framework agreement.
Contingencies
a) Litigation
We are from time to time party to legal proceedings, arbitrations and regulatory proceedings arising in the normal course of our business operations, including the proceeding described below.
We evaluate, on a quarterly basis, developments in such matters and provide accruals for such matters, as appropriate. In making such decisions, we consider the degree of probability of an
unfavorable outcome and our ability to make a reasonable estimate of the amount of a loss. An unfavorable outcome in any such proceedings, if material, could have an adverse effect on our
business or consolidated financial statements.
In late November and December 2016, CME’s Slovak subsidiary MARKIZA-SLOVAKIA, spol. s.r.o. (“Markiza”) was notified of claims that were filed in June 2016 in a court of first instance
in Bratislava, the Slovak Republic to collect amounts allegedly owing under four promissory notes. These four promissory notes were purportedly issued in June 2000 by Pavol Rusko in his
personal capacity and were purportedly guaranteed by Markiza under the signature of Mr. Rusko, who was an executive director of Markiza at that time as well as one of its shareholders. The
notes purport to be issued in favor of Marian Kocner, a controversial Slovak businessman, and to a former associate of Mr. Kocner, and were supposedly assigned several times, ultimately to
Sprava a inkaso zmeniek, s.r.o., a company owned by Mr. Kocner that is the plaintiff in these proceedings. The four notes purport to be in the aggregate amount of approximately EUR 69.0
million . A court of first instance in Bratislava has suspended proceedings in respect of one of the promissory notes (in the amount of approximately EUR 26.0 million ) because the plaintiff
failed to pay court fees. Two of the remaining notes allegedly matured in 2015 and the third in 2016. Despite a random case assignment system at the Bratislava court, the three cases dealing
with the other notes have all been assigned to the same judge. We do not believe that any of the promissory notes are authentic and are vigorously defending the claims. We are currently unable
to estimate for what amount, if any, we may be liable if the plaintiff is ultimately successful in pursuing their claims.
21. RELATED PARTY TRANSACTIONS
We consider our related parties to be our officers, directors and shareholders who have direct control and/or influence over the Company as well as other parties that can significantly influence
management. We have identified transactions with individuals or entities associated with Time Warner, which is represented on our Board of Directors and holds a 47.0% voting interest in
CME Ltd. as at December 31, 2016 , as material related party transactions.
Time Warner
Net revenues
Cost of revenues
Interest expense
Programming liabilities
Other accounts payable and accrued liabilities
Long-term debt and other financing arrangements
Accrued interest payable (1)
Other non-current liabilities (2)
$
$
For The Year Ended December 31,
2016
— $
25,445
108,205
2015
198 $
32,497
127,970
2014
59
20,713
61,887
December 31, 2016
December 31, 2015
18,959 $
192
—
9,588
44,397
14,583
53
324,979
5,781
31,895
(1) Amount represents accrued Guarantee Fees for which we have not yet paid in cash or made an election to pay in kind. See Note 4, "Long-term Debt and Other Financing Arrangements" .
(2) Amount represents the Commitment Fee, as well as the Guarantee Fees for which we have made an election to pay in kind. See Note 4, "Long-term Debt and Other Financing
Arrangements" .
See Part III, Item 13, "Certain Relationships and Related Transactions, and Director Independence."
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Index
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
22. QUARTERLY FINANCIAL DATA
Selected quarterly financial data for the years ended December 31, 2016 and 2015 is as follows:
Consolidated Statements of Operations and Comprehensive Income / Loss Data:
Net revenues
Cost of revenues
Operating income
(Loss) / income from continuing operations
Net (loss) / income
Net (loss) / income attributable to CME Ltd.
Net (loss) / income per share:
Basic EPS
Effect of dilutive securities
Diluted EPS
For the Year Ended December 31, 2016
First Quarter
(Unaudited)
Second Quarter
(Unaudited)
Third Quarter
(Unaudited)
Fourth Quarter
(Unaudited)
$
129,000
$
97,777
7,763
(40,694)
(40,694)
(40,435)
175,206 $
104,962
43,891
(141,249)
(141,249)
(141,317)
$
$
(0.31)
$
—
(0.31)
$
(0.98) $
—
(0.98) $
126,706 $
91,141
8,384
(19,823)
(19,823)
(19,627)
(0.14) $
—
(0.14) $
207,101
119,946
51,551
21,169
21,169
21,088
0.07
(0.01)
0.06
For the Year Ended December 31, 2015
First Quarter
(Unaudited)
Second Quarter
(Unaudited)
Third Quarter
(Unaudited)
Fourth Quarter
(Unaudited)
Consolidated Statements of Operations and Comprehensive Income / Loss Data:
Net revenues
Cost of revenues
Operating (loss) / income
(Loss) / income from continuing operations
(Loss) / income from discontinued operations, net of tax
Net loss
Net loss attributable to CME Ltd.
Net loss per share:
Basic EPS
Effect of dilutive securities
Diluted EPS
$
126,133
$
98,828
(17,239)
(70,243)
(3,288)
(73,531)
(73,274)
$
$
(0.53)
$
—
(0.53)
$
166,834 $
101,229
36,441
(11,669)
2,684
(8,985)
(8,678)
(0.09) $
—
(0.09) $
117,322 $
85,832
28,853
(21,510)
(265)
(21,775)
(21,522)
(0.18) $
—
(0.18) $
195,552
116,654
46,528
1,137
(12,418)
(11,281)
(11,427)
(0.11)
—
(0.11)
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures designed to ensure that information required to be disclosed in our Annual Report on Form 10-K is recorded, processed, summarized and
reported within the specified time periods and is designed to ensure that information required to be disclosed is accumulated and communicated to management, including the co-Chief
Executive Officers and the Chief Financial Officer to allow timely decisions regarding required disclosure.
Our co-Chief Executive Officers and our Chief Financial Officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e)
and 15d-15(e) under the Exchange Act as of December 31, 2016 and concluded that our disclosure controls and procedures were effective as of that date.
72
Index
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. We have performed an assessment of the design and operating effectiveness
of our internal control over financial reporting as of December 31, 2016 . This assessment was performed under the direction and supervision of our co-Chief Executive Officers and our Chief
Financial Officer, and utilized the framework established in “Internal Control - Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
Based on that evaluation, we concluded that as of December 31, 2016 , our internal control over financial reporting was effective. Our independent registered public accounting firm, Ernst &
Young LLP, has audited our financial statements and issued a report on the effectiveness of internal control over financial reporting, which is included herein.
Changes in Internal Controls
There were no changes in our internal controls over financial reporting during the three month period ended December 31, 2016 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
73
Index
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Central European Media Enterprises Ltd.
We have audited Central European Media Enterprises Ltd.’s (“the Company”) internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organisations of the Treadway Commission (2013 Framework) (the “COSO criteria”). Central European Media Enterprises Ltd.’s
management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in
the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of Consolidated
Financial Statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorisations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorised acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Central European Media Enterprises Ltd. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the COSO
criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2016 consolidated financial statements of Central European
Media Enterprises Ltd. and our report dated February 9, 2017 expressed an unqualified opinion thereon.
ERNST & YOUNG LLP
London, United Kingdom
February 9, 2017
74
Index
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Item 10 is incorporated herein by reference to the sections entitled “Election of Directors,” “Executive Officers,” “Corporate Governance and Board of Director
Matters” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our Proxy Statement for the 2017 Annual General Meeting of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to the sections entitled “Compensation Discussion and Analysis”, “Summary Compensation Table”, “Compensation
Committee Report” and “Compensation Committee Interlocks and Insider Participation” in our Proxy Statement for the 2017 Annual General Meeting of Shareholders.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by Item 12 relating to the security ownership of certain beneficial owners and management is incorporated herein by reference to the section entitled “Security
Ownership of Certain Beneficial Owners and Management" in our Proxy Statement for the 2017 Annual General Meeting of Shareholders.
Equity Compensation Plan Information
The following table provides information as of December 31, 2016 about common stock that may be issued upon the exercise of options, warrants and rights under all of our existing equity
compensation plans.
