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

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

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

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

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

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

Document/Exhibit                   Description                      Pages   Size 

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


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

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

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

cmelogowithouttexta18.jpg
 i CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
(Exact name of registrant as specified in its charter)
 i Bermuda
 
 
 i 98-0438382
(State or other jurisdiction of incorporation or organization)
 
 
(I.R.S. Employer Identification No.)
 
 
 
 
 
 i O'Hara House,
 
 
 
 i 3 Bermudiana Road,
 
 
 i HM 08
 i  Hamilton,
 i Bermuda
 
 
(Zip Code)
(Address of principal executive offices)
 
 
 
Registrant's telephone number, including area code:  i (441)  i 296-1431
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
 i Class A Common Stock, par value $0.08
 i CETV
 i Nasdaq Global Select Market
Indicate by check mark whether registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for each shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     i Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     i Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer”, “large accelerated filer” or “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated Filer
 
 
 i Accelerated Filer
Non-accelerated Filer
 
 
Smaller reporting company
 i 
 
 
 
 
Emerging growth company
 i 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.



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




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




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

 

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

 
$
 i 36,621

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

 
 i 188,618

Program rights, net (Note 5)
 i 

 
 i 75,909

Other current assets (Note 6)
 i 32,883

 
 i 48,832

Total current assets
 i 340,895

 
 i 349,980

Non-current assets
 

 
 

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

 
 i 113,901

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

 
 i 166,237

Goodwill (Note 3)
 i 639,414

 
 i 667,988

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

 
 i 127,589

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

 
 i 22,167

Total non-current assets
 i 1,121,647

 
 i 1,097,882

Total assets
$
 i 1,462,542

 
$
 i 1,447,862

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

 
$
 i 135,650

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

 
 i 6,836

Other current liabilities (Note 9)
 i 29,280

 
 i 13,515

Total current liabilities
 i 167,145

 
 i 156,001

Non-current liabilities
 

 
 

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

 
 i 600,273

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

 
 i 80,000

Total non-current liabilities
 i 677,200

 
 i 680,273

Commitments and contingencies (Note 19)
 i 

 
 i 

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

 
 i 269,370

EQUITY
 

 
 
CME Ltd. shareholders’ equity (Note 13):
 

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

 
 i 

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

 
 i 20,288

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

 
 i 

Additional paid-in capital
 i 2,008,860

 
 i 2,007,275

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

 
 i 341,705

Noncontrolling interests
 i 386

 
 i 513

Total equity
 i 348,827

 
 i 342,218

Total liabilities and equity
$
 i 1,462,542

 
$
 i 1,447,862

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

1


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

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

 
2019

 
2020


2019

Net revenues
$
 i 135,545

 
$
 i 183,599

 
$
 i 279,361

 
$
 i 330,158

Operating expenses:
 
 
 
 
 
 
 
Content costs
 i 43,693

 
 i 70,356

 
 i 108,725

 
 i 140,716

Other operating costs
 i 12,549

 
 i 13,806

 
 i 26,196

 
 i 27,054

Depreciation of property, plant and equipment
 i 7,972

 
 i 8,154

 
 i 15,899

 
 i 16,380

Amortization of broadcast licenses and other intangibles
 i 2,110

 
 i 2,113

 
 i 4,277

 
 i 4,307

Cost of revenues
 i 66,324

 
 i 94,429

 
 i 155,097

 
 i 188,457

Selling, general and administrative expenses
 i 25,047

 
 i 28,708

 
 i 53,893

 
 i 53,602

Operating income
 i 44,174

 
 i 60,462

 
 i 70,371

 
 i 88,099

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

 
 i 2,237

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

 
 i 54,964

 
 i 52,214

 
 i 71,262

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

 
 i 44,078

 
 i 40,072

 
 i 55,829

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

 
( i 119
)
 
 i 148

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

 
$
 i 43,959

 
$
 i 40,220

 
$
 i 55,717

 
 
 
 
 
 
 
 
Net income
$
 i 31,102

 
$
 i 44,078

 
$
 i 40,072

 
$
 i 55,829

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

 
 i 17,002

 
( i 35,466
)
 
 i 1,159

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

 
( i 1,220
)
 
 i 342

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

 
 i 15,782

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

 
 i 59,860

 
 i 4,948

 
 i 52,437

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

 
( i 28
)
 
 i 127

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

 
$
 i 59,832

 
$
 i 5,075

 
$
 i 52,279

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

 
$
 i 0.12

 
$
 i 0.11

 
$
 i 0.15

Attributable to CME Ltd. — diluted
 i 0.08

 
 i 0.12

 
 i 0.11

 
 i 0.15

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

 
 i 264,570

 
 i 265,342

 
 i 264,385

Diluted
 i 266,776

 
 i 265,932

 
 i 266,790

 
 i 265,628

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

2


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


 
CME Ltd.
 
 

 
 

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

 

 

 
 

 
 

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

Accumulated Deficit

Accumulated Other Comprehensive Loss

 
Noncontrolling Interest

 
Total Equity

 i 1

$
 i 

 
 i 254,298,255

$
 i 20,343

 
 i 

$
 i 

$
 i 2,008,151

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

 
$
 i 291,290

Stock-based compensation


 


 


 i 733



 

 
 i 733

Share issuance, stock-based compensation


 
 i 249,925

 i 21

 


( i 21
)


 

 
 i 

Withholding tax on net share settlement of stock-based compensation


 


 


( i 3
)


 

 
( i 3
)
Net income / (loss)


 


 



 i 31,179


 
( i 77
)
 
 i 31,102

Unrealized gain on derivative instruments


 


 




 i 122

 

 
 i 122

Currency translation adjustment


 


 




 i 25,736

 
( i 153
)
 
 i 25,583

 i 1

$
 i 

 
 i 254,548,180

$
 i 20,364

 
 i 

$
 i 

$
 i 2,008,860

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

 
$
 i 348,827

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CME Ltd.
 
 

 
 

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

 

 

 
 

 
 

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

Accumulated Deficit

Accumulated Other Comprehensive Loss

 
Noncontrolling Interest

 
Total Equity

 i 1

$
 i 

 
 i 253,279,975

$
 i 20,262

 
 i 

$
 i 

$
 i 2,004,188

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

 
$
 i 222,602

Stock-based compensation


 


 


 i 1,124



 

 
 i 1,124

Share issuance, stock-based compensation


 
 i 279,323

 i 23

 


( i 23
)


 

 
 i 

Withholding tax on net share settlement of stock-based compensation


 


 


( i 74
)


 

 
( i 74
)
Net income


 


 



 i 43,959


 
 i 119

 
 i 44,078

Unrealized loss on derivative instruments


 


 




( i 1,220
)
 

 
( i 1,220
)
Currency translation adjustment


 


 




 i 17,093

 
( i 91
)
 
 i 17,002

 i 1

$
 i 

 
 i 253,559,298

$
 i 20,285

 
 i 

$
 i 

$
 i 2,005,215

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

 
$
 i 283,512


3


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


 
CME Ltd.
 
