SEC Info - Central European Media Enterprises Ltd

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		Alternative Formats (Word, et al.) Condensed Consolidated Balance Sheets as at March 31, 2020 and December 31, 2019 Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019 Condensed Consolidated Statements of Equity for the Three Months Ended March 31, 2020 and 2019 Condensed Consolidated Statements of Operations and Comprehensive Income / Loss for the Three Months Ended March 31, 2020 and 2019 Controls and Procedures Exhibits Financial Statements Index Legal Proceedings Management's Discussion and Analysis of Financial Condition and Results of Operations Notes to the Condensed Consolidated Financial Statements Quantitative and Qualitative Disclosures About Market Risk Risk Factors Signatures
1	1st Page – Filing Submission
"	Index
"	Item 1. Financial Statements
"	Condensed Consolidated Balance Sheets as at March 31, 2020 and December 31, 2019
"	Condensed Consolidated Statements of Operations and Comprehensive Income / Loss for the Three Months Ended March 31, 2020 and 2019
"	Condensed Consolidated Statements of Equity for the Three Months Ended March 31, 2020 and 2019
"	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 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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Index

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 March 31, 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

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	☐
		Emerging growth company	☐

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. ☐

Index

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 April 20, 2020
Class A Common Stock, par value $0.08	i 254,298,255

Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.

FORM 10-Q

For the Quarterly Period Ended March 31, 2020



			Page
Part I Financial Information
	Item 1. Financial Statements		1
		Condensed Consolidated Balance Sheets as at March 31, 2020 and December 31, 2019	1
		Condensed Consolidated Statements of Operations and Comprehensive Income / Loss for the Three Months Ended March 31, 2020 and 2019	2
		Condensed Consolidated Statements of Equity for the Three Months Ended March 31, 2020 and 2019	3
		Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019	4
		Notes to the Condensed Consolidated Financial Statements	5
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		24
	Item 3. Quantitative and Qualitative Disclosures About Market Risk		40
	Item 4. Controls and Procedures		40
Part II Other Information
	Item 1. Legal Proceedings		41
	Item 1A. Risk Factors		41
	Item 6. Exhibits		48
Signatures			49

Index

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

(US$ 000’s, except share data)

(Unaudited)



	March 31, 2020		December 31, 2019
ASSETS
Current assets
Cash and cash equivalents	$	i 140,323	$	i 36,621
Accounts receivable, net of allowances for credit losses of $8,781 and $8,548	i 140,179		i 188,618
Program rights, net (Note 5)	i —		i 75,909
Other current assets (Note 6)	i 36,916		i 48,832
Total current assets	i 317,418		i 349,980
Non-current assets
Property, plant and equipment, net (Note 7)	i 104,288		i 113,901
Program rights, net (Note 5)	i 234,069		i 166,237
Goodwill (Note 3)	i 615,599		i 667,988
Other intangible assets, net (Note 3)	i 118,670		i 127,589
Other non-current assets (Note 6)	i 21,118		i 22,167
Total non-current assets	i 1,093,744		i 1,097,882
Total assets	$	i 1,411,162	$	i 1,447,862



LIABILITIES AND EQUITY
Current liabilities
Accounts payable and accrued liabilities (Note 8)	$	i 148,977		$	i 135,650
Current portion of long-term debt and other financing arrangements (Note 4)	i 6,655			i 6,836
Other current liabilities (Note 9)	i 33,588			i 13,515
Total current liabilities	i 189,220			i 156,001
Non-current liabilities
Long-term debt and other financing arrangements (Note 4)	i 584,573			i 600,273
Other non-current liabilities (Note 9)	i 76,709			i 80,000
Total non-current liabilities	i 661,282			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 —
254,298,255 shares of Class A Common Stock of $0.08 each (December 31, 2019 – 253,607,026)	i 20,343			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 2,008,151			i 2,007,275
Accumulated deficit	( i 1,449,901		)	( i 1,458,942		)
Accumulated other comprehensive loss	( i 287,919		)	( i 226,916		)
Total CME Ltd. shareholders’ equity	i 290,674			i 341,705
Noncontrolling interests	i 616			i 513
Total equity	i 291,290			i 342,218
Total liabilities and equity	$	i 1,411,162		$	i 1,447,862

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

Index

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 March 31,
	2020			2019
Net revenues	$	i 143,816		$	i 146,559
Operating expenses:
Content costs	i 65,032			i 70,360
Other operating costs	i 13,647			i 13,248
Depreciation of property, plant and equipment	i 7,927			i 8,226
Amortization of broadcast licenses and other intangibles	i 2,167			i 2,194
Cost of revenues	i 88,773			i 94,028
Selling, general and administrative expenses	i 28,846			i 24,894
Operating income	i 26,197			i 27,637
Interest expense (Note 14)	( i 6,595		)	( i 8,242		)
Other non-operating expense, net (Note 15)	( i 6,136		)	( i 3,097		)
Income before tax	i 13,466			i 16,298
Provision for income taxes	( i 4,496		)	( i 4,547		)
Net income	i 8,970			i 11,751
Net loss attributable to noncontrolling interests	i 71			i 7
Net income attributable to CME Ltd.	$	i 9,041		$	i 11,758

Net income	$	i 8,970		$	i 11,751
Other comprehensive loss
Currency translation adjustment	( i 61,049		)	( i 15,843		)
Unrealized gain / (loss) on derivative instruments (Note 13)	i 220			( i 3,331		)
Total other comprehensive loss	( i 60,829		)	( i 19,174		)
Comprehensive loss	( i 51,859		)	( i 7,423		)
Comprehensive income attributable to noncontrolling interests	( i 103		)	( i 130		)
Comprehensive loss attributable to CME Ltd.	$	( i 51,962	)	$	( i 7,553	)



PER SHARE DATA (Note 17):
Net income per share:
Attributable to CME Ltd. — basic	$	i 0.02	$	i 0.03
Attributable to CME Ltd. — diluted	i 0.02		i 0.03

Weighted average common shares used in computing per share amounts (000’s):
Basic	i 265,036		i 264,199
Diluted	i 266,791		i 265,211

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

Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

(US$ 000’s, except share data)

(Unaudited)

CME Ltd.

Series A Convertible Preferred Stock

Class A
Common Stock

Class B
Common Stock

Number of shares

Par value

Number
of shares

Par value

Number of shares

Par value

Additional Paid-In Capital

Accumulated Deficit

Accumulated Other Comprehensive Loss

Noncontrolling Interest

Total Equity

BALANCE

December 31, 2019

i 1

i —

i 253,607,026

i 20,288

i —

i 2,007,275

( i 1,458,942

)

( i 226,916

)

i 513

i 342,218

Stock-based compensation

—

i 939

—

i 939

Share issuance, stock-based compensation

—

i 691,229

i 55

—

( i 55

)

—

i —

Withholding tax on net share settlement of stock-based compensation

—

( i 8

)

—

( i 8

)

Net income / (loss)

—

i 9,041

—

( i 71

)

i 8,970

Unrealized gain on derivative instruments

—

i 220

—

i 220

Currency translation adjustment

—

( i 61,223

)

i 174

( i 61,049

)

BALANCE
March 31, 2020

i 1

i —

i 254,298,255

i 20,343

i —

i 2,008,151

( i 1,449,901

)

( i 287,919

)

i 616

i 291,290

CME Ltd.

Series A Convertible Preferred Stock

Class A

Common Stock

Class B

Common Stock

Number of shares

Par value

Number

of shares

Par value

Number of shares

Par value

Additional Paid-In Capital

Accumulated Deficit

Accumulated Other Comprehensive Loss

Noncontrolling Interest

Total Equity

BALANCE

December 31, 2018

i 1

i —

i 252,853,554

i 20,228

i —

i 2,003,518

( i 1,578,076

)

( i 216,650

)

i 301

i 229,321

Stock-based compensation

—

i 1,003

—

i 1,003

Share issuance, stock-based compensation

—

i 426,421

i 34

—

( i 34

)

—

i —

Withholding tax on net share settlement of stock-based compensation

—

( i 299

)

—

( i 299

)

Net income / (loss)

—

i 11,758

—

( i 7

)

i 11,751

Unrealized loss on derivative instruments

—

( i 3,331

)

—

( i 3,331

)

Currency translation adjustment

—

( i 15,980

)

i 137

( i 15,843

)

BALANCE
March 31, 2019

i 1

i —

i 253,279,975

i 20,262

i —

i 2,004,188

( i 1,566,318

)

( i 235,961

)

i 431

i 222,602

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

Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(US$ 000’s)

(Unaudited)



	For the Three Months Ended March 31,
	2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	i 8,970		$	i 11,751
Adjustments to reconcile net income to net cash generated from operating activities:
Amortization of program rights and other content costs	i 65,032			i 70,360
Depreciation and other amortization	i 10,914			i 11,294
Loss on extinguishment of debt	i —			i 151
Gain on disposal of fixed assets	( i 19		)	( i 6		)
Deferred income taxes	i 64			i 373
Stock-based compensation (Note 16)	i 939			i 1,003
Change in fair value of derivatives	i —			i 62
Foreign currency exchange loss, net	i 7,055			i 2,681
Changes in assets and liabilities:
Accounts receivable, net	i 41,897			i 35,220
Accounts payable and accrued liabilities	( i 1,876		)	( i 5,138		)
Program rights	( i 51,826		)	( i 57,978		)
Other assets and liabilities	( i 287		)	( i 1,560		)
Accrued interest	i 2,924			i 3,833
Income taxes payable	i 1,549			( i 2,118		)
Deferred revenue	i 20,927			i 24,186
VAT and other taxes payable	i 9,651			i 1,895
Net cash generated from operating activities	$	i 115,914		$	i 96,009

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment	$	( i 4,790	)	$	( i 4,365	)
Disposal of property, plant and equipment	i 31			i 6
Net cash used in investing activities	$	( i 4,759	)	$	( i 4,359	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt	$	i —		$	( i 68,928	)
Settlement of derivative instruments	i —			( i 740		)
Payment of credit facilities and finance leases	( i 2,006		)	( i 1,769		)
Payments of withholding tax on net share settlement of share-based compensation	( i 8		)	( i 299		)
Net cash used in financing activities	$	( i 2,014	)	$	( i 71,736	)

Impact of exchange rate fluctuations on cash and cash equivalents	( i 5,439		)	( i 1,913		)
Net (decrease) / increase in cash and cash equivalents	$	i 103,702		$	i 18,001
CASH AND CASH EQUIVALENTS, beginning of period	i 36,621			i 62,031
CASH AND CASH EQUIVALENTS, end of period	$	i 140,323		$	i 80,032



SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest (including Guarantee Fees)	$	i 2,547	$	i 3,093
Cash paid for income taxes, net of refunds	i 2,883		i 6,318

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

Index

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 the 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 planning on filing the required notification to the European Commission in the second quarter, and we expect the proposed Merger to be completed in the third quarter of 2020.

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.

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.

Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in US$ 000’s, except share and per share data)

(Unaudited)

Interim Financial Statements

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Quarterly Report on Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles in the United States of America (“US GAAP”). Amounts as of December 31, 2019 included in the unaudited condensed consolidated financial statements have been derived from audited consolidated financial statements as of that date. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission on February 6, 2020. Our significant accounting policies have not changed since December 31, 2019, except as noted below.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring items and changes in US GAAP, necessary for their fair presentation in conformity with US GAAP for complete financial statements. The results of operations for interim periods are not necessarily indicative of the results to be expected for a full year.

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates and assumptions.

Basis of Consolidation

The unaudited condensed consolidated financial statements include the accounts of CME Ltd. and our subsidiaries, after the elimination of intercompany accounts and transactions. Entities in which we hold less than a majority voting interest but over which we have the ability to exercise significant influence are accounted for using the equity method. Other investments are accounted for using the cost method.

Seasonality

We experience seasonality, with advertising sales tending to be lowest during the third quarter of each calendar year due to the summer holiday period (typically July and August), and highest during the fourth quarter of each calendar year due to the winter holiday season.

Allowance for Credit Losses

In each of our segments, we stratify our receivables by age within risk-based pools. We apply an allowance percentage to each aging bucket based on historical collection trends adjusted for anticipated changes in future collectibility, including the potential impact of the COVID-19 pandemic. Our risk pools are generally defined as TV Advertising, Carriage Fee and Subscription and Other in line with 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 March 31, 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. As a part of the qualitative assessment, we performed sensitivity analyses on the critical inputs to the fair value models including cash flows, terminal growth rates, weighted-average costs of capital and royalty rates. This analysis did not indicate that our reporting units were more likely than not impaired.

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. We performed fair value assessments of the film groups at each segment as of March 31, 2020, that included assumptions about the potential impact of the COVID-19 pandemic. The results of these assessments did not indicate that the fair value of any film group was less than unamortized cost.

Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in US$ 000’s, except share and per share data)

(Unaudited)

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. 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-month period ended March 31, 2020.

Recent Accounting Pronouncements

Accounting Pronouncements Adopted

In June 2016, the Financial Accounting Standards Board ("FASB") issued guidance to provide financial statement users with more information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendments replaced the incurred loss impairment methodology in the legacy guidance with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The guidance primarily applies to our accounts receivable and had no material impact upon adoption as of January 1, 2020.

In March 2019, the FASB issued guidance that aligns the accounting for production costs of an episodic television series with the accounting for production costs of films. The guidance further requires that an entity test a film or license agreement for program material for impairment at a film group level and under a fair value model when the film or license agreement is predominantly monetized with other films and/or license agreements. Further, content acquired under a license agreement is not required to be separately presented on the balance sheet based on the estimated time of usage. The guidance was adopted prospectively on January 1, 2020, at which time we reclassified US$ 75.9 million of our current content assets to non-current on our condensed consolidated Balance Sheets. There was no cumulative effect adjustment upon adoption. The change to a fair value model and the use of film groups in the assessment of impairment of our content is a significant change to the previously prescribed approach; however, the results of these procedures are not substantially different than the results under the previous approach.

During the adoption process we identified and corrected an error in our program rights disclosure as at December 31, 2019 relating to the misclassification of certain completed and released content that had been disclosed as completed and not released. The disclosure error did not impact the consolidated balance sheets, the consolidated statements of operations and comprehensive income, the consolidated statements of equity or the consolidated statements of cash flows and was not material as at December 31, 2019.

Recent Accounting Pronouncements Issued

In March 2020, the FASB issued guidance to provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. Interest charged on our Euro Loans (as defined in Note 4, "Long-term Debt and Other Financing Arrangements") and the related hedging instruments is based on three-month EURIBOR, which is not expected to be discontinued prior to the maturity of these instruments. Interest charged on our Revolving Credit Facility ("RCF"), when drawn, is based on three-month LIBOR through its maturity on April 26, 2023, however, we do not anticipate this guidance will significantly impact our accounting for this instrument.