Equity Compensation Plan Information
(a)
(b)
(c)
Number of securities to be issued upon
exercise of outstanding options, warrants
and rights
Weighted average exercise price of
outstanding options, warrants and rights
Number of securities remaining available for
future issuance under equity compensation
plans (excluding securities reflected in
column (a))
2,011,392
2,542,625
—
4,554,017
$2.32
n/a
—
$2.32
(1)
(1)
—
3,269,084
Plan Category
Equity compensation plans approved by
security holders:
Stock options
Restricted stock units
Equity compensation plans not approved by
security holders
Total
(1) There were 3,269,084 shares available for issuance under CME’s 2015 Stock Incentive Plan at December 31, 2016 after reflecting both stock options and restricted stock units in
column (a).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Item 13 is incorporated herein by reference to the sections entitled “Certain Relationships and Related Party Transactions” and “Corporate Governance and Board of
Director Matters” in our Proxy Statement for the 2017 Annual General Meeting of Shareholders.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by Item 14 is incorporated herein by reference to the section entitled “Selection of Auditors” in our Proxy Statement for the 2017 Annual General Meeting of
Shareholders.
75
Index
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) The following financial statements of Central European Media Enterprises Ltd. are included in Part II, Item 8 of this Report:
•
•
•
•
•
•
Reports of Independent Registered Public Accounting Firms;
Consolidated Balance Sheets as of December 31, 2016 and 2015 ;
Consolidated Statements of Operations and Comprehensive Income / Loss for the years ended December 31, 2016 , 2015 and 2014 ;
Consolidated Statements of Equity for the years ended December 31, 2016 , 2015 and 2014 ;
Consolidated Statements of Cash Flows for the years ended December 31, 2016 , 2015 and 2014 ; and
Notes to Consolidated Financial Statements.
(a)(2) Financial Statement Schedule (included at page S-1 of this Annual Report on Form 10-K).
(a)(3) The following exhibits are included in this report:
76
Index
EXHIBIT INDEX
Exhibit Number
3.01*
Description
Memorandum of Association (incorporated by reference to Exhibit 3.01 to the Company's Registration Statement No. 3380344 on Form S-1 filed June 17, 1994).
3.02*
3.03*
3.04*
3.05*
3.06*
3.07*
3.08*
4.01*
4.02*
4.03*
4.04*
4.05*
4.06*
4.07*
4.08*
4.09*
Memorandum of Increase of Share Capital (incorporated by reference Exhibit 3.03 to Amendment No. 1 to the Company's Registration Statement No. 33-80344 on Form
S-1, filed August 19, 1994).
Memorandum of Reduction of Share Capital (incorporated by reference to Exhibit 3.04 to Amendment No. 2 to the Company's Registration Statement No. 33-80344 on
Form S-1, filed September 14, 1994).
Certificate of Deposit of Memorandum of Increase of Share Capital executed by the Registrar of Companies on May 20, 1997 (incorporated by reference to Exhibit 3.1 to
the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1997).
Certificate of Deposit of Memorandum of Increase of Share Capital executed by the Registrar of Companies on July 11, 2012 (incorporated by reference to Exhibit 3.05 to
the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2012).
Certificate of Deposit of Memorandum of Increase of Share Capital executed by the Registrar of Companies on July 3, 2013 (incorporated by reference to Exhibit 3.02 to
the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2013).
Certificate of Deposit of Memorandum of Increase of Share Capital executed by the Registrar of Companies on April 28, 2014 (incorporated by reference to Exhibit 3.02
to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2014).
Bye-Laws of Central European Media Enterprises Ltd., as amended and restated on April 14, 2014 (incorporated by reference to Exhibit 3.01 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 2014).
Specimen Class A Common Stock Certificate (incorporated by reference to Exhibit 4.01 to Amendment No. 1 to the Company's Registration Statement No. 33-80344 on
Form S-1, filed August 19, 1994).
Warrant Agreement, dated May 2, 2014, between Central European Media Enterprises Ltd. and American Stock Transfer & Trust Company, LLC (as Warrant Agent)
(incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed May 5, 2014).
Private Unit Warrant Agreement, dated May 2, 2014, between Central European Media Enterprises Ltd. and American Stock Transfer & Trust Company, LLC
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 5, 2014).
Initial Warrant Agreement, dated May 2, 2014, between Central European Media Enterprises Ltd. and American Stock Transfer & Trust Company, LLC (as Warrant
Agent) (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on May 5, 2014).
Form of Warrant for Unit Warrants (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on May 5, 2014).
Registration Rights Agreement between the Company and Time Warner Holdings B.V., dated May 18, 2009 (incorporated by reference to Exhibit 4.11 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2009).
Registration Rights Agreement, by and among Ronald S. Lauder, RSL Capital LLC and Central European Media Enterprises Ltd., dated as of April 30, 2012
(incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on April 30, 2012).
Certificate of Designation of the Series A Convertible Preferred Stock of Central European Media Enterprises Ltd., dated July 2, 2012 (incorporated by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K filed on July 3, 2012).
Certificate of Designation of the Series B Convertible Redeemable Preferred Stock of Central European Media Enterprises Ltd., issued on June 25, 2013 (incorporated by
reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on June 25, 2013).
77
Index
Exhibit Number
10.01*+
Description
Central European Media Enterprises Ltd. Amended and Restated Stock Incentive Plan, as amended on June 13, 2012 (incorporated by reference to Exhibit 10.7 to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2012).
10.02*+
Central European Media Enterprises Ltd. 2015 Stock Incentive Plan (incorporated by reference to Exhibit 10.01 to the Company’s Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2015).
10.03*+
Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 13, 2012).
10.04*+
10.05*+
10.06*+
10.07*+
10.08*+
10.09*+
Form of Restricted Stock Unit Award Agreement (time-based vesting) (incorporated by reference to Exhibit 10.01 to the Company's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 2014).
Form of Restricted Stock Unit Award Agreement (performance-based vesting) (for use from March 2015) (incorporated by reference to Exhibit 10.10 to the Company’s
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2016).
Form of Restricted Stock Unit Award Agreement (Directors’ Version) (for use from June 2015) (incorporated by reference to Exhibit 10.02 to the Company’s Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 2015).
Form of Employee Non-Qualified Stock Option Agreement (for use from June 2015) (incorporated by reference to Exhibit 10.03 to the Company’s Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 2015).
Form of Restricted Stock Unit Award Agreement (time-based vesting) (for use from March 2015) (incorporated by reference to Exhibit 10.04 to the Company’s Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 2015).
Form of Restricted Stock Unit Award Agreement (time-based vesting) (2015 Plan, for use from March 2016) (incorporated by reference to Exhibit 10.11 to the
Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2016).
10.10+
Form of Employee Non-Qualified Stock Option Agreement (co-CEOs version, 2015 Plan, for use from June 2015).
10.11+
Form of Restricted Stock Unit Award Agreement (time-based vesting) (co-CEOs version, 2015 Plan, for use from March 2016).
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*
10.18*
Investment Agreement between CME Media Enterprises B.V, and Top Tone Media Holdings Limited, dated April 22, 2010 (incorporated by reference to Exhibit 10.5 to
the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2010).
Subscription Agreement, by and between Central European Media Enterprises Ltd. and TW Media Holdings LLC, dated March 22, 2009 (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2009).
Sale and Purchase Agreement in respect of Pro TV S.A., Media Pro International S.A. and Media Vision S.R.L. among CME Investments B.V., Central European Media
Enterprises Ltd. and Adrian Sarbu, dated May 24, 2010 (incorporated by reference to Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 2010).
Subscription and Equity Commitment Agreement, by and between Time Warner Media Holdings B.V. and the Company, dated as of April 30, 2012 (incorporated by
reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on April 30, 2012).
Letter Agreement, by and among Time Warner Media Holdings B.V., the Company, RSL Savannah LLC, RSL Capital LLC, RSL Investments Corporation and Ronald S.
Lauder, dated as of April 30, 2012 (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on April 30, 2012).
Subscription Agreement, by and among Ronald S. Lauder, RSL Capital LLC and the Company, dated as of April 30, 2012 (incorporated by reference to Exhibit 10.4 to
the Company's Current Report on Form 8-K filed on April 30, 2012).
Indemnity Agreement, by and among Central European Media Enterprises Ltd., Ronald S. Lauder and RSL Savannah LLC, dated as of March 22, 2009 (incorporated by
reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2009).
78
Index
Exhibit Number
10.19*
10.20*
10.21*
10.22*
10.23*
10.24*
10.25*
10.26*
10.27*
10.28*
10.29*
10.30*
10.31*
10.32*
10.33*
Description
Investor Rights Agreement among the Company, Ronald S. Lauder, RSL Savannah LLC, RSL Investment LLC, RSL Investments Corporation and Time Warner Media
Holdings B.V., dated May 18, 2009 (incorporated by reference to Exhibit 10.71 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2009).