 

 
 

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

 

 

 
 

 
 

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

Accumulated Deficit

Accumulated Other Comprehensive Loss

 
Noncontrolling Interest

 
Total Equity

BALANCE
 i 1

$
 i 

 
 i 253,607,026

$
 i 20,288

 
 i 

$
 i 

$
 i 2,007,275

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

 
$
 i 342,218

Stock-based compensation


 


 


 i 1,672



 

 
 i 1,672

Share issuance, stock-based compensation


 
 i 941,154

 i 76

 


( i 76
)


 

 
 i 

Withholding tax on net share settlement of stock-based compensation


 


 


( i 11
)


 

 
( i 11
)
Net income / (loss)


 


 



 i 40,220


 
( i 148
)
 
 i 40,072

Unrealized gain on derivative instruments


 


 




 i 342

 

 
 i 342

Currency translation adjustment


 


 




( i 35,487
)
 
 i 21

 
( i 35,466
)
 i 1

$
 i 

 
 i 254,548,180

$
 i 20,364

 
 i 

$
 i 

$
 i 2,008,860

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

 
$
 i 348,827

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CME Ltd.
 
 

 
 

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

 

 

 
 

 
 

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

Accumulated Deficit

Accumulated Other Comprehensive Loss

 
Noncontrolling Interest

 
Total Equity

BALANCE
 i 1

$
 i 

 
 i 252,853,554

$
 i 20,228

 
 i 

$
 i 

$
 i 2,003,518

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

 
$
 i 229,321

Stock-based compensation


 


 


 i 2,127



 

 
 i 2,127

Share issuance, stock-based compensation


 
 i 705,744

 i 57

 


( i 57
)


 

 
 i 

Withholding tax on net share settlement of stock-based compensation


 


 


( i 373
)


 

 
( i 373
)
Net income


 


 



 i 55,717


 
 i 112

 
 i 55,829

Unrealized loss on derivative instruments


 


 




( i 4,551
)
 

 
( i 4,551
)
Currency translation adjustment


 


 




 i 1,113

 
 i 46

 
 i 1,159

 i 1

$
 i 


 i 253,559,298

$
 i 20,285


 i 

$
 i 

$
 i 2,005,215

$
( i 1,522,359
)
$
( i 220,088
)

$
 i 459


$
 i 283,512

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

4


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


 
For the Six Months Ended June 30,
 
2020

 
2019

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

 
$
 i 55,829

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

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

 
 i 140,716

Depreciation and other amortization
 i 21,817

 
 i 22,414

Loss on extinguishment of debt
 i 

 
 i 235

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

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

 
 i 2,127

Change in fair value of derivatives
 i 

 
 i 36

Foreign currency exchange loss, net
 i 5,218

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

 
 i 16,551

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

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

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

 
 i 4,153

Deferred revenue
 i 16,017

 
 i 18,508

VAT and other taxes payable
 i 8,712

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

 
$
 i 140,280

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

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

 
 i 6

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

 
 

Repayment of debt
$
 i 

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

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

 
$
 i 12,608

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

 
 i 62,031

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

 
$
 i 74,639

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

 
$
 i 14,017

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

 
 i 11,348

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

5


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


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

6


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

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

7


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

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

8


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

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

 
$
 i 805,396

 
$
 i 83,521

 
$
 i 49,137

 
$
 i 19,400

 
$
 i 1,130,600

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

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

 
 i 517,851

 
 i 72,493

 
 i 49,137

 
 i 

 
 i 667,988

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

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

 
 i 490,568

 
 i 71,458

 
 i 48,972

 
 i 

 
 i 639,414

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

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

 
$
 i 778,113

 
$
 i 82,486

 
$
 i 48,972

 
$
 i 19,400

 
$
 i 1,102,026

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

 
$

 
$
 i 84,036

 
$
 i 85,484

 
$

 
$
 i 85,484

Amortized:
 
 
 
 
 
 
 
 
 
 
 
Broadcast licenses
 i 199,035

 
( i 165,357
)
 
 i 33,678

 
 i 208,669

 
( i 169,239
)
 
 i 39,430

Customer relationships
 i 53,875

 
( i 53,400
)
 
 i 475

 
 i 54,807

 
( i 54,288
)
 
 i 519

Other
 i 5,678

 
( i 3,029
)
 
 i 2,649

 
 i 4,642

 
( i 2,486
)
 
 i 2,156

Total
$
 i 342,624

 
$
( i 221,786
)
 
$
 i 120,838

 
$
 i 353,602

 
$
( i 226,013
)
 
$
 i 127,589

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

 

Long-term debt
$
 i 589,453

 
$
 i 590,777

Other credit facilities and finance leases
 i 14,623

 
 i 16,332

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

 
 i 607,109

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

 
$
 i 600,273


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

 
Debt Issuance
Costs (1)

 
Net Carrying Amount

2021 Euro Loan
$
 i 67,564

 
$
( i 71
)
 
$
 i 67,493

2023 Euro Loan
 i 524,962

 
( i 3,002
)
 
 i 521,960

2023 Revolving Credit Facility
 i 

 
 i 

 
 i 

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

 
$
( i 3,073
)
 
$
 i 589,453


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

9


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

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

2021
 i 67,564

2022
 i 

2023
 i 524,962

2024
 i 

2025 and thereafter
 i 

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

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


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

 

 

 

2021 Euro Loan
$
 i 67,493

 
$
 i 67,683

 
$
 i 66,817

 
$
 i 68,120

2023 Euro Loan
 i 521,960

 
 i 523,094

 
 i 508,936

 
 i 529,303

 
$
 i 589,453

 
$
 i 590,777

 
$
 i 575,753

 
$
 i 597,423


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

10


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

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

 
2023 Euro Loan

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

 
Rate Fixed Pursuant to Interest Rate Hedges

 
Guarantee Fee Rate

 
All-in Borrowing Rate

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

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

 
Eurodollar Loans

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

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

11


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

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

 

 
(As Adjusted)