Index

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:

Goodwill by reporting unit as at March 31, 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

)

Balance, December 31, 2019

i 28,507

i 517,851

i 72,493

i 49,137

i —

i 667,988

Foreign currency

( i 705

)

( i 48,216

)

( i 2,239

)

( i 1,229

)

i —

( i 52,389

)

Balance, March 31, 2020

i 27,802

i 469,635

i 70,254

i 47,908

i —

i 615,599

Accumulated impairment losses

( i 144,639

)

( i 287,545

)

( i 11,028

)

i —

( i 19,400

)

( i 462,612

)

Gross Balance, March 31, 2020

i 172,441

i 757,180

i 81,282

i 47,908

i 19,400

i 1,078,211

Other intangible assets:

The i net book values of our other intangible assets as at March 31, 2020 and December 31, 2019 were as follows:

March 31, 2020

December 31, 2019

Gross

Accumulated Amortization

Net

Gross

Accumulated Amortization

Net

Indefinite-lived:

Trademarks

i 81,905

—

i 81,905

i 85,484

—

i 85,484

Amortized:

Broadcast licenses

i 191,118

( i 157,118

)

i 34,000

i 208,669

( i 169,239

)

i 39,430

Customer relationships

i 52,513

( i 52,028

)

i 485

i 54,807

( i 54,288

)

i 519

Other

i 4,943

( i 2,663

)

i 2,280

i 4,642

( i 2,486

)

i 2,156

Total

i 330,479

( i 211,809

)

i 118,670

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 three years to five years.

4 i . LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS

Summary



	i March 31, 2020			December 31, 2019
Long-term debt	$	i 576,436		$	i 590,777
Other credit facilities and finance leases	i 14,792			i 16,332
Total long-term debt and other financing arrangements	i 591,228			i 607,109
Less: current maturities	( i 6,655		)	( i 6,836		)
Total non-current long-term debt and other financing arrangements	$	i 584,573		$	i 600,273

Overview

Total long-term debt and credit facilities comprised the following at i March 31, 2020:



	Principal Amount of Liability Component		Debt Issuance Costs ⁽¹⁾			Net Carrying Amount
2021 Euro Loan	$	i 66,103	$	( i 82	)	$	i 66,021
2023 Euro Loan	i 513,617		( i 3,202		)	i 510,415
2023 Revolving Credit Facility	i —		i —			i —
Total long-term debt and credit facilities	$	i 579,720	$	( i 3,284	)	$	i 576,436

⁽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.

Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in US$ 000’s, except share and per share data)

(Unaudited)

At i March 31, 2020, the maturity of our long-term debt and credit facilities was as follows:



2020	$	i —
2021	i 66,103
2022	i —
2023	i 513,617
2024	i —
2025 and thereafter	i —
Total long-term debt and credit facilities	i 579,720
Debt issuance costs	( i 3,284		)
Carrying amount of long-term debt and credit facilities	$	i 576,436

Long-term Debt

Our long-term debt comprised the following at i March 31, 2020 and December 31, 2019:

Carrying Amount

Fair Value

i March 31, 2020

December 31, 2019

i March 31, 2020

December 31, 2019

2021 Euro Loan

i 66,021

i 67,683

i 61,824

i 68,120

2023 Euro Loan

i 510,415

i 523,094

i 455,765

i 529,303

i 576,436

i 590,777

i 517,589

i 597,423

The estimated fair values of the Euro Loans (as defined below) as at i March 31, 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 i March 31, 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$ 66.1 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 i March 31, 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. From April 26, 2020, the 2021 Euro Loan may be refinanced at our option. 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 i March 31, 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 513.6 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 i March 31, 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. From April 26, 2020, the 2023 Euro Loan may be refinanced at our option. 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).

Index

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. 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 i March 31, 2020 and December 31, 2019 was i 2.2x and i 2.4x, respectively. For the three months ended i March 31, 2020 and 2019, we recognized US$ i 2.8 million and US$ i 3.7 million, respectively, of Guarantee Fees as interest expense in our condensed consolidated statements of operations and comprehensive income / loss.

The Guarantee Fees relating to the 2021 Euro Loan are payable semi-annually in arrears on each May 1 and November 1. The Guarantee Fees relating to the 2023 Euro Loan are payable semi-annually in arrears on each June 1 and December 1.

The Guarantee Fees on the 2023 Euro Loan that were previously paid in kind are presented as a component of other non-current liabilities (see Note 9, "Other Liabilities") and bear interest per annum at the applicable Guarantee Fee rate (as set forth in the table below). Guarantee Fees are included in cash flows from operating activities in our condensed consolidated statements of cash flows.

Interest Rate Summary



	Base Rate			Rate Fixed Pursuant to Interest Rate Hedges			Guarantee Fee Rate		All-in Borrowing Rate
2021 Euro Loan	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 4.70	%	⁽²⁾	—	%		—	%	i 4.70	%


⁽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.


⁽²⁾	Based on the three-month LIBOR of i 1.45% as at i March 31, 2020.

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 i March 31, 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 i March 31, 2020, 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.

Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in US$ 000’s, except share and per share data)

(Unaudited)

Other Credit Facilities and Finance Lease Obligations

Cash Pooling

We have a cash pooling arrangement with Bank Mendes Gans (“BMG”), a subsidiary of ING Bank N.V., which enables us to receive credit throughout the group in respect of cash balances which our subsidiaries deposit with BMG. Cash deposited by our subsidiaries with BMG is pledged as security against the drawings of other subsidiaries up to the amount deposited. As at i March 31, 2020, we had deposits of US$ i 51.4 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, 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 19.0 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 i March 31, 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

Program rights comprised the following at i March 31, 2020 and December 31, 2019:



	i March 31, 2020		December 31, 2019
			(As Adjusted)
Program rights:
Acquired program rights, net of amortization	$	i 125,996	$	i 135,352
Less: current portion of acquired program rights	i —		( i 75,909		)
Total non-current acquired program rights	i 125,996		i 59,443
Produced program rights – Feature Films:
Released, net of amortization	i 430		i 504
Produced program rights – Television Programs:
Released, net of amortization	i 68,072		i 69,707
Completed and not released	i 8,032		i 4,061
In production	i 31,161		i 32,248
Development and pre-production	i 378		i 274
Total produced program rights	i 108,073		i 106,794
Total non-current acquired program rights and produced program rights	$	i 234,069	$	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 March 31, 2020, approximately US$ i 67.5 million, US$ i 42.8 million and US$ i 12.9 million of the US$ i 126.0 million unamortized cost of our licensed content is expected to be amortized in each of the next three years, respectively.

As of March 31, 2020, approximately US$ i 11.9 million, US$ i 10.9 million and US$ i 9.1 million of the US$ i 68.5 million unamortized cost of our produced content that has been released is expected to be amortized in each of the next three years, respectively.

As of March 31, 2020, approximately US$ i 5.7 million of the US$ i 8.0 million unamortized cost of our produced content that is unreleased is expected to be amortized in the next year.

Index

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 months ended i March 31, 2020 and 2019 is comprised of:



	For the Three Months Ended March 31,
	2020		2019
Purchased program rights amortization	$	i 24,752	$	i 26,512
Produced program rights amortization	i 39,074		i 42,264
Other content costs	i 1,206		i 1,584
Total content costs	$	i 65,032	$	i 70,360

Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in US$ 000’s, except share and per share data)

(Unaudited)

6 i . OTHER ASSETS

Other current and non-current assets comprised the following at March 31, 2020 and December 31, 2019:



	March 31, 2020		December 31, 2019
Current:
Prepaid acquired programming	$	i 21,576	$	i 27,237
Other prepaid expenses	i 14,090		i 12,775
VAT recoverable	i 1,043		i 7,775
Other	i 207		i 1,045
Total other current assets	$	i 36,916	$	i 48,832

	March 31, 2020		December 31, 2019
Non-current:
Capitalized debt costs (Note 4)	$	i 6,560	$	i 7,277
Deferred tax	i 2,552		i 2,261
Operating lease right-of-use assets (Note 10)	i 11,100		i 11,682
Other	i 906		i 947
Total other non-current assets	$	i 21,118	$	i 22,167

7 i . PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment comprised the following at March 31, 2020 and December 31, 2019:



	March 31, 2020			December 31, 2019
Land and buildings	$	i 94,874		$	i 100,502
Machinery, fixtures and equipment	i 204,762			i 212,810
Other equipment	i 33,984			i 36,007
Software	i 66,475			i 70,294
Construction in progress	i 3,675			i 4,774
Total cost	i 403,770			i 424,387
Less: accumulated depreciation	( i 299,482		)	( i 310,486		)
Total net book value	$	i 104,288		$	i 113,901

Assets held under finance leases (included in the above)
Land and buildings	$	i —		$	i 3,914
Machinery, fixtures and equipment	i 31,661			i 31,961
Total cost	i 31,661			i 35,875
Less: accumulated depreciation	( i 14,654		)	( i 15,799		)
Total net book value	$	i 17,007		$	i 20,076

/ i

The movement in the net book value of property, plant and equipment during the three months ended March 31, 2020 and 2019 was comprised of:



	For the Three Months Ended March 31,
	2020			2019
Opening balance	$	i 113,901		$	i 117,604
Additions ⁽¹⁾	i 3,840			i 3,923
Disposals	( i 26		)	i —
Depreciation	( i 7,927		)	( i 8,226		)
Foreign currency movements	( i 5,500		)	( i 2,954		)
Ending balance	$	i 104,288		$	i 110,347


⁽¹⁾	Includes assets acquired under finance leases. For additional information see Note 10, "Leases".

8 i . ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities comprised the following at March 31, 2020 and December 31, 2019:



	March 31, 2020		December 31, 2019
Accounts payable and accrued expenses	$	i 56,234	$	i 56,343
Related party accounts payable	i 126		i 267
Programming liabilities	i 22,332		i 17,293
Related party programming liabilities	i 14,668		i 10,553
Duties and other taxes payable	i 12,048		i 9,426
Accrued staff costs ⁽¹⁾	i 20,547		i 24,027
Accrued interest payable	i 2,027		i 2,104
Related party accrued interest payable (including Guarantee Fees)	i 4,070		i 1,103
Income taxes payable	i 11,474		i 10,304
Other accrued liabilities	i 5,451		i 4,230
Total accounts payable and accrued liabilities	$	i 148,977	$	i 135,650

⁽¹⁾ Includes certain retention bonuses related to the proposed Merger.

9 i . OTHER LIABILITIES

Other current and non-current liabilities comprised the following at March 31, 2020 and December 31, 2019:



	March 31, 2020		December 31, 2019
Current:
Deferred revenue	$	i 28,065	$	i 9,451
Legal provisions	i 629		i 635
Derivative instruments (Note 11)	i 1,259		i —
Operating lease liabilities (Note 10)	i 3,437		i 3,203
Other	i 198		i 226
Total other current liabilities	$	i 33,588	$	i 13,515

	March 31, 2020		December 31, 2019
Non-current:
Deferred tax liabilities	$	i 20,312	$	i 21,294
Derivative instruments (Note 11)	i 10,873		i 12,670
Operating lease liabilities (Note 10)	i 7,606		i 8,434
Related party Guarantee Fee payable (Note 4)	i 33,465		i 33,465
Other	i 4,453		i 4,137
Total other non-current liabilities	$	i 76,709	$	i 80,000

During the three months ended March 31, 2020 and 2019, we recognized revenue of US$ i 3.4 million and US$ i 2.8 million, which was deferred as at December 31, 2019 and 2018, respectively.

Index

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.

The components of lease cost for the three months ended i March 31, 2020 and 2019 were as follows:



	For the Three Months Ended March 31,
	2020		2019
Operating lease cost:
Short-term operating lease cost	$	i 1,146	$	i 1,684
Long-term operating lease cost	i 1,237		i 1,150
Total operating lease cost	$	i 2,383	$	i 2,834

Finance lease cost:
Amortization of right-of-use asset	$	i 1,588	$	i 1,255
Interest on lease liabilities	i 83		i 107
Total finance lease cost	$	i 1,671	$	i 1,362

The classification of cash flows related to our leases for the three months ended i March 31, 2020 and 2019 was as follows:



	For the Three Months Ended March 31,
	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	i 1,181	$	i 1,321
Operating cash flows from finance leases	i 87		i 109
Financing cash flows from finance leases	i 2,006		i 1,769

Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	i 1,059	$	i 1,564
Finance leases	i 586		i 2,248

Index

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 i March 31, 2020 and December 31, 2019:



	i March 31, 2020			December 31, 2019
Operating Leases
Operating lease right-of-use-assets, gross	$	i 15,447		$	i 15,396
Accumulated amortization	( i 4,347		)	( i 3,714		)
Operating lease right-of-use-assets, net	$	i 11,100		$	i 11,682

Other current liabilities	$	i 3,437		$	i 3,203
Other non-current liabilities	i 7,606			i 8,434
Total operating lease liabilities	$	i 11,043		$	i 11,637

Finance Leases
Property, plant and equipment, gross	$	i 31,661		$	i 35,875
Accumulated depreciation	( i 14,654		)	( i 15,799		)
Property, plant and equipment, net	$	i 17,007		$	i 20,076

Current portion of long-term debt and other financing arrangements	$	i 6,655		$	i 6,836
Long-term debt and other financing arrangements	i 8,137			i 9,496
Total finance lease liabilities	$	i 14,792		$	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 i March 31, 2020:



	Operating Leases			Finance Leases
2020	$	i 3,464		$	i 5,257
2021	i 2,503			i 5,658
2022	i 2,203			i 2,998
2023	i 1,424			i 1,256
2024	i 873			i 29
2025 and thereafter	i 1,973			i —
Total undiscounted payments	i 12,440			i 15,198
Less: amounts representing interest	( i 1,397		)	( i 406		)
Present value of net minimum lease payments	$	i 11,043		$	i 14,792

11. i FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

ASC 820, "Fair Value Measurements and Disclosure", establishes a hierarchy that prioritizes the inputs to those valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are:

Basis of Fair Value Measurement


Level 1	Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted instruments.


Level 2	Quoted prices in markets that are not considered to be active or financial instruments for which all significant inputs are observable, either directly or indirectly.


Level 3	Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Index

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 March 31, 2020 each instrument is designated as a cash flow hedge. All changes in the fair value of these instruments are recorded in accumulated other comprehensive income / loss and subsequently reclassified to interest expense when the hedged item affects earnings.

Information relating to financial instruments is as follows:

Trade Date

Number of Contracts

Aggregate Notional Amount

Maturity Date

Objective

Fair Value as at March 31, 2020

April 5, 2016

i 5

EUR

i 468,800

February 19, 2021

Interest rate hedge underlying 2023 Euro Loan

( i 1,259

)

April 26, 2018

i 3

EUR

i 60,335

November 1, 2021

Interest rate hedge underlying 2021 Euro Loan

( i 490

)

April 26, 2018

i 4

EUR

i 468,800

April 26, 2023

Interest rate hedge underlying 2023 Euro Loan, forward starting on February 19, 2021

( i 10,383

)

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 March 31, 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 March 31, 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 March 31, 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 March 31, 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.

Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in US$ 000’s, except share and per share data)

(Unaudited)

13. EQUITY

Preferred Stock

i 5,000,000 shares of Preferred Stock were authorized as at March 31, 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 March 31, 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 March 31, 2020 and December 31, 2019 (see Note 12, "Convertible Redeemable Preferred Shares"). As of March 31, 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 March 31, 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 254.3 million and i 253.6 million shares of Class A common stock outstanding at March 31, 2020 and December 31, 2019, respectively, and i no shares of Class B common stock outstanding at March 31, 2020 or December 31, 2019.

As at March 31, 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. Warner Media and TW Investor have notified the Company that they intend to utilize their option to maintain this proxy arrangement 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.

