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Central European Media Enterprises Ltd – ‘10-Q’ for 6/30/20

On:  Tuesday, 7/21/20, at 1:30pm ET   ·   For:  6/30/20   ·   Accession #:  925645-20-36   ·   File #:  0-24796

Previous ‘10-Q’:  ‘10-Q’ on 4/22/20 for 3/31/20   ·   Latest ‘10-Q’:  This Filing

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  As Of               Filer                 Filing    For·On·As Docs:Size

 7/21/20  Central European Media Enter… Ltd 10-Q        6/30/20  107:13M

Quarterly Report   —   Form 10-Q   —   Sect. 13 / 15(d) – SEA’34
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Central European Media Enterprises Ltd 10-Q         HTML   1.61M 
 2: EX-31.01    Certification -- §302 - SOA'02                      HTML     33K 
 3: EX-31.02    Certification -- §302 - SOA'02                      HTML     34K 
 4: EX-31.03    Certification -- §302 - SOA'02                      HTML     33K 
 5: EX-32.01    Certification -- §906 - SOA'02                      HTML     31K 
12: R1          Document and Entity Information                     HTML     82K 
13: R2          Condensed Consolidated Balance Sheets               HTML    137K 
14: R3          Condensed Consolidated Balance Sheets               HTML     43K 
                (Parenthetical)                                                  
15: R4          Condensed Consolidated Statements of Operations     HTML    129K 
                and Comprehensive Income / Loss                                  
16: R5          Condensed Consolidated Statements of Equity         HTML     96K 
17: R6          Condensed Consolidated Statements of Cash Flows     HTML    112K 
18: R7          Organization and Business                           HTML     39K 
19: R8          Basis of Presentation                               HTML     45K 
20: R9          Goodwill and Intangible Assets                      HTML    100K 
21: R10         Long-Term Debt and Other Financing Arrangements     HTML    138K 
22: R11         Program Rights                                      HTML     78K 
23: R12         Other Assets                                        HTML     50K 
24: R13         Property, Plant and Equipment                       HTML     66K 
25: R14         Accounts Payable and Accrued Liabilities            HTML     47K 
26: R15         Other Liabilities                                   HTML     54K 
27: R16         Leases Leases                                       HTML    122K 
28: R17         Financial Instruments and Fair Value Measurements   HTML     50K 
29: R18         Convertible Redeemable Preferred Stock              HTML     34K 
30: R19         Equity                                              HTML     91K 
31: R20         Interest Expense                                    HTML     44K 
32: R21         Other Nonoperating Expense, Net                     HTML     52K 
33: R22         Stock-Based Compensation                            HTML     56K 
34: R23         Earnings Per Share                                  HTML     88K 
35: R24         Segment Data                                        HTML    171K 
36: R25         Commitments and Contingencies                       HTML     57K 
37: R26         Related Party Transactions                          HTML     50K 
38: R27         Basis of Presentation (Policies)                    HTML     49K 
39: R28         FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS   HTML     33K 
                Policies (Policies)                                              
40: R29         EARNINGS PER SHARE Policies (Policies)              HTML     30K 
41: R30         Goodwill and Intangible Assets (Tables)             HTML    101K 
42: R31         Long-Term Debt and Other Financing Arrangements     HTML    134K 
                (Tables)                                                         
43: R32         Program Rights (Tables)                             HTML     49K 
44: R33         Other Assets (Tables)                               HTML     50K 
45: R34         Property, Plant and Equipment (Tables)              HTML     68K 
46: R35         Accounts Payable and Accrued Liabilities (Tables)   HTML     47K 
47: R36         Other Liabilities (Tables)                          HTML     52K 
48: R37         Leases (Tables)                                     HTML    125K 
49: R38         Financial Instruments and Fair Value Measurements   HTML     43K 
                (Tables)                                                         
50: R39         Equity Aoci (Tables)                                HTML     83K 
51: R40         Interest Expense (Tables)                           HTML     43K 
52: R41         Other Nonoperating Expense, Net (Tables)            HTML     51K 
53: R42         Stock-Based Compensation (Tables)                   HTML     49K 
54: R43         Earnings Per Share (Tables)                         HTML     89K 
55: R44         Segment Data (Tables)                               HTML    175K 
56: R45         Commitments and Contingencies (Tables)              HTML     47K 
57: R46         Related Party Transactions (Tables)                 HTML     47K 
58: R47         Organization and Business (Details)                 HTML     56K 
59: R48         Basis of Presentation (Details)                     HTML     34K 
60: R49         GOODWILL AND INTANGIBLE ASSETS Goodwill (Details)   HTML     56K 
61: R50         GOODWILL AND INTANGIBLE ASSETS Other Intangible     HTML     49K 
                Assets (Details)                                                 
62: R51         LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS     HTML     37K 
                Long term debt summary (Details)                                 
63: R52         LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS     HTML     33K 
                Financing transactions, narrative (Details)                      
64: R53         LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS     HTML     56K 
                Long-term debt and credit facilities, overview                   
                (Details)                                                        
65: R54         LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS     HTML     54K 
                Long-term debt and credit facilities, narrative                  
                (Details)                                                        
66: R55         LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS     HTML     52K 
                Maturities of long-term debt and credit facilities               
                (Details)                                                        
67: R56         LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS     HTML     87K 
                Leverage summary (Details)                                       
68: R57         LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS     HTML     36K 
                Leverage narrative (Details)                                     
69: R58         LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS     HTML     48K 
                Interest rate summary (Details)                                  
70: R59         LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS     HTML     63K 
                2023 revolving credit facility, leverage overview                
                (Details)                                                        
71: R60         LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS     HTML     42K 
                2023 revolving credit facility, narrative                        
                (Details)                                                        
72: R61         LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS     HTML     48K 
                Other credit facilities and capital lease                        
                obligations composition (Details)                                
73: R62         Program Rights (Details)                            HTML     86K 
74: R63         Other Assets (Details)                              HTML     49K 
75: R64         Property, Plant and Equipment (Details)             HTML     58K 
76: R65         Property, Plant and Equipment Rollforward           HTML     41K 
                (Details)                                                        
77: R66         Accounts Payable and Accrued Liabilities (Details)  HTML     54K 
78: R67         Other Liabilities (Details)                         HTML     60K 
79: R68         LEASES - Components of Lease Expense (Details)      HTML     41K 
80: R69         LEASES - Classification of Cash Flows (Details)     HTML     40K 
81: R70         LEASES - Current and Non-current Assets and         HTML     76K 
                Liabilities (Details)                                            
82: R71         LEASES - Lease Liability Maturities (Details)       HTML     68K 
83: R72         FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS   HTML     42K 
                Hedge Accounting Activities (Details)                            
84: R73         Convertible Redeemable Preferred Stock (Details)    HTML     41K 
85: R74         Equity (Details)                                    HTML     82K 
86: R75         Equity Aoci (Details)                               HTML     59K 
87: R76         Interest Expense (Details)                          HTML     38K 
88: R77         Other Nonoperating Expense, Net (Details)           HTML     41K 
89: R78         Stock-Based Compensation (Details)                  HTML     34K 
90: R79         Stock-Based Compensation Stock Options (Details)    HTML     64K 
91: R80         STOCK-BASED COMPENSATION Restricted Stock Units     HTML     58K 
                with Time-Based Vesting (Details)                                
92: R81         STOCK-BASED COMPENSATION Restricted Stock Units     HTML     52K 
                with Performance Conditions (Details)                            
93: R82         Earnings Per Share (Details)                        HTML     81K 
94: R83         Earnings Per Share Antidilutive instruments         HTML     33K 
                (Details)                                                        
95: R84         SEGMENT DATA Net Revenue and OIBDA (Details)        HTML     81K 
96: R85         SEGMENT DATA Total Assets (Details)                 HTML     48K 
97: R86         SEGMENT DATA Capital Expenditure (Details)          HTML     44K 
98: R87         SEGMENT DATA Long Lived Assets (Details)            HTML     50K 
99: R88         SEGMENT DATA Revenue by Type (Details)              HTML     39K 
100: R89         COMMITMENTS AND CONTINGENCIES Programming Rights    HTML     56K  
                Agreements and Other Commitments (Details)                       
101: R90         COMMITMENTS AND CONTINGENCIES Other (Details)       HTML     42K  
102: R91         Related Party Transactions (Details)                HTML     50K  
103: R9999       Uncategorized Items - cetv10-qq22020.htm            HTML     28K  
105: XML         IDEA XML File -- Filing Summary                      XML    198K  
11: XML         XBRL Instance -- cetv10-qq22020_htm                  XML   3.28M 
104: EXCEL       IDEA Workbook of Financial Reports                  XLSX    135K  
 7: EX-101.CAL  XBRL Calculations -- cetv-20200630_cal               XML    275K 
 8: EX-101.DEF  XBRL Definitions -- cetv-20200630_def                XML    921K 
 9: EX-101.LAB  XBRL Labels -- cetv-20200630_lab                     XML   1.91M 
10: EX-101.PRE  XBRL Presentations -- cetv-20200630_pre              XML   1.30M 
 6: EX-101.SCH  XBRL Schema -- cetv-20200630                         XSD    210K 
106: JSON        XBRL Instance as JSON Data -- MetaLinks              453±   655K  
107: ZIP         XBRL Zipped Folder -- 0000925645-20-000036-xbrl      Zip    613K  


‘10-Q’   —   Central European Media Enterprises Ltd 10-Q
Document Table of Contents

Page (sequential)   (alphabetic) Top
 
11st Page  –  Filing Submission
"Index
"Item 1. Financial Statements
"Condensed Consolidated Balance Sheets as at June 30, 2020 and December 31, 2019
"Condensed Consolidated Statements of Operations and Comprehensive Income / Loss for the Three and Six Months Ended June 30, 2020 and 2019
"Condensed Consolidated Statements of Equity for the Three and Six Months Ended June 30, 2020 and 2019
"Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019
"Notes to the Condensed Consolidated Financial Statements
"Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
"Item 3. Quantitative and Qualitative Disclosures About Market Risk
"Item 4. Controls and Procedures
"Item 1. Legal Proceedings
"Item 1A. Risk Factors
"Item 6. Exhibits
"Signatures

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM  i 10-Q
 i QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended  i June 30, 2020
 i 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:  i 0-24796

cmelogowithouttexta18.jpg
 i CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
(Exact name of registrant as specified in its charter)
 i Bermuda
 
 
 i 98-0438382
(State or other jurisdiction of incorporation or organization)
 
 
(I.R.S. Employer Identification No.)
 