First Amendment to the Investor Rights Agreement, by and among the Company, Ronald S. Lauder, RSL Savannah LLC, RSL Capital LLC, RSL Investments
Corporation and Time Warner Media Holdings B.V., dated as of April 30, 2012 (incorporated by reference to Exhibit 10.5 to the Company's Current Report on Form 8-K
filed on April 30, 2012).
Subscription Agreement, dated as of April 29, 2013, by and between Central European Media Enterprises Ltd. and Time Warner Media Holdings B.V. (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on April 29, 2013).
Letter Agreement, dated as of April 29, 2013, by and between RSL Savannah LLC, RSL Capital LLC, RSL Investments Corporation, Ronald S. Lauder and Time Warner
Media Holdings B.V. (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on April 29, 2013).
Framework Agreement, dated as of February 28, 2014, among Central European Media Enterprises Ltd., Time Warner Inc. and Time Warner Media Holdings B.V.
(incorporated by reference to Exhibit 99.1 to the Company’s Registration Statement on Form S-3 filed February 28, 2014).
Standby Purchase Agreement, dated as of March 24, 2014, between Central European Media Enterprises Ltd. and Time Warner Media Holdings B.V. (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 27, 2014).
Pledge Agreement on Shares in Central European Media Enterprises N.V., dated May 2, 2014, among Central European Media Enterprises Ltd. (as Pledgor), Time
Warner Inc. (as Pledgee) and Central European Media Enterprises N.V. (as the Company), with respect to the Time Warner Revolving Credit Facility (incorporated by
reference to Exhibit 10.10 to the Company’s Current Report on Form 8-K filed on May 5, 2014).
Deed of Pledge of Shares (CME Media Enterprises B.V.), dated May 2, 2014, among Central European Media Enterprises N.V. (as Pledgor), Time Warner Inc. (as
Pledgee) and CME Media Enterprises B.V. (as the Company), with respect to the Time Warner Revolving Credit Facility (incorporated by reference to Exhibit 10.9 to the
Company’s Current Report on Form 8-K filed on May 5, 2014).
Credit Agreement dated as of November 14, 2014 among Central European Media Enterprises Ltd., BNP Paribas, as administrative agent, Time Warner Inc., as guarantor,
and the lenders party thereto (incorporated by reference to Exhibit 10.1 to the Company's Current Report in Form 8-K filed on November 14, 2014).
Commitment Letter dated as of November 14, 2014 between Central European Media Enterprises Ltd. and Time Warner Inc. (incorporated by reference to Exhibit 10.2 to
the Company's Current Report in Form 8-K filed on November 14, 2014).
Credit Agreement dated as of September 30, 2015 among Central European Media Enterprises Ltd., BNP Paribas, as administrative agent, Time Warner Inc., as guarantor,
and the lenders party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 1, 2015).
Credit Agreement dated as of February 19, 2016 among CME Media Enterprises B.V., as borrower, Central European Media Enterprises Ltd., as guarantor, BNP Paribas,
as administrative agent, Time Warner Inc., as guarantor, and the lenders party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K filed on February 22, 2016).
Amendment dated as of February 19, 2016 to the Credit Agreement dated as of November 14, 2014, among Central European Media Enterprises Ltd., as borrower, BNP
Paribas, as administrative agent, Time Warner Inc., as guarantor, and the lenders party thereto (incorporated by reference to Exhibit 10.3 to the Company’s Current Report
on Form 8-K filed on February 22, 2016).
Amendment dated as of February 19, 2016 to the Credit Agreement dated as of September 30, 2015, among Central European Media Enterprises Ltd., as borrower, BNP
Paribas, as administrative agent, Time Warner Inc., as guarantor, and the lenders party thereto (incorporated by reference to Exhibit 10.4 to the Company’s Current Report
on Form 8-K filed on February 22, 2016).
Amendment and Restatement Agreement in respect of the Amended and Restated Revolving Loan Facility Credit Agreement dated as of November 14, 2014, as amended
and restated as of February 19, 2016 among Central European Media Enterprises Ltd., as borrower, Time Warner Inc. as administrative agent, and the lenders party
thereto (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed on February 22, 2016).
79
Index
Exhibit Number
10.34*
10.35*
10.36*
10.37*
10.38*
10.39*+
10.40*+
10.41*+
10.42*+
10.43*+
10.44*+
10.45*+
10.46*+
Description
Amended and Restated Reimbursement Agreement dated as of November 14, 2014 as amended and restated as of February 19, 2016 among Central European Media
Enterprises Ltd., CME Media Enterprises B.V., and Time Warner Inc., as credit guarantor (incorporated by reference to Exhibit 10.8 to the Company’s Current Report on
Form 8-K filed on February 22, 2016).
Pledge Agreement on Shares in Central European Media Enterprises N.V. dated February 19, 2016 among Central European Media Enterprises Ltd., as pledgor, Time
Warner Inc., as pledgee, and Central European Media Enterprises N.V. (incorporated by reference to Exhibit 10.10 to the Company’s Current Report on Form 8-K filed on
February 22, 2016).
Deed of Pledge of Shares (CME Media Enterprises B.V.) dated February 19, 2016 among Central European Media Enterprises N.V., as pledgor, Time Warner Inc. as
pledgee, and CME Media Enterprises B.V. (incorporated by reference to Exhibit 10.11 to the Company’s Current Report on Form 8-K filed on February 22, 2016).
Deed of Amendment dated February 19, 2016 to the Intercreditor Agreement dated July 21, 2006, as amended and restated, among Central European Media Enterprises
Ltd., Central European Media Enterprises N.V., CME Media Enterprises B.V., and the other parties thereto (incorporated by reference to Exhibit 10.12 to the Company’s
Current Report on Form 8-K filed on February 22, 2016).
Intercreditor Agreement dated July 21, 2006, as amended and restated, among Central European Media Enterprises Ltd., Central European Media Enterprises N.V., CME
Media Enterprises B.V., and the other parties thereto (incorporated by reference to Exhibit 10.13 to the Company’s Current Report on Form 8-K filed on February 22,
2016).
Amended and Restated Contract of Employment between CME Media Services Limited and Michael Del Nin, dated July 1, 2016 (incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 8-K filed on July 1, 2016).
Amended and Restated Contract of Employment between CME Media Services Limited and Christoph Mainusch, dated July 1, 2016 (incorporated by reference to Exhibit
10.2 to the Company's Quarterly Report on Form 8-K filed on July 1, 2016).
Amended and Restated Contract of Employment between CME Media Services Limited and David Sturgeon, dated July 27, 2010 (incorporated by reference to Exhibit
10.9 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2010).
Amendment to Amended and Restated Contract of Employment between CME Media Services Limited and David Sturgeon, dated June 5, 2014 (incorporated by
reference to Exhibit 10.02 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2014).
Amendment to Amended and Restated Contract of Employment between CME Media Services Limited and David Sturgeon, as amended, dated March 10, 2015
(incorporated by reference to Exhibit 10.43 to the Company’s Annual Report on Form 10-K for the fiscal period ended December 31, 2014).
Contract of Employment between CME Media Services Limited and Daniel Penn, dated February 20, 2012 (incorporated by reference to Exhibit 10.47 to the Company's
Annual Report on Form 10-K for the fiscal period ended December 31, 2011).
Amendment to Contract of Employment between CME Media Services Limited and Daniel Penn, dated March 10, 2015 (incorporated by reference to Exhibit 10.45 to the
Company’s Annual Report on Form 10-K for the fiscal period ended December 31, 2014).
Amended and Restated Contract of Employment between CME Media Services Limited and Adrian Sarbu, dated April 4, 2013 (incorporated by reference to Exhibit
10.01 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013).
10.47*+
Separation Agreement between CME Media Services Limited and Adrian Sarbu, dated August 21, 2013 (incorporated by reference to Exhibit 10.1 to the Company's
Current Report in Form 8-K filed on August 21, 2013).
21.01
23.01
23.02
List of subsidiaries.
Consent of Ernst & Young LLP.
Consent of Deloitte LLP.
24.01
Power of Attorney, dated as of February 9, 2017.
80
Index
Exhibit Number
Description
31.01
Certification of co-Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
31.02
Certification of co-Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
31.03
Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
32.01
Certifications of co-Principal Executive Officers and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002 (furnished only).
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Schema Document
101.CAL
XBRL Taxonomy Calculation Linkbase Document
101.DEF
XBRL Taxonomy Definition Linkbase Document
101.LAB
XBRL Taxonomy Label Linkbase Document
101.PRE
XBRL Taxonomy Presentation Linkbase Document
* Previously filed exhibits.