Accumulated Other Comprehensive Loss

The movement in accumulated other comprehensive loss during the three months ended March 31, 2020 and 2019 comprised the following:



	For the Three Months Ended March 31,
	2020			2019
BALANCE, beginning of period	$	( i 226,916	)	$	( i 216,650	)

Currency translation adjustment, net
Balance, beginning of period	$	( i 213,955	)	$	( i 207,668	)
Foreign exchange loss on intercompany loans ⁽¹⁾	( i 18,074		)	( i 612		)
Foreign exchange loss on the Series B Preferred Shares	( i 6,750		)	( i 5,106		)
Currency translation adjustments	( i 36,399		)	( i 10,262		)
Balance, end of period	$	( i 275,178	)	$	( i 223,648	)

Unrealized loss on derivative instruments designated as hedging instruments
Balance, beginning of period	$	( i 12,961	)	$	( i 8,982	)
Change in the fair value of hedging instruments	( i 219		)	( i 3,702		)
Amounts reclassified from accumulated other comprehensive loss:
Changes in fair value of hedging instruments reclassified to interest expense	i 439			i 371
Balance, end of period	$	( i 12,741	)	$	( i 12,313	)

BALANCE, end of period	$	( i 287,919	)	$	( i 235,961	)

/ /


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

Index

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

Interest expense comprised the following for the three months ended i March 31, 2020 and 2019:



	For the Three Months Ended March 31,
	2020		2019
Interest on long-term debt and other financing arrangements	$	i 5,774	$	i 7,368
Amortization of capitalized debt issuance costs	i 821		i 874
Total interest expense	$	i 6,595	$	i 8,242

We paid cash interest (including Guarantee Fees) of US$ i 2.5 million and US$ i 3.1 million during the three months ended i March 31, 2020 and 2019, respectively.

15. i OTHER NON-OPERATING INCOME / EXPENSE, NET

Other non-operating income / expense, net comprised the following for the three months ended March 31, 2020 and 2019:



	For the Three Months Ended March 31,
	2020			2019
Interest income	$	i 142		$	i 152
Foreign currency exchange loss, net	( i 6,342		)	( i 3,077		)
Change in fair value of derivatives	i —			( i 36		)
Loss on extinguishment of debt	i —			( i 151		)
Other income, net	i 64			i 15
Total other non-operating expense, net	$	( i 6,136	)	$	( i 3,097	)

16. 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 months ended i March 31, 2020 and 2019, we recognized charges for stock-based compensation of US$ i 0.9 million and US$ i 1.0 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 three months ended i March 31, 2020. The summary of stock options outstanding as at i March 31, 2020 and December 31, 2019 is presented below:

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 March 31, 2020

i 2,011,392

i 2.32

i 5.33

i 1,620

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 i March 31, 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 first 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 i March 31, 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.

Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in US$ 000’s, except share and per share data)

(Unaudited)

The following table summarizes information about unvested RSUs as at i March 31, 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 695,276	)	i 3.50
Unvested at March 31, 2020	i 1,637,405		$	i 3.77

The intrinsic value of unvested RSUs was US$ i 5.1 million as at i March 31, 2020. Total unrecognized compensation cost related to unvested RSUs as at i March 31, 2020 was US$ i 5.0 million and is expected to be recognized over a weighted-average period of i 1.97 years.

Restricted Stock Units with Performance Conditions

Each RSU with performance conditions (“PRSU”) represents a right to receive one share of Class A common stock of the Company for each PRSU that vests in accordance with a performance-based vesting schedule. The performance-based vesting schedule sets forth specified objectives for unlevered free cash flow and OIBDA over defined periods and by defined dates. Holders of PRSU awards are not entitled to receive cash dividend equivalents prior to the vesting of awards and are not entitled to vote shares underlying awards.

Vesting of the currently outstanding PRSUs is subject to the achievement of cumulative unlevered free cash flow and OIBDA targets corresponding to two, three or four-year performance periods ending December 31, 2020, 2021 and 2022, respectively. The maximum number of PRSUs that may be earned is i 200% of the corresponding target. At i March 31, 2020 and December 31, 2019 there were i 501,572 unvested shares with a weighted-average grant date fair value of US$ i 3.19. During the three months ended i March 31, 2020 there were no new PRSU awards granted or vested.

The intrinsic value of unvested PRSUs was US$ i 1.6 million as at i March 31, 2020. Total unrecognized compensation cost related to unvested PRSUs as at i March 31, 2020 was US$ i 1.4 million of which US$ i 0.2 million is related to performance targets currently considered probable of being achieved and will be recognized over a period of 1 year.

17. EARNINGS PER SHARE

We determined that the Series B Preferred Shares are a participating security, and accordingly, our basic and diluted net income / loss per share is calculated using the two-class method. Under the two-class method, basic net income / loss per common share is computed by dividing the net income available to common shareholders after deducting contractual amounts of accretion on our Series B Preferred Shares and the income allocated to these shares by the weighted-average number of common shares outstanding during the period. Diluted net income / loss per share is computed by dividing the adjusted net income by the weighted-average number of dilutive shares outstanding during the period after adjusting for the impact of those dilutive shares on the allocation of income to the Series B Preferred Shares.

The components of basic and diluted earnings per share are as follows:



	For the Three Months Ended March 31,
	2020			2019
Income from operations	$	8,970		$	11,751
Net loss attributable to noncontrolling interests	i 71			i 7
Less: income allocated to Series B Preferred Shares	( i 2,671		)	( i 3,482		)
Net income attributable to CME Ltd. available to common shareholders — basic	i 6,370			i 8,276

Effect of dilutive securities
Dilutive effect of RSUs and employee stock options	i 12			i 9
Net income attributable to CME Ltd. available to common shareholders — diluted	$	i 6,382		$	i 8,285

Weighted average outstanding shares of common stock — basic ⁽¹⁾	i 265,036			i 264,199
Dilutive effect of employee stock options and RSUs	i 1,755			i 1,012
Weighted average outstanding shares of common stock — diluted	i 266,791			i 265,211

Net income per share:
Attributable to CME Ltd. — basic	$	i 0.02		$	i 0.03
Attributable to CME Ltd. — diluted	i 0.02			i 0.03


⁽¹⁾	For the purpose of computing basic earnings per share, the i 11,211,449 shares of Class A common stock underlying the Series A Preferred Share are included in the weighted average outstanding shares of common stock - basic, because the rights of the Series A Preferred Share are considered substantially similar to that of our Class A common stock.

Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in US$ 000’s, except share and per share data)

(Unaudited)

W i eighted-average equity awards and convertible shares are excluded from the calculation of diluted earnings per share if their effect would be anti-dilutive. The following instruments were anti-dilutive for the periods presented but may be dilutive in future periods:



	For the Three Months Ended March 31,
	2020	2019
RSUs	i 751	i 1,064
Total	i 751	i 1,064

18 i . SEGMENT DATA

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. These segments reflect how CME Ltd.’s operating performance is evaluated by our chief operating decision makers, who we have identified as our co-Chief Executive Officers; how operations are managed by segment managers; and the structure of our internal financial reporting.

Our segments generate revenues primarily from the sale of advertising and sponsorship on our channels and digital properties. This is supplemented by revenues from cable and satellite television service providers that carry our channels on their platforms and from revenues through the sale of distribution rights to third parties. We do not rely on any single major customer or group of major customers. Intersegment revenues and profits have been eliminated in consolidation.

We evaluate our consolidated results and the performance of our segments based on net revenues and OIBDA (as defined below). We believe OIBDA is useful to investors because it provides a meaningful representation of our performance as it excludes certain items that either do not impact our cash flows or do not impact the operating results of our operations. OIBDA is also used as a component in determining management bonuses.

OIBDA includes amortization and impairment of program rights and is calculated as operating income / loss before depreciation, amortization of intangible assets, impairments of assets and certain unusual or infrequent items that are not considered by our chief operating decision makers when evaluating our performance.

Below are tables showing our net revenues, OIBDA, total assets, capital expenditures and long-lived assets by segment for the three months ended March 31, 2020 and 2019 for condensed consolidated statements of operations and comprehensive income / loss data and condensed consolidated statements of cash flow data; and as at March 31, 2020 and December 31, 2019 for condensed consolidated balance sheet data.



Net revenues:	For the Three Months Ended March 31,
	2020			2019
Bulgaria	$	i 16,955		$	i 19,293
Czech Republic	i 49,215			i 50,316
Romania	i 39,515			i 38,810
Slovak Republic	i 22,159			i 21,332
Slovenia	i 16,734			i 17,850
Intersegment revenues ⁽¹⁾	( i 762		)	( i 1,042		)
Total net revenues	$	i 143,816		$	i 146,559


⁽¹⁾	Reflects revenues earned from the sale of content to other country segments in CME Ltd. All other revenues are third party revenues.

Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in US$ 000’s, except share and per share data)

(Unaudited)



OIBDA:	For the Three Months Ended March 31,
OIBDA:	2020			2019
Bulgaria	$	i 4,818		$	i 6,121
Czech Republic	i 15,950			i 14,947
Romania	i 15,064			i 17,533
Slovak Republic	i 3,945			i 1,729
Slovenia	i 4,862			i 4,931
Elimination	( i 3		)	i 48
Total operating segments	i 44,636			i 45,309
Corporate	( i 7,465		)	( i 7,252		)
Total OIBDA	i 37,171			i 38,057
Depreciation of property, plant and equipment	( i 7,927		)	( i 8,226		)
Amortization of broadcast licenses and other intangibles	( i 2,167		)	( i 2,194		)
Other items ⁽¹⁾	( i 880		)	i —
Operating income	i 26,197			i 27,637
Interest expense (Note 14)	( i 6,595		)	( i 8,242		)
Other non-operating expense, net (Note 15)	( i 6,136		)	( i 3,097		)
Income before tax	$	i 13,466		$	i 16,298


⁽¹⁾	Other items during the three months ended March 31, 2020 reflects costs relating to the Merger, primarily legal and professional fees.



Total assets: ⁽¹⁾	March 31, 2020		December 31, 2019
Bulgaria	$	i 137,435	$	i 135,593
Czech Republic	i 677,616		i 758,479
Romania	i 275,166		i 289,968
Slovak Republic	i 144,963		i 150,806
Slovenia	i 81,672		i 92,144
Total operating segments	i 1,316,852		i 1,426,990
Corporate	i 94,310		i 20,872
Total assets	$	i 1,411,162	$	i 1,447,862


⁽¹⁾	Segment assets exclude any intercompany balances.



Capital expenditures:	For the Three Months Ended March 31,
	2020		2019
Bulgaria	$	i 548	$	i 774
Czech Republic	i 2,026		i 1,687
Romania	i 650		i 417
Slovak Republic	i 567		i 202
Slovenia	i 979		i 1,219
Total operating segments	i 4,770		i 4,299
Corporate	i 20		i 66
Total capital expenditures	$	i 4,790	$	i 4,365

Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in US$ 000’s, except share and per share data)

(Unaudited)



Long-lived assets: ⁽¹⁾	March 31, 2020		December 31, 2019
Bulgaria	$	i 12,238	$	i 13,538
Czech Republic	i 32,582		i 36,760
Romania	i 29,279		i 31,115
Slovak Republic	i 15,101		i 16,201
Slovenia	i 14,324		i 15,207
Total operating segments	i 103,524		i 112,821
Corporate	i 764		i 1,080
Total long-lived assets	$	i 104,288	$	i 113,901


⁽¹⁾	Reflects property, plant and equipment, net.

Revenues from contracts with customers comprised the following for the three months ended March 31, 2020 and 2019:



Consolidated revenue by type:	For the Three Months Ended March 31,
	2020		2019
Television advertising	$	i 106,455	$	i 111,047
Carriage fees and subscriptions	i 31,584		i 29,550
Other	i 5,777		i 5,962
Total net revenues	$	i 143,816	$	i 146,559

Management reviews the performance of our operations based on the above revenue types as well as on a geographic basis as described above. Management does not review other disaggregations of revenues from contracts with customers.

Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in US$ 000’s, except share and per share data)

(Unaudited)

19. i COMMITMENTS AND CONTINGENCIES

Commitments

Programming Rights Agreements and Other Commitments

At i March 31, 2020, we had total commitments of US$ i 89.9 million (December 31, 2019: US$ i 103.5 million) in respect of future programming, including contracts signed with license periods starting after the balance sheet date. In addition, we have digital transmission obligations and other commitments as follows:



	Programming purchase obligations		Other commitments		Capital expenditures
2020	$	i 27,307	$	i 7,858	$	i 351
2021	i 22,052		i 5,842		i 31
2022	i 18,712		i 5,512		i 31
2023	i 12,974		i 5,163		i —
2024	i 6,379		i —		i —
2025 and thereafter	i 2,436		i —		i —
Total	$	i 89,860	$	i 24,375	$	i 413

Contingencies

Litigation

We are from time to time party to legal proceedings, arbitrations and regulatory proceedings arising in the normal course of our business operations, including the proceeding described below. We evaluate, on a quarterly basis, developments in such matters and provide accruals for such matters, as appropriate. In making such decisions, we consider the degree of probability of an unfavorable outcome and our ability to make a reasonable estimate of the amount of a loss. An unfavorable outcome in any such proceedings, if material, could have an adverse effect on our business or condensed consolidated financial statements.

In the fourth quarter of 2016, our Slovak subsidiary MARKIZA-SLOVAKIA, spol. s.r.o. ("Markiza") was notified of claims that were filed in June 2016 in a court of first instance in Bratislava, the Slovak Republic to collect amounts allegedly owing under i four promissory notes that have a collective face value of approximately EUR i 69.0 million. These i 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. i Two of the notes purport to be issued in favor of Marian Kocner, a controversial Slovak businessman, and the other two to a long-time associate of Mr. Kocner. All four notes were supposedly assigned several times, for no apparent consideration, to companies owned by or associated with Mr. Kocner and ultimately to Sprava a inkaso zmeniek, s.r.o., a company owned by Mr. Kocner that initiated the claims for payment in these proceedings.

i Two of the notes, each of which purportedly has a face value of approximately EUR i 8.3 million, allegedly matured in 2015. The other i two notes, which were purportedly issued in blank, had the amount of approximately EUR i 26.2 million inserted on each of them by Mr. Kocner or someone associated with him in mid-2016, shortly before their alleged maturity. The i four notes accrue interest from their purported maturity dates. We do not believe that the notes were signed in June 2000 or that any of the notes are authentic.

During the first quarter of 2018, the court of first instance began to schedule hearings in respect of the first promissory note having a face value of approximately EUR i 8.3 million (the "First PN Case"), the second promissory note having a face value of approximately EUR i 8.3 million (the "Second PN Case") and i one of the promissory notes having a face value of approximately EUR i 26.2 million (the "Third PN Case"). Proceedings on the claim in respect of the other promissory note having a face value of approximately EUR i 26.2 million (the "Fourth PN Case") were terminated on two separate occasions in 2017 because the plaintiff failed to pay the required court fees.

On April 26, 2018, the judge in the First PN Case ruled in favor of the plaintiff. Markiza appealed that decision.