 
 
 
 
 i O'Hara House,
 
 
 
 i 3 Bermudiana Road,
 
 
 i HM 08
 i  Hamilton,
 i Bermuda
 
 
(Zip Code)
(Address of principal executive offices)
 
 
 
Registrant's telephone number, including area code:  i (441)  i 296-1431
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
 i Class A Common Stock, par value $0.08
 i CETV
 i Nasdaq Global Select Market
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.     i Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).     i Yes No
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
 
 
 i Accelerated Filer
Non-accelerated Filer
 
 
Smaller reporting company
 i 
 
 
 
 
Emerging growth company
 i 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.



Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act) Yes  i  No
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class
Outstanding as of July 17, 2020
Class A Common Stock, par value $0.08
 i 254,598,523
 
 
 
 




CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
FORM 10-Q
For the Quarterly Period Ended June 30, 2020




PART I.    FINANCIAL INFORMATION
Item 1.    Financial Statements
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(US$ 000’s, except share data)
(Unaudited)
 

 

ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
 i 176,094

 
$
 i 36,621

Accounts receivable, net of allowances for credit losses of $8,803 and $8,548
 i 131,918

 
 i 188,618

Program rights, net (Note 5)
 i 

 
 i 75,909

Other current assets (Note 6)
 i 32,883

 
 i 48,832

Total current assets
 i 340,895

 
 i 349,980

Non-current assets
 

 
 

Property, plant and equipment, net (Note 7)
 i 102,378

 
 i 113,901

Program rights, net (Note 5)
 i 238,096

 
 i 166,237

Goodwill (Note 3)
 i 639,414

 
 i 667,988

Other intangible assets, net (Note 3)
 i 120,838

 
 i 127,589

Other non-current assets (Note 6)
 i 20,921

 
 i 22,167

Total non-current assets
 i 1,121,647

 
 i 1,097,882

Total assets
$
 i 1,462,542

 
$
 i 1,447,862

LIABILITIES AND EQUITY
 
 
 
Current liabilities
 
 
 
Accounts payable and accrued liabilities (Note 8)
$
 i 130,913

 
$
 i 135,650

Current portion of long-term debt and other financing arrangements (Note 4)
 i 6,952

 
 i 6,836

Other current liabilities (Note 9)
 i 29,280

 
 i 13,515

Total current liabilities
 i 167,145

 
 i 156,001

Non-current liabilities
 

 
 

Long-term debt and other financing arrangements (Note 4)
 i 597,124

 
 i 600,273

Other non-current liabilities (Note 9)
 i 80,076

 
 i 80,000

Total non-current liabilities
 i 677,200

 
 i 680,273

Commitments and contingencies (Note 19)
 i 

 
 i 

TEMPORARY EQUITY
 
 
 
200,000 shares of Series B Convertible Redeemable Preferred Stock of $0.08 each (December 31, 2019 - 200,000) (Note 12)
 i 269,370

 
 i 269,370

EQUITY
 

 
 
CME Ltd. shareholders’ equity (Note 13):
 

 
 
One share of Series A Convertible Preferred Stock of $0.08 each (December 31, 2019 – one)
 i 

 
 i 

254,548,180 shares of Class A Common Stock of $0.08 each (December 31, 2019 – 253,607,026)
 i 20,364

 
 i 20,288

Nil shares of Class B Common Stock of $0.08 each (December 31, 2019 – nil)
 i 

 
 i 

Additional paid-in capital
 i 2,008,860

 
 i 2,007,275

Accumulated deficit
( i 1,418,722
)
 
( i 1,458,942
)
Accumulated other comprehensive loss
( i 262,061
)
 
( i 226,916
)
Total CME Ltd. shareholders’ equity
 i 348,441

 
 i 341,705

Noncontrolling interests
 i 386

 
 i 513

Total equity
 i 348,827

 
 i 342,218

Total liabilities and equity
$
 i 1,462,542

 
$
 i 1,447,862

The accompanying notes are an integral part of these condensed consolidated financial statements.

1


CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME / LOSS
(US$ 000’s, except per share data)
(Unaudited)

 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2020

 
2019

 
2020


2019

Net revenues
$
 i 135,545

 
$
 i 183,599

 
$
 i 279,361

 
$
 i 330,158

Operating expenses:
 
 
 
 
 
 
 
Content costs
 i 43,693

 
 i 70,356

 
 i 108,725

 
 i 140,716

Other operating costs
 i 12,549

 
 i 13,806

 
 i 26,196

 
 i 27,054

Depreciation of property, plant and equipment
 i 7,972

 
 i 8,154

 
 i 15,899

 
 i 16,380

Amortization of broadcast licenses and other intangibles
 i 2,110

 
 i 2,113

 
 i 4,277

 
 i 4,307

Cost of revenues
 i 66,324

 
 i 94,429

 
 i 155,097

 
 i 188,457

Selling, general and administrative expenses
 i 25,047

 
 i 28,708

 
 i 53,893

 
 i 53,602

Operating income
 i 44,174

 
 i 60,462

 
 i 70,371

 
 i 88,099

Interest expense (Note 14)
( i 5,754
)
 
( i 7,735
)
 
( i 12,349
)
 
( i 15,977
)
Other non-operating income / (expense), net (Note 15)
 i 328

 
 i 2,237

 
( i 5,808
)
 
( i 860
)
Income before tax
 i 38,748

 
 i 54,964

 
 i 52,214

 
 i 71,262

Provision for income taxes
( i 7,646
)
 
( i 10,886
)
 
( i 12,142
)
 
( i 15,433
)
Net income
 i 31,102

 
 i 44,078

 
 i 40,072

 
 i 55,829

Net loss / (income) attributable to noncontrolling interests
 i 77

 
( i 119
)
 
 i 148

 
( i 112
)
Net income attributable to CME Ltd.
$
 i 31,179

 
$
 i 43,959

 
$
 i 40,220

 
$
 i 55,717

 
 
 
 
 
 
 
 
Net income
$
 i 31,102

 
$
 i 44,078

 
$
 i 40,072

 
$
 i 55,829

Other comprehensive income / (loss):
 
 
 
 
 
 
 
Currency translation adjustment
 i 25,583

 
 i 17,002

 
( i 35,466
)
 
 i 1,159

Unrealized gain / (loss) on derivative instruments (Note 13)
 i 122

 
( i 1,220
)
 
 i 342

 
( i 4,551
)
Total other comprehensive income / (loss)
 i 25,705

 
 i 15,782

 
( i 35,124
)
 
( i 3,392
)
Comprehensive income
 i 56,807

 
 i 59,860

 
 i 4,948

 
 i 52,437

Comprehensive loss / (income) attributable to noncontrolling interests
 i 230

 
( i 28
)
 
 i 127

 
( i 158
)
Comprehensive income attributable to CME Ltd.
$
 i 57,037

 
$
 i 59,832

 
$
 i 5,075

 
$
 i 52,279

PER SHARE DATA (Note 17):
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
Attributable to CME Ltd. — basic
$
 i 0.08

 
$
 i 0.12

 
$
 i 0.11

 
$
 i 0.15

Attributable to CME Ltd. — diluted
 i 0.08

 
 i 0.12

 
 i 0.11

 
 i 0.15

 
 
 
 
 
 
 
 
Weighted average common shares used in computing per share amounts (000’s):
 
 
 
 
 
 
 
Basic
 i 265,649

 
 i 264,570

 
 i 265,342

 
 i 264,385

Diluted
 i 266,776

 
 i 265,932

 
 i 266,790

 
 i 265,628

The accompanying notes are an integral part of these condensed consolidated financial statements.

2


CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
(US$ 000’s, except share data)
(Unaudited)


 
CME Ltd.
 
 

 
 

 
Series A Convertible Preferred Stock
 
Class A
Common Stock
 
Class B
Common Stock
 

 

 

 
 

 
 

 
Number of shares
Par value
 
Number
of shares
Par value
 
Number of shares
Par value
Additional Paid-In Capital

Accumulated Deficit

Accumulated Other Comprehensive Loss

 
Noncontrolling Interest

 
Total Equity

 i 1

$
 i 

 
 i 254,298,255

$
 i 20,343

 
 i 

$
 i 

$
 i 2,008,151

$
( i 1,449,901
)
$
( i 287,919
)
 
$
 i 616

 
$
 i 291,290

Stock-based compensation


 


 


 i 733



 

 
 i 733

Share issuance, stock-based compensation


 
 i 249,925

 i 21

 


( i 21
)


 

 
 i 

Withholding tax on net share settlement of stock-based compensation


 


 


( i 3
)


 

 
( i 3
)
Net income / (loss)


 


 



 i 31,179


 
( i 77
)
 
 i 31,102

Unrealized gain on derivative instruments


 


 




 i 122

 

 
 i 122

Currency translation adjustment


 


 




 i 25,736

 
( i 153
)
 
 i 25,583

 i 1

$
 i 

 
 i 254,548,180

$
 i 20,364

 
 i 

$
 i 

$
 i 2,008,860

$
( i 1,418,722
)
$
( i 262,061
)
 
$
 i 386

 
$
 i 348,827

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CME Ltd.
 