+ Exhibit is a management contract or compensatory plan.
b) Exhibits: See (a)(3) above for a listing of the exhibits included as part of this report.
c) Report of Independent Registered Public Accountants on Schedule II - Schedule of Valuation Allowances. (See page S-1 of this Annual Report on Form 10-K).
81
Index
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Date:
February 9, 2017
Central European Media Enterprises Ltd.
/s/ David Sturgeon
David Sturgeon
Executive Vice President and Chief Financial Officer
Principal Financial Officer and Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated.
Signature
*
John K. Billock
/s/ Michael Del Nin
Michael Del Nin
/s/ Christoph Mainusch
Christoph Mainusch
/s/ David Sturgeon
David Sturgeon
*
Paul T. Cappuccio
*
Iris Knobloch
*
Charles R. Frank
*
Alfred W. Langer
*
Bruce Maggin
Title
Date
Chairman of the Board of Directors
February 9, 2017
co-Chief Executive Officer
February 9, 2017
(co-Principal Executive Officer)
co-Chief Executive Officer
February 9, 2017
(co-Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
February 9, 2017
Director
February 9, 2017
Director
February 9, 2017
Director
February 9, 2017
Director
February 9, 2017
Director
February 9, 2017
82
Index
Signature
*
Parm Sandhu
*
Doug Shapiro
*
Kelli Turner
*
Gerhard Zeiler
Title
Date
Director
February 9, 2017
Director
February 9, 2017
Director
February 9, 2017
Director
February 9, 2017
* By:
/s/ David Sturgeon
David Sturgeon
Attorney-in-fact **
** By authority of the power of attorney filed herewith
83
Index
INDEX TO SCHEDULES
Schedule II
Schedule of Valuation Allowances
(US$ 000's)
BALANCE December 31, 2013
Charged to costs and expenses
Deductions (1)
Foreign exchange
BALANCE December 31, 2014
Charged to costs and expenses
Deductions (1)
Foreign exchange
BALANCE December 31, 2015
Charged to costs and expenses
Deductions (1)
Foreign exchange
BALANCE December 31, 2016
(1) Charged to other accounts for the bad debt and credit note provision consist primarily of accounts receivable written off.
S-1
Bad debt and credit note
provision
Deferred tax allowance
$
$
14,789
$
4,238
(6,303)
(1,989)
10,735
2,071
(2,402)
(1,203)
9,201
3,631
(2,923)
(311)
9,598
$
133,018
7,012
—
(15,767)
124,263
(3,614)
—
(11,168)
109,481
5,863
250
(4,674)
110,920
Exhibit 10.10
Central European Media Enterprises Ltd. Stock Incentive Plan
Form of Stock Option Agreement (for use from June 2015), co-CEOs version
EMPLOYEE NON-QUALIFIED STOCK OPTION AGREEMENT
This Employee Non-Qualified Stock Option Agreement dated as of [•] (the “Agreement”) is between Central European Media Enterprises Ltd. (the “Company”) and [•] (the “Optionee”).
WHEREAS, the Company’s 2015 Stock Incentive Plan (as the same may be amended and restated from time to time, the “Plan”) is administered by the Committee and the Committee has
determined that it would be in the best interests of the Company to grant an option award to the Optionee, an employee of the Company or an Affiliate.
NOW, THEREFORE, the Company and the Optionee agree as follows:
1. Grant of Option . The Company hereby grants to the Optionee an option (the “Option”) to purchase up to [•] shares (the “Shares”) of Class A common stock, par value $0.08 per
share, of the Company, at an exercise price of $ [•] per Share (the “Exercise Price per Share”), on the terms and conditions set forth herein. The Option is a non-qualified stock option.
The Option has been issued pursuant to, and is subject to the terms and provisions of the Plan. All capitalized terms that are used in this Agreement and not otherwise defined herein
shall have the meanings ascribed to them in the Plan.
2. Vesting Provisions .
The Option shall vest as set forth below, subject to the Optionee’s continuous employment with the Company or any Affiliate (“Service”) through the applicable vesting date. No
portion of the Option will vest after the Optionee’s Service ceases unless this Agreement provides otherwise with respect to vesting that arises as a result of the Optionee’s cessation
of Service.
(a)
Vesting Schedule . Subject to Sections 2(b), (c) and (d) hereof, the Option shall vest and become exercisable on the following schedule:
as to [•] Shares (representing 25% of the Option) on [•];
as to [•] Shares (representing 25% of the Option) on [•];
as to [•] Shares (representing 25% of the Option) on [•], and
as to [•] Shares (representing 25% of the Option) on [•].
(b)
(c)
(d)
Change in Control . Notwithstanding any other provision of this Agreement or the Plan, in the event of a Change in Control the unvested portion of the Option shall
fully vest and become exercisable immediately prior to such Change in Control.
Time Warner Transaction and Qualifying Termination Event . Notwithstanding any other provision of this Agreement or the Plan, the unvested portion of the Option
shall fully vest and become exercisable in accordance with the provisions of Annex A in connection with a Time Warner Transaction or a Qualifying Termination Event.
Death or Disability . If the Optionee’s Service terminates due to death or disability, the unvested portion of the Option shall fully vest and become exercisable on the
date of such termination. For purposes of this Agreement, “disability” means the Optionee’s inability to perform the duties and responsibilities required of the Optionee
by reason of a physical or mental disability or infirmity which has continued for more than one hundred and twenty (120) consecutive calendar days in any twelve (12)
consecutive month period, as determined by the Committee.
3. Manner of Exercise of the Option .
(a)
(b)
Exercise Notice . Subject to Section 4, the Optionee may exercise all or any part of the Option that has vested in accordance with Section 2 of this Agreement, by giving
written notice to the Company in the form of Exhibit 1 attached hereto (an “Exercise Notice”) specifying the number of Shares with respect to which the Option is being
exercised, which notice shall be signed (whether or not in electronic form) by the person exercising the Option. The Option may be exercised with respect to whole
Shares only. When delivering the Exercise Notice, the Optionee shall also, in accordance with Section 6(d) of the Plan, make provision for the payment of the aggregate
Exercise Price per Shares for the Option being exercised and any applicable withholding tax for the Shares as to which the Option is exercised (together, the “Payment”).
Upon any exercise of the Option, the number of Shares with respect to which the vested portion of the Option may thereafter be exercised by the Optionee shall no longer
include the number of Shares with respect to which the Option has been exercised. The vested portion of the Option shall continue to be exercisable in respect of such
remaining Shares until the Expiration Date unless earlier terminated pursuant to Section 4.
Payment of Exercise Price . The Optionee shall pay to the Company the aggregate Exercise Price for Shares and any applicable withholding tax for the Shares as to
which the Option is exercised by one or more of the following methods: (i) in cash, (ii) by delivering irrevocable instructions to a broker to sell such number of Shares
obtained on the exercise of the Option and to deliver promptly to the Company an amount of proceeds of such sale equal to the Payment, or (iii) a combination of the
foregoing.
1
(c)
Delivery of Shares . As soon as practicable following the receipt by the Company of a valid Exercise Notice and Payment, the Company shall (i) register the Optionee’s
ownership of and deliver such Shares electronically or (ii) deliver to the Optionee a certificate for the Shares.
4.
Termination of the Option .
(a)
(b)
Termination . Subject to the provisions of the Plan and this Agreement, the Option and all rights of the Optionee hereunder, to the extent not previously exercised, shall
terminate on [•] (the “Expiration Date”) and the Optionee will have no further right, title or interest in or to such Option or the underlying Shares after the Expiration
Date.
Exercise Following Certain Events . Notwithstanding Section 4(a), if the Optionee’s Service terminates prior to the Expiration Date, the unvested portion of the Option
shall terminate and be of no further effect immediately upon the Optionee’s termination of Service and the vested portion of the Option (including pursuant to Section
2(b), Section 2(d) or Annex A) shall be exercisable for the periods set out below. If the vested portion of the Option is not exercised during the applicable period set out
below, the Option will immediately terminate upon the expiration of such applicable period.
(i) Voluntary Termination . If the Optionee terminates his or her Service other than for Good Reason, the vested portion of the Option as of the date of such
termination of Service may be exercised by the Optionee during the period ending three months after the date of such termination, but in no event after the
Expiration Date.
(ii) Death or Disability . If the Optionee’s Service terminates as the result of the Optionee’s death or disability, the Option may be exercised by the Optionee or the
Optionee’s legal representatives during the period ending twelve (12) months after the date of the Optionee’s death or disability, but in no event after the Expiration
Date.