On May 14, 2018, Markiza filed a criminal complaint with the Special Prosecutor's Office of the Slovak Republic (the "Special Prosecutor’s Office") alleging that Mr. Kocner and Mr. Rusko committed the offenses of (1) counterfeiting, falsification, and illegal production of money and securities and (2) obstruction or perversion of justice. Following the opening of criminal proceedings in the matter, the Special Prosecutor’s Office issued a decision on June 20, 2018 to formally charge Mr. Kocner and Mr. Rusko with counterfeiting, falsification and illegal production of securities and obstruction of justice and Mr. Kocner was taken into pre-trial custody by the Slovak authorities. Subsequently, the Special Prosecutor’s Office charged Mr. Kocner’s long-time associate, who received two of the alleged promissory notes as the original beneficial owner and purported to endorse those notes to a company controlled by Mr. Kocner, with counterfeiting, falsification, and illegal production of money and securities.

Proceedings were subsequently suspended in respect of the First PN Case by the appellate court and by the court of first instance in the remaining cases (including the Fourth PN Case which the plaintiff refiled in May 2019 and paid the required court fees) until a final and enforceable decision has been rendered in the criminal proceedings.

Following the conclusion of the pre-trial investigation, the Special Prosecutor’s Office formally indicted Mr. Kocner and Mr. Rusko on March 19, 2019 with counterfeiting, falsification, and illegal production of securities and obstruction of justice and filed the indictment with the Special Criminal Court of the Slovak Republic.

On February 27, 2020, following the conclusion of criminal proceedings, the Special Criminal Court found Mr. Kocner and Mr. Rusko guilty of the crimes charged and sentenced each of them to 19 years in prison. Both Mr. Kocner and Mr. Rusko have appealed the sentence to the Supreme Court of the Slovak Republic and the Special Prosecutor’s Office has filed an appeal in respect of the length of the sentence as well as the ruling on the forfeiture of property by Mr. Kocner.

Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in US$ 000’s, except share and per share data)

(Unaudited)

Markiza will continue to vigorously defend the claims in the event any of the civil proceedings are not dismissed as a result of the successful conclusion of the criminal proceedings.

Based on the facts and circumstances of these cases, we have not accrued any amounts in respect of these claims.

20 i . RELATED PARTY TRANSACTIONS

We consider our related parties to be our officers, directors and shareholders who have direct control and/or influence over the Company as well as other parties that can significantly influence management. We have identified transactions with individuals or entities associated with AT&T, which is represented on our Board of Directors and holds a i 44.1% voting interest in CME Ltd. (see Note 13, "Equity") as at March 31, 2020, as material related party transactions.

AT&T



	For the Three Months Ended March 31,
	2020		2019
Cost of revenues	$	i 5,633	$	i 4,976
Interest expense	i 3,782		i 4,754



	March 31, 2020		December 31, 2019
Programming liabilities	$	i 14,668	$	i 10,553
Other accounts payable and accrued liabilities	i 126		i 267
Accrued interest payable ⁽¹⁾	i 4,070		i 1,103
Other non-current liabilities⁽²⁾	i 33,465		i 33,465


⁽¹⁾	Amount represents accrued Guarantee Fees which are not due. See Note 4, "Long-term Debt and Other Financing Arrangements".


⁽²⁾	Amount represents Guarantee Fees related to the 2023 Euro Loan for which we had previously made an election to pay in kind.

Index

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following defined terms are used in this Quarterly Report on Form 10-Q:


•	"2021 Euro Loan" refers to our floating rate senior unsecured term credit facility due November 1, 2021, guaranteed by Warner Media (as defined below), dated as of September 30, 2015, as amended on February 19, 2016, June 22, 2017 and April 25, 2018;


•	"2023 Euro Loan" refers to our floating rate senior unsecured term credit facility due April 26, 2023, entered into by CME BV (as defined below), guaranteed by Warner Media and CME Ltd., dated as of February 19, 2016, as amended on June 22, 2017 and April 25, 2018;


•	"Euro Loans" refers collectively to the 2021 Euro Loan and 2023 Euro Loan;


•	"2023 Revolving Credit Facility" refers to our revolving credit facility due April 26, 2023, dated as of May 2, 2014, as amended and restated as of February 19, 2016, and as further amended and restated on April 25, 2018;


•	"Guarantee Fees" refers to amounts accrued and payable to Warner Media as consideration for Warner Media's guarantees of the Euro Loans;


•	"Reimbursement Agreement" refers to our reimbursement agreement with Warner Media which provides that we will reimburse Warner Media for any amounts paid by them under any guarantee or through any loan purchase right exercised by Warner Media, dated as of November 14, 2014, as amended and restated on February 19, 2016, and as further amended and restated on April 25, 2018;


•	"CME BV" refers to CME Media Enterprises B.V., our 100% owned subsidiary;


•	"AT&T" refers to AT&T, Inc.


•	"TW Investor" refers to Time Warner Media Holdings B.V., a wholly owned subsidiary of Warner Media;


•	"Warner Media" refers to Warner Media, LLC. (formerly Time Warner, Inc.), a wholly owned subsidiary of AT&T.


•	"Merger" refers to the merger of Merger Sub (as defined below) with and into the Company pursuant to the Merger Agreement (as defined below);


•	"Merger Agreement" refers to the agreement and plan of merger dated October 27, 2019 by and among the Company, Parent (as defined below) and Merger Sub (as defined below);


•	"Merger Sub" refers TV Bermuda Ltd., a Bermuda exempted company limited by shares and a wholly-owned subsidiary of Parent (as defined below);


•	"Parent" refers TV Bidco B.V., a Netherlands private limited liability company; and


•	"PPF" refers PPF Group N.V., a Netherlands public limited liability company.

The exchange rates used in this report are as at March 31, 2020, unless otherwise indicated.

Please note that we may announce information using SEC filings, press releases, public conference calls, webcasts and posts to the "Investors" section of our website, www.cme.net. We intend to continue to use these channels to communicate important information about CME Ltd. and our operations. We encourage investors, the media, our customers and others interested in the Company to review the information we post at www.cme.net.

I. Forward-looking Statements

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 22E of the Securities Exchange Act of 1934 (the "Exchange Act"), including those relating to our capital needs, business strategy, expectations and intentions. Statements that use the terms "believe", "anticipate", "trend", "expect", "plan", "estimate", "forecast", "should", "intend" and similar expressions of a future or forward-looking nature identify forward-looking statements for purposes of the U.S. federal securities laws or otherwise. In particular, information appearing under the sections entitled "Business," "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" includes forward looking-statements. For these statements and all other forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy or are otherwise beyond our control and some of which might not even be anticipated. Forward-looking statements reflect our current views with respect to future events and because our business is subject to such risks and uncertainties, actual results, our strategic plan, our financial position, results of operations and cash flows could differ materially from those described in or contemplated by the forward-looking statements contained in this report.

Important factors that contribute to such risks include, but are not limited to, those factors set forth under "Risk Factors” as well as the following: the effect of the ongoing COVID-19 pandemic and actions taken by governmental authorities in response to the pandemic; the effect of the proposed Merger on our business; the risks that the closing conditions to the proposed Merger may not be satisfied or that necessary governmental approvals are not obtained or are obtained with conditions; the impact of any failure to complete the proposed Merger on our business; the effect of changes in global and regional economic conditions; the effect of the quantitative easing programs and the stability mechanism implemented by the European Central Bank on our business; the economic, political and monetary impacts of Brexit; levels of television advertising spending and the rate of development of the advertising markets in the countries in which we operate; our ability to refinance our existing indebtedness; the extent to which our debt service obligations and covenants may restrict our business; our exposure to additional tax liabilities as well as liabilities resulting from regulatory or legal proceedings initiated against us; our success in continuing our initiatives to diversify and enhance our revenue streams; our ability to make cost-effective investments in our television businesses, including investments in programming; our ability to develop and acquire necessary programming and attract audiences; and changes in the political and regulatory environments where we operate and in the application of relevant laws and regulations.

The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included in this report. All forward-looking statements speak only as of the date of this report. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments or otherwise, except as required by law.

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II. Overview

Central European Media Enterprises Ltd. ("CME Ltd.") is a media and entertainment company operating mainly in five countries in Central and Eastern Europe. We manage our business on a geographical basis, with five operating segments: Bulgaria, the Czech Republic, Romania, the Slovak Republic and Slovenia, which are also our reportable segments. These operating segments reflect how CME Ltd.’s operating performance is evaluated by our chief operating decision makers, who we have identified as our co-Chief Executive Officers, how our operations are managed by segment managers, and the structure of our internal financial reporting.

On October 27, 2019, the Company entered into the Merger Agreement with Parent and Merger Sub, pursuant to which Merger Sub will merge with and into the Company, with the Company continuing as the surviving company in the proposed Merger as a wholly-owned subsidiary of Parent. The closing of the proposed Merger is subject to several conditions, including, but not limited to, the requisite vote of the Company’s shareholders in favor of the Merger Agreement and the proposed Merger, the receipt of certain competition and other regulatory approvals, compliance with covenants and agreements in the Merger Agreement (subject to certain materiality qualifications), and the absence of any governmental order prohibiting completion of the proposed Merger. A special general meeting of shareholders of the Company was held on February 27, 2020, where more than 99% of the votes cast by shareholders were in favor of approving the Merger Agreement, the related statutory merger agreement and the Merger. In addition, regulatory approvals required under the Merger Agreement in Romania and Slovenia have been obtained. For additional information on the Merger, please see the proxy statement of the Company related to the special general meeting of shareholders, filed with the SEC on January 10, 2020. Parent is currently planning on filing the required notification to the European Commission in the second quarter, and we expect the proposed Merger to be completed in the third quarter of 2020.

Non-GAAP Financial Measures

In this report we refer to several non-GAAP financial measures, including OIBDA, OIBDA margin, free cash flow and unlevered free cash flow. We believe that each of these metrics is useful to investors for the reasons outlined below. Non-GAAP financial measures may not be comparable to similar measures reported by other companies. Non-GAAP financial measures should be evaluated in conjunction with, and are not a substitute for, US GAAP financial measures.

We evaluate our consolidated results and the performance of our segments based on net revenues and OIBDA. We believe OIBDA is useful to investors because it provides a meaningful representation of our performance, as it excludes certain items that do not impact either our cash flows or the operating results of our operations. OIBDA and unlevered free cash flow are also used as components in determining management bonuses.

OIBDA includes amortization and impairment of program rights and is calculated as operating income / loss before depreciation, amortization of intangible assets and impairments of assets and certain unusual or infrequent items that are not considered by our co-Chief Executive Officers when evaluating our performance. Our key performance measure of the efficiency of our consolidated operations and our segments is OIBDA margin. We define OIBDA margin as the ratio of OIBDA to net revenues.

Following a repricing of our Guarantee Fees in March 2017 and April 2018, we pay interest and related Guarantee Fees on our outstanding indebtedness in cash. In addition to this obligation to pay Guarantee Fees in cash, we expect to use cash generated by the business to pay certain Guarantee Fees that were previously paid in kind. These cash payments are all reflected in free cash flow; accordingly, we believe unlevered free cash flow, defined as free cash flow before cash payments for interest and Guarantee Fees, best illustrates the cash generated by our operations when comparing periods. We define free cash flow as net cash generated from continuing operating activities less purchases of property, plant and equipment, net of disposals of property, plant and equipment and excluding the cash impact of certain unusual or infrequent items that are not included in costs charged in arriving at OIBDA because they are not considered by our co-Chief Executive Officers when evaluating performance.

For additional information regarding our business segments, including a reconciliation of OIBDA to US GAAP financial measures, see Item 1, Note 18, "Segment Data". For a reconciliation of free cash flow and unlevered free cash flow to US GAAP financial measures, see "Free Cash Flow and Unlevered Free Cash Flow" below.

While our reporting currency is the dollar, our consolidated revenues and costs are divided across a range of European currencies and CME Ltd.’s functional currency is the Euro. Given the significant movement of the currencies in the markets in which we operate against the dollar, we believe that it is useful to provide percentage movements based on actual percentage movements (“% Act”), which includes the effect of foreign exchange, as well as like-for-like percentage movements (“% Lfl”) on a constant currency basis. The like-for-like percentage movement references reflect the impact of applying the current period average exchange rates to the prior period revenues and costs. Since the difference between like-for-like and actual percentage movements is solely the impact of movements in foreign exchange rates, our discussion in the following analysis is focused on constant currency percentage movements in order to highlight those factors influencing operational performance. The incremental impact of foreign exchange rates is presented in the tables preceding such analysis. Unless otherwise stated, all percentage increases or decreases in the following analysis refer to year-on-year percentage changes between the three months ended March 31, 2020 and 2019.

Executive Summary

The following table provides a summary of our consolidated results of our continuing operations for the three months ended March 31, 2020 and 2019:



	For the Three Months Ended March 31, (US$ 000's)
							Movement
	2020			2019			% Act		% Lfl
Net revenues	$	143,816		$	146,559		(1.9	)%	1.8	%
Operating income	26,197			27,637			(5.2	)%	(0.6	)%
Operating margin	18.2		%	18.9		%	(0.7) p.p.		(0.5) p.p.
OIBDA	$	37,171		$	38,057		(2.3	)%	2.0	%
OIBDA margin	25.8		%	26.0		%	(0.2) p.p.		0.0 p.p.

Index

Our consolidated net revenues decreased at actual rates in the three months ended March 31, 2020, compared to the corresponding period in 2019. At constant rates, net revenues increased in the first quarter of 2020 due primarily to an increase in carriage fees and subscription revenues, which increased 7% at actual rates and 11% at constant rates as our average prices increased and our subscriber base continued to grow. Television advertising spending overall in the markets of the countries in which we operate increased an estimated 2% at constant rates in the first three months of 2020 compared to 2019, while our television advertising revenues decreased 4% at actual rates, and 1% at constant rates. We saw a strong start to the year in terms of spending by advertisers across the five countries in which we operate, however, in March governments, including in our markets, declared various forms of states of emergency in response to the COVID-19 pandemic. During this time, many advertisers began to reduce, postpone, or cancel their advertising campaigns as social distancing measures, including closures of schools and non-essential businesses, and restrictions around the free movement of people were implemented. As a result, lower spending overall for advertising on our networks in March more than offset an increase year-on-year in the first two months of 2020.

Costs charged in arriving at OIBDA in the first quarter of 2020 decreased 2% at actual rates, but increased 2% at constant rates compared to the corresponding period in 2019 due primarily to the reversal of provisions in the comparative period and higher staff costs. This was partially offset by savings from content costs, which decreased 4% at constant rates overall, reflecting changes made to our programming schedules in response to the change in advertiser spending behavior.

By making adjustments to the cost base in response to changes in television advertising spending patterns at the end of the first quarter, our OIBDA margin in the three months ended March 31, 2020 remained consistent with the same period in 2019. Operating income also remained broadly in-line with the same period in 2019 at constant rates, although it decreased slightly, along with our operating margin, because of costs incurred related to the proposed Merger that are not included within OIBDA.

Beginning in March in response to the COVID-19 pandemic, each of our operations adopted precautionary procedures designed to safeguard the health and wellbeing of our employees and business partners. We focused initially on the key personnel critical to the function of our television channels to ensure the ongoing broadcast of our networks. Personnel were encouraged to work remotely whenever possible, and we do not believe there was a significant adverse impact on either our operations or our internal control over financial reporting as a result of this remote work policy. Our businesses incurred costs in the first quarter adjusting to these changes in the operating environment, although the amounts were not material.