 

 
 

 
Series A Convertible Preferred Stock
 
Class A
Common Stock
 
Class B
Common Stock
 

 

 

 
 

 
 

 
Number of shares
Par value
 
Number
of shares
Par value
 
Number of shares
Par value
Additional Paid-In Capital

Accumulated Deficit

Accumulated Other Comprehensive Loss

 
Noncontrolling Interest

 
Total Equity

 i 1

$
 i 

 
 i 253,279,975

$
 i 20,262

 
 i 

$
 i 

$
 i 2,004,188

$
( i 1,566,318
)
$
( i 235,961
)
 
$
 i 431

 
$
 i 222,602

Stock-based compensation


 


 


 i 1,124



 

 
 i 1,124

Share issuance, stock-based compensation


 
 i 279,323

 i 23

 


( i 23
)


 

 
 i 

Withholding tax on net share settlement of stock-based compensation


 


 


( i 74
)


 

 
( i 74
)
Net income


 


 



 i 43,959


 
 i 119

 
 i 44,078

Unrealized loss on derivative instruments


 


 




( i 1,220
)
 

 
( i 1,220
)
Currency translation adjustment


 


 




 i 17,093

 
( i 91
)
 
 i 17,002

 i 1

$
 i 

 
 i 253,559,298

$
 i 20,285

 
 i 

$
 i 

$
 i 2,005,215

$
( i 1,522,359
)
$
( i 220,088
)
 
$
 i 459

 
$
 i 283,512


3


CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
(US$ 000’s, except share data)
(Unaudited)


 
CME Ltd.
 
 

 
 

 
Series A Convertible Preferred Stock
 
Class A
Common Stock
 
Class B
Common Stock
 

 

 

 
 

 
 

 
Number of shares
Par value
 
Number
of shares
Par value
 
Number of shares
Par value
Additional Paid-In Capital

Accumulated Deficit

Accumulated Other Comprehensive Loss

 
Noncontrolling Interest

 
Total Equity

BALANCE
 i 1

$
 i 

 
 i 253,607,026

$
 i 20,288

 
 i 

$
 i 

$
 i 2,007,275

$
( i 1,458,942
)
$
( i 226,916
)
 
$
 i 513

 
$
 i 342,218

Stock-based compensation


 


 


 i 1,672



 

 
 i 1,672

Share issuance, stock-based compensation


 
 i 941,154

 i 76

 


( i 76
)


 

 
 i 

Withholding tax on net share settlement of stock-based compensation


 


 


( i 11
)


 

 
( i 11
)
Net income / (loss)


 


 



 i 40,220


 
( i 148
)
 
 i 40,072

Unrealized gain on derivative instruments


 


 




 i 342

 

 
 i 342

Currency translation adjustment


 


 




( i 35,487
)
 
 i 21

 
( i 35,466
)
 i 1

$
 i 

 
 i 254,548,180

$
 i 20,364

 
 i 

$
 i 

$
 i 2,008,860

$
( i 1,418,722
)
$
( i 262,061
)
 
$
 i 386

 
$
 i 348,827

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CME Ltd.
 
 

 
 

 
Series A Convertible Preferred Stock
 
Class A
Common Stock
 
Class B
Common Stock
 

 

 

 
 

 
 

 
Number of shares
Par value
 
Number
of shares
Par value
 
Number of shares
Par value
Additional Paid-In Capital

Accumulated Deficit

Accumulated Other Comprehensive Loss

 
Noncontrolling Interest

 
Total Equity

BALANCE
 i 1

$
 i 

 
 i 252,853,554

$
 i 20,228

 
 i 

$
 i 

$
 i 2,003,518

$
( i 1,578,076
)
$
( i 216,650
)
 
$
 i 301

 
$
 i 229,321

Stock-based compensation


 


 


 i 2,127



 

 
 i 2,127

Share issuance, stock-based compensation


 
 i 705,744

 i 57

 


( i 57
)


 

 
 i 

Withholding tax on net share settlement of stock-based compensation


 


 


( i 373
)


 

 
( i 373
)
Net income


 


 



 i 55,717


 
 i 112

 
 i 55,829

Unrealized loss on derivative instruments


 


 




( i 4,551
)
 

 
( i 4,551
)
Currency translation adjustment


 


 




 i 1,113

 
 i 46

 
 i 1,159

 i 1

$
 i 


 i 253,559,298

$
 i 20,285


 i 

$
 i 

$
 i 2,005,215

$
( i 1,522,359
)
$
( i 220,088
)

$
 i 459


$
 i 283,512

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(US$ 000’s)
(Unaudited)


 
For the Six Months Ended June 30,
 
2020

 
2019

CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
 i 40,072

 
$
 i 55,829

Adjustments to reconcile net income to net cash generated from operating activities:
 

 
 
Amortization of program rights and other content costs
 i 108,725

 
 i 140,716

Depreciation and other amortization
 i 21,817

 
 i 22,414

Loss on extinguishment of debt
 i 

 
 i 235

Gain on disposal of fixed assets
( i 100
)
 
( i 11
)
Deferred income taxes
 i 2,847

 
( i 46
)
Stock-based compensation (Note 16)
 i 1,672

 
 i 2,127

Change in fair value of derivatives
 i 

 
 i 36

Foreign currency exchange loss, net
 i 5,218

 
( i 198
)
Changes in assets and liabilities:
 
 
 
Accounts receivable, net
 i 53,463

 
 i 16,551

Accounts payable and accrued liabilities
( i 1,693
)
 
 i 1,349

Program rights
( i 103,588
)
 
( i 120,040
)
Other assets and liabilities
 i 1,070

 
( i 918
)
Accrued interest
( i 76
)
 
( i 229
)
Income taxes payable
 i 839

 
 i 4,153

Deferred revenue
 i 16,017

 
 i 18,508

VAT and other taxes payable
 i 8,712

 
( i 196
)
Net cash generated from operating activities
$
 i 154,995

 
$
 i 140,280

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Purchase of property, plant and equipment
$
( i 8,759
)
 
$
( i 8,272
)
Disposal of property, plant and equipment
 i 101

 
 i 6

Net cash used in investing activities
$
( i 8,658
)
 
$
( i 8,266
)
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

Repayment of debt
$
 i 

 
$
( i 113,988
)
Settlement of derivative instruments
 i 

 
( i 1,173
)
Payment of credit facilities and finance leases
( i 3,918
)
 
( i 3,395
)
Payments of withholding tax on net share settlement of share-based compensation
( i 11
)
 
( i 373
)
Net cash used in financing activities
$
( i 3,929
)
 
$
( i 118,929
)
 
 
 
 
Impact of exchange rate fluctuations on cash and cash equivalents
( i 2,935
)
 
( i 477
)
Net increase in cash and cash equivalents
$
 i 139,473

 
$
 i 12,608

CASH AND CASH EQUIVALENTS, beginning of period
 i 36,621

 
 i 62,031

CASH AND CASH EQUIVALENTS, end of period
$
 i 176,094

 
$
 i 74,639

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
 
Cash paid for interest (including Guarantee Fees)
$
 i 10,507

 
$
 i 14,017

Cash paid for income taxes, net of refunds
 i 8,427

 
 i 11,348

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)


1.     i ORGANIZATION AND BUSINESS
Central European Media Enterprises Ltd., a Bermuda company limited by shares, is a media and entertainment company operating in Central and Eastern Europe. Our assets are held through a series of Dutch holding companies. We manage our business on a geographical basis, with  i five operating segments; Bulgaria, the Czech Republic, Romania, the Slovak Republic and Slovenia, which are also our reportable segments and our main operating countries. See Note 18, "Segment Data" for financial information by segment.
We are market-leading broadcasters in each of our  i five operating countries with a combined portfolio of  i 30 television channels. Each country develops and produces content for their television channels. We generate advertising revenues primarily through entering into agreements with advertisers, advertising agencies and sponsors to place advertising on the television channels that we operate. We generate additional revenues by collecting fees from cable, and direct-to-home and internet protocol television ("IPTV") operators for carriage of our channels as well as from advertising related to our digital initiatives. Unless otherwise indicated, we own  i 100% of our broadcast operating and license companies in each country.
Bulgaria
We operate  i one general entertainment channel, BTV, and  i five other channels, BTV CINEMA, BTV COMEDY, BTV ACTION, BTV LADY and RING. We own  i 94% of CME Bulgaria B.V., the subsidiary that owns our Bulgaria operations.
Czech Republic
We operate  i one general entertainment channel, TV NOVA, and  i seven other channels, NOVA 2, NOVA CINEMA, NOVA SPORT 1, NOVA SPORT 2, NOVA ACTION, NOVA GOLD and NOVA INTERNATIONAL, a general entertainment channel broadcasting in the Slovak Republic.
Romania
We operate  i one general entertainment channel, PRO TV, and  i six other channels, PRO 2, PRO X, PRO GOLD, PRO CINEMA, PRO TV INTERNATIONAL, as well as PRO TV CHISINAU, a general entertainment channel broadcasting in Moldova.
Slovak Republic
We operate  i one general entertainment channel, TV MARKIZA, and  i three other channels, DOMA, DAJTO, and MARKIZA INTERNATIONAL, a general entertainment channel broadcasting in the Czech Republic.
Slovenia
We operate  i two general entertainment channels, POP TV and KANAL A, and  i three other channels, KINO, BRIO and OTO.
Merger
On October 27, 2019, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with TV Bidco B.V. ("Parent") and TV Bermuda Ltd. ("Merger Sub"). Parent and Merger Sub are affiliates of PPF Group N.V. Pursuant to the Merger Agreement, Merger Sub will merge with and into the Company (the "Merger"), with the Company continuing as the surviving company in the proposed Merger as a wholly-owned subsidiary of Parent. 
The closing of the proposed Merger is subject to several conditions, including, but not limited to, the requisite vote of the Company’s shareholders in favor of the Merger Agreement and the proposed Merger, the receipt of certain competition and other regulatory approvals, compliance with covenants and agreements in the Merger Agreement (subject to certain materiality qualifications), and the absence of any governmental order prohibiting completion of the proposed Merger.. A special general meeting of shareholders of the Company was held on February 27, 2020, where more than 99% of the votes cast by shareholders were in favor of approving the Merger Agreement, the related statutory merger agreement and the Merger. In addition, regulatory approvals required under the Merger Agreement in Romania and Slovenia have been obtained. For additional information on the Merger, please see the proxy statement of the Company related to the special general meeting of shareholders, filed with the SEC on January 10, 2020. Parent is currently expecting to file the required notification with the European Commission in the third quarter, and based on our anticipated timing of that, we expect the proposed Merger to be completed prior to October 27, 2020. If the receipt of certain competition and other regulatory approvals, including the approval of the European Commission, is not satisfied by October 27, 2020 but all other conditions to closing of the proposed Merger have been satisfied or waived by such date (other than those conditions that by their nature are to be satisfied at the closing of the Merger), either CME or Parent can elect to extend the closing date of the proposed Merger to January 27, 2021.
Under the Merger Agreement, at the effective time of the proposed Merger (the “Effective Time”), without any action required by the Company, Parent, Merger Sub or any shareholder of the Company or any other person, each Class A Share issued and outstanding immediately prior to the Effective Time will be canceled and cease to exist automatically and each such Class A Share (other than shares owned by the Company, Parent, Merger Sub or any of their respective direct or indirect wholly-owned subsidiaries, in each case not held on behalf of third parties) will be converted into the right to receive US$ 4.58 in cash. 
Under the Merger Agreement, at the Effective Time, without any action required by the Company, Parent, Merger Sub or any shareholder of the Company or any other person, the Series A Preferred Share issued and outstanding immediately prior to the Effective Time will be canceled and cease to exist automatically and will be converted into the right to receive US$ 32,900,000 in cash, without interest, and each Series B Preferred Share issued and outstanding immediately prior to the Effective Time will be canceled and cease to exist automatically and will be converted into the right to receive US$ 1,630.875 in cash, without interest; provided that, among other things, any conversion of the Series A Preferred Share or any Series B Preferred Shares into Class A Shares on or after October 27, 2019 will be deemed to be null and void.