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

 
$
 i 135,352

Less: current portion of acquired program rights
 i 

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

 
 i 59,443

Produced program rights – Feature Films:
 
 
 

Released, net of amortization
 i 417

 
 i 504

Produced program rights – Television Programs:
 

 
 

Released, net of amortization
 i 71,878

 
 i 69,707

Completed and not released
 i 13,389

 
 i 4,061

In production
 i 24,980

 
 i 32,248

Development and pre-production
 i 407

 
 i 274

Total produced program rights
 i 111,071

 
 i 106,794

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

 
$
 i 166,237


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

 
Second year

 
Third year

 
Thereafter

Acquired program rights
$
 i 64,901

 
$
 i 43,679

 
$
 i 16,836

 
$
 i 1,609

Produced and released program rights
 i 13,899

 
 i 11,281

 
 i 9,044

 
 i 38,071

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

12


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

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

 
2019

 
2020

 
2019

Purchased program rights amortization
$
 i 19,013

 
$
 i 21,472

 
$
 i 43,765

 
$
 i 47,984

Produced program rights amortization
 i 23,844

 
 i 47,279

 
 i 62,918

 
 i 89,543

Other content costs
 i 836

 
 i 1,605

 
 i 2,042

 
 i 3,189

Total content costs
$
 i 43,693

 
$
 i 70,356

 
$
 i 108,725

 
$
 i 140,716


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

 

 Current:
 
 
 
Prepaid acquired programming
$
 i 21,996

 
$
 i 27,237

Other prepaid expenses
 i 9,746

 
 i 12,775

VAT recoverable
 i 719

 
 i 7,775

Other
 i 422

 
 i 1,045

Total other current assets
$
 i 32,883

 
$
 i 48,832

 
 
 
 
 

 

Non-current:
 

 
 

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

 
$
 i 7,277

Deferred tax
 i 1,883

 
 i 2,261

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

 
 i 11,682

Other
 i 941

 
 i 947

Total other non-current assets
$
 i 20,921

 
$
 i 22,167


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

 

Land and buildings
$
 i 98,241

 
$
 i 100,502

Machinery, fixtures and equipment
 i 209,633

 
 i 212,810

Other equipment
 i 34,668

 
 i 36,007

Software
 i 68,902

 
 i 70,294

Construction in progress
 i 1,560

 
 i 4,774

Total cost
 i 413,004

 
 i 424,387

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

 
$
 i 113,901

 
 
 
 
Assets held under finance leases (included in the above)
 

 
 

Land and buildings
$
 i 

 
$
 i 3,914

Machinery, fixtures and equipment
 i 33,345

 
 i 31,961

Total cost
 i 33,345

 
 i 35,875

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

 
$
 i 20,076


 / 

13


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

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

 
2019

Opening balance
$
 i 113,901

 
$
 i 117,604

Additions (1)
 i 7,064

 
 i 10,200

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

 
$
 i 110,627


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

 

Accounts payable and accrued expenses
$
 i 47,357

 
$
 i 56,343

Related party accounts payable
 i 128

 
 i 267

Programming liabilities
 i 17,889

 
 i 17,293

Related party programming liabilities
 i 11,714

 
 i 10,553

Duties and other taxes payable
 i 11,102

 
 i 9,426

Accrued staff costs (1)
 i 23,141

 
 i 24,027

Accrued interest payable
 i 2,075

 
 i 2,104

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

 
 i 1,103

Income taxes payable
 i 11,094

 
 i 10,304

Other accrued liabilities
 i 5,329

 
 i 4,230

Total accounts payable and accrued liabilities
$
 i 130,913

 
$
 i 135,650


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

 

Current:
 
 
 
Deferred revenue
$
 i 24,114

 
$
 i 9,451

Legal provisions
 i 637

 
 i 635

Derivative instruments (Note 11)
 i 949

 
 i 

Operating lease liabilities (Note 10)
 i 3,380

 
 i 3,203

Other
 i 200

 
 i 226

Total other current liabilities
$
 i 29,280

 
$
 i 13,515

 
 
 
 
 

 

Non-current:
 

 
 

Deferred tax liabilities
$
 i 23,062

 
$
 i 21,294

Derivative instruments (Note 11)
 i 11,326

 
 i 12,670

Operating lease liabilities (Note 10)
 i 8,503

 
 i 8,434

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

 
 i 33,465

Other
 i 3,720

 
 i 4,137

Total other non-current liabilities
$
 i 80,076

 
$
 i 80,000


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

14


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

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

 
$
 i 1,128

 
$
 i 1,691

 
$
 i 2,812

Long-term operating lease cost
 i 1,193

 
 i 1,149

 
 i 2,430

 
 i 2,299

Total operating lease cost
$
 i 1,738

 
$
 i 2,277

 
$
 i 4,121

 
$
 i 5,111

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

 
$
 i 1,464

 
$
 i 3,213

 
$
 i 2,719

Interest on lease liabilities
 i 84

 
 i 88

 
 i 167

 
 i 196

Total finance lease cost
$
 i 1,709

 
$
 i 1,552

 
$
 i 3,380

 
$
 i 2,915


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

 
$
 i 2,749

Operating cash flows from finance leases
 i 188

 
 i 186

Financing cash flows from finance leases
 i 3,918

 
 i 3,395

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

 
$
 i 2,607

Finance leases
 i 1,599

 
 i 2,746


 / 

15


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

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

 

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

 
$
 i 15,396

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

 
$
 i 11,682

 
 
 
 
Other current liabilities
$
 i 3,380

 
$
 i 3,203

Other non-current liabilities
 i 8,503

 
 i 8,434

Total operating lease liabilities
$
 i 11,883

 
$
 i 11,637

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

 
$
 i 35,875

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

 
$
 i 20,076

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

 
$
 i 6,836

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

 
 i 9,496

Total finance lease liabilities
$
 i 14,623

 
$
 i 16,332

 
 
 
 
Weighted Average Remaining Lease Term in Years
 
 
 