We believe the COVID-19 pandemic will have a negative impact on advertising spending in the second quarter of 2020, compared to the same period in 2019. The decline in spending in March was somewhat limited in our largest operations because many campaigns were already scheduled prior to the announcement of emergency measures in our markets. Metrics around the time spent watching television have increased while large parts of the population are required to shelter in place; however, accruing a benefit to our revenue will depend on our ability to monetize that additional inventory. Based on current bookings in April and May, we expect a significant decline in advertising spending during those months across all segments as advertisers have reduced, postponed or canceled advertising spending. While some governments, including in our markets, have outlined plans and timelines to relax the emergency measures, it is unlikely that the expected lower spending could be offset in the second quarter even if conditions improve in June, although it is possible that a portion of the spending not placed in the first half of 2020 could be deferred until later in the year. We anticipate the increase in carriage fees and subscription revenues realized in the first quarter will continue for the remainder of 2020 and help mitigate the impact of lower advertising spending on net revenue. We also expect content cost saving measures discussed below to offset a portion of any shortfalls in television advertising revenue.

As more restrictive social distancing measures, including limitations on the size of gatherings, were introduced in March, we were required to temporarily suspend all in-process production of own-produced titles. In addition to the associated changes in the program schedules to replace or reduce the number of premier episodes of these titles broadcasted, our stations increased the amount of news and current affairs programming covering the COVID-19 pandemic. We will continue to focus on efficient spending for programming designed to maintain or increase audience leadership in our markets, and our program schedules may continue to be adjusted if necessary during the ongoing spring season in the second quarter of 2020. We anticipate that our existing program library, which includes already completed own-produced titles, is more than sufficient to maintain attractive programming line-ups while we are unable to restart our productions. As a result of some of these adjustments to programming and suspension of productions, there have been limited production employee furloughs and we have significantly reduced the use of freelancers, though we expect to resume productions as soon as the situation permits us to do so.

Our program schedules were also impacted during the first quarter of 2020 by the postponement or cancellation of virtually all live sporting events around the world. While we do expect an ongoing impact to our program schedules in the second quarter, and potentially the second half of 2020, the acquisition of sports rights has not been a critical component of our program strategy, as our main channels in each country seek to provide general entertainment reaching the widest audience possible, and we generally do not pursue or hold the rights for marquee sports events, such as the Olympics. There are exceptions to this, as we do operate niche sports- and male-focused channels, and in Romania we hold the rights to broadcast the UEFA 2020 European Football Championships, which has now been postponed to 2021. It is possible that we may incur charges related to certain sports rights in future periods for which we will not receive the benefit of the associated programming.

While we anticipate a negative impact on profitability in the second quarter of 2020, our financial position remains robust and we do not expect any liquidity constraints. Cash flows during the first quarter of 2020 were strong as expected, reflecting the collection of receivables from the seasonally high fourth quarter of 2019, as well as prepayments from clients for advertising in 2020. While cash flow is normally lower through the remainder of the year, we are taking steps to further bolster our cash position, in addition to the changes in programming and production discussed above, including the deferral of all non-essential capital expenditures, reductions in discretionary spending such as marketing, and utilizing national stimulus plans where possible, such as provisions relating to delaying the payment of corporate income tax.

As a result of significant debt repayments in the last few years, our nearest long-term debt maturity of only EUR 60.3 million (approximately US$ 66.1 million at March 31, 2020 rates) is due in November 2021. Our net leverage ratio was 2.2x at the end of the first quarter, down from 2.4x at the start of 2020. Our cost of borrowing depends on our net leverage ratio; and if that increases above 3.0x in a future period then our interest expense would increase (see Item 1, Note 4, "Long-term Debt and Other Financing Arrangements").

We ended the first quarter of 2020 with US$ 140.3 million of cash and cash equivalents. Additionally, we have access to US$ 75.0 million under the 2023 Revolving Credit Facility, which remained undrawn as of March 31, 2020.

Index

Free Cash Flow and Unlevered Free Cash Flow



	For the Three Months Ended March 31, (US$ 000's)
	2020			2019			Movement
Net cash generated from operating activities	$	115,914		$	96,009		20.7	%
Capital expenditures, net	(4,759		)	(4,359		)	9.2	%
Other items ⁽¹⁾	163			—			NM ⁽²⁾
Free cash flow	111,318			91,650			21.5	%
Cash paid for interest (including Guarantee Fees)	2,547			3,093			(17.7	)%
Unlevered free cash flow	$	113,865		$	94,743		20.2	%


⁽¹⁾	Reflects costs relating to the Merger, primarily financial and professional fees.


⁽²⁾	Number is not meaningful.



(US$ 000's)	March 31, 2020		December 31, 2019		Movement
Cash and cash equivalents	$	140,323	$	36,621	283.2	%

Unlevered free cash flow increased during the three months ended March 31, 2020 compared to the same period in 2019 primarily due to lower payments for taxes and programming, as well as higher cash collections from improved operating performance in the last three months of 2019. Net cash generated from operating activities also benefited from lower cash paid for interest and Guarantee Fees.

Market Information

The following table sets out our estimates of the year-on-year changes in real GDP, real private consumption and the television advertising market, net of discounts, in the countries in which we operate for the three months ended March 31, 2020:



	For the Three Months Ended March 31, 2020
Country	Real GDP Growth		Real Private Consumption Growth		Net TV Ad Market Growth
Bulgaria	1.1	%	1.3	%	(11.2	)%
Czech Republic	(0.1	)%	1.2	%	2.4	%
Romania*	2.3	%	(0.6	)%	3.8	%
Slovak Republic	(1.1	)%	0.5	%	9.9	%
Slovenia	(1.4	)%	(0.2	)%	(5.7	)%
Total CME Ltd. Markets	0.6	%	0.4	%	1.6	%

* Romanian market excludes Moldova.

Sources: Real GDP Growth and Real Private Consumption Growth, CME Ltd. estimates based on market consensus; TV Ad Market Growth, CME Ltd. estimates at constant exchange rates.

After adjusting for inflation, in the first three months of 2020, it is estimated that GDP grew overall across the countries in which we operate. However, a more positive outlook in terms of growth in GDP and private consumption for both the quarter and full year changed in March with the onset of the COVID-19 pandemic. While certain GDP growth rates in the first quarter remained positive, downward revisions in analyst expectations now forecast a contraction in all markets in both the second quarter and the full year.

We estimate that television advertising spending in the countries in which we operate increased overall by 2% on average at constant rates in the three months ended March 31, 2020 compared to the same period in 2019. The television advertising markets in all countries, and particularly Bulgaria and Slovenia, were negatively impacted by lower spending in March 2020 as a result of changes in advertiser behavior connected to the COVID-19 pandemic. In Bulgaria, the market was also impacted by lower average prices. In the Czech Republic, a strong start to the year more than offset lower spending late in the quarter. The market in the Slovak Republic grew overall from increased spending early in 2020, as well as governmental spending around local elections, which more than offset lower spending late in the quarter. In Romania, the market grew primarily as a result of spending from clients in certain sectors of the economy, including telecommunications and banking, which was higher than the same period in 2019 when these clients, who were directly impacted by incremental taxes implemented in early 2019, reduced spending. This was partially offset by lower spending from most sectors of the economy in March as a result of changes in advertiser behavior connected to the COVID-19 pandemic.

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Segment Performance

Our total Net Revenues and OIBDA by segment were as follows:



	NET REVENUES
	For the Three Months Ended March 31, (US$ 000's)
							Movement
	2020			2019			% Act		% Lfl
Bulgaria	$	16,955		$	19,293		(12.1	)%	(9.1	)%
Czech Republic	49,215			50,316			(2.2	)%	1.3	%
Romania	39,515			38,810			1.8	%	6.5	%
Slovak Republic	22,159			21,332			3.9	%	7.4	%
Slovenia	16,734			17,850			(6.3	)%	(3.1	)%
Intersegment revenues	(762		)	(1,042		)	NM ⁽¹⁾		NM ⁽¹⁾
Total net revenues	$	143,816		$	146,559		(1.9	)%	1.8	%


⁽¹⁾	Number is not meaningful.



	OIBDA
	For the Three Months Ended March 31, (US$ 000's)
							Movement
	2020			2019			% Act		% Lfl
Bulgaria	$	4,818		$	6,121		(21.3	)%	(18.5	)%
Czech Republic	15,950			14,947			6.7	%	11.5	%
Romania	15,064			17,533			(14.1	)%	(10.2	)%
Slovak Republic	3,945			1,729			128.2	%	136.4	%
Slovenia	4,862			4,931			(1.4	)%	2.0	%
Eliminations	(3		)	48			NM ⁽¹⁾		NM ⁽¹⁾
Total operating segments	44,636			45,309			(1.5	)%	2.7	%
Corporate	(7,465		)	(7,252		)	(2.9	)%	(6.2	)%
Consolidated OIBDA	$	37,171		$	38,057		(2.3	)%	2.0	%


⁽¹⁾	Number is not meaningful.

Index

Bulgaria



	For the Three Months Ended March 31, (US$ 000's)
							Movement
	2020			2019			% Act		% Lfl
Television advertising	$	10,175		$	12,590		(19.2	)%	(16.4	)%
Carriage fees and subscriptions	5,584			5,321			4.9	%	8.5	%
Other	1,196			1,382			(13.5	)%	(10.5	)%
Net revenues	16,955			19,293			(12.1	)%	(9.1	)%
Costs charged in arriving at OIBDA	12,137			13,172			(7.9	)%	(4.7	)%
OIBDA	$	4,818		$	6,121		(21.3	)%	(18.5	)%

OIBDA margin	28.4		%	31.7		%	(3.3) p.p.		(3.3) p.p.

The television advertising market in Bulgaria declined an estimated 11% at constant rates in the three months ended March 31, 2020 compared to the same period in 2019.

Our television advertising revenues decreased on a constant currency basis in the first quarter primarily due to selling fewer gross rating points ("GRPs"), which declined further as a result of lower spending in March related to changes in advertiser behavior connected to the COVID-19 pandemic. Carriage fees and subscription revenues increased in the first quarter due to both higher prices and an increase in the number of subscribers.

On a constant currency basis, costs charged in arriving at OIBDA decreased in the first quarter due to lower content costs. During March we made adjustments to the spring schedule to reduce the frequency of certain local entertainment titles, and to utilize other existing library titles in place of premier episodes of other local productions that were already completed prior to the COVID-19 pandemic. There were also savings from our refreshed late night show, which was relaunched in January 2020 with a new host and updated format. These savings were partially offset by higher bad debt charges as well as increased staff costs.

Czech Republic



	For the Three Months Ended March 31, (US$ 000's)
							Movement
	2020			2019			% Act		% Lfl
Television advertising	$	41,369		$	43,164		(4.2	)%	(0.7	)%
Carriage fees and subscriptions	4,934			4,268			15.6	%	19.2	%
Other	2,912			2,884			1.0	%	4.9	%
Net revenues	49,215			50,316			(2.2	)%	1.3	%
Costs charged in arriving at OIBDA	33,265			35,369			(5.9	)%	(2.9	)%
OIBDA	$	15,950		$	14,947		6.7	%	11.5	%

OIBDA margin	32.4		%	29.7		%	2.7 p.p.		2.9 p.p.

The television advertising market in the Czech Republic increased an estimated 2% at constant rates in the three months ended March 31, 2020 compared to the same period in 2019.

Our television advertising revenues decreased on a constant currency basis in the first quarter due to lower average prices. More GRPs were sold in the first two months of 2020 compared to the same period in 2019, however GRPs sold in the first quarter were flat overall because there was less spending in March compared to last year connected to uncertainty around the COVID-19 pandemic. Carriage fees and subscription revenues increased on a constant currency basis in the first quarter due to price increases in existing contracts as well as an increase in the number of subscribers.

Costs charged in arriving at OIBDA decreased at constant rates in the first quarter due primarily to savings from content costs. We made planned adjustments in the spring schedule compared to 2019, including a more cost-effective entertainment format. In March we substituted existing library content for certain titles still in production that were suspended due to social distancing measures implemented in response to the COVID-19 pandemic. There were also other cost savings in the first quarter compared to the same period in 2019, when there were additional marketing activities for the celebration of the 25th anniversary of TV Nova broadcasting in the Czech Republic last year. These savings were partially offset by higher staff costs.

Index

Romania



	For the Three Months Ended March 31, (US$ 000's)
							Movement
	2020			2019			% Act		% Lfl
Television advertising	$	26,401		$	26,550		(0.6	)%	4.0	%
Carriage fees and subscriptions	12,127			11,277			7.5	%	12.5	%
Other	987			983			0.4	%	4.8	%
Net revenues	39,515			38,810			1.8	%	6.5	%
Costs charged in arriving at OIBDA	24,451			21,277			14.9	%	20.2	%
OIBDA	$	15,064		$	17,533		(14.1	)%	(10.2	)%

OIBDA margin	38.1		%	45.2		%	(7.1) p.p.		(7.1) p.p.

The television advertising market in Romania increased an estimated 4% at constant rates in the three months ended March 31, 2020 compared to the same period in 2019.

Our television advertising revenues increased at constant rates in the first quarter of 2020, primarily as a result of spending from clients in certain sectors of the economy, including telecommunications and banking, which was higher than the same period in 2019 when these clients, who were directly impacted by new incremental taxes implemented in early 2019, reduced spending. This was partially offset by lower spending from most sectors of the economy in March as a result of changes in advertiser behavior connected to the COVID-19 pandemic. Carriage fees and subscription revenues increased on a constant currency basis in the first quarter due to higher prices and an increase in the average number of subscribers.

On a constant currency basis, costs charged in arriving at OIBDA increased in the first quarter primarily due to an increase in content costs compared to 2019, when we implemented cost saving measures in the schedule as a result of lower spending from the sectors impacted by incremental taxes early last year. Expenses were also lower in the first quarter of 2019 from the reversal of a legal accrual as well as changes in legislation around VAT recoverable from bad debt charges, which did not repeat in the first quarter of 2020. These increases were partially offset by savings from sports rights due to postponed matches.

Slovak Republic



	For the Three Months Ended March 31, (US$ 000's)
							Movement
	2020			2019			% Act		% Lfl
Television advertising	$	18,838		$	17,933		5.0	%	8.6	%
Carriage fees and subscriptions	2,489			2,272			9.6	%	13.3	%
Other	832			1,127			(26.2	)%	(23.8	)%
Net revenues	22,159			21,332			3.9	%	7.4	%
Costs charged in arriving at OIBDA	18,214			19,603			(7.1	)%	(3.9	)%
OIBDA	$	3,945		$	1,729		128.2	%	136.4	%

OIBDA margin	17.8		%	8.1		%	9.7 p.p.		9.7 p.p.

The television advertising market in the Slovak Republic increased an estimated 10% at constant rates in the three months ended March 31, 2020 compared to the same period in 2019.

Our television advertising revenues increased on a constant currency basis in the first quarter due to selling more GRPs, primarily due to advertisers allocating more spending in 2020 to the start of the year, in what is traditionally a slower period for advertising. There was also additional spending related to local elections in the first quarter of this year, as well as higher sponsorship revenue. Carriage fees and subscriptions revenue increased from higher prices in new and existing contracts.