6


CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)

2.     i BASIS OF PRESENTATION
The terms the "Company", "we", "us", and "our" are used in this Form 10-Q to refer collectively to the parent company, Central European Media Enterprises Ltd. (“CME Ltd.”), and the subsidiaries through which our various businesses are conducted. Unless otherwise noted, all statistical and financial information presented in this report has been converted into U.S. dollars using period-end exchange rates. All references to "US$", "USD" or "dollars" are to U.S. dollars, all references to "BGN" are to the Bulgarian leva, all references to "CZK" are to the Czech koruna, all references to "RON" are to the New Romanian lei, and all references to "Euro" or "EUR" are to the European Union Euro. Where applicable, prior period presentation has been modified to conform to current year presentation.
 i 
Interim Financial Statements
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Quarterly Report on Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles in the United States of America (“US GAAP”). Amounts as of December 31, 2019 included in the unaudited condensed consolidated financial statements have been derived from audited consolidated financial statements as of that date. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission on February 6, 2020. Our significant accounting policies have not changed since December 31, 2019, except as noted below.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring items and changes in US GAAP, necessary for their fair presentation in conformity with US GAAP for complete financial statements. The results of operations for interim periods are not necessarily indicative of the results to be expected for a full year.
 i 
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.
 i 
Basis of Consolidation
The unaudited condensed consolidated financial statements include the accounts of CME Ltd. and our subsidiaries, after the elimination of intercompany accounts and transactions. Entities in which we hold less than a majority voting interest but over which we have the ability to exercise significant influence are accounted for using the equity method. Other investments are accounted for using the cost method.
 i 
Seasonality
We experience seasonality, with advertising sales tending to be lowest during the third quarter of each calendar year due to the summer holiday period (typically July and August), and highest during the fourth quarter of each calendar year due to the winter holiday season.
Allowance for Credit Losses
In each of our segments, we stratify our receivables by age within risk-based pools. We apply an allowance percentage to each aging bucket based on historical collection trends adjusted for anticipated changes in future collectibility, including the potential impact of the COVID-19 pandemic. Our risk pools are generally defined as TV Advertising, Carriage Fee and Subscription and Other, based on the revenue source of the related receivable.
We maintain a specific allowance for estimated losses resulting from the inability of certain customers to make required payments. If the financial condition of these customers were to deteriorate, additional allowances may be required in future periods. We review accounts receivable balances periodically to identify the need for specific provision.
We consider factors external to the specific customer, including current conditions and forecasts of economic conditions that are unique to each segment, including the potential impact of the COVID-19 pandemic. In the event we recover amounts previously written off, we release the specific allowance for credit loss.
Goodwill and Indefinite-Lived Intangible Assets
Goodwill is evaluated at the reporting unit level, which we have determined is each of our five operating segments. We calculated the fair value of our reporting units as of October 1, 2019, based on the present value of expected future cash flows, including terminal value, discounted at appropriate rates, determined separately for each reporting unit, and on publicly available information, where appropriate. The determination of fair value involves the use of significant estimates and assumptions, including: revenue growth rates, operating margins, capital expenditures, working capital requirements, tax rates, terminal growth rates, management's long-term plan and a discount rate selected with reference to the relevant cost of capital. An impairment exists when the carrying amount of a reporting unit (including its goodwill), exceeds its fair value.
Indefinite-lived intangible assets are evaluated for impairment individually using the relief from royalty method to calculate fair value. An impairment loss is recognized if the carrying amount of an indefinite-lived intangible asset exceeds its fair value.
We performed a qualitative assessment for all of our reporting units and indefinite-lived intangible assets as of June 30, 2020 to determine whether the impact of the COVID-19 pandemic indicates that it is more likely than not that the fair value of any reporting unit or indefinite-lived intangible asset is less than its carrying value. The results of these procedures indicated that none of our reporting units or indefinite-lived intangible assets were more likely than not impaired.
Program Rights
Our predominant strategy in each segment is to generate television advertising revenues through airing a diversified library of complementary content across our portfolio of channels. Licensed and produced content are predominantly monetized as a group and reviewed for potential impairment as a film group in each segment when an event or change in circumstances indicates a change in the expected usefulness of the content or that the fair value may be less than unamortized cost. Content assets within a film group are stated at the lower of unamortized cost or fair value. Our calculations of fair value include significant assumptions about the amounts and timing of cash inflows and outflows and the rates by which these cash flows are discounted to the present period. Unamortized costs for assets that have been, or are expected to be abandoned, are written off.

7


CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)

We performed qualitative impairment assessments of the film groups in each segment as of June 30, 2020, to determine whether the impact of the COVID-19 pandemic or other changes in circumstances indicate that the fair value of the film groups may be less than its unamortized cost. The results of these qualitative assessments did not indicate that the fair value of any film group was less than its unamortized cost.
Income Taxes
We have historically calculated the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate for the full fiscal year to “ordinary” income or loss (pretax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period.  However, due to the uncertainty related to the impact of the COVID-19 pandemic on our operations, we have used a discrete effective tax rate method to calculate taxes for the three and six months ended June 30, 2020.
Recent Accounting Pronouncements
 i 
Accounting Pronouncements Adopted
In June 2016, the Financial Accounting Standards Board ("FASB") issued guidance to provide financial statement users with more information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendments replaced the incurred loss impairment methodology in the legacy guidance with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The guidance primarily applies to our accounts receivable and had no material impact upon adoption as of January 1, 2020.
In March 2019, the FASB issued guidance that aligns the accounting for production costs of an episodic television series with the accounting for production costs of films. The guidance further requires that an entity test a film or license agreement for program material for impairment at a film group level and under a fair value model when the film or license agreement is predominantly monetized with other films and/or license agreements. Further, content acquired under a license agreement is not required to be separately presented on the balance sheet based on the estimated time of usage. The guidance was adopted prospectively on January 1, 2020, at which time we reclassified US$ 75.9 million of our current content assets to non-current on our condensed consolidated Balance Sheets. There was no cumulative effect adjustment or impairment identified upon adoption. The change to a fair value model and the use of film groups in the assessment of impairment of our content is a significant change to the previously prescribed approach; however, the results of these procedures are not substantially different than the results under the previous approach.
 i 
During the adoption process we identified and corrected an error in our program rights disclosure as at December 31, 2019 relating to the misclassification of certain completed and released content that had been disclosed as completed and not released. The disclosure error did not impact the consolidated balance sheets, the consolidated statements of operations and comprehensive income, the consolidated statements of equity or the consolidated statements of cash flows and was not material as at December 31, 2019.
Recent Accounting Pronouncements Issued
 / 
In March 2020, the FASB issued guidance to provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. Interest charged on our Euro Loans (as defined in Note 4, "Long-term Debt and Other Financing Arrangements") and the related hedging instruments is based on three-month EURIBOR, which is not expected to be discontinued prior to the maturity of these instruments. Interest charged on our Revolving Credit Facility ("RCF"), when drawn, is based on three-month LIBOR through its maturity on April 26, 2023, however, we do not anticipate this guidance will significantly impact our accounting for this instrument.

8


CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)

3.     i GOODWILL AND INTANGIBLE ASSETS
Goodwill:
 i 
Goodwill by reporting unit as at June 30, 2020 and December 31, 2019 was as follows:
 
Bulgaria
 
Czech Republic
 
Romania
 
Slovak Republic
 
Slovenia
 
Total
Gross Balance, December 31, 2019
$
 i 173,146

 
$
 i 805,396

 
$
 i 83,521

 
$
 i 49,137

 
$
 i 19,400

 
$
 i 1,130,600

Accumulated impairment losses
( i 144,639
)
 
( i 287,545
)
 
( i 11,028
)
 
 i 

 
( i 19,400
)
 
( i 462,612
)
 i 28,507

 
 i 517,851

 
 i 72,493

 
 i 49,137

 
 i 

 
 i 667,988

Foreign currency
( i 91
)
 
( i 27,283
)
 
( i 1,035
)
 
( i 165
)
 
 i 

 
( i 28,574
)
Balance, June 30, 2020
 i 28,416

 
 i 490,568

 
 i 71,458

 
 i 48,972

 
 i 

 
 i 639,414

Accumulated impairment losses
( i 144,639
)
 
( i 287,545
)
 
( i 11,028
)
 
 i 

 
( i 19,400
)
 
( i 462,612
)
Gross Balance, June 30, 2020
$
 i 173,055

 
$
 i 778,113

 
$
 i 82,486

 
$
 i 48,972

 
$
 i 19,400

 
$
 i 1,102,026

 / 
Other intangible assets:
 i 
The net book values of our other intangible assets as at June 30, 2020 and December 31, 2019 were as follows:
 
 
 
Gross
 
Accumulated Amortization
 
Net
 
Gross
 
Accumulated Amortization
 
Net
Indefinite-lived:
 
 
 
 
 
 
 
 
 