Operating leases
 i 4.8

 
 i 4.9

Finance leases
 i 2.6

 
 i 2.7

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

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

 
Finance Leases

2020
$
 i 2,849

 
$
 i 3,739

2021
 i 2,558

 
 i 6,107

2022
 i 2,476

 
 i 3,392

2023
 i 1,886

 
 i 1,614

2024
 i 1,345

 
 i 160

2025 and thereafter
 i 2,307

 
 i 

Total undiscounted payments
 i 13,421

 
 i 15,012

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

 
$
 i 14,623


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

16


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

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

 
Aggregate Notional Amount

 
Maturity Date
 
Objective
 
Fair Value as at June 30, 2020

 
 i 5

 
EUR
 i 468,800

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

 
EUR
 i 60,335

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

 
EUR
 i 468,800

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

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

17


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

13.     i EQUITY
Preferred Stock
 i 5,000,000 shares of Preferred Stock were authorized as at June 30, 2020 and December 31, 2019.
 i One share of Series A Convertible Preferred Stock (the "Series A Preferred Share") was issued and outstanding as at June 30, 2020 and December 31, 2019. Pursuant to the Certificate of Designation of the Series A Preferred Share, the Series A Preferred Share is convertible into  i 11,211,449 shares of Class A common stock on the date that is 61 days after the date on which the ownership of our outstanding shares of Class A common stock by a group that includes TW Investor and its affiliates would not be greater than  i 49.9%. The Series A Preferred Share is entitled to one vote per each share of Class A common stock into which it is convertible and has such other rights, powers and preferences, including potential adjustments to the number of shares of Class A common stock to be issued upon conversion, as are set forth in the Certificate of Designation.
 i 200,000 shares of Series B Preferred Shares were issued and outstanding as at June 30, 2020 and December 31, 2019 (see Note 12, "Convertible Redeemable Preferred Shares"). As of June 30, 2020, the  i 200,000 Series B Preferred Shares were convertible into approximately  i 111.1 million shares of Class A common stock.
Class A and Class B Common Stock
 i 440,000,000 shares of Class A common stock and  i 15,000,000 shares of Class B common stock were authorized as at June 30, 2020 and December 31, 2019. The rights of the holders of Class A common stock and Class B common stock are identical except for voting rights. The shares of Class A common stock are entitled to one vote per share and the shares of Class B common stock are entitled to ten votes per share. Shares of Class B common stock are convertible into shares of Class A common stock on a  i one-for- i one basis for no additional consideration and automatically convert into shares of Class A common stock on a one-for-one basis when the number of shares of Class B common stock is less than 10% of the total number of shares of common stock outstanding. Holders of each class of shares are entitled to receive dividends and upon liquidation or dissolution are entitled to receive all assets available for distribution to holders of our common stock. Under our Bye-laws, the holders of each class have no pre-emptive or other subscription rights and there are no redemption or sinking fund provisions with respect to such shares.
There were  i 254.5 million and  i 253.6 million shares of Class A common stock outstanding at June 30, 2020 and December 31, 2019, respectively, and  i no shares of Class B common stock outstanding at June 30, 2020 or December 31, 2019.
As at June 30, 2020, TW Investor owns  i 63.8% of the outstanding shares of Class A common stock. In April 2018, Warner Media and TW Investor issued standing proxies to the independent directors of the Company, pursuant to which they granted the right to vote approximately  i 100.9 million shares of Class A common stock (the “Warrant Shares”) on all matters other than at any meeting where the agenda includes a change in control transaction. In accordance with these proxies, the Warrant Shares will be voted in proportion to votes cast at a general meeting of the Company, excluding such Warrant Shares. This proxy arrangement will remain in effect until April 2021. As a result of the standing proxies, after giving effect to its ownership of the Series A Preferred Share, TW Investor has a  i 44.1% voting interest in the Company.
 i 
Accumulated Other Comprehensive Loss
The movement in accumulated other comprehensive loss during the three and six months ended June 30, 2020 and 2019 comprised the following:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2020

 
2019

 
2020

 
2019

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

 
 i 2,868

 
( i 12,894
)
 
 i 2,256

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

 
 i 3,455

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

 
 i 10,770

 
( i 21,727
)
 
 i 508

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

 
 i 480

 
 i 877

 
 i 851

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

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

18


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

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

 
2019

 
2020

 
2019

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

 
$
 i 6,882

 
$
 i 10,708

 
$
 i 14,250

Amortization of capitalized debt issuance costs
 i 820

 
 i 853

 
 i 1,641

 
 i 1,727

Total interest expense
$
 i 5,754

 
$
 i 7,735

 
$
 i 12,349

 
$
 i 15,977

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

 
2019

 
2020

 
2019

Interest income
$
 i 151

 
$
 i 115

 
$
 i 293

 
$
 i 267

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

 
 i 2,155

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

 
 i 

 
 i 

 
( i 36
)
Loss on extinguishment of debt
 i 

 
( i 84
)
 
 i 

 
( i 235
)
Other income, net
 i 170

 
 i 51

 
 i 234

 
 i 66

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

 
$
 i 2,237

 
$
( i 5,808
)
 
$
( i 860
)

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

 
Weighted Average Exercise Price per Share

 
Weighted Average Remaining Contractual Term (years)
 
Aggregate Intrinsic Value

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

 
$
 i 2.32

 
 i 5.58
 
$
 i 4,436

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

 
$
 i 2.32

 
 i 5.08
 
$
 i 2,444


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

19


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

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

 
Weighted Average
Grant Date
Fair Value

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

 
$
 i 3.69

Vested
( i 994,270
)
 
 i 3.58

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

 
$
 i 3.77


 / 
The intrinsic value of unvested RSUs was US$  i 4.7 million as at June 30, 2020. Total unrecognized compensation cost related to unvested RSUs as at June 30, 2020 was US$  i 4.3 million and is expected to be recognized over a weighted-average period of  i 2.07 years.
Restricted Stock Units with Performance Conditions
Each RSU with performance conditions (“PRSU”) represents a right to receive one share of Class A common stock of the Company for each PRSU that vests in accordance with a performance-based vesting schedule. The performance-based vesting schedule sets forth specified objectives for unlevered free cash flow and OIBDA over defined periods and by defined dates. Holders of PRSU awards are not entitled to receive cash dividend equivalents prior to the vesting of awards and are not entitled to vote shares underlying awards.
Vesting of the currently 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 June 30, 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 and six months ended June 30, 2020 there were  i no new PRSU awards granted or vested.
The intrinsic value of unvested PRSUs was US$  i 1.8 million as at June 30, 2020. Total unrecognized compensation cost related to unvested PRSUs as at June 30, 2020 was US$  i 1.3 million of which US$  i 0.1 million is related to performance targets currently considered probable of being achieved and will be recognized over a period of less than  i one year.
17.     i EARNINGS PER SHARE
 i 
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.
 i 
The components of basic and diluted earnings per share are as follows:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2020

 
2019

 
2020

 
2019

Income from operations
$
 i 31,102

 
$
 i 44,078

 
$
 i 40,072

 
$
 i 55,829

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

 
( i 119
)
 
 i 148

 
( i 112
)
Less: income allocated to Series B Preferred Shares
( i 9,197
)
 