On a constant currency basis, costs charged in arriving at OIBDA decreased in the first quarter due primarily to a decline in content costs. In the month of March we stopped ongoing productions in the spring schedule and replaced them with existing library titles and broadcast other more cost-effective foreign acquired content. These savings were partially offset by higher marketing costs to promote our local productions before the changes in the schedule were implemented, as well as higher bad debt charges.

Index

Slovenia



	For the Three Months Ended March 31, (US$ 000's)
							Movement
	2020			2019			% Act		% Lfl
Television advertising	$	9,672		$	10,810		(10.5	)%	(7.5	)%
Carriage fees and subscriptions	6,450			6,412			0.6	%	4.0	%
Other	612			628			(2.5	)%	0.8	%
Net revenues	16,734			17,850			(6.3	)%	(3.1	)%
Costs charged in arriving at OIBDA	11,872			12,919			(8.1	)%	(5.0	)%
OIBDA	$	4,862		$	4,931		(1.4	)%	2.0	%

OIBDA margin	29.1		%	27.6		%	1.5 p.p.		1.5 p.p.

The television advertising market in Slovenia declined an estimated 6% at constant rates in the three months ended March 31, 2020 compared to the same period in 2019.

Our television advertising revenues decreased on a constant currency basis in the first quarter primarily due to lower spending in March, as a result of changes in advertiser behavior connected to the COVID-19 pandemic. Carriage fees and subscription revenues increased in the quarter due to price inflation in existing agreements and an increase in the number of subscribers.

On a constant currency basis, costs charged in arriving at OIBDA decreased in the first quarter primarily due to lower content costs. In March we made adjustments to the spring schedule, including replacing certain local productions with more cost-effective foreign acquired titles. These savings were partially offset by higher staff-related costs.

Index

III. Analysis of the Results of Operations and Financial Position



	For the Three Months Ended March 31, (US$ 000's)
					Movement
	2020		2019		% Act		% Lfl
Revenue:
Television advertising	$	106,455	$	111,047	(4.1	)%	(0.5	)%
Carriage fees and subscriptions	31,584		29,550		6.9	%	11.0	%
Other revenue	5,777		5,962		(3.1	)%	0.5	%
Net Revenues	143,816		146,559		(1.9	)%	1.8	%
Operating expenses:
Content costs	65,032		70,360		(7.6	)%	(4.2	)%
Other operating costs	13,647		13,248		3.0	%	6.5	%
Depreciation of property, plant and equipment	7,927		8,226		(3.6	)%	(0.2	)%
Amortization of broadcast licenses and other intangibles	2,167		2,194		(1.2	)%	1.9	%
Cost of revenues	88,773		94,028		(5.6	)%	(2.2	)%
Selling, general and administrative expenses	28,846		24,894		15.9	%	19.7	%
Operating income	$	26,197	$	27,637	(5.2	)%	(0.6	)%

Revenue:

Television advertising revenues: We estimate television advertising spending in our markets increased on average by 2% at constant rates in the three months ended March 31, 2020 as compared to the same period in 2019. Television advertising revenues decreased primarily in March 2020 as many advertisers reduced, postponed, or canceled their advertising campaigns in response to the economic uncertainty caused by governmental responses to the COVID-19 pandemic. See "Overview - Segment Performance" above for additional information on television advertising revenues for each of our operating countries.

Carriage fees and subscriptions: Carriage fees and subscriptions revenues during the three months ended March 31, 2020 grew approximately 7% at actual rates and 11% at constant rates as compared to the same period in 2019 primarily due to price increases in existing contracts as well as an increase in the number of subscribers. See "Overview - Segment Performance" above for additional information on carriage fees and subscription revenues for each of our operating countries.

Other revenues: Other revenues include primarily internet advertising revenues and revenues generated through the licensing of our own productions. At constant rates, other revenues during the three months ended March 31, 2020 were in line with the same period in 2019.

Operating Expenses:

Content costs: Content costs (including production costs and amortization and impairment of program rights) decreased during the three months ended March 31, 2020, compared to the same period in 2019 primarily due to the use of lower cost programming following the postponement of certain productions due to measures imposed to address the COVID-19 pandemic.

Other operating costs: Other operating costs (excluding content costs, depreciation of property, plant and equipment, amortization of broadcast licenses and other intangibles as well as selling, general and administrative expenses) increased during the three months ended March 31, 2020 compared to the same period in 2019 primarily due to higher general repairs and maintenance costs and licensing costs.

Depreciation of property, plant and equipment: At constant rates, total depreciation of property, plant and equipment during the three months ended March 31, 2020 remained in line with the same period in 2019.

Amortization of broadcast licenses and other intangibles: Total amortization of broadcast licenses and other intangibles for the three months ended March 31, 2020 was consistent with the same period in 2019 as lower amortization of customer relationships was offset by the amortization of software purchased in 2019.

Selling, general and administrative expenses: Selling, general and administrative expenses increased during the three months ended March 31, 2020 compared to the same period in 2019 primarily due to costs incurred as a result of the proposed Merger, increases in our allowance for credit losses as a result of the economic impacts of the COVID-19 pandemic, as well as the reversal of a legal accrual and the release of bad debt in Romania in 2019. The decreases were offset by costs incurred in the first quarter of 2019 related to the 25th anniversary event in the Czech Republic.

Non-cash stock-based compensation charges for the three months ended March 31, 2020 and 2019 were US$ 0.9 million and US$ 1.0 million, respectively. See Item 1, Note 16, "Stock-based Compensation".

Operating income: At constant rates, operating income during the three months ended March 31, 2020 was in line with the same period in 2019 as increases in carriage fee revenues and lower content costs were offset by increases in selling, general and administrative expenses.

Our operating margin, which is determined as operating income divided by net revenues, was 18.2% for the three months ended March 31, 2020 compared to 18.9% for the three months ended March 31, 2019.

Index

Other income / (expense):



	For the Three Months Ended March 31, (US$ 000's)
	2020			2019			% Act
Interest expense	$	(6,595	)	$	(8,242	)	20.0	%
Other non-operating income / (expense):
Interest income	142			152			(6.6	)%
Foreign currency exchange loss, net	(6,342		)	(3,077		)	(106.1	)%
Change in fair value of derivatives	—			(36		)	NM ⁽¹⁾
Loss on extinguishment of debt	—			(151		)	NM ⁽¹⁾
Other income, net	64			15			326.7	%
Provision for income taxes	(4,496		)	(4,547		)	1.1	%
Net loss attributable to noncontrolling interests	71			7			NM ⁽¹⁾


⁽¹⁾	Number is not meaningful.

Interest expense: Interest expense during the three months ended March 31, 2020 decreased compared to the same period in 2019, primarily due to the partial repayment of the 2021 Euro Loan in 2019 as well as reduced borrowing costs following a reduction in our net leverage ratio as defined within the Reimbursement Agreement. See Item 1, Note 4, "Long-term Debt and Other Financing Arrangements".

Interest income: Interest income primarily reflects earnings on cash balances and was not material in either period presented.

Foreign currency exchange loss, net: We are exposed to fluctuations in foreign exchange rates on the revaluation of monetary assets and liabilities denominated in currencies other than the local functional currency of the relevant subsidiaries. This includes third party receivables and payables, as well as those intercompany loans which are not considered to be of a long-term investment nature. Our subsidiaries generally receive funding via loans that are denominated in currencies other than the functional currency of the lender, therefore any change in the relevant exchange rate will require us to recognize a transaction gain or loss on revaluation. Certain of our intercompany loans are classified as long-term in nature, and therefore gains or losses on revaluation are not recorded through the statement of operations and comprehensive income / loss. See the discussion under "Currency translation adjustment, net" below.



	For the Three Months Ended March 31,
	2020			2019
Revaluation of intercompany loans	$	(622	)	$	(180	)
Transaction losses on long-term debt and other financing arrangements	(890		)	(727		)
Transaction losses on revaluation of monetary assets and liabilities	(4,830		)	(2,170		)
Foreign currency exchange loss, net	$	(6,342	)	$	(3,077	)

Change in fair value of derivatives: For the three months ended March 31, 2019 we recognized losses as a result of the partial settlement of our interest rate swaps in connection with the repayment of debt. We did not settle any portion of our interest rate swaps during the three months ended March 31, 2020.

Loss on extinguishment of debt: During the three months ended March 31, 2019, we recognized losses on extinguishment of debt related to our partial repayment of the 2021 Euro Loan. We did not prepay any principal amounts of our Euro Loans during the three months ended March 31, 2020.

Other income, net: Our other income, net during the three months ended March 31, 2020 and 2019 was not material.

Provision for income taxes: The provision for income taxes for the three months ended March 31, 2020 was calculated using the discrete method and reflects income tax charges on profits in each of our operating segments and the impact of losses on which no tax benefit has been received.

The provision for income taxes for the three months ended March 31, 2019 reflects income taxes on profits in Bulgaria, the Czech Republic, Romania and Slovenia and the impact of losses on which no tax benefit has been received.

Our operating subsidiaries are subject to income taxes at statutory rates of 10% in Bulgaria, 16% in Romania, 19% in the Czech Republic, 19% in Slovenia and 21% in the Slovak Republic.

Net loss attributable to noncontrolling interests: The results attributable to noncontrolling interests for the three months ended March 31, 2020 and 2019 relate to the noncontrolling interest share of our Bulgaria operations.

Other comprehensive (loss) / income:



	For the Three Months Ended March 31, (US$ 000's)
	2020			2019			% Act
Currency translation adjustment, net	$	(61,049	)	$	(15,843	)	NM ⁽¹⁾
Unrealized gain / (loss) on derivative instruments	220			(3,331		)	NM ⁽¹⁾


⁽¹⁾	Number is not meaningful.

Index

Currency translation adjustment, net: The underlying equity value of our investments (which are denominated in the functional currency of the relevant entity) are converted into dollars at each balance sheet date, with any change in value of the underlying assets and liabilities being recorded as a currency translation adjustment to the balance sheet rather than net income / (loss). Certain of our intercompany loans are denominated in currencies other than the functional currency of the lender and are considered to be of a long-term investment nature as the repayment of these loans is neither planned nor anticipated for the foreseeable future. The foreign exchange gains on the remeasurement of these intercompany loans to the lender's functional currency are treated in the same manner as currency translation adjustments. Other comprehensive (loss) / income due to currency translation adjustment, net comprised the following for the three months ended March 31, 2020 and 2019:



	For the Three Months Ended March 31, (US$ 000's)
	2020			2019			% Act
Foreign exchange loss on intercompany loans	$	(18,074	)	$	(612	)	NM ⁽¹⁾
Foreign exchange loss on the Series B Preferred Shares	(6,750		)	(5,106		)	NM ⁽¹⁾
Currency translation adjustment	(36,225		)	(10,125		)	NM ⁽¹⁾
Currency translation adjustment, net	$	(61,049	)	$	(15,843	)	NM ⁽¹⁾


⁽¹⁾	Number is not meaningful.

The following charts depict the movement of the dollar versus the functional currencies of our operations, based on monthly closing rates, during the three months ended March 31, 2020 and 2019.

Percent Change During the Three Months Ended March 31, 2020

Index

Percent Change During the Three Months Ended March 31, 2019

Unrealized gain / (loss) on derivative instruments: The unrealized gain / (loss) on derivatives is due to the portion of changes in the fair value of our interest rate swaps designated as cash flow hedges and recognized in accumulated other comprehensive (loss) / income. See Item 1, Note 11, "Financial Instruments and Fair Value Measurements".

Condensed consolidated balance sheets as at March 31, 2020 and December 31, 2019:



	Condensed Consolidated Balance Sheet (US$ 000’s)
	March 31, 2020		December 31, 2019		% Act		% Lfl
Current assets	$	317,418	$	349,980	(9.3	)%	(5.1	)%
Non-current assets	1,093,744		1,097,882		(0.4	)%	8.3	%
Current liabilities	189,220		156,001		21.3	%	31.0	%
Non-current liabilities	661,282		680,273		(2.8	)%	0.9	%
Temporary equity	269,370		269,370		—	%	—	%
CME Ltd. shareholders’ equity	290,674		341,705		NM ⁽¹⁾		NM ⁽¹⁾
Noncontrolling interests in consolidated subsidiaries	616		513		20.1	%	(10.5	)%


⁽¹⁾	Number is not meaningful.

Note: The analysis below is intended to highlight the key factors at constant rates that led to the movements from December 31, 2019, excluding the impact of foreign currency translation.

Current assets: Current assets at March 31, 2020 decreased from December 31, 2019 primarily due to the adoption of new accounting guidance which no longer requires programming content to be classified as current based on its expected timing of usage, offset by cash collected from operations and customer prepayments.

Non-current assets: On a constant currency basis, non-current assets at March 31, 2020 increased from December 31, 2019 primarily due to the adoption of new accounting guidance as noted above.

Current liabilities: Current liabilities at March 31, 2020 increased from December 31, 2019 primarily due to higher deferred revenue from customer prepayments and higher programming related payables, offset by the payment of accrued bonuses related to 2019 performance.

Non-current liabilities: On a constant currency basis, non-current liabilities at March 31, 2020 remained in line with December 31, 2019. See Item 1, Note 4, "Long-term Debt and Other Financing Arrangements".

Temporary equity: Temporary equity represents the accreted value of the Series B Preferred Shares.

CME Ltd. shareholders’ equity: The decrease in shareholders' equity during the three months ended March 31, 2020 primarily reflects the impact of currency translation adjustment, offset by net income attributable to CME Ltd.

Noncontrolling interests in consolidated subsidiaries: Noncontrolling interests in consolidated subsidiaries represents the noncontrolling interest in Bulgaria.

Index

IV. Liquidity and Capital Resources

IV (a) Summary of Cash Flows

Cash and cash equivalents increased by US$ 103.7 million during the three months ended March 31, 2020. The change in cash and cash equivalents for the period presented below is summarized as follows:



	For the Three Months Ended March 31, (US$ 000's)
	2020			2019
Net cash generated from operating activities	$	115,914		$	96,009
Net cash used in investing activities	(4,759		)	(4,359		)
Net cash used in financing activities	(2,014		)	(71,736		)
Impact of exchange rate fluctuations on cash and cash equivalents	(5,439		)	(1,913		)
Net increase in cash and cash equivalents	$	103,702		$	18,001

Operating Activities

Net cash generated from operating activities increased during the three months ended March 31, 2020 when compared to the same period in 2019 primarily due to lower payments for taxes and programming as well as higher collections from improved operating performance. We paid cash interest (including Guarantee Fees) of US$ 2.5 million during the three months ended March 31, 2020 compared to US$ 3.1 million during the three months ended March 31, 2019.

Investing Activities

Net cash used in investing activities for the three months ended March 31, 2020 and 2019 primarily reflects capital expenditures for production related facilities and equipment in the Czech Republic and Slovenia.

Financing Activities

Net cash used in financing activities during the three months ended March 31, 2020 primarily reflects payments on our finance leases. Cash used in financing activities during the three months ended March 31, 2019 primarily reflects principal repayments on our obligations under the 2021 Euro Loan.