(iii) Qualifying Termination Event . In the event the Optionee’s Service with the Company and any Affiliate terminates as a result of a Qualifying Termination Event,
the Option may be exercised by the Optionee during the period ending twelve (12) months following such termination, but in no event after the Expiration Date.
(iv) Termination for Cause . If the termination of Optionee’s Service with the Company or any Affiliate occurs by reason of Termination for Cause (as defined in
Annex A), the Option, whether vested or unvested, shall be immediately terminated effective as of the date when Optionee’s Service with the Company or any
Affiliate terminates, for no consideration.
(c)
Exercise Date . If the last day on which the Option may be exercised, is a Saturday, Sunday or other day that is not a trading day on the NASDAQ Global Market or, if
the Company’s Shares are not then listed on the NASDAQ Global Market, such other stock exchange or trading system that is the primary exchange on which the
Company’s Shares are then traded, then the last day on which the Option may be exercised shall be the preceding trading day on the NASDAQ Global Market or such
other stock exchange or trading system.
5. Withholding Taxes . The Optionee acknowledges that Optionee may be liable for federal, state, national, local income and employment taxes and social, health or national insurance
assessed and/or withheld in connection with the Option, its exercise or the issuance of Shares (collectively, “Withholding Taxes”) under the applicable laws of the jurisdiction where
the Optionee is resident or may otherwise be applicable to the Optionee in respect of the Option or the issuance of Shares.
(a)
(b)
(c)
(d)
Amount of Withholding Taxes . Prior to the exercise of any portion of the Option pursuant to Section 3 above, the Company shall inform the Optionee of (i) the
estimated amount of any Withholding Taxes which the Company determines will be owed by the Optionee, by reason of the exercise of the Option and (ii) the estimated
amount, if any, that the Company or any of its Affiliates will be required to withhold from the Optionee by reason of such exercise.
Payment of Withholding Taxes . The Optionee may satisfy its obligation in respect of Withholding Taxes: (i) by paying to the Company in cash an amount equal to the
Withholding Taxes no later than the date of exercise of the Option; or (ii) subject to compliance with applicable law and the Company’s Insider Trading Policy, by
delivering to the Company an instruction to a broker approved by the Company providing for the assignment of the proceeds from the sale of the Shares to be received on
the exercise of the Option in an amount sufficient to cover such Withholding Taxes.
Satisfying Withholding Tax Obligations with Shares . The Company may, in the sole discretion of the Committee, permit the Optionee to satisfy all or any portion of
the Company’s or any of its Affiliates’ obligations for Withholding Taxes in respect of an Option by deducting from the Shares the Optionee would otherwise receive a
number of shares having a fair market value equal to the amount of Withholding Taxes that are payable (using the minimum statutory rates of withholding for purposes
of determining such amount if necessary to avoid any adverse accounting treatment). The Optionee agrees that delivery of a number of Shares net of the amount deducted
for purposes of satisfying Withholding Tax obligations shall be full settlement of the Option or portion thereof being exercised for all purposes.
Set-off Right . The Company may withhold amounts from any compensation otherwise payable to the Optionee by the Company or any of its Affiliates, and the
Optionee hereby authorizes the withholding from compensation payable to Optionee, any amounts required to satisfy any Withholding Tax obligations of the Company
or any of its Affiliates in connection with the Option. The Company shall not be required to deliver any Shares if it has not received satisfactory evidence of payment of
all Withholding Taxes.
6. No Rights in Shares . The Optionee shall not have any of the rights and privileges of a stockholder of the Company in respect of any Shares covered by the Option until the Optionee
shall have become the holder of record of any such Shares and such Shares have been issued, recorded in the records of the Company or its transfer agent and delivered to the
Optionee. The Optionee must complete such administrative documentation required by this Agreement or the Committee before the Company may issue the Shares, record such
issuance in the records of the Company or its transfer agent and deliver such Shares to the Optionee following the Exercise of Option in accordance with Section 3 of this Agreement.
The Company may postpone such issuance, recording and delivery of the Shares if such proper documentation is not received by the Company.
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7. Availability of Stock . The Company agrees that it will reserve such number of Shares of its authorised Class A common stock as shall be necessary to satisfy the requirements of
this Agreement.
8. Adjustment of Option . In the event that prior to the exercise in full of the Option, the Company shall have effected one or more stock dividends, stock splits, reorganisation,
recapitalization, combination of shares, mergers, consolidations, or other changes in corporate structure or stock of the Company, the Committee shall equitably adjust the number,
kind and Exercise Price per Share of the Shares remaining subject to the Option in accordance with the Plan.
9. Regulatory Compliance . The Option may not be exercised prior to completion of, and the Company may postpone issuing and recording the Shares to the Optionee issuable
pursuant to this Agreement in the records of the Company or its transfer agent for such period as may be required for, compliance with any registration or other applicable
requirements under any applicable securities or other laws the listing requirements of any applicable stock exchange, or any ruling or regulation in respect thereof, and the Company
shall not be obligated to deliver any such Shares to the Optionee if either delivery thereof would constitute a violation of any provision of any law or of any ruling or regulation of any
governmental authority or any applicable stock exchange. The Company shall not be liable to the Optionee or its representative for any damages relating from any delays in recording
the issuance and delivery of Shares to the Optionee in the records of the Company or its transfer agent, any loss of the certificates by the Optionee or otherwise, or any mistakes or
errors in connection therewith.
10. Non Transferability . The Optionee shall not sell, assign, exchange, transfer (other than by will or the laws of descent or distribution), pledge, charge, hypothecate or otherwise
dispose of or encumber the Option.
11. Effect Upon Services . Nothing contained in this Agreement or in the Plan shall confer upon the Optionee any right with respect to the continuation of the Optionee’s employment
with the Company and its Affiliates or interfere in any way with the right of the Company, subject to the terms of any separate agreement to the contrary, at any time to terminate such
Service.
12. Determinations . The Committee has the power to interpret the Plan and this Agreement and to administer, interpret and apply the Plan in respect of the Option in a manner
consistent with the terms thereof and hereof (including, but not limited to, determining, in its sole and absolute discretion, whether any Option has vested and whether any unvested
portion of the Option may be accelerated and the corresponding vesting date thereof). Each determination, interpretation or other action made or taken pursuant to the provisions of
this Agreement by the Committee shall be final and conclusive for all purposes and shall be binding upon all persons, including, without limitation, the Company and the Optionee,
and the Optionee’s respective successors and assigns.
13. Reference to the Plan . The Option has been granted pursuant to and subject to the provisions of the Plan, which are hereby incorporated herein by reference. Except as otherwise
provided herein, in the event of any conflict between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall govern.
14.
Incentive Compensation Recoupment Policy . The Option and the underlying Shares are subject to recoupment in accordance with the Company’s Incentive Compensation
Recoupment Policy in effect from time to time.
15. The Code . It is intended that the Option is exempt from Sections 409A and 457A of the U.S. Internal Revenue Code of 1986 (as amended, the “Code”). Notwithstanding the
foregoing, the Optionee shall be solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed on the Optionee in connection with the Option
(including any taxes and penalties under Sections 409A and 457A of the Code), and neither the Company nor any of its Affiliates shall have any obligation to indemnify or otherwise
hold the Optionee harmless from any or all of such taxes or penalties.
16. Amendment . The Optionee hereby consents to any amendment to this Agreement in any way the Committee deems necessary or advisable to comply with or satisfy exemption from
Sections 409A and 457A of the Code, to carry out the purpose of the grant, or in connection with any change in applicable laws or regulation or any future law or regulation. The
Optionee hereby further consents to any amendment of the Plan and/or this Agreement which the Board of Directors or the Committee, in its sole discretion and upon advice of legal
counsel, may deem necessary or advisable to enable the exercise of the Option to comply with any applicable rules and regulations of the Securities and Exchange Commission,
including, without intending any limitation, any amendment which would exempt such exercise from the operation of Section 16 of the Exchange Act. Except as provided above, any
amendment to this Agreement must be in writing and signed by the Company and the Optionee.
17. Acceptance of Option; Electronic Delivery . The Option grant evidenced by this Agreement shall be forfeited for no consideration if this Agreement is not accepted by the Optionee
by executing and returning a copy of this Agreement to the Company within ninety (90) days of the date hereof. By executing this Agreement, the Optionee (i) consents to the
electronic delivery of this Agreement, all information with respect to the Plan and the Option, and any documents of the Company that are generally provided to the Company’s
shareholders (which may be delivered via the internet or as the Company otherwise directs); (ii) acknowledges that the Optionee may receive from the Company a paper copy of any
documents delivered electronically at no cost by contacting the Company in writing; and (iii) further acknowledges that the Optionee may revoke the Optionee’s consent to the
electronic delivery of documents at any time by notifying the Company of such revocation in writing and providing current notice information for delivery of paper copies.