 
 
Trademarks
$
 i 84,036

 
$

 
$
 i 84,036

 
$
 i 85,484

 
$

 
$
 i 85,484

Amortized:
 
 
 
 
 
 
 
 
 
 
 
Broadcast licenses
 i 199,035

 
( i 165,357
)
 
 i 33,678

 
 i 208,669

 
( i 169,239
)
 
 i 39,430

Customer relationships
 i 53,875

 
( i 53,400
)
 
 i 475

 
 i 54,807

 
( i 54,288
)
 
 i 519

Other
 i 5,678

 
( i 3,029
)
 
 i 2,649

 
 i 4,642

 
( i 2,486
)
 
 i 2,156

Total
$
 i 342,624

 
$
( i 221,786
)
 
$
 i 120,838

 
$
 i 353,602

 
$
( i 226,013
)
 
$
 i 127,589

 / 
Net broadcast licenses consist solely of our TV Nova license in the Czech Republic, which is amortized on a straight-line basis through its expiration date in 2025. Our customer relationships are deemed to have an economic useful life of, and are amortized on a straight-line basis over,  i five years to  i fifteen years. Other intangibles primarily consist of software licenses which are typically amortized on a straight-line basis over  i three years to  i five years.
4.     i LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS
 i 
Summary
 

 

Long-term debt
$
 i 589,453

 
$
 i 590,777

Other credit facilities and finance leases
 i 14,623

 
 i 16,332

Total long-term debt and other financing arrangements
 i 604,076

 
 i 607,109

Less: current maturities
( i 6,952
)
 
( i 6,836
)
Total non-current long-term debt and other financing arrangements
$
 i 597,124

 
$
 i 600,273


 / 
Overview
 i 
Total long-term debt and credit facilities comprised the following at June 30, 2020:
 
Principal Amount of Liability Component

 
Debt Issuance
Costs (1)

 
Net Carrying Amount

2021 Euro Loan
$
 i 67,564

 
$
( i 71
)
 
$
 i 67,493

2023 Euro Loan
 i 524,962

 
( i 3,002
)
 
 i 521,960

2023 Revolving Credit Facility
 i 

 
 i 

 
 i 

Total long-term debt and credit facilities
$
 i 592,526

 
$
( i 3,073
)
 
$
 i 589,453


 / 
(1) 
Debt issuance costs related to the 2021 Euro Loan, the 2023 Euro Loan and the 2023 Revolving Credit Facility (each as defined below) are being amortized on a straight-line basis, which approximates the effective interest method, over the life of the respective instruments. Debt issuance costs related to the 2023 Revolving Credit Facility are classified as non-current assets in our condensed consolidated balance sheet.

9


CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)

 i 
At June 30, 2020, the maturity of our long-term debt and credit facilities was as follows:
2020
$
 i 

2021
 i 67,564

2022
 i 

2023
 i 524,962

2024
 i 

2025 and thereafter
 i 

Total long-term debt and credit facilities
 i 592,526

Debt issuance costs
( i 3,073
)
Carrying amount of long-term debt and credit facilities
$
 i 589,453


 / 
Long-term Debt
Our long-term debt comprised the following at June 30, 2020 and December 31, 2019:
 
Carrying Amount
 
Fair Value
 

 

 

 

2021 Euro Loan
$
 i 67,493

 
$
 i 67,683

 
$
 i 66,817

 
$
 i 68,120

2023 Euro Loan
 i 521,960

 
 i 523,094

 
 i 508,936

 
 i 529,303

 
$
 i 589,453

 
$
 i 590,777

 
$
 i 575,753

 
$
 i 597,423


The estimated fair values of the Euro Loans (as defined below) as at June 30, 2020 and December 31, 2019 were determined using the average yield curve of comparable bonds with equivalent credit ratings which is a Level 2 input as described in Note 11, "Financial Instruments and Fair Value Measurements". Certain derivative instruments, including contingent event of default and change of control put options, have been identified as being embedded in each of the Euro Loans. The embedded derivatives are considered clearly and closely related to their respective Euro Loan, and as such are not required to be accounted for separately.
2021 Euro Loan
As at June 30, 2020, the principal amount of our floating rate senior unsecured term credit facility (the "2021 Euro Loan") outstanding was EUR  i 60.3 million (approximately US$  i 67.6 million). The 2021 Euro Loan bears interest at three-month EURIBOR (fixed pursuant to customary hedging arrangements (see Note 11, "Financial Instruments and Fair Value Measurements")) plus a margin of between  i 1.1% and  i 1.9% depending on the credit rating of Warner Media. As at June 30, 2020, the all-in borrowing rate on amounts outstanding under the 2021 Euro Loan was  i 3.25%, the components of which are shown in the table below under the heading "Interest Rate Summary".
Interest on the 2021 Euro Loan is payable quarterly in arrears on each February 13, May 13, August 13 and November 13. The 2021 Euro Loan matures on November 1, 2021 and may be prepaid at our option, in whole or in part, without premium or penalty from cash generated from our operations. The 2021 Euro Loan may be refinanced at our option at any time. The 2021 Euro Loan is a senior unsecured obligation of CME Ltd. and is unconditionally guaranteed by CME Media Enterprises B.V. ("CME BV") and by Warner Media, LLC ("Warner Media") and certain of its subsidiaries.
2023 Euro Loan
As at June 30, 2020, the principal amount of our floating rate senior unsecured term credit facility (the "2023 Euro Loan") outstanding was EUR  i 468.8 million (approximately US$  i 525.0 million). The 2023 Euro Loan bears interest at three-month EURIBOR (fixed pursuant to customary hedging arrangements (see Note 11, "Financial Instruments and Fair Value Measurements")) plus a margin of between  i 1.1% and  i 1.9% depending on the credit rating of Warner Media. As at June 30, 2020, the all-in borrowing rate on amounts outstanding under the 2023 Euro Loan was  i 3.50%, the components of which are shown in the table below under the heading "Interest Rate Summary".
Interest on the 2023 Euro Loan is payable quarterly in arrears on each January 7, April 7, July 7 and October 7. The 2023 Euro Loan matures on April 26, 2023 and may be prepaid at our option, in whole or in part, without premium or penalty from cash generated from our operations. The 2023 Euro Loan may be refinanced at our option at any time. The 2023 Euro Loan is a senior unsecured obligation of CME BV and is unconditionally guaranteed by CME Ltd. and by Warner Media and certain of its subsidiaries.
Reimbursement Agreement and Guarantee Fees
In connection with Warner Media’s guarantees of the 2021 Euro Loan and 2023 Euro Loan (collectively, the "Euro Loans"), we entered into a reimbursement agreement (as amended, the “Reimbursement Agreement") with Warner Media. The Reimbursement Agreement provides for the payment of guarantee fees (collectively, the "Guarantee Fees") to Warner Media as consideration for those guarantees, and the reimbursement to Warner Media of any amounts paid by them under any guarantee or through any loan purchase right exercised by it. The loan purchase right allows Warner Media to purchase any amount outstanding under the Euro Loans from the lenders following an event of default under the Euro Loans or the Reimbursement Agreement. The Reimbursement Agreement is guaranteed by our  i 100% owned subsidiary CME BV and is secured by a pledge over  i 100% of the outstanding shares of CME BV. The covenants and events of default under the Reimbursement Agreement are substantially the same as under the 2023 Revolving Credit Facility (described below).

10


CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)

We pay Guarantee Fees to Warner Media based on the amounts outstanding on the Euro Loans calculated on a per annum basis based on our consolidated net leverage as defined in the Reimbursement Agreement, which among other adjustments, takes into consideration cash balances up to US$ 75.0 million for the purposes of the net leverage calculation. As at June 30, 2020, our available cash balance was US$ 176.1 million. The Guarantee Fee rates applicable to our Euro Loans are shown in the tables below:
All-in Rate
Consolidated Net Leverage
2021 Euro Loan

 
2023 Euro Loan

 i 7.0x
 
 
 
 i 6.00
%
 
 i 6.50
%
<
 i 7.0x
-
 i 6.0x
 
 i 5.00
%
 
 i 5.50
%
<
 i 6.0x
-
 i 5.0x
 
 i 4.25
%
 
 i 4.75
%
<
 i 5.0x
-
 i 4.0x
 
 i 3.75
%
 
 i 4.25
%
<
 i 4.0x
-
 i 3.0x
 
 i 3.25
%
 
 i 3.75
%
<
 i 3.0x
 
 
 
 i 3.25
%
 
 i 3.50
%
Our consolidated net leverage as at June 30, 2020 and December 31, 2019 was  i 2.4x. For the three and six months ended June 30, 2020 and 2019, we recognized US$  i 2.8 million and US$  i 5.6 million; and US$  i 3.6 million and US$  i 7.3 million, respectively, of Guarantee Fees as interest expense in our condensed consolidated statements of operations and comprehensive income / loss.
The Guarantee Fees relating to the 2021 Euro Loan are payable semi-annually in arrears on each May 1 and November 1. The Guarantee Fees relating to the 2023 Euro Loan are payable semi-annually in arrears on each June 1 and December 1.
The Guarantee Fees on the 2023 Euro Loan that were previously paid in kind are presented as a component of other non-current liabilities (see Note 9, "Other Liabilities") and bear interest per annum at the applicable Guarantee Fee rate (as set forth in the table below). Guarantee Fees are included in cash flows from operating activities in our condensed consolidated statements of cash flows.
 i 
Interest Rate Summary
 