IV (b) Sources and Uses of Cash

Our ongoing source of cash is primarily the receipt of payments from advertisers, advertising agencies and distributors of our television channels. As at March 31, 2020, we also had available the aggregate principal amount of US$ 75.0 million under the 2023 Revolving Credit Facility (see Item 1, Note 4, "Long-term Debt and Other Financing Arrangements"). Surplus cash, after funding ongoing operations, may be remitted to us, where appropriate, by our subsidiaries in the form of debt interest payments, principal repayments, dividends, and other distributions and loans from our subsidiaries.

Corporate law in the Central and Eastern European countries in which we operate stipulates generally that dividends may be declared by the partners or shareholders out of yearly profits subject to the maintenance of registered capital, required reserves (if applicable) and after the recovery of accumulated losses. The reserve requirement restriction generally provides that before dividends may be distributed, a portion of annual net profits (typically at least 5.0%) be allocated to a reserve, which is capped at a proportion of the registered capital of a company (ranging from 5.0% to 20.0%). There are no third-party restrictions that limit our subsidiaries' ability to transfer amounts to us in the form of loans or advances.

IV (c) Contractual Obligations, Commitments and Off-Balance Sheet Arrangements

Our future contractual obligations as at March 31, 2020 were as follows:



	Payments due by period (US$ 000’s)
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Long-term debt – principal	$	579,720	$	—	$	66,103	$	513,617	$	—
Long-term debt – interest	101,848		21,607		40,515		39,726		—
Unconditional purchase obligations	90,273		33,036		37,958		16,995		2,284
Operating lease obligations	12,440		3,879		4,666		2,070		1,825
Finance lease obligations	15,198		6,898		7,398		902		—
Other long-term obligations	24,375		9,776		10,751		3,848		—
Total contractual obligations	$	823,854	$	75,196	$	167,391	$	577,158	$	4,109

Long-Term Debt

For more information on our long-term debt, see Item 1, Note 4, "Long-term Debt and Other Financing Arrangements". Interest payable on our long-term debt is calculated using interest rates and exchange rates in effect as at March 31, 2020.

Index

Unconditional Purchase Obligations

Unconditional purchase obligations primarily comprise future programming commitments. At March 31, 2020, we had commitments in respect of future programming of US$ 89.9 million. This includes signed contracts with license periods starting after March 31, 2020.

Operating and Finance Leases

For more information on our operating and finance lease commitments, see Item 1, Note 10, "Leases".

Other Long-Term Obligations

Other long-term obligations are primarily comprised of digital transmission commitments.

Other

Top Tone Media Holdings Limited has exercised its right to acquire additional equity in CME Bulgaria. However, the closing of this transaction has not yet occurred because purchaser financing is still pending. If consummated, we would own 90.0% of our Bulgaria operations. The option strike price is the fair value of the equity in CME Bulgaria, as determined by an independent valuation.

IV (d) Cash Outlook

For the three months ending March 31, 2020, net cash generated from operating activities and unlevered free cash flows was US$ 115.9 million and US$ 113.9 million, respectively, compared to US$ 96.0 million and US$ 94.7 million, respectively, for the three months ended March 31, 2019 (See Section II, Overview). As at March 31, 2020, we had US$ 140.3 million in cash and cash equivalents and US$ 75.0 million of available aggregate principal amount under the 2023 Revolving Credit Facility. Our nearest debt maturity of EUR 60.3 million (US$ 66.1 million) is in November 2021.

As at March 31, 2020, the weighted average all-in rate applicable to the Euro Loans and Guarantee Fees previously paid in kind was approximately 3.4%. As at March 31, 2020, our net leverage ratio improved to 2.2x from 2.4x at December 31, 2019. In 2019, we repaid US$ 168.9 million of debt. As a result, we expect cash paid for interest and Guarantee Fees to decline in 2020 compared to 2019.

While we anticipate a negative impact on profitability in the second quarter of 2020, our financial position remains robust and we do not expect any liquidity constraints. Cash flows during the first quarter of 2020 were strong, reflecting the collection of receivables from seasonally high fourth quarter of 2019, as well as prepayments from clients for advertising in 2020. While cash flow is normally lower through the remainder of the year, we are taking steps to further bolster our cash position, including the deferral of non-essential capital expenditures, reductions in discretionary spending such as marketing, and the use of national stimulus plans where possible, such as provisions relating to delaying the due dates for corporate income tax payments. We expect to maintain adequate available liquidity to meet the operating needs of our business.

Credit ratings and future debt issuances

Our corporate credit is rated B1 by Moody's Investors Service with a positive outlook and B+ by Standard & Poor's, on watch with negative implications due to the proposed Merger. Our ratings show each agency's opinion of our financial strength, operating performance and ability to meet our debt obligations as they become due, as well as the proposed Merger. 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 strong financial support from Warner Media historically. 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 Warner Media is not as strong, or the strategic importance of CME to Warner Media 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 Swaps

We are party to interest rate swap agreements to mitigate our exposure to interest rate fluctuations on our Euro Loans. These interest rate swaps are designated as cash flow hedges and provide the Company with variable-rate cash receipts in exchange for fixed-rate payments over the lives of the agreements, with no exchange of the underlying notional amount.

Foreign Exchange Forwards

We are exposed to movements in the exchange rates of USD to the functional currencies of our operating segments related to contractual payments under dollar-denominated agreements. To reduce this exposure, we may decide to enter into forward foreign exchange contracts. We had no such agreements outstanding during the period ending March 31, 2020.

Cash Deposits

We may deposit cash in the global money markets with a range of bank counterparties and review the counterparties we choose regularly. The maximum period of deposit is three months, but we have more recently held amounts on deposit for shorter periods, up to one week. The credit rating of a bank is a critical factor in determining the size of cash deposits and we will only deposit cash with banks of investment grade rating. In addition, we also closely monitor the credit default swap spreads and other market information for each of the banks with which we consider depositing or have deposited funds.

IV (e) Off-Balance Sheet Arrangements

None.

Index

V. Critical Accounting Policies and Estimates

Our accounting policies that have a material effect on our financial condition and results of operations are more fully described in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission ("SEC") on February 6, 2020. The preparation of these financial statements requires us to make judgments in selecting appropriate assumptions for calculating financial estimates, which inherently contain some degree of uncertainty. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable. Using these estimates, we make judgments about the carrying values of assets and liabilities and the reported amounts of revenues and expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe our critical accounting policies are as follows: program rights, goodwill and intangible assets, impairment or disposal of long-lived assets, revenue recognition, leases, income taxes, foreign exchange, determination of the fair value of financial instruments, and contingencies. These critical accounting policies affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements. See Item 1, Note 2, "Basis of Presentation" for a discussion of accounting standards adopted in the period, and recently issued accounting standards not yet adopted.

Index

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We engage in activities that expose us to various market risks, including the effect of changes in foreign currency exchange rates and interest rates. We do not engage in speculative transactions, nor do we hold or issue financial instruments for trading purposes. The table below sets forth our market risk sensitive instruments as at the following dates:

March 31, 2020:



Expected Maturity Dates	2020	2021		2022	2023			2024	Thereafter
Long-term Debt (000's):
Variable rate (EUR)	—	60,335		—	468,800			—	—
Average interest rate ⁽¹⁾	—	1.28	%	—	1.28	%		—	—

Interest Rate Swaps (000's):
Variable to fixed (EUR)	—	529,135		—	468,800		⁽²⁾	—	—
Average pay rate	—	0.30	%	—	0.97	%		—	—
Average receive rate	—	—	%	—	—	%		—	—

⁽¹⁾

As discussed in Item 1, Note 4, "Long-term Debt and Other Financing Arrangements", as consideration for Warner Media's guarantee of the Euro Loans, we pay Guarantee Fees to Warner Media based on the amounts outstanding on the Euro Loans, each calculated such that the all-in borrowing rate on the 2021 Euro Loan was 3.25% per annum and the all-in borrowing rate on the 2023 Euro Loan was 3.50% per annum as of March 31, 2020.


⁽²⁾	The interest rate swaps related to the 2023 Euro Loan maturing in 2023 are forward starting to coincide with the maturity date of the interest rate swaps maturing in 2021. See Item 1, Note 11, "Financial Instruments and Fair Value Measurements".

December 31, 2019:



Expected Maturity Dates	2020	2021		2022	2023			2024	Thereafter
Long-term Debt (000's):
Variable rate (EUR)	—	60,335		—	468,800			—	—
Average interest rate ⁽¹⁾	—	1.28	%	—	1.28	%		—	—

Interest Rate Swaps (000's):
Variable to fixed (EUR)	—	529,135		—	468,800		⁽²⁾	—	—
Average pay rate	—	0.30	%	—	0.97	%		—	—
Average receive rate	—	—	%	—	—	%		—	—

⁽¹⁾


⁽²⁾	The interest rate swaps related to the 2023 Euro Loan maturing in 2023 are forward starting to coincide with the maturity date of the interest rate swaps maturing in 2021. See Item 1, Note 11, "Financial Instruments and Fair Value Measurements".

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. At March 31, 2020, no forward foreign exchange contracts were outstanding.

Interest Rate Risk Management

The Euro 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 1, Note 11, "Financial Instruments and Fair Value Measurements").

Item 4. Controls and Procedures

We have established disclosure controls and procedures designed to ensure that information required to be disclosed in our Quarterly Report on Form 10-Q is recorded, processed, summarized and reported within the specified time periods and is designed to ensure that information required to be disclosed is accumulated and communicated to management, including the co-Principal Executive Officers and the Principal Financial Officer, to allow timely decisions regarding required disclosure.

Our co-Principal Executive Officers and our Principal Financial Officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2020 and concluded that our disclosure controls and procedures were effective as of that date. There has been no change in our internal control over financial reporting during the three months ended March 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

See Part 1, Item 1, Note 19, "Commitments and Contingencies" for a discussion of ongoing litigation.

Item 1A. Risk Factors

This report and the following discussion of risk factors contain forward-looking statements as discussed in Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations". 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

Our business, results of operations and financial condition may be adversely affected by the ongoing COVID-19 pandemic and the actions taken by governmental authorities in response to the pandemic.

The ongoing COVID-19 pandemic and the measures taken to address the public health concerns resulting from the pandemic have resulted in significant disruptions to business activity worldwide, volatility in the equity markets and credit markets, and uncertainty in the global economic outlook. Such measures include travel restrictions and national border closings, restrictions on the conduct of non-essential business, closures of workplaces and schools, quarantines, shelter in place orders and social distancing orders. These measures have impacted and may further impact our business.

Recently implemented restrictions on business activity and uncertainty in the global economic outlook has caused advertisers to adjust their purchasing plans and a deterioration in economic conditions globally or in the markets in which we operate may cause advertisers to reduce future purchases of advertising. Risks related to changes in global or regional economic conditions are described in more detail below. Furthermore, this level of uncertainty may adversely affect our ability to develop information in order to prepare accurate financial forecasts.

In addition, restrictive measures imposed in the countries in which we operate as well as health-related concerns related to working conditions have had and may continue to have an impact on our business operations, including the availability of people necessary to our operations, the deferral or suspension of certain productions, decisions regarding programming acquisitions and scheduling. While we are not anticipating any material impact to our internal ability to operate our business as a result of the COVID-19 pandemic, we may temporarily lose the services of employees or experience interruptions in the normal conduct of businesses or operation of our systems, which could lead to inefficiencies, interruptions in our regular operations and potential reputational harm.

Although we have undertaken a number of steps to mitigate the impact of the COVID-19 pandemic on our business, including a series of initiatives to control or reduce costs, such cost control measures are unlikely to completely offset declines in revenues. The extent to which COVID-19 impacts our business and financial position will depend on future developments, which are difficult to predict, including the severity and scope of the COVID-19 outbreak as well as the types of measures imposed by governmental authorities to contain the virus or address its impact and the duration of those actions and measures. The imposition of further restrictive measures by governmental authorities to contain the COVID-19 virus or a prolonged period during which any such measures are kept in place would have an adverse impact on our business, financial position, results of operations and cash flows.

Changes in global or regional economic conditions may adversely affect our financial position and 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. While our markets have experienced overall growth in real GDP (as adjusted for inflation) and advertising spending over the last several years; it is unlikely the current growth trends will continue in the immediate future, particularly given the recently introduced restrictions on business and non-essential activities, uncertain economic outlook globally and increased volatility in the equity markets and credit markets caused by the COVID-19 pandemic. While a number of governments and central banks have introduced fiscal and monetary measures in an effort to mitigate the economic impact of the COVID-19 pandemic, it is not yet possible to establish the impact of such measures. Recessions or periods of low or negative growth in the region or globally as a result of the COVID-19 pandemic would cause a deterioration of general economic conditions in one or more of our markets, which would have an adverse impact on our advertising revenues and our financial position (including our leverage levels), results of operations and cash flows. Other factors that may affect general economic conditions in our markets include defaults by sovereigns or systemically important companies, austerity programs, the widespread use of tariffs and other protectionist trade policies, natural disasters, public health pandemics, acts of terrorism, civil or military conflicts or general political instability and responses to it, any of which may also reduce advertising spending. Any of these developments would have a significant negative effect on our financial position, results of operations and cash flows.

The quantitative easing programs implemented by the European Central Bank ("ECB") and the stability mechanism may not provide adequate assistance to stabilize markets, which may adversely affect our financial position and results of operations.

The ECB created funding and stability mechanisms to provide liquidity and financial assistance to Eurozone member states and financial institutions, including embarking on quantitative easing in 2015 to address economic softness and a slowdown in growth of consumer prices in the Eurozone. ECB’s quantitative easing program, which assisted economic growth, was recalibrated in January 2018. Although the ECB ended its original quantitative easing program at the end of December 2018, it resumed quantitative easing in November 2019 and in March 2020 authorized a new quantitative easing program with fewer restrictions than prior programs in response to the COVID-19 pandemic. There can be no assurance that the stability mechanism in Europe or any quantitative easing program will be sufficient to support economies in the European Union affected by the COVID-19 pandemic or will provide adequate liquidity or financial assistance to any affected financial institution or country, nor can there be any assurance that future assistance packages will be available or, even if provided, will be sufficient to address these concerns. The failure of these programs to mitigate the impact of the COVID-19 pandemic on the markets and economies of Europe may result in periods of low or negative growth as well as further adverse events, including the dissolution of the Euro or the departure of a country from the Euro, any of which would negatively impact our business, financial position and results of operations.

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Our financial position and results of operations may be adversely affected as a result of the United Kingdom’s decision to end its membership in the European Union (“EU”).

The United Kingdom is in the process of negotiating its exit from the EU (generally referred to as “Brexit”). On January 31, 2020, the United Kingdom formally left the EU; however, it will remain in the single market and be subject to the EU’s rules and regulations during a transition period ending December 31, 2020. It is expected that economic conditions in the EU will be impacted by Brexit. The impact on our business from a result of Brexit will depend, in part, on the outcome of tariff, trade, regulatory and other negotiations during this transition period and on the ultimate manner and terms of the U.K.’s withdrawal from the EU. Given the ongoing uncertainty over the final terms of Brexit to be negotiated during the transition period, the overall economic impact of Brexit on the EU and the Euro continues to be difficult to estimate as 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. Furthermore, the departure of the United Kingdom from the EU may further affect the budgetary contributions and allocations among the EU member states in the medium term, including the countries in which we operate, which have historically been net recipients of EU funding. Economic uncertainty caused by Brexit or other instability in the EU resulting from Brexit could cause significant volatility in EU markets and reduce economic growth rates in the countries in which we operate, which would negatively impact the demand for advertising and consequently our financial position, results of operations and cash flows.