( i 13,003
)
 
( i 11,873
)
 
( i 16,490
)
Net income attributable to CME Ltd. available to common shareholders — basic
 i 21,982

 
 i 30,956

 
 i 28,347

 
 i 39,227

 
 
 
 
 
 
 
 
Effect of dilutive securities
 
 
 
 
 
 
 
Dilutive effect of RSUs and employee stock options
 i 27

 
 i 47

 
 i 45

 
 i 54

Net income attributable to CME Ltd. available to common shareholders — diluted
$
 i 22,009

 
$
 i 31,003

 
$
 i 28,392

 
$
 i 39,281

 
 
 
 
 
 
 
 
Weighted average outstanding shares of common stock — basic (1)
 i 265,649

 
 i 264,570

 
 i 265,342

 
 i 264,385

Dilutive effect of employee stock options and RSUs
 i 1,127

 
 i 1,362

 
 i 1,448

 
 i 1,243

Weighted average outstanding shares of common stock — diluted
 i 266,776

 
 i 265,932

 
 i 266,790

 
 i 265,628

 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
Attributable to CME Ltd. — basic
$
 i 0.08

 
$
 i 0.12

 
$
 i 0.11

 
$
 i 0.15

Attributable to CME Ltd. — diluted
 i 0.08

 
 i 0.12

 
 i 0.11

 
 i 0.15

 / 
(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.

20


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

Weighted-average equity awards and convertible shares are excluded from the calculation of diluted earnings per share if their effect would be anti-dilutive.  i The following instruments were anti-dilutive for the periods presented but may be dilutive in future periods:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2020

 
2019

 
2020

 
2019

RSUs
 i 836

 
 i 1,233

 
 i 836

 
 i 1,233

Total
 i 836

 
 i 1,233

 
 i 836

 
 i 1,233


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.
 i 
Below are tables showing our net revenues, OIBDA, total assets, capital expenditures and long-lived assets by segment for the three and six months ended June 30, 2020 and 2019 for condensed consolidated statements of operations and comprehensive income / loss data and condensed consolidated statements of cash flow data; and as at June 30, 2020 and December 31, 2019 for condensed consolidated balance sheet data.
Net revenues:
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2020

 
2019

 
2020

 
2019

Bulgaria
$
 i 15,276

 
$
 i 22,607

 
$
 i 32,231

 
$
 i 41,900

Czech Republic
 i 45,886

 
 i 64,379

 
 i 95,101

 
 i 114,695

Romania
 i 37,197

 
 i 48,362

 
 i 76,712

 
 i 87,172

Slovak Republic
 i 21,085

 
 i 27,313

 
 i 43,244

 
 i 48,645

Slovenia
 i 17,094

 
 i 22,276

 
 i 33,828

 
 i 40,126

Intersegment revenues (1)
( i 993
)
 
( i 1,338
)
 
( i 1,755
)
 
( i 2,380
)
Total net revenues
$
 i 135,545

 
$
 i 183,599

 
$
 i 279,361

 
$
 i 330,158

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

21


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

 i 
OIBDA:
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
2020

 
2019

 
2020

 
2019

Bulgaria
$
 i 4,462

 
$
 i 7,888

 
$
 i 9,280

 
$
 i 14,009

Czech Republic
 i 20,870

 
 i 32,293

 
 i 36,820

 
 i 47,240

Romania
 i 18,769

 
 i 25,243

 
 i 33,833

 
 i 42,776

Slovak Republic
 i 8,836

 
 i 8,555

 
 i 12,781

 
 i 10,284

Slovenia
 i 7,149

 
 i 6,213

 
 i 12,011

 
 i 11,144

Elimination
 i 9

 
( i 24
)
 
 i 6

 
 i 24

Total operating segments
 i 60,095

 
 i 80,168

 
 i 104,731

 
 i 125,477

Corporate
( i 5,586
)
 
( i 6,826
)
 
( i 13,051
)
 
( i 14,078
)
Total OIBDA
 i 54,509

 
 i 73,342

 
 i 91,680

 
 i 111,399

Depreciation of property, plant and equipment
( i 7,972
)
 
( i 8,154
)
 
( i 15,899
)
 
( i 16,380
)
Amortization of broadcast licenses and other intangibles
( i 2,110
)
 
( i 2,113
)
 
( i 4,277
)
 
( i 4,307
)
Other items (1)
( i 253
)
 
( i 2,613
)
 
( i 1,133
)
 
( i 2,613
)
Operating income
 i 44,174

 
 i 60,462

 
 i 70,371

 
 i 88,099

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

 
 i 2,237

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

 
$
 i 54,964

 
$
 i 52,214

 
$
 i 71,262


 / 
(1) 
Other items during the three and six months ended June 30, 2020 reflects costs relating to the Merger, primarily legal and professional fees.
 i 
Total assets: (1)

 

Bulgaria
$
 i 139,415

 
$
 i 135,593

Czech Republic
 i 713,393

 
 i 758,479

Romania
 i 263,696

 
 i 289,968

Slovak Republic
 i 141,352

 
 i 150,806

Slovenia
 i 81,702

 
 i 92,144

Total operating segments
 i 1,339,558

 
 i 1,426,990

Corporate
 i 122,984

 
 i 20,872

Total assets
$
 i 1,462,542

 
$
 i 1,447,862

 / 
(1) 
Segment assets exclude any intercompany balances.
 i 
Capital expenditures:
For the Six Months Ended June 30,
 
2020


2019

Bulgaria
$
 i 1,518

 
$
 i 1,635

Czech Republic
 i 3,608

 
 i 3,072

Romania
 i 1,483

 
 i 1,033

Slovak Republic
 i 720

 
 i 442

Slovenia
 i 1,394

 
 i 1,912

Total operating segments
 i 8,723

 
 i 8,094

Corporate
 i 36

 
 i 178

Total capital expenditures
$
 i 8,759

 
$
 i 8,272


 / 

22


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

 i 
Long-lived assets: (1)

 

Bulgaria
$
 i 11,865

 
$
 i 13,538

Czech Republic
 i 32,142

 
 i 36,760

Romania
 i 29,300

 
 i 31,115

Slovak Republic
 i 14,819

 
 i 16,201

Slovenia
 i 13,740

 
 i 15,207

Total operating segments
 i 101,866

 
 i 112,821

Corporate
 i 512

 
 i 1,080

Total long-lived assets
$
 i 102,378

 
$
 i 113,901

 / 
(1) 
Reflects property, plant and equipment, net.
 i 
Revenues from contracts with customers comprised the following for the three and six months ended June 30, 2020 and 2019:
Consolidated revenue by type:
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2020