18. Notices . Any notice under this Agreement shall be addressed to the Company in care of its General Counsel at the principal offices of CME Media Services Limited, and to the
Optionee at the address appearing in the personal records of the Company or its Affiliate or to either party at such other address as either party hereto may hereafter designate in
writing to the other.
19. Governing Law . This Agreement and all determinations made and actions taken pursuant hereto shall be governed by the laws of Bermuda.
20. Severability . In the event any provision of this Agreement shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions of this
Agreement, and this Agreement shall be construed and enforced as if such illegal or invalid provision had not been included.
21. Counterparts . This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same
instrument.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
3
IN WITNESS WHEREOF, the parties have executed this Agreement as of the [•] day of [•].
Central European Media Enterprises Ltd.
By: ………………………………
Optionee
By: …………………………….
4
Effect of a Time Warner Transaction or Qualifying Termination Event
Annex A
1.
For purposes of this Agreement, the following definitions shall apply:
“ Change in Control ” is defined in the Plan.
“ Delisting Event ” means an event or circumstance in connection with or following a Time Warner Transaction whereby the Company is no longer publicly traded with its shares of
Class A common stock listed on the NASDAQ Global Market.
“ Disposition Event ” means any sale or disposition in connection with or following a Time Warner Transaction or pursuant to the exercise of consent rights by Time
Warner in effect from time to time as a result of which the Company ceases to own a material portion of its assets.
“ Employment Contract ” means the employment contract dated [•] between the Optionee and CME Media Services Limited, as amended, amended and restated,
otherwise modified or superseded from time to time.
“ Good Reason ” means a material breach of the Employment Contract by CME Media Services Limited which results in the termination of the Employment Contract by
the Optionee pursuant to clause [•] thereof.
“ Qualifying Termination Event ” means a termination of the Optionee’s employment with the Company or any Affiliate (i) by the Optionee for Good Reason, or (ii) by
the Company or such Affiliate which is not a Termination for Cause.
“ Termination for Cause ” shall have the meaning assigned to it in clause [•] of the Employment Contract.
“ Time Warner Transaction ” is defined in the Plan.
2.
In the event of a Time Warner Transaction and the Company continues to be publicly traded with its shares of Class A common stock listed on the NASDAQ Global Market, the
Option granted hereunder will continue to vest in accordance with the vesting provisions set out in Section 2 of this Agreement until the earliest to occur of (i) a Qualifying
Termination Event, (ii) subject to clause 3 below, a Delisting Event, or (iii) subject to clause 3 below, a Disposition Event.
In connection with a Qualifying Termination Event, the unvested portion of the Option will fully vest and become exercisable immediately prior to such Qualifying Termination
Event.
3.
In connection with a Delisting Event or a Disposition Event, the unvested portion of the Option will fully vest and become exercisable immediately prior to such Delisting Event or
Disposition Event.
* * * * *
5
Option Exercise Notice
To: Insider Trading Compliance Officer
Central European Media Enterprises Ltd.
EXHIBIT 1
Reference is made to the Employee Non-Qualified Stock Option Agreement between Central European Media Enterprises Ltd. (the “Company”) and the undersigned dated
___________________, 20__ (the “Agreement”). Capitalized terms used and not otherwise defined herein shall bear the meanings ascribed thereto in the Agreement.
1.
In accordance with the terms of the Agreement, please be informed that I intend to exercise the Option in respect of:
________________________________
[insert number of underlying shares to be exercised]
at $__________ per share, the exercise price set forth in the Agreement.
2.
Check the box that applies:
o
I will exercise only and will not sell any underlying shares at this time.
o
I will exercise and then sell all or a portion of the underlying shares at this time as set forth below:
___________________________________________
[insert number of underlying shares to be sold, if any]
3.
4.
5.
I hereby represent that I have made a provision for making the Payment to the Company in respect of the Option or portion thereof to be exercised pursuant to this Exercise Notice.
I understand and agree that prior to selling any shares obtained by me pursuant to this Exercise Notice I shall receive confirmation from a compliance officer of the Company that such
sale (i) would not be prohibited under the securities laws of the United States of America that are applicable to such sale and (ii) is otherwise in accordance with the CME Insider
Trading Policy.
I represent and warrant that as of the date hereof that I am not in possession of any material inside information and shall not sell Company securities in the event I come into possession
of material insider information between the date hereof and the date of any sale transaction in connection with this Exercise Notice.
___________________________________________
Print name
___________________________________________
Signature
___________________________________________
Date
The Company agrees to respond to this Exercise Notice within two business days of the first business day on which the Company receives this Exercise Notice. Clearance of a sale transaction in
connection with this Exercise Notice is valid only for a two business day period and only if the person engaging in the trade does not possess or come into possession of material non-public
information during such period. If the transaction order is not placed within that two business day period, clearance of the transaction must be re-requested.
Please retain a copy of this Exercise Notice for your records.
6
Exhibit 10.11
Central European Media Enterprises Ltd. Stock Incentive Plan
Form of RSU Agreement (for use from March 2016), co-CEOs version
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
RESTRICTED STOCK UNIT AWARD AGREEMENT
(TIME-BASED VESTING)
This Restricted Stock Unit Award Agreement (including the annex attached hereto, the “Agreement”) dated as of [•] is between Central European Media Enterprises Ltd. (the “Company”) and
[•] (the “Grantee”).
WHEREAS, the Company’s 2015 Stock Incentive Plan (as the same may be amended and restated from time to time, the “Plan”) is administered by the Committee and the Committee has
determined that it would be in the best interests of the Company to grant an award of restricted stock units to the Grantee, an employee of the Company or its Affiliate.
NOW, THEREFORE, the Company and the Grantee agree as follows:
1. Grant of Award . The Company hereby grants to the Grantee, in accordance with the terms of the Plan and subject to and upon the terms, conditions and restrictions of this
Agreement, the number of restricted stock units (the “Restricted Stock Units”, “RSUs” or the “Award”) as follows:
NUMBER OF RESTRICTED
STOCK UNITS GRANTED: [•] (in words: [•])
DATE OF GRANT: [•]
VESTING SCHEDULE:
Restricted Stock Units will vest in four installments on the date in the following schedule (the “Regular Vesting Schedule”), subject to the
Grantee’s continuous employment with the Company or any of its Affiliates or service as a non-executive director of the Company
(together, “Service”) from the date hereof through the applicable vesting date:
Vesting Date
Restricted Stock Units Vesting
[•]
[•]
[•]
[•]
Incremental Amount of
RSUs Vesting
25% of Award / [•] RSUs
25% of Award / [•] RSUs
25% of Award / [•] RSUs
25% of Award / [•] RSUs
Cumulative Amount of
RSUs Vested
[•] RSUs
[•] RSUs
[•] RSUs
[•] RSUs
Each Restricted Stock Unit represents a right to receive one share of Class A Common Stock of the Company for each Restricted Stock Unit that vests in accordance with the Regular
Vesting Schedule. Unless specifically provided for in this Agreement, the Award shall be governed by the terms of the Plan, which are incorporated herein by reference.
2. Additional Vesting Provisions .
(a)
(b)
(c)
(d)
Right to Award . This Award shall vest in accordance with the vesting schedule set forth on the Regular Vesting Schedule in Section 1 and with the applicable
provisions of the Plan and this Agreement.
Termination of Service . In the event the Grantee’s Service ceases for any reason (other than as provided in Section 2(c) below or Annex A), Restricted Stock Units that
have not previously vested prior to such cessation of Service shall immediately be forfeited to the Company without payment of any consideration for the Restricted
Stock Units, and the Grantee will have no further right, title or interest in or to such Restricted Stock Units or the underlying shares.
Death or Disability . In the event the Grantee’s Service ceases due to the Grantee’s death or termination by the Company due to disability, the Restricted Stock Units
that have not previously vested shall become fully vested upon such cessation. For purposes of this Agreement, “disability” means the Grantee’s inability to perform
the duties and responsibilities required of the Grantee by reason of a physical or mental disability or infirmity which has continued for more than one hundred and
twenty (120) consecutive calendar days in any twelve (12) consecutive month period, as determined by the Committee.