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. While we have implemented pricing strategies to increase sales and television advertising spending, 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 ability to secure distribution on cable, satellite or IPTV operators, 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 digital terrestrial television ("DTT") in the Slovak Republic and Slovenia in 2017, 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 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 may have an adverse impact on our ability to maintain our advertising sales. A failure to maintain advertising sales could have a material adverse effect on our financial position, results of operations and cash flows.

We may be unable to repay or refinance our existing indebtedness and may not be able to obtain favorable refinancing terms.

We have a substantial amount of indebtedness. In the event the proposed Merger is not completed and instability in global credit markets caused by the COVID-19 pandemic persists, 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. Furthermore, pursuant to the Reimbursement Agreement, the all-in rates on each of the Euro Loans increase to a maximum of 10.0% (or 3.5% above the then-current all-in rate, if lower), on the date that is 365 days following a change of control of CME Ltd. (as defined therein); and pursuant to the 2023 Revolving Credit Facility, all commitments terminate following a change of control (as defined therein) and the interest rate on amounts outstanding increases to 10% plus LIBOR or 9% plus the alternate base rate on the date that is 365 days following such change of control. 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.

Our debt service obligations and covenants may restrict our ability to conduct our operations.

We have debt service obligations under the Euro Loans as well as the 2023 Revolving Credit Facility (when drawn), including the Guarantee Fees to Warner Media as consideration for its guarantees of the Euro Loans (collectively, the "WM Guarantees"). In addition, if our financial performance does not meet our forecasts, we may bear higher average borrowing costs on our senior debt and pay more interest and Guarantee Fees. 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 2023 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, which may limit our flexibility in planning for, or reacting to, changes in our business, economic conditions or our industry. For additional information regarding the Reimbursement Agreement, the 2023 Revolving Credit Facility and the WM Guarantees, see Part I, Item 1, Note 4, "Long-term Debt and Other Financing Arrangements".

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 Reimbursement Agreement and the 2023 Revolving Credit Facility, we pledged all of the shares of CME BV, which owns all of our interests in our operating subsidiaries, in favor of Warner Media as security for this indebtedness. If we or CME BV were to default under the terms of any of the relevant agreements, Warner Media would have the ability to sell all or a portion of the assets pledged to it in order to pay amounts outstanding under such debt instruments. This could result in our inability to conduct our business.

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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. Any strengthening of the dollar will have a negative impact on our reported revenues. Furthermore, fluctuations in exchange rates, which may be more volatile as a result of the COVID-19 pandemic, 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 television 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.

A downgrading of our corporate credit ratings may adversely affect our ability to raise additional financing.

Moody’s Investors Service rates our corporate credit as B1 with a positive outlook. Standard & Poor’s rates our corporate credit B+ (on watch with negative implications due to the proposed Merger). Our ratings show each agency's opinion of our financial strength, operating performance and ability to meet our debt obligations as they become due, as well as the proposed Merger. 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 the historically strong financial support from Warner Media. We may be subject to downgrades if our operating performance deteriorates or we fail to maintain adequate levels of liquidity. In the event our corporate credit ratings are lowered by the rating agencies, we may not be able to refinance our existing indebtedness or raise new indebtedness that may be permitted under the Reimbursement Agreement and the 2023 Revolving Credit Facility (when drawn), and we will have to pay higher interest rates, all of 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 I, Item 1, Note 3, "Goodwill and Intangible Assets" for the carrying amounts of goodwill in each of our reporting units.

Risks Relating to Our Operations

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.

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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. In that regard, we have recently had to defer or suspend certain of our productions in response to restrictive social distancing measures imposed in the countries in which we operate as a result of the COVID-19 pandemic. 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. The cost of acquiring content attractive to our viewers, such as feature films and popular television series and formats, is likely to increase in the future. Our expenditures in respect of locally produced programming may also increase due to competition for talent and other resources, wage inflation, 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 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 assurance 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.

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 (including the Economic Substance Act in Bermuda which came into force in July 2019), employment laws, data protection requirements including the EU General Data Protection Regulation, 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 and fines or other penalties being levied against us.

In Slovenia, the competition law authorities launched an investigation in 2017 into whether our Slovenia subsidiary is dominant and abused its dominant position when concluding carriage fee agreements with platform operators in connection with its decision to cease broadcasting on DTT there. To date there has been no determination that a breach of competition law has occurred. 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 (including on what terms and conditions we offer our channels under carriage agreements), 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.

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, changes in local regulatory requirements including restrictions on foreign ownership, inconsistent regulatory or judicial practice, corruption 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, as well as to the influence of commercial and governmental actors. This may result in inconsistent application of tax and legal regulations, arbitrary or biased treatment, and other general business risks as well as social or political instability or disruptions and the potential for political influence on the media. The relative level of development of our markets, the risk of corruption, and the influence of local commercial and governmental actors also present a potential for biased or unfair treatment of us before regulators or courts in the event of disputes. If such a dispute occurs, those regulators or courts may not act with integrity or may favor local interests over our interests. 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. Ultimately, the occurrence of any of these 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, security breaches 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 if we are required to expend resources to remedy such a security breach or if they result in legal claims or proceedings or our reputation is harmed. In addition, improper disclosure of personal data could subject us to liability under laws, including the EU General Data Protection Regulation, 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 and cash flows.

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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 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 the Slovak Republic and Slovenia are valid for indefinite time periods, our other broadcasting licenses expire at various times from October 2020 through 2028. While we expect that our material licenses and authorizations will continue to be renewed or extended as required, 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.

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. In particular, the proposed Merger may adversely impact our ability to attract and retain such individuals. 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

The interests of AT&T may conflict with the interests of other investors.

Through its wholly owned subsidiaries Warner Media and TW Investor, the aggregate beneficial ownership interest of AT&T in the Company is approximately 75.6%. In connection with the exercise of the warrants by Warner Media and TW Investor in April 2018, each of them issued standing proxies to the independent directors of the Company, pursuant to which it granted the independent directors the right to vote the 100,926,996 shares received on the exercise of those warrants (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 such a meeting of the Company, excluding such Warrant Shares. Warner Media and TW Investor have notified the Company they intend to utilize their option to maintain this proxy arrangement until April 2021. After giving effect to its ownership of the Series A Preferred Share, AT&T has a 44.1% voting interest in the Company at any meeting where the Warrant Shares are voted pursuant to the standing proxies. Furthermore, AT&T has the right to appoint one less than the number required to constitute a majority of our board of directors, provided that AT&T continues to own not less than 40% of the voting power of the Company. As such, AT&T is in a position to exercise significant influence over the outcome of corporate actions requiring shareholder approval, such as the proposed Merger, the election of directors, amendments to our Bye-laws, or certain transactions, including transactions resulting in a change of control.

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We are also party to an amended investor rights agreement with Warner Media and the other parties thereto under which, among other things, Warner Media was granted a contractual pre-emptive 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 publicly held shares. Warner Media is also our largest secured creditor, as it guarantees 100% of our outstanding senior indebtedness and is the lender under the 2023 Revolving Credit Facility. The 2023 Revolving Credit Facility (when drawn) and the Reimbursement Agreement contain maintenance covenants in respect of interest 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, Warner Media 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 AT&T as our largest beneficial owner could be in conflict with the interests of minority shareholders.

The price of our Class A common stock may be 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 under "Risks Relating to Our Operations" and “Risks Relating to the Proposed Merger - The failure to complete the proposed Merger within the expected time frame or at all could adversely affect our business, financial condition, results of operations, liquidity and the price of our Class A common stock” 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 EU, 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 impact the market price of shares of our Class A common stock, regardless of our operating performance.

Risks Relating to the Proposed Merger

The proposed Merger may cause disruption to our business.

The Merger Agreement generally requires CME to operate its business in the ordinary course during the pendency of the proposed Merger and contains customary covenants which restrict CME, without Parent’s consent, from taking certain specified actions until the proposed Merger closes or the Merger Agreement terminates. These restrictions may prevent us from taking actions or making changes with respect to the Company that we may otherwise consider to be advantageous and could result in our inability to respond effectively to competitive pressures, industry developments and future opportunities, which may adversely affect our business, financial condition, results of operations and cash flows.

The proposed Merger could cause disruptions to our business or business relationships. Uncertainty associated with the proposed Merger may cause business partners, customers and other counterparties to delay or defer decisions concerning our business or seek alternative relationships with third parties. Any delay or deferral of those decisions or changes to our business relationships could adversely affect our financial conditions, results of operations and cash flows, regardless of whether the proposed Merger is ultimately completed.

We have allocated, and expect to continue to allocate, significant management and financial resources towards the proposed Merger and its completion. The diversion of management’s attention away from day-to-day operations and other opportunities could adversely affect our business and results of operations. In addition, employee retention, recruitment and motivation may be challenging before the completion of the proposed Merger, as employees may experience uncertainty about their future roles following the proposed Merger. If, despite our retention and recruiting efforts, key employees depart because of issues relating to the uncertainty and potential outcome of the proposed Merger or a desire not to remain following the proposed Merger, our business and results of operations could be adversely affected.

Completion of the proposed Merger is subject to conditions, including the receipt of certain competition and other regulatory approvals, and if these conditions are not satisfied or waived or if the required approvals are not granted or are subject to conditions, completion of the proposed Merger may not occur.

Completion of the proposed Merger is subject to several conditions, including, but not limited to, the receipt of certain competition and other regulatory approvals, the requisite vote of the Company's shareholders, 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, some of which are beyond our control. At a special general meeting of shareholders of the Company on February 27, 2020, more than 99% of the votes cast by shareholders were in favor of approving the Merger. We cannot predict with certainty whether and when all of the other conditions will be satisfied or waived, which may prevent, delay or otherwise adversely affect the completion of the proposed Merger in a material way. In addition, Parent’s obligation to complete the proposed Merger is subject to the receipt of certain regulatory approvals without the requirement that Parent agree to take any action or commit to any condition or restriction necessary to secure such approval that would constitute a “burdensome condition” as defined in the Merger Agreement. There can be no assurance that regulators will not seek to impose conditions, terms, obligations or restrictions that would constitute burdensome conditions or that such conditions, terms, obligations or restrictions would not result in the termination of the Merger Agreement.

The failure to complete the proposed Merger within the expected time frame or at all could adversely affect our business, financial condition, results of operations, liquidity and the price of our Class A common stock.

If the proposed Merger is not completed by October 27, 2020, which date may be extended under certain circumstances to January 27, 2021, CME or Parent may choose not to proceed with the proposed Merger. Each of CME and Parent may also elect to terminate the Merger Agreement in certain other circumstances. If the Merger Agreement is terminated, CME may be required to pay to Parent a termination fee of $50 million. The termination of the Merger Agreement may also result in the share price of our Class A common stock declining. Additionally, we have already incurred, and we expect to continue to incur, significant costs in connection with the proposed Merger for which we will receive little or no benefit if the completion of the proposed Merger does not occur. In the event the proposed Merger is not completed, CME could also be subject to litigation related to any failure to complete the proposed Merger.

Therefore, if the proposed Merger is not completed, our business, financial condition, results of operations and cash flows may be adversely affected, and the share price of our Class A common stock may decline. Moreover, if the Merger Agreement is terminated and we decide to seek another business combination, we may not be able to negotiate or consummate a transaction with another party on terms comparable to, or better than, the terms of the Merger Agreement.

Index

The Merger Agreement contains provisions that could discourage a potential competing acquirer.

The Merger Agreement contains certain provisions that restrict our ability to, among other things, solicit, knowingly encourage, knowingly facilitate, knowingly induce or initiate the submission of, enter into, or participate in any discussions or any negotiations regarding any "competing proposal" as defined in the Merger Agreement or the announcement of a competing proposal. The Merger Agreement also provides that the Board of Directors (or any committee thereof, including the Special Committee) will not make a "change of recommendation" as defined in the Merger Agreement except as permitted by the terms of the Merger Agreement. In addition, CME may be required to pay a termination fee of $50 million to Parent if the proposed Merger is not consummated under specified circumstances.

CME believes these provisions are reasonable, customary and not preclusive of other offers. Nevertheless, these provisions might discourage a third party that has an interest in acquiring all or a significant part of CME from considering or proposing such acquisition, even if such party were prepared to pay consideration with a higher value than the currently proposed aggregate merger consideration. Furthermore, the requirement that CME pay a termination fee under certain circumstances may result in a third party proposing to pay a lower per-share price to acquire CME, than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable by CME in certain circumstances.

Index

Item 6. Exhibits

EXHIBIT 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

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.



		Central European Media Enterprises Ltd.
Date:	April 22, 2020	/s/ *David Sturgeon* David Sturgeon Executive Vice President and Chief Financial Officer Principal Financial Officer and Principal Accounting Officer

Central European Media Enterprises Ltd – ‘10-Q’ for 3/31/20

On: Wednesday, 4/22/20, at 12:13pm ET · For: 3/31/20 · Accession #: 925645-20-26 · File #: 0-24796

Previous ‘10-Q’: ‘10-Q’ on 10/17/19 for 9/30/19 · Next & Latest: ‘10-Q’ on 7/21/20 for 6/30/20

Quarterly Report — Form 10-Q — Sect. 13 / 15(d) – SEA’34
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‘10-Q’ — Central European Media Enterprises Ltd 10-Q 3.31.2020
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Dates Referenced Herein and Documents Incorporated by Reference

This ‘10-Q’ Filing	Date	Other Filings

	4/26/23
	12/31/22
	12/31/21
	11/1/21
	2/19/21
	1/27/21
	12/31/20
	10/27/20
	4/26/20
Filed on:	4/22/20	8-K
	4/20/20
For Period end:	3/31/20
	2/27/20	8-K
	2/6/20	10-K, 8-K
	1/31/20
	1/10/20	DEFM14A
	1/1/20
	12/31/19	10-K, 10-K/A
	10/27/19	8-K
	10/1/19
	3/31/19	10-Q
	3/19/19
	12/31/18	10-K
	6/24/18
	6/20/18	3
	5/14/18
	4/26/18	10-Q, 4, 8-K
	4/25/18	4, 8-K
	6/22/17
	4/5/16
	2/19/16	8-K
	9/30/15	10-Q, 8-K
	11/14/14	8-K
	5/2/14	4, 8-K
		List all Filings

Central European Media Enterprises Ltd – ‘10-Q’ for 3/31/20

On: Wednesday, 4/22/20, at 12:13pm ET · For: 3/31/20 · Accession #: 925645-20-26 · File #: 0-24796

Previous ‘10-Q’: ‘10-Q’ on 10/17/19 for 9/30/19 · Next & Latest: ‘10-Q’ on 7/21/20 for 6/30/20

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

‘10-Q’ — Central European Media Enterprises Ltd 10-Q 3.31.2020Document Table of Contents

This is an HTML Document rendered as filed. [ Alternative Formats ]

Dates Referenced Herein and Documents Incorporated by Reference

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

‘10-Q’ — Central European Media Enterprises Ltd 10-Q 3.31.2020
Document Table of Contents