 
2019

 
2020

 
2019

Television advertising
$
 i 98,755

 
$
 i 147,184

 
$
 i 205,210

 
$
 i 258,231

Carriage fees and subscriptions
 i 31,510

 
 i 29,239

 
 i 63,094

 
 i 58,789

Other
 i 5,280

 
 i 7,176

 
 i 11,057

 
 i 13,138

Total net revenues
$
 i 135,545

 
$
 i 183,599

 
$
 i 279,361

 
$
 i 330,158


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

23


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
 i 
At June 30, 2020, we had total commitments of US$  i 79.2 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 17,299

 
$
 i 8,039

 
$
 i 713

2021
 i 20,494

 
 i 5,990

 
 i 32

2022
 i 19,074

 
 i 5,748

 
 i 32

2023
 i 13,293

 
 i 5,393

 
 i 

2024
 i 6,264

 
 i 

 
 i 

2025 and thereafter
 i 2,768

 
 i 

 
 i 

Total
$
 i 79,192

 
$
 i 25,170

 
$
 i 777


 / 
Contingencies
Litigation
We are from time to time party to legal proceedings, arbitrations and regulatory proceedings arising in the normal course of our business operations, including the proceeding described below. We evaluate, on a quarterly basis, developments in such matters and provide accruals for such matters, as appropriate. In making such decisions, we consider the degree of probability of an unfavorable outcome and our ability to make a reasonable estimate of the amount of a loss. An unfavorable outcome in any such proceedings, if material, could have an adverse effect on our business or condensed consolidated financial statements.
In the fourth quarter of 2016, our Slovak subsidiary MARKIZA-SLOVAKIA, spol. s.r.o. ("Markiza") was notified of claims that were filed in June 2016 in a court of first instance in Bratislava, the Slovak Republic to collect amounts allegedly owing under  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.

24


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 June 30, 2020, as material related party transactions.
 i 
AT&T
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2020

 
2019

 
2020

 
2019

Cost of revenues
$
 i 4,697

 
$
 i 4,659

 
$
 i 10,330

 
$
 i 9,635

Interest expense
 i 3,776

 
 i 4,615

 
 i 7,558

 
 i 9,369

 

 

Programming liabilities
$
 i 11,714

 
$
 i 10,553

Other accounts payable and accrued liabilities
 i 128

 
 i 267

Accrued interest payable (1)
 i 1,084

 
 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.
Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations
The following defined terms are used in this Quarterly Report on Form 10-Q:
"2021 Euro Loan" refers to our floating rate senior unsecured term credit facility due November 1, 2021, guaranteed by Warner Media (as defined below), dated as of September 30, 2015, as amended on February 19, 2016, June 22, 2017 and April 25, 2018;
"2023 Euro Loan" refers to our floating rate senior unsecured term credit facility due April 26, 2023, entered into by CME BV (as defined below), guaranteed by Warner Media and CME Ltd., dated as of February 19, 2016, as amended on June 22, 2017 and April 25, 2018;
"Euro Loans" refers collectively to the 2021 Euro Loan and 2023 Euro Loan;
"2023 Revolving Credit Facility" refers to our revolving credit facility due April 26, 2023, dated as of May 2, 2014, as amended and restated as of February 19, 2016, and as further amended and restated on April 25, 2018;
"Guarantee Fees" refers to amounts accrued and payable to Warner Media as consideration for Warner Media's guarantees of the Euro Loans;
"Reimbursement Agreement" refers to our reimbursement agreement with Warner Media which provides that we will reimburse Warner Media for any amounts paid by them under any guarantee or through any loan purchase right exercised by Warner Media, dated as of November 14, 2014, as amended and restated on February 19, 2016, and as further amended and restated on April 25, 2018;
"CME BV" refers to CME Media Enterprises B.V., our 100% owned subsidiary;
"AT&T" refers to AT&T, Inc.;
"Warner Media" refers to Warner Media, LLC. (formerly Time Warner, Inc.), a wholly owned subsidiary of AT&T;
"TW Investor" refers to Time Warner Media Holdings B.V., a wholly owned subsidiary of Warner Media;
"Merger" refers to the merger of Merger Sub (as defined below) with and into the Company pursuant to the Merger Agreement (as defined below);
"Merger Agreement" refers to the agreement and plan of merger dated October 27, 2019 by and among the Company, Parent (as defined below) and Merger Sub (as defined below);
"Merger Sub" refers TV Bermuda Ltd., a Bermuda exempted company limited by shares and a wholly-owned subsidiary of Parent (as defined below);
"Parent" refers TV Bidco B.V., a Netherlands private limited liability company; and
"PPF" refers PPF Group N.V., a Netherlands public limited liability company.
The exchange rates used in this report are as at June 30, 2020, unless otherwise indicated.
Please note that we may announce information using SEC filings, press releases, public conference calls, webcasts and posts to the "Investors" section of our website, www.cme.net. We intend to continue to use these channels to communicate important information about CME Ltd. and our operations. We encourage investors, the media, our customers and others interested in the Company to review the information we post at www.cme.net.

25


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.