Base Rate

 
Rate Fixed Pursuant to Interest Rate Hedges

 
Guarantee Fee Rate

 
All-in Borrowing Rate

2021 Euro Loan
 i 1.28
%
 
 i 0.47
%
 
 i 1.50
%
 
 i 3.25
%
2023 Euro Loan
 i 1.28
%
 
 i 0.28
%
(1) 
 i 1.94
%
 
 i 3.50
%
2023 Revolving Credit Facility (if drawn)
 i 4.25
%
 
%
 
%
 
 i 4.25
%

 / 
(1) 
Effective until February 19, 2021. From February 19, 2021 through maturity on April 26, 2023, the rate fixed pursuant to interest rate hedges will increase to  i 0.97%, with a corresponding decrease in the Guarantee Fee rate, such that the all-in borrowing rate remains  i 3.50% if our net leverage ratio remains unchanged.
2023 Revolving Credit Facility
We had  i no balance outstanding under the US$  i 75.0 million revolving credit facility (the "2023 Revolving Credit Facility") as at June 30, 2020.
The 2023 Revolving Credit Facility bears interest at a rate per annum based on, at our option, an alternate base rate ("ABR Loans" as defined in the 2023 Revolving Credit Facility Agreement) plus the spread applicable to ABR Loans based on our consolidated net leverage or an amount equal to the greater of (i) an adjusted LIBO rate and (ii)  i 1.0%, plus the spread applicable to the Eurodollar Loans (as defined in the 2023 Revolving Credit Facility Agreement) based on our consolidated net leverage ratio (as defined in the Reimbursement Agreement), with all amounts payable in cash. The maturity date of the 2023 Revolving Credit Facility is April 26, 2023. When drawn, the 2023 Revolving Credit Facility permits prepayment at our option in whole or in part without penalty.
As at June 30, 2020 i , the following spreads were applicable:
Consolidated Net Leverage
Alternate Base Rate Loans

 
Eurodollar Loans

 i 7.0x
 
 
 
 i 5.25
%
 
 i 6.25
%
<
 i 7.0x
-
 i 6.0x
 
 i 4.25
%
 
 i 5.25
%
<
 i 6.0x
-
 i 5.0x
 
 i 3.50
%
 
 i 4.50
%
<
 i 5.0x
-
 i 4.0x
 
 i 3.00
%
 
 i 4.00
%
<
 i 4.0x
-
 i 3.0x
 
 i 2.50
%
 
 i 3.50
%
<
 i 3.0x
 
 
 
 i 2.25
%
 
 i 3.25
%

The 2023 Revolving Credit Facility is guaranteed by CME BV and is secured by a pledge over  i 100% of the outstanding shares of CME BV. The 2023 Revolving Credit Facility agreement contains limitations on CME’s ability to incur indebtedness, incur guarantees, grant liens, pay dividends or make other distributions, enter into certain affiliate transactions, consolidate, merge or effect a corporate reconstruction, make certain investments acquisitions and loans, and conduct certain asset sales. The agreement also contains maintenance covenants in respect of interest cover and total leverage ratios, and has covenants in respect of incurring indebtedness, the provision of guarantees, making investments and disposals, granting security and certain events of defaults.

11


CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)

Other Credit Facilities and Finance Lease Obligations
 i 
Cash Pooling
We have a cash pooling arrangement with Bank Mendes Gans (“BMG”), a subsidiary of ING Bank N.V., which enables us to receive credit throughout the group in respect of cash balances which our subsidiaries deposit with BMG. Cash deposited by our subsidiaries with BMG is pledged as security against the drawings of other subsidiaries up to the amount deposited. As at June 30, 2020, we had deposits of US$  i 80.1 million in and no drawings on the BMG cash pool. Interest is earned on deposits at the relevant money market rate. As at December 31, 2019, we had deposits of US$  i 11.6 million in and  i no drawings on the BMG cash pool.
Factoring Arrangements
Under a factoring framework agreement with Factoring Česka spořitelna a.s., up to CZK  i 475.0 million (approximately US$  i 19.9 million) of receivables from certain customers in the Czech Republic may be factored on a recourse or non-recourse basis. The facility has a factoring fee of  i 0.19% of any factored receivable and bears interest at one-month PRIBOR plus  i 0.95% per annum for the period that receivables are factored and outstanding.
Under a factoring framework agreement with Factoring KB, a.s., certain receivables in the Czech Republic may be factored on a non-recourse basis. The facility has a factoring fee of  i 0.11% of any factored receivable and bears interest at one-month PRIBOR plus  i 0.95% per annum for the period that receivables are factored and outstanding up to a maximum of 60 days from the due date.
 / 
Under a factoring framework agreement with Global Funds IFN S.A., receivables from certain customers in Romania may be factored on a non-recourse basis. The facility has a factoring fee of 4.0% of any factored receivable and bears interest at 6.0% per annum from the date the receivables are factored to the due date of the factored receivable.
As at June 30, 2020 and December 31, 2019, we had no outstanding liability balances on any of our factoring arrangements.
Finance Leases
For additional information on finance leases, see Note 10, "Leases".
5.     i PROGRAM RIGHTS
 i 
Program rights comprised the following at June 30, 2020 and December 31, 2019:
 
 
 

 

 
(As Adjusted)

Program rights:
 
 
 
Acquired program rights, net of amortization
$
 i 127,025

 
$
 i 135,352

Less: current portion of acquired program rights
 i 

 
( i 75,909
)
Total non-current acquired program rights
 i 127,025

 
 i 59,443

Produced program rights – Feature Films:
 
 
 

Released, net of amortization
 i 417

 
 i 504

Produced program rights – Television Programs:
 

 
 

Released, net of amortization
 i 71,878

 
 i 69,707

Completed and not released
 i 13,389

 
 i 4,061

In production
 i 24,980

 
 i 32,248

Development and pre-production
 i 407

 
 i 274

Total produced program rights
 i 111,071

 
 i 106,794

Total non-current acquired program rights and produced program rights
$
 i 238,096

 
$
 i 166,237


 / 
The Company identified and corrected an error in the above disclosure as at December 31, 2019 relating to the misclassification of certain completed and released content that had been disclosed as completed and not released (see Note 2, "Basis of Presentation").
As of June 30, 2020, expected amortization of our program rights is as follows:
 
 
First year

 
Second year

 
Third year

 
Thereafter

Acquired program rights
$
 i 64,901

 
$
 i 43,679

 
$
 i 16,836

 
$
 i 1,609

Produced and released program rights
 i 13,899

 
 i 11,281

 
 i 9,044

 
 i 38,071

As of June 30, 2020, approximately US$  i 8.6 million of the US$  i 13.4 million of our completed and unreleased produced content is expected to be amortized in the next twelve months.

12


CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)

Content costs for the three and six months ended June 30, 2020 and 2019 is comprised of:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2020

 
2019

 
2020

 
2019

Purchased program rights amortization
$
 i 19,013

 
$
 i 21,472

 
$
 i 43,765

 
$
 i 47,984

Produced program rights amortization
 i 23,844

 
 i 47,279

 
 i 62,918

 
 i 89,543

Other content costs
 i 836

 
 i 1,605

 
 i 2,042

 
 i 3,189

Total content costs
$
 i 43,693

 
$
 i 70,356

 
$
 i 108,725

 
$
 i 140,716


6.     i OTHER ASSETS
 i 
Other current and non-current assets comprised the following at June 30, 2020 and December 31, 2019:
 

 

 Current:
 
 
 
Prepaid acquired programming
$
 i 21,996

 
$
 i 27,237

Other prepaid expenses
 i 9,746

 
 i 12,775

VAT recoverable
 i 719

 
 i 7,775

Other
 i 422

 
 i 1,045

Total other current assets
$
 i 32,883

 
$
 i 48,832

 
 
 
 
 

 

Non-current:
 

 
 

Capitalized debt costs (Note 4)
$
 i 6,157

 
$
 i 7,277

Deferred tax
 i 1,883

 
 i 2,261

Operating lease right-of-use assets (Note 10)
 i 11,940

 
 i 11,682

Other
 i 941

 
 i 947

Total other non-current assets
$
 i 20,921

 
$
 i 22,167


 / 
7.     i PROPERTY, PLANT AND EQUIPMENT
 i 
Property, plant and equipment comprised the following at June 30, 2020 and December 31, 2019:
 

 

Land and buildings
$
 i 98,241

 
$
 i 100,502

Machinery, fixtures and equipment
 i 209,633

 
 i 212,810

Other equipment
 i 34,668

 
 i 36,007

Software
 i 68,902

 
 i 70,294

Construction in progress
 i 1,560

 
 i 4,774

Total cost
 i 413,004

 
 i 424,387

Less: accumulated depreciation
( i 310,626
)
 
( i 310,486
)
Total net book value
$
 i 102,378

 
$
 i 113,901

 
 
 
 
Assets held under finance leases (included in the above)
 

 
 

Land and buildings
$
 i 

 
$
 i 3,914

Machinery, fixtures and equipment
 i 33,345

 
 i 31,961

Total cost
 i 33,345

 
 i 35,875

Less: accumulated depreciation
( i 16,368
)
 
( i 15,799
)
Total net book value
$
 i 16,977

 
$
 i 20,076


 / 

13


CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)

 i 
The movement in the net book value of property, plant and equipment during the six months ended June 30, 2020 and 2019 was comprised of:
 
For the Six Months Ended June 30,
 
2020

 
2019

Opening balance
$
 i 113,901

 
$
 i 117,604

Additions (1)
 i 7,064

 
 i 10,200

Disposals
( i 23
)
 
( i 2
)
Depreciation
( i 15,899
)
 
( i 16,380
)
Foreign currency movements
( i 2,665
)
 
( i 795
)
Ending balance
$
 i 102,378

 
$
 i 110,627


 / 
(1) 
Includes assets acquired under finance leases. For additional information see Note 10, "Leases".
8.     i ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
 i 
Accounts payable and accrued liabilities comprised the following at June 30, 2020 and December 31, 2019:
 

 

Accounts payable and accrued expenses
$
 i 47,357

 
$
 i 56,343

Related party accounts payable
 i 128

 
 i 267

Programming liabilities
 i 17,889

 
 i 17,293

Related party programming liabilities
 i 11,714

 
 i 10,553

Duties and other taxes payable
 i 11,102

 
 i 9,426

Accrued staff costs (1)
 i 23,141

 
 i 24,027

Accrued interest payable
 i 2,075

 
 i 2,104

Related party accrued interest payable (including Guarantee Fees)
 i 1,084

 
 i 1,103

Income taxes payable
 i 11,094

 
 i 10,304

Other accrued liabilities
 i 5,329

 
 i 4,230

Total accounts payable and accrued liabilities
$
 i 130,913

 
$
 i 135,650


(1) Includes certain retention bonuses related to the proposed Merger.
 / 
9 i .    OTHER LIABILITIES
 i 
Other current and non-current liabilities comprised the following at June 30, 2020 and December 31, 2019:
 

 

Current:
 
 
 
Deferred revenue
$
 i 24,114

 
$
 i 9,451

Legal provisions
 i 637

 
 i 635

Derivative instruments (Note 11)
 i 949

 
 i 

Operating lease liabilities (Note 10)
 i 3,380

 
 i 3,203

Other
 i 200

 
 i 226

Total other current liabilities
$
 i 29,280

 
$
 i 13,515

 
 
 
 
 

 

Non-current:
 

 
 

Deferred tax liabilities
$
 i 23,062

 
$
 i 21,294

Derivative instruments (Note 11)
 i 11,326

 
 i 12,670

Operating lease liabilities (Note 10)
 i 8,503

 
 i 8,434

Related party Guarantee Fee payable (Note 4)
 i 33,465

 
 i 33,465

Other
 i 3,720

 
 i 4,137

Total other non-current liabilities
$
 i 80,076

 
$
 i 80,000


 / 
During the three and six months ended June 30, 2020 and 2019, we recognized revenue of US$  i 2.4 million and US$  i 5.8 million, respectively; and US$  i 2.8 million and US$  i 5.6 million, respectively, which was deferred as at December 31, 2019 and 2018, respectively.