Change of Control, Time Warner Transaction and Qualifying Termination Event . Notwithstanding any other provision of this Agreement or the Plan, Awards of
Restricted Stock Units that have not previously vested will vest in accordance with the provision of Annex A in connection with a change in Control, a Time Warner
Transaction or a Qualifying Termination Event.
3.
Settlement of the Award; Delivery of Shares .
(a)
(b)
Delivery of Shares . Subject to Sections 5, 7 and 8, the Company shall issue shares of Class A Common Stock within sixty (60) days following the vesting of the
Award or portion thereof.
Book-entry Settlement . Upon issuance of shares of Class A Common Stock, the Company shall name the Grantee as the registered holder of such shares in the
Company’s share register.
1
4. Adjustments for Changes in Capitalization . In the event the Committee makes any adjustment to the Restricted Stock Units underlying the Award pursuant to the Plan
following a change of capitalization, any additional Restricted Stock Units or other property that become subject to the Award will, unless otherwise determined by the
Committee, be subject to the same forfeiture restrictions, delivery requirements and other provisions of this Agreement applicable to Restricted Stock Units underlying this
Award. No fractional shares or rights to fractional shares of Class A Common Stock will be created or issued. Any fraction of a share will be rounded down to the nearest whole
share.
5. Withholding Taxes . Grantee acknowledges that Grantee may be liable for taxes assessed and/or withheld on the Award pursuant to applicable federal, state, national or local
law under the applicable laws of the jurisdiction where the Grantee is resident or may otherwise be applicable to the Grantee in respect of the Restricted Stock Units or the
issuance of shares of Class A Common Stock underlying the Restricted Stock Units.
(a) Amount of Withholding Taxes . If the Company is required to withhold any amount in connection with the vesting and settlement of an Award, the Company shall inform
the Grantee prior to the settlement of any portion of the Award (i) the estimated amount of any federal, state, national, local income and employment taxes and social,
health or national insurance (collectively “Taxes”) which the Company determined will be owed by the Grantee by reason of the vesting and/or settlement of the Award
and (ii) the amount, if any, that the Company or any of its Affiliates will be required to withhold from the Grantee by reason of such vesting and/or settlement.
(b) Payment of Withholding Taxes . The Grantee may satisfy its obligation in respect of withholding Taxes: (a) by paying to the Company in cash an amount equal to the
withholding Taxes no later than the date of settlement of the Award; or (b) subject to compliance with applicable law and the Company’s Insider Trading Policy, by
delivering to the Company an instruction to a broker approved by the Company providing for the assignment of the proceeds from the sale of some or all of the shares of
Class A Common Stock to be received on the settlement of an Award. The Company may withhold amounts from any compensation otherwise payable to the Grantee by
the Company or any of its Affiliates, and the Grantee hereby authorizes the withholding from compensation payable to Grantee, any amounts required to satisfy the federal,
state, national or local withholding Tax obligations of the Company or any of its Affiliates in connection with the Award. The Company shall not be required to deliver any
shares of Class A Common Stock if it has not received satisfactory evidence of payment of all withholding Taxes.
(c) Satisfying Withholding Tax Obligations with Shares . The Company may, in the discretion of the Committee, permit the Grantee to satisfy all or any portion of the
Company’s or any of its Affiliates’ obligations for withholding Taxes in respect of an Award by deducting from the shares of Class A Common Stock the Grantee would
otherwise receive a number of shares having a fair market value equal to the amount of withholding Taxes that are payable (using the minimum statutory rates of
withholding for purposes of determining such amount). The Grantee agrees that delivery of a number of shares of Class A Common Stock net of the amount deducted for
purposes of satisfying withholding Tax obligations shall be full settlement of the Award for all purposes.
6. Non Transferability. The Grantee shall not sell, assign, exchange, transfer (other than by will or the laws of descent or distribution), pledge, charge, hypothecate or otherwise
dispose of or encumber the Award or the Restricted Stock Units.
7. Rights as a Shareholder . Neither the Grantee nor the Grantee’s representative shall have any rights as a shareholder with respect to any shares of Class A Common Stock
underlying any Restricted Stock Units until such Award or any portion thereof, as the case may be, has vested and such shares of Class A Common Stock have been issued,
recorded in the records of the Company or its transfer agent and delivered to the Grantee. The Grantee must complete such administrative documentation required by this
Agreement or the Committee before the Company may issue the shares of Class A Common Stock, record such issuance in the records of the Company or its transfer agent and
deliver such shares of Class A Common Stock to the Grantee following a Vesting Date. The Company may postpone such issuance, recording and delivery of the shares of Class
A Common Stock if such proper documentation is not received by the Company. If proper documentation is not received by the Company within sixty (60) days of a Vesting
Date, the corresponding portion of the Award, in the sole discretion of the Committee, may be forfeited for no consideration.
8. Regulatory Compliance . The Company may postpone issuing and recording the shares of Class A Common Stock to the Grantee issuable pursuant to this Agreement in the
records of the Company or its transfer agent for such period as may be required to comply with any applicable requirements under any applicable securities laws, the listing
requirements of any applicable stock exchange, and any requirements under any other applicable law, and the Company shall not be obligated to deliver any such shares of Class
A Common Stock to the Grantee if either delivery thereof would constitute a violation of any provision of any law or of any regulation of any governmental authority or any
applicable stock exchange. The Company shall not be liable to the Grantee or its representative for any damages relating from any delays in recording the issuance and delivery
of shares to the Grantee in the records of the Company or its transfer agent or any mistakes or errors connected therewith.
9.
Effect Upon Service. Nothing contained in this Agreement or in the Plan shall confer upon the Grantee any right with respect to the continuation of the Grantee’s Service with
the Company or interfere in any way with the right of the Company, subject to the terms of any separate agreement to the contrary, at any time to terminate such Service.
10. Reference to the Plan. The Award has been granted pursuant to and subject to the provisions of the Plan, which are hereby incorporated herein by reference. Except as
otherwise provided herein, in the event of any conflict between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall govern. All capitalized terms
that are used in this Agreement and not otherwise defined herein shall have the meanings ascribed to them in the Plan.
11. Determinations. The Committee has the power to interpret the Plan and this Agreement and to administer, interpret and apply the Plan in respect of the Restricted Stock Units
in a manner consistent with the terms thereof and hereof (including, but not limited to, determining, in is sole and absolute discretion, whether any Restricted Stock Units have
vested and whether any unvested Restricted Stock Units of the Grantee may be accelerated and the corresponding Vesting Date thereof). Each determination, interpretation or
other action made or taken pursuant to the provisions of this Agreement by the Committee shall be final and conclusive for all purposes and shall be binding upon all persons,
including, without limitation, the Company and the Grantee, and the Grantee’s respective successors and assigns.
12.
Incentive Compensation Recoupment Policy . The Award and the underlying Restricted Stock Units are subject to recoupment in accordance with the Company’s Incentive
Compensation Recoupment Policy in effect from time to time.
2
13. Section 409A of the Code . It is intended that the Restricted Stock Units are exempt from Sections 409A and 457A of the U.S. Internal Revenue Code of 1986 (as amended, the
“Code”) pursuant to the “short-term deferral” rule applicable to each such section, as set forth in the regulations or other guidance published thereunder. Notwithstanding the
foregoing, the Grantee shall be solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed on the Grantee in connection with the Award
(including any taxes and penalties under Sections 409A and 457A of the Code), and neither the Company nor any of its Affiliates shall have any obligation to indemnify or
otherwise hold the Grantee harmless from any or all of such taxes or penalties.
14. Acceptance of Award; Electronic Delivery . The grant of Restricted Stock Units evidenced by this Agreement shall be forfeited for no consideration if this Agreement is not
accepted by the Grantee by executing and returning a copy of this Agreement to the Company within ninety (90) days of the date hereof. By executing this Agreement, the
Grantee (i) consents to the electronic delivery of this Agreement, all information with respect to the Plan and the Award, and any documents of the Company that are generally
provided to the Company’s shareholders (which may be delivered via the internet or as the Company otherwise directs); (ii) acknowledges that the Grantee may receive from the
Company a paper copy of any documents delivered electronically at no cost by contacting the Company in writing; and (iii) further acknowledges that the Grantee may revoke
the Grantee’s consent to the electronic delivery of documents at any time by notifying the Company of such revocation in writing and providing current notice information for
delivery of paper copies.
15. Notices. Any notice under this Agreement shall be addressed to the Company in care of its General Counsel at the principal offices of CME Media Services Limited, and to the
Grantee at the address appearing in the personal records of the Company or its Affiliate or to either party at such other address as either party hereto may hereafter designate in
writing to the other.