26


II.    Overview
Central European Media Enterprises Ltd. ("CME Ltd.") is a media and entertainment company operating mainly in five countries in Central and Eastern Europe. We manage our business on a geographical basis, with five operating segments: Bulgaria, the Czech Republic, Romania, the Slovak Republic and Slovenia, which are also our reportable segments. These operating segments reflect how CME Ltd.’s operating performance is evaluated by our chief operating decision makers, who we have identified as our co-Chief Executive Officers, how our operations are managed by segment managers, and the structure of our internal financial reporting.
On October 27, 2019, the Company entered into the Merger Agreement with Parent and Merger Sub, pursuant to which Merger Sub will merge with and into the Company, with the Company continuing as the surviving company in the proposed Merger as a wholly-owned subsidiary of Parent. The closing of the proposed Merger is subject to several conditions, including, but not limited to, the requisite vote of the Company’s shareholders in favor of the Merger Agreement and the proposed Merger, the receipt of certain competition and other regulatory approvals, compliance with covenants and agreements in the Merger Agreement (subject to certain materiality qualifications) and the absence of any governmental order prohibiting completion of the proposed Merger. A special general meeting of shareholders of the Company was held on February 27, 2020, where more than 99% of the votes cast by shareholders were in favor of approving the Merger Agreement, the related statutory merger agreement and the Merger. In addition, regulatory approvals required under the Merger Agreement in Romania and Slovenia have been obtained. For additional information on the Merger, please see the proxy statement of the Company related to the special general meeting of shareholders, filed with the SEC on January 10, 2020. Parent is currently expecting to file the required notification with the European Commission in the third quarter, and based on our expected timing of that, we expect the proposed Merger to be completed prior to October 27, 2020.
Non-GAAP Financial Measures
In this report we refer to several non-GAAP financial measures, including OIBDA, OIBDA margin, free cash flow and unlevered free cash flow. We believe that each of these metrics is useful to investors for the reasons outlined below. Non-GAAP financial measures may not be comparable to similar measures reported by other companies. Non-GAAP financial measures should be evaluated in conjunction with, and are not a substitute for, US GAAP financial measures.
We evaluate our consolidated results and the performance of our segments based on net revenues and OIBDA. We believe OIBDA is useful to investors because it provides a meaningful representation of our performance, as it excludes certain items that do not impact either our cash flows or the operating results of our operations. OIBDA and unlevered free cash flow are also used as components in determining management bonuses.
OIBDA includes amortization and impairment of program rights and is calculated as operating income / loss before depreciation, amortization of intangible assets and impairments of assets and certain unusual or infrequent items that are not considered by our co-Chief Executive Officers when evaluating our performance. Our key performance measure of the efficiency of our consolidated operations and our segments is OIBDA margin. We define OIBDA margin as the ratio of OIBDA to net revenues.
Following a repricing of our Guarantee Fees in March 2017 and April 2018, we pay interest and related Guarantee Fees on our outstanding indebtedness in cash. In addition to this obligation to pay Guarantee Fees in cash, we expect to use cash generated by the business to pay certain Guarantee Fees that were previously paid in kind. These cash payments are all reflected in free cash flow; accordingly, we believe unlevered free cash flow, defined as free cash flow before cash payments for interest and Guarantee Fees, best illustrates the cash generated by our operations when comparing periods. We define free cash flow as net cash generated from continuing operating activities less purchases of property, plant and equipment, net of disposals of property, plant and equipment and excluding the cash impact of certain unusual or infrequent items that are not included in costs charged in arriving at OIBDA because they are not considered by our co-Chief Executive Officers when evaluating performance.
For additional information regarding our business segments, including a reconciliation of OIBDA to US GAAP financial measures, see Item 1, Note 18, "Segment Data". For a reconciliation of free cash flow and unlevered free cash flow to US GAAP financial measures, see "Free Cash Flow and Unlevered Free Cash Flow" below.
While our reporting currency is the dollar, our consolidated revenues and costs are divided across a range of European currencies and CME Ltd.’s functional currency is the Euro. Given the significant movement of the currencies in the markets in which we operate against the dollar, we believe that it is useful to provide percentage movements based on actual percentage movements (“% Act”), which includes the effect of foreign exchange, as well as like-for-like percentage movements (“% Lfl”) on a constant currency basis. The like-for-like percentage movement references reflect the impact of applying the current period average exchange rates to the prior period revenues and costs. Since the difference between like-for-like and actual percentage movements is solely the impact of movements in foreign exchange rates, our discussion in the following analysis is focused on constant currency percentage movements in order to highlight those factors influencing operational performance. The incremental impact of foreign exchange rates is presented in the tables preceding such analysis. Unless otherwise stated, all percentage increases or decreases in the following analysis refer to year-on-year percentage changes between the three and six months ended June 30, 2020 and 2019.
Executive Summary
The following table provides a summary of our consolidated results of our continuing operations for the three and six months ended June 30, 2020 and 2019:
 
For the Three Months Ended June 30, (US$ 000's)
 
For the Six Months Ended June 30, (US$ 000's)
 
 
 
 
 
Movement
 
 
 
 
 
Movement
 
2020

 
2019

 
% Act

 
% Lfl

 
2020

 
2019

 
% Act

 
% Lfl

Net revenues
$
135,545

 
$
183,599

 
(26.2
)%
 
(23.2
)%
 
$
279,361

 
$
330,158

 
(15.4
)%
 
(12.1
)%
Operating income
44,174

 
60,462

 
(26.9
)%
 
(23.8
)%
 
70,371

 
88,099

 
(20.1
)%
 
(16.5
)%
Operating margin
32.6
%
 
32.9
%
 
(0.3) p.p.

 
(0.2) p.p.

 
25.2
%
 
26.7
%
 
(1.5) p.p.

 
(1.3) p.p.

OIBDA
$
54,509

 
$
73,342

 
(25.7
)%
 
(22.5
)%
 
$
91,680

 
$
111,399

 
(17.7
)%
 
(14.1
)%
OIBDA margin
40.2
%
 
39.9
%
 
0.3 p.p.

 
0.3 p.p.

 
32.8
%
 
33.7
%
 
(0.9) p.p.

 
(0.8) p.p.