14


CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)

10.     i LEASES
We enter into operating and finance leases for offices, production and related facilities, cars and certain other equipment. Our leases have remaining lease terms up to ten years.
 i 
The components of lease cost for the three and six months ended June 30, 2020 and 2019 were as follows:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
Operating lease cost:
 
 
 
 
 
 
 
Short-term operating lease cost
$
 i 545

 
$
 i 1,128

 
$
 i 1,691

 
$
 i 2,812

Long-term operating lease cost
 i 1,193

 
 i 1,149

 
 i 2,430

 
 i 2,299

Total operating lease cost
$
 i 1,738

 
$
 i 2,277

 
$
 i 4,121

 
$
 i 5,111

 
 
 
 
 
 
 
 
Finance lease cost:
 
 
 
 
 
 
 
Amortization of right-of-use asset
$
 i 1,625

 
$
 i 1,464

 
$
 i 3,213

 
$
 i 2,719

Interest on lease liabilities
 i 84

 
 i 88

 
 i 167

 
 i 196

Total finance lease cost
$
 i 1,709

 
$
 i 1,552

 
$
 i 3,380

 
$
 i 2,915


 / 
 i 
The classification of cash flows related to our leases for the six months ended June 30, 2020 and 2019 was as follows:
 
For the Six Months Ended June 30,
 
2020
 
2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
Operating cash flows from operating leases
$
 i 2,322

 
$
 i 2,749

Operating cash flows from finance leases
 i 188

 
 i 186

Financing cash flows from finance leases
 i 3,918

 
 i 3,395

 
 
 
 
Right-of-use assets obtained in exchange for lease obligations:
 
 
 
Operating leases
$
 i 2,169

 
$
 i 2,607

Finance leases
 i 1,599

 
 i 2,746


 / 

15


CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)

Our assets and liabilities related to our leasing arrangements comprised the following at June 30, 2020 and December 31, 2019:
 

 

Operating Leases
 
 
 
Operating lease right-of-use-assets, gross
$
 i 17,026

 
$
 i 15,396

Accumulated amortization
( i 5,086
)
 
( i 3,714
)
Operating lease right-of-use-assets, net
$
 i 11,940

 
$
 i 11,682

 
 
 
 
Other current liabilities
$
 i 3,380

 
$
 i 3,203

Other non-current liabilities
 i 8,503

 
 i 8,434

Total operating lease liabilities
$
 i 11,883

 
$
 i 11,637

 
 
 
 
Finance Leases
 
 
 
Property, plant and equipment, gross
$
 i 33,345

 
$
 i 35,875

Accumulated depreciation
( i 16,368
)
 
( i 15,799
)
Property, plant and equipment, net
$
 i 16,977

 
$
 i 20,076

 
 
 
 
Current portion of long-term debt and other financing arrangements
$
 i 6,952

 
$
 i 6,836

Long-term debt and other financing arrangements
 i 7,671

 
 i 9,496

Total finance lease liabilities
$
 i 14,623

 
$
 i 16,332

 
 
 
 
Weighted Average Remaining Lease Term in Years
 
 
 
Operating leases
 i 4.8

 
 i 4.9

Finance leases
 i 2.6

 
 i 2.7

 
 
 
 
Weighted Average Discount Rate
 
 
 
Operating leases
 i 4.8
%
 
 i 4.7
%
Finance leases
 i 2.0
%
 
 i 2.1
%

 i 
Our lease liabilities had the following maturities at June 30, 2020:
 
Operating Leases

 
Finance Leases

2020
$
 i 2,849

 
$
 i 3,739

2021
 i 2,558

 
 i 6,107

2022
 i 2,476

 
 i 3,392

2023
 i 1,886

 
 i 1,614

2024
 i 1,345

 
 i 160

2025 and thereafter
 i 2,307

 
 i 

Total undiscounted payments
 i 13,421

 
 i 15,012

Less: amounts representing interest
( i 1,538
)
 
( i 389
)
Present value of net minimum lease payments
$
 i 11,883

 
$
 i 14,623


 / 
11.     i FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
 i 
ASC 820, "Fair Value Measurements and Disclosure", establishes a hierarchy that prioritizes the inputs to those valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are:
Basis of Fair Value Measurement
Level 1
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted instruments.
Level 2
Quoted prices in markets that are not considered to be active or financial instruments for which all significant inputs are observable, either directly or indirectly.
Level 3
Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

16


CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)

We evaluate the position of each financial instrument measured at fair value in the hierarchy individually based on the valuation methodology we apply. The carrying amount of financial instruments, including cash and cash equivalents, accounts receivable, and accounts payable and accrued liabilities, approximate their fair value due to the short-term nature of these items. The fair value of our long-term debt is included in Note 4, "Long-term Debt and Other Financing Arrangements".
Hedging Activities
Cash Flow Hedges of Interest Rate Risk
We are party to interest rate swap agreements to mitigate our exposure to interest rate fluctuations on the outstanding principal amount of the Euro Loans. These interest rate swaps provide us with variable-rate cash receipts in exchange for fixed-rate payments over the lives of the agreements, with no exchange of the underlying notional amount. These instruments are carried at fair value on our condensed consolidated balance sheets as other current and other non-current liabilities based on their maturity.
We value the interest rate swap agreements using a valuation model which calculates the fair value on the basis of the net present value of the estimated future cash flows. The most significant input used in the valuation model is the expected EURIBOR-based yield curve. These instruments were allocated to Level 2 of the fair value hierarchy because the critical inputs to this model, including current interest rates, relevant yield curves and the known contractual terms of the instruments, were readily observable.
As at June 30, 2020 each instrument is designated as a cash flow hedge. All changes in the fair value of these instruments are recorded in accumulated other comprehensive income / loss and subsequently reclassified to interest expense when the hedged item affects earnings.
 i 
Information relating to financial instruments is as follows:
Trade Date
 
Number of Contracts

 
Aggregate Notional Amount

 
Maturity Date
 
Objective
 
Fair Value as at June 30, 2020

 
 i 5

 
EUR
 i 468,800

 
 
Interest rate hedge underlying 2023 Euro Loan
 
$
( i 949
)
 
 i 3

 
EUR
 i 60,335

 
 
Interest rate hedge underlying 2021 Euro Loan
 
$
( i 427
)
 
 i 4

 
EUR
 i 468,800

 
 
Interest rate hedge underlying 2023 Euro Loan, forward starting on February 19, 2021
 
$
( i 10,899
)

 / 
12.     i CONVERTIBLE REDEEMABLE PREFERRED SHARES
 i 200,000 shares of our Series B Convertible Redeemable Preferred Stock, par value US$  i 0.08 per share (the “Series B Preferred Shares”) were issued and outstanding as at June 30, 2020 and December 31, 2019. The Series B Preferred Shares are held by Time Warner Media Holdings B.V. ("TW Investor"), a wholly owned subsidiary of AT&T. As at June 30, 2020 and December 31, 2019, the accreted value of the Series B Preferred Shares was US$  i 269.4 million. The Series B Preferred Shares have a stated value of US$  i 1,000 per share and no longer accrete subsequent to June 24, 2018. As of June 30, 2020, the  i 200,000 shares of Series B preferred stock were convertible into approximately  i 111.1 million shares of Class A common stock.
Pursuant to the Certificate of Designation of the Series B Preferred Shares, each Series B Preferred Share may, at the holder's option, be converted into the number of shares of our Class A common stock determined by dividing (i) the accreted stated value plus accrued but unpaid dividends, if any, in each case as of the conversion date, by (ii) the conversion price, which was approximately US$  i 2.42 at June 30, 2020, but is subject to adjustment from time to time pursuant to customary weighted-average anti-dilution provisions with respect to our issuances of equity or equity-linked securities at a price below the then-applicable conversion price (excluding any securities issued under our benefit plans at or above fair market value). We have the right to redeem the Series B Preferred Shares in whole or in part upon 30 days' written notice. The redemption price of each outstanding Series B Preferred Share is equal to its accreted stated value plus accrued but unpaid dividends, if any, in each case as of the redemption date specified in the redemption notice. After receipt of a redemption notice, each holder of Series B Preferred Shares will have the right to convert, prior to the date of redemption, all or part of such Series B Preferred Shares to be redeemed by us into shares of our Class A common stock in accordance with the terms of conversion described above.
Holders of the Series B Preferred Shares have no voting rights on any matter presented to holders of any class of our capital stock, with the exception that they may vote with holders of shares of our Class A common stock (i) with respect to a change of control event or (ii) as provided by our Bye-laws or applicable Bermuda law. Holders of Series B Preferred Shares will participate in any dividends declared or paid on our Class A common stock on an as-converted basis. The Series B Preferred Shares will rank pari passu with our Series A Convertible Preferred Stock and senior to all other equity securities of the Company in respect of payment of dividends and distribution of assets upon liquidation. The Series B Preferred Shares have such other rights, powers and preferences as are set forth in the Certificate of Designation for the Series B Preferred Shares.
The Series B Preferred Shares are not considered a liability and the embedded conversion feature does not require bifurcation. The Series B Preferred Shares are classified outside of permanent equity at redemption value.