16. Amendment . The Grantee hereby consents to any amendment to this Agreement in any way the Committee deems necessary or advisable to comply with or satisfy exemption
from Sections 409A and 457A of the Code, to carry out the purpose of the grant, or in connection with any change in applicable laws or regulation or any future law or
regulation. Except as provided above, any amendment to this Agreement must be in writing and signed by the Company and the Grantee.
17. Governing Law. This Agreement and all determinations made and actions taken pursuant hereto shall be governed by the laws of Bermuda.
18. Severability . In the event any provision of this Agreement shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions of
this Agreement, and this Agreement shall be construed and enforced as if such illegal or invalid provision had not been included.
19. Counterparts . This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the
same instrument.
Signatures appear on following page
3
IN WITNESS WHEREOF, the parties have executed this Agreement as of the [•] day of [•].
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
By: ___________________________________________
Name:
Title:
GRANTEE
Signed: ___________________________________________
[•]
4
Annex A
1.
For purposes of this Agreement, the following definitions shall apply:
“ Change in Control ” is defined in the Plan.
Effect of a Change in Control, Time Warner Transaction or Qualifying Termination Event
“ Delisting Event ” means an event or circumstance in connection with or following a Time Warner Transaction whereby the Company is no longer publicly traded with its shares of
Class A Common Stock listed on the NASDAQ Global Market.
“ Disposition Event ” means any sale or disposition in connection with or following a Time Warner Transaction or pursuant to the exercise of consent rights by Time Warner in
effect from time to time as a result of which the Company ceases to own a material portion of its assets.
“ Employment Contract ” means the employment contract dated [•] between the Grantee and CME Media Services Limited, as amended, amended and restated, otherwise modified
or superseded from time to time.
“ Good Reason ” means a material breach of the Employment Contract by CME Media Services Limited which results in the termination of the Employment Contract by the Grantee
pursuant to clause [•] thereof.
“ Qualifying Termination Event ” means a termination of the Grantee’s employment with the Company or any Affiliate (i) by the Grantee for Good Reason, or (ii) by the Company
or such Affiliate which is not a Termination for Cause.
“ Termination for Cause ” shall have the meaning assigned to it in clause [•] of the Employment Contract.
“ Time Warner Transaction ” is defined in the Plan.
2.
3.
4.
In the event of a Change in Control, Awards of Restricted Stock Units then outstanding will fully vest immediately prior to such Change in Control.
In the event of a Time Warner Transaction and the Company continues to be publicly traded with its shares of Class A Common Stock listed on the NASDAQ Global Market, the
RSUs granted hereunder will continue to vest according to Regular Vesting Schedule set out in Section 1 of the Agreement until the earliest to occur of (i) the final Vesting Date, (ii)
a Qualifying Termination Event, (iii) subject to clause 4 below, a Delisting Event, or (iv) subject to clause 4 below, a Disposition Event.
In connection with a Qualifying Termination Event, the Awards of Restricted Stock Units then outstanding will fully vest immediately prior to such Qualifying Termination Event.
In connection with a Delisting Event or a Disposition Event, the Awards of Restricted Stock Units then outstanding will fully vest immediately prior to such Delisting Event or
Disposition Event.
* * * * *
5
Our principal subsidiaries as at February 9, 2017 were:
Company Name
CME Bulgaria B.V.
BTV Media Group EAD
Radiocompany C.J. OOD
Nova TV d.d.
CET 21 spol. s r.o.
Pro TV S.R.L.
CME Slovak Holdings B.V.
MARKÍZA-SLOVAKIA, spol. s r.o.
Produkcija Plus d.o.o.
POP TV d.o.o.
Kanal A d.o.o.
Pro Digital S.R.L.
Central European Media Enterprises N.V.
CME Media Enterprises B.V.
CME Programming B.V.
CME Investments B.V.
CME Media Services Limited
CME Services s.r.o.
CME Media Enterprises Limited
CME Media Pro B.V.
Exhibit 21.01
Jurisdiction of Organization
Netherlands
Bulgaria
Bulgaria
Croatia
Czech Republic
Romania
Netherlands
Slovak Republic
Slovenia
Slovenia
Slovenia
Moldova
Curacao
Netherlands
Netherlands
Netherlands
United Kingdom
Czech Republic
Bermuda
Netherlands
Voting Interest
94%
94%
69.56%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-214381 and 333-194209 of Central European Media Enterprises Ltd. on Form S-3 and Registration Statement
Nos. 333-204667, 333-184038, 333-160444, 333-130405, 333-110959 and 333-60295 on Form S-8 of our reports dated February 9, 2017 , with respect to the consolidated financial statements
and schedule of Central European Media Enterprises Ltd. and the effectiveness of internal control over financial reporting of Central European Media Enterprises Ltd. included in this Annual
Report (Form 10-K) of Central European Media Enterprises Ltd. for the year ended December 31, 2016 .
Exhibit 23.01
ERNST & YOUNG LLP
London, United Kingdom
February 9, 2017
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-214381 and 333-194209 on Form S-3 and Registration Statement Nos. 333-204667, 333-184038, 333-160444,
333-130405, 333-110959 and 333-60295 on Form S-8 of our report dated February 22, 2016, relating to the 2015 consolidated financial statements (before the effects of the adjustments to
retrospectively apply the change in accounting discussed in Note 2 to the consolidated financial statements) and financial statement schedule (as it relates to 2015 and 2014) of Central European
Media Enterprises Ltd. and subsidiaries (not presented herein), appearing in this Annual Report on Form 10-K of Central European Media Enterprises Ltd. and subsidiaries for the year ended
December 31, 2016.
Exhibit 23.02
DELOITTE LLP
London, United Kingdom
February 22, 2016
Each person whose signature appears below constitutes and appoints Michael Del Nin, Christoph Mainusch and David Sturgeon, and each of them, with full power to act without the other, such
person's true and lawful attorney-in-fact, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form
10-K for the fiscal year 2016 of Central European Media Enterprises Ltd., a Bermuda company limited by shares, and any and all amendments to such Annual Report on Form 10-K and other
documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform each and
every act and thing necessary or desirable to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, thereby ratifying and confirming all that
said attorneys-in-fact, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
POWER OF ATTORNEY
Signatures appear on following page
Exhibit 24.01
February 9, 2017
/s/ John K. Billock /s/ Paul Cappuccio
John K. Billock Paul Cappuccio
/s/ Charles Frank /s/ Iris Knobloch
Charles Frank Iris Knobloch
/s/ Alfred Langer /s/ Bruce Maggin
Alfred Langer Bruce Maggin
/s/ Parm Sandhu /s/ Doug Shapiro
Parm Sandhu Doug Shapiro
/s/ Kelli Turner /s/ Gerhard Zeiler
Kelli Turner Gerhard Zeiler
Exhibit 31.01
I, Michael Del Nin, certify that:
CERTIFICATION OF CO-PRINCIPAL EXECUTIVE OFFICER
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Central European Media Enterprises Ltd.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-
15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report), that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
/s/ Michael Del Nin
Michael Del Nin
co-Chief Executive Officer
(co-Principal Executive Officer)
February 9, 2017
Exhibit 31.02
I, Christoph Mainusch, certify that:
CERTIFICATION OF CO-PRINCIPAL EXECUTIVE OFFICER
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Central European Media Enterprises Ltd.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-
15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report), that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
/s/ Christoph Mainusch
Christoph Mainusch
co-Chief Executive Officer
(co-Principal Executive Officer)
February 9, 2017
Exhibit 31.03
I, David Sturgeon, certify that:
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Central European Media Enterprises Ltd.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-
15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report), that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
/s/ David Sturgeon
David Sturgeon
Chief Financial Officer
(Principal Financial Officer)
February 9, 2017
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Central European Media Enterprises Ltd. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2016 , as filed with the Securities and
Exchange Commission on the date hereof (the “Report”), we, Michael Del Nin and Christoph Mainusch, co-Chief Executive Officers of the Company, and David Sturgeon, Chief Financial
Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1
2
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company as of the dates and for the periods
explained in the Report.
Exhibit 32.01
/s/ Michael Del Nin
Michael Del Nin
co-Chief Executive Officer
(co-Principal Executive Officer)
February 9, 2017
/s/ Christoph Mainusch
Christoph Mainusch
co-Chief Executive Officer
(co-Principal Executive Officer)
February 9, 2017
/s/ David Sturgeon
David Sturgeon
Chief Financial Officer
(Principal Financial Officer)
February 9, 2017