17


CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)

13.     i EQUITY
Preferred Stock
 i 5,000,000 shares of Preferred Stock were authorized as at June 30, 2020 and December 31, 2019.
 i One share of Series A Convertible Preferred Stock (the "Series A Preferred Share") was issued and outstanding as at June 30, 2020 and December 31, 2019. Pursuant to the Certificate of Designation of the Series A Preferred Share, the Series A Preferred Share is convertible into  i 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  i 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.
 i 200,000 shares of Series B Preferred Shares were issued and outstanding as at June 30, 2020 and December 31, 2019 (see Note 12, "Convertible Redeemable Preferred Shares"). As of June 30, 2020, the  i 200,000 Series B Preferred Shares were convertible into approximately  i 111.1 million shares of Class A common stock.
Class A and Class B Common Stock
 i 440,000,000 shares of Class A common stock and  i 15,000,000 shares of Class B common stock were authorized as at June 30, 2020 and December 31, 2019. The rights of the holders of Class A common stock and Class B common stock are identical except for voting rights. The shares of Class A common stock are entitled to one vote per share and the shares of Class B common stock are entitled to ten votes per share. Shares of Class B common stock are convertible into shares of Class A common stock on a  i one-for- i one basis for no additional consideration and automatically convert into shares of Class A common stock on a one-for-one basis when the number of shares of Class B common stock is less than 10% of the total number of shares of common stock outstanding. Holders of each class of shares are entitled to receive dividends and upon liquidation or dissolution are entitled to receive all assets available for distribution to holders of our common stock. Under our Bye-laws, the holders of each class have no pre-emptive or other subscription rights and there are no redemption or sinking fund provisions with respect to such shares.
There were  i 254.5 million and  i 253.6 million shares of Class A common stock outstanding at June 30, 2020 and December 31, 2019, respectively, and  i no shares of Class B common stock outstanding at June 30, 2020 or December 31, 2019.
As at June 30, 2020, TW Investor owns  i 63.8% of the outstanding shares of Class A common stock. In April 2018, Warner Media and TW Investor issued standing proxies to the independent directors of the Company, pursuant to which they granted the right to vote approximately  i 100.9 million shares of Class A common stock (the “Warrant Shares”) on all matters other than at any meeting where the agenda includes a change in control transaction. In accordance with these proxies, the Warrant Shares will be voted in proportion to votes cast at a general meeting of the Company, excluding such Warrant Shares. This proxy arrangement will remain in effect until April 2021. As a result of the standing proxies, after giving effect to its ownership of the Series A Preferred Share, TW Investor has a  i 44.1% voting interest in the Company.
 i 
Accumulated Other Comprehensive Loss
The movement in accumulated other comprehensive loss during the three and six months ended June 30, 2020 and 2019 comprised the following:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2020

 
2019

 
2020

 
2019

BALANCE, beginning of period
$
( i 287,919
)
 
$
( i 235,961
)
 
$
( i 226,916
)
 
$
( i 216,650
)
 
 
 
 
 
 
 
 
Currency translation adjustment, net
 
 
 
 
 
 
 
Balance, beginning of period
$
( i 275,178
)
 
$
( i 223,648
)
 
$
( i 213,955
)
 
$
( i 207,668
)
Foreign exchange gain / (loss) on intercompany loans (1)
 i 5,180

 
 i 2,868

 
( i 12,894
)
 
 i 2,256

Foreign exchange gain / (loss) on the Series B Preferred Shares
 i 5,884

 
 i 3,455

 
( i 866
)
 
( i 1,651
)
Currency translation adjustments
 i 14,672

 
 i 10,770

 
( i 21,727
)
 
 i 508

Balance, end of period
$
( i 249,442
)
 
$
( i 206,555
)
 
$
( i 249,442
)
 
$
( i 206,555
)
 
 
 
 
 
 
 
 
Unrealized loss on derivative instruments designated as hedging instruments
 
 
 
 
 
 
 
Balance, beginning of period
$
( i 12,741
)
 
$
( i 12,313
)
 
$
( i 12,961
)
 
$
( i 8,982
)
Change in the fair value of hedging instruments
( i 316
)
 
( i 1,700
)
 
( i 535
)
 
( i 5,402
)
Amounts reclassified from accumulated other comprehensive loss:
 
 
 
 
 
 
 
Changes in fair value of hedging instruments reclassified to interest expense
 i 438

 
 i 480

 
 i 877

 
 i 851

Balance, end of period
$
( i 12,619
)
 
$
( i 13,533
)
 
$
( i 12,619
)
 
$
( i 13,533
)
 
 
 
 
 
 
 
 
BALANCE, end of period
$
( i 262,061
)
 
$
( i 220,088
)
 
$
( i 262,061
)
 
$
( i 220,088
)

 / 
(1) 
Represents foreign exchange gains and losses on intercompany loans that are of a long-term investment nature and which are reported in the same manner as translation adjustments.

18


CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)

14.     i INTEREST EXPENSE
 i 
Interest expense comprised the following for the three and six months ended June 30, 2020 and 2019:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2020

 
2019

 
2020

 
2019

Interest on long-term debt and other financing arrangements
$
 i 4,934

 
$
 i 6,882

 
$
 i 10,708

 
$
 i 14,250

Amortization of capitalized debt issuance costs
 i 820

 
 i 853

 
 i 1,641

 
 i 1,727

Total interest expense
$
 i 5,754

 
$
 i 7,735

 
$
 i 12,349

 
$
 i 15,977

 / 
We paid cash interest (including Guarantee Fees) of US$  i 10.5 million and US$  i 14.0 million during the six months ended June 30, 2020 and 2019, respectively.
15.     i OTHER NON-OPERATING INCOME / EXPENSE, NET
 i 
Other non-operating income / expense, net comprised the following for the three and six months ended June 30, 2020 and 2019:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2020

 
2019

 
2020

 
2019

Interest income
$
 i 151

 
$
 i 115

 
$
 i 293

 
$
 i 267

Foreign currency exchange gain / (loss), net
 i 7

 
 i 2,155

 
( i 6,335
)
 
( i 922
)
Change in fair value of derivatives
 i 

 
 i 

 
 i 

 
( i 36
)
Loss on extinguishment of debt
 i 

 
( i 84
)
 
 i 

 
( i 235
)
Other income, net
 i 170

 
 i 51

 
 i 234

 
 i 66

Total other non-operating income / (expense), net
$
 i 328

 
$
 i 2,237

 
$
( i 5,808
)
 
$
( i 860
)

 / 
16.     i STOCK-BASED COMPENSATION
Our 2015 Stock Incentive Plan (the "2015 Plan") has  i 16,000,000 shares of Class A common stock authorized for grants of stock options, restricted stock units ("RSU"), restricted stock and stock appreciation rights to employees and non-employee directors. Under the 2015 Plan, awards are made to employees and directors at the discretion of the Compensation Committee.
For the three and six months ended June 30, 2020 and 2019, we recognized charges for stock-based compensation of US$  i 0.8 million and US$  i 1.7 million; and US$  i 1.1 million and US$  i 2.1 million respectively, as a component of selling, general and administrative expenses in our condensed consolidated statements of operations and comprehensive income / loss.
Stock Options
Grants of options allow the holders to purchase shares of Class A common stock at an exercise price, which is generally the market price prevailing at the date of the grant, with vesting between one and  i four years after the awards are granted.  i There was no option activity during the six months ended June 30, 2020. The summary of stock options outstanding as at June 30, 2020 and December 31, 2019 is presented below:
 
Shares

 
Weighted Average Exercise Price per Share

 
Weighted Average Remaining Contractual Term (years)
 
Aggregate Intrinsic Value

Outstanding at December 31, 2019
 i 2,011,392

 
$
 i 2.32

 
 i 5.58
 
$
 i 4,436

Outstanding and Exercisable at June 30, 2020
 i 2,011,392

 
$
 i 2.32

 
 i 5.08
 
$
 i 2,444


When options are vested, holders may exercise them at any time up to the maximum contractual life of the instrument which is specified in the option agreement. At June 30, 2020, the maximum life of options that were issued under the 2015 Plan was  i ten years. Upon providing the appropriate written notification, holders pay the exercise price and receive shares. Shares delivered in respect of stock option exercises are newly issued shares.
The aggregate intrinsic value (the difference between the stock price on the last day of trading of the second quarter of 2020 and the exercise prices multiplied by the number of in-the-money options) represents the total intrinsic value that would have been received by the option holders had they exercised all in-the-money options as at June 30, 2020. This amount changes based on the fair value of our Class A common stock.
Restricted Stock Units with Time-Based Vesting
Each RSU represents a right to receive  i 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  i four years from the date of grant. Holders of RSU awards are not entitled to receive cash dividend equivalents prior to the vesting of awards and are not entitled to vote shares underlying awards.

19


CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)

 i 
The following table summarizes information about unvested RSUs as at June 30, 2020 and December 31, 2019:
 
Number of
Shares / Units

 
Weighted Average
Grant Date
Fair Value

Unvested at December 31, 2019
 i 2,332,681

 
$
 i 3.69

Vested
( i 994,270
)
 
 i 3.58

Unvested at June 30, 2020
 i 1,338,411

 
$
 i 3.77


 / 
The intrinsic value of unvested RSUs was US$  i 4.7 million as at June 30, 2020. Total unrecognized compensation cost related to unvested RSUs as at June 30, 2020 was US$  i 4.3 million and is expected to be recognized over a weighted-average period of  i 2.07 years.
Restricted Stock Units with Performance Conditions
Each RSU with performance conditions (“PRSU”) represents a right to receive one share of Class A common stock of the Company for each PRSU that vests in accordance with a performance-based vesting schedule. The performance-based vesting schedule sets forth specified objectives for unlevered free cash flow and OIBDA over defined periods and by defined dates. Holders of PRSU awards are not entitled to receive cash dividend equivalents prior to the vesting of awards and are not entitled to vote shares underlying awards.
Vesting of the currently ou