27


Our consolidated net revenues decreased at actual and constant rates in the three and six months ended June 30, 2020, compared to the corresponding periods in 2019. This was due to declines in television advertising revenues of 30% and 17% at constant rates in the three and six months ended June 30, 2020, respectively, which was partially offset by increases in carriage fees and subscription revenues of 11% at constant rates in both the quarter- and year-to-date periods. Television advertising spending overall in the markets in which we operate decreased an estimated 17% at constant rates in the first six months of 2020 compared to 2019 due to lower demand for advertising, as clients reduced, postponed, or canceled their advertising campaigns in response to restrictive measures imposed in March to address the COVID-19 pandemic and the resulting economic uncertainty. These declines were partially offset by higher demand for advertising in the first two months of 2020 compared to the same period in 2019 in our three largest markets. Across all markets, the decline in ad spending was more significant in the months of April and May, with spending beginning to recover in June in connection with the lifting of restrictive measures in our markets and the resumption of economic activity that had been suspended earlier in the quarter. Carriage fees and subscriptions revenue increased on a constant currency basis in the quarter- and year-to-date periods due to an increase in both overall prices and the number of subscribers.
Costs charged in arriving at OIBDA in the second quarter of 2020 decreased 27% at actual rates and 24% at constant rates compared to the corresponding period in 2019, due primarily to savings from content costs, which decreased 36% at constant rates. The spring schedule in each of our country segments was adjusted in response to the COVID-19 pandemic to utilize more of our existing program library, as well as foreign acquired content and news programming that was more cost effective, which replaced premier episodes of local fiction and entertainment, including productions that we were required to temporarily suspend. In addition, virtually all live sporting events in the quarter were postponed, and as a result there were fewer costs from sports rights in the period. Costs charged in arriving at OIBDA in the first half of 2020 decreased 11% at constant rates, as savings in the second quarter were partially offset by an increase of 2% at constant rates in the first three months of the year, which was driven by the reversal of provisions in the comparative period and higher staff costs.
By making adjustments to the cost base in response to changes in television advertising spending patterns, our consolidated OIBDA margin of 40% in the three months ended June 30, 2020 remained consistent with the same period in 2019, and decreased by less than 100 basis points in the first half of 2020. The declines in operating income were consistent with the decreases in OIBDA in the quarter- and year-to-date periods, although operating income declined less than OIBDA due to fewer costs related to the proposed Merger, which are not included within OIBDA, being incurred in 2020 compared to 2019.
In March 2020, governments in our markets declared various forms of states of emergency in response to the COVID-19 pandemic, social distancing measures, including closures of schools and non-essential businesses, and restrictions around the free movement of people. At the end of April and the beginning of May, governmental authorities in our markets began to relax these measures and restrictions to varying degrees according to plans set by the respective governments reflecting their ability to manage the health effects of the COVID-19 pandemic, which has permitted the resumption of previously suspended economic activity. In certain limited instances where rates of COVID-19 infections have again increased, governmental authorities have re-imposed certain measures and restrictions, although both the geographical scope and duration have been more limited.
While the COVID-19 pandemic had a negative impact on advertising spending in the second quarter of 2020, the level of the declines in April and May were more significant than in June, as advertising spending began to recover in connection with the relaxation of measures and restrictions and the resumption, in large part, of previously suspended economic activity. Based on current bookings in July and August, overall advertising spending appears to be returning to comparable levels seen in the same periods in 2019, and it is possible that a portion of the advertising spending not placed in the six months ended June 30, 2020 could be deferred until the second half of this year. We anticipate the increase in carriage fees and subscription revenues realized in the first half of 2020 will continue for the remainder of the year and help mitigate the impact of lower advertising spending on net revenue. We also expect ongoing content cost saving measures will offset a portion of any shortfalls in television advertising revenue in the remainder of 2020.
In response to the COVID-19 pandemic, each of our operations adopted precautionary procedures in March designed to safeguard the health and wellbeing of our employees and business partners, including key personnel critical to the function of our television channels to ensure the ongoing broadcast of our networks. Personnel have been encouraged to work remotely whenever possible, and we do not believe there has been a significant adverse impact on either our operations or our internal control over financial reporting as a result of this remote work policy. Our businesses incurred costs in the second quarter and first half of 2020 adjusting to these changes in the operating environment, although the amounts were not material.
As more restrictive social distancing measures, including limitations on the size of gatherings, were introduced in March, we were required to temporarily suspend all in-process production of own-produced titles. In addition to the associated changes in the program schedules to replace or reduce the number of premier episodes of local content broadcasted, our stations increased the amount of news and current affairs programming covering the COVID-19 pandemic. Following the relaxation of social distancing measures, we have resumed production of local titles in each of our country operations and adjusted our scheduling and procedures in order to do so in a safe manner. We believe this content, together with our existing extensive program library of already completed own-produced titles as well as acquired content, is more than sufficient to provide attractive programming line-ups for the fall season and maintain or increase audience leadership in our markets.
Our financial position and cash generation remains robust and we do not expect any near-term liquidity constraints. Net cash generated from operations and unlevered free cash flow during the first half of 2020 increased 11% and 8% at actual rates, respectively, reflecting a significant decline in payments for own-produced programming, including during the temporary suspension of productions between March and May 2020, as well as lower cash paid for taxes as we utilized national stimulus plans, such as provisions relating to delaying the payment of corporate income tax. While cash flow is normally lower in the second half of the year and we expect cash collections will be lower compared to 2019 from the year-on-year decline in second quarter net revenues, we are able to take steps to bolster our cash position, including through changes in programming and production described above, as well as the deferral of all non-essential capital expenditures and reductions in discretionary spending.
As a result of significant debt repayments in the last few years, our nearest long-term debt maturity is only EUR 60.3 million (approximately US$ 67.6 million at June 30, 2020 rates) and is not due until November 2021. Our net leverage ratio was 2.4x at the end of the second quarter, which is unchanged from the start of 2020. Our cost of borrowing depends on our net leverage ratio; and if that increases above 3.0x in a future period then our interest expense would increase (see Item 1, Note 4, "Long-term Debt and Other Financing Arrangements").
We ended the second quarter of 2020 with US$ 176.1 million of cash and cash equivalents. Additionally, we have access to US$ 75.0 million under the 2023 Revolving Credit Facility, which remained undrawn as of June 30, 2020.

28


Free Cash Flow and Unlevered Free Cash Flow
 
For the Six Months Ended June 30, (US$ 000's)
 
2020

 
2019

 
Movement

Net cash generated from operating activities
$
154,995

 
$
140,280

 
10.5
 %
Capital expenditures, net
(8,658
)
 
(8,266
)
 
4.7
 %
Other items (1)
291

 

 
NM (2)

Free cash flow
146,628

 
132,014

 
11.1
 %
Cash paid for interest (including Guarantee Fees)
10,507

 
14,017

 
(25.0
)%
Unlevered free cash flow
$
157,135

 
$
146,031

 
7.6
 %
(1) 
Reflects costs relating to the proposed Merger, primarily financial and professional fees.
(2) 
Number is not meaningful.

(US$ 000's)

 

 
Movement

Cash and cash equivalents
$
176,094

 
$
36,621

 
380.9
%
Unlevered free cash flow increased during the six months ended June 30, 2020 compared to the same period in 2019 due to lower payments for own-produced programming and lower cash paid for taxes as we utilized national stimulus plans, such as provisions relating to delaying the payment of corporate income tax. Net cash generated from operating activities also benefited from lower cash paid for interest and Guarantee Fees.
Market Information
The following table sets out our estimates of the year-on-year changes in real GDP, real private consumption and the television advertising market, net of discounts, in the countries in which we operate for the six months ended June 30, 2020:
 
For the Six Months Ended June 30, 2020
Country
Real GDP Growth

 
Real Private Consumption Growth

 
Net TV Ad Market Growth

Bulgaria
(5.9
)%
 
(4.1
)%
 
(28.0
)%
Czech Republic
(7.0
)%
 
(4.0
)%
 
(13.4
)%
Romania*
(5.3
)%
 
(3.2
)%
 
(17.7
)%
Slovak Republic
(9.8
)%
 
(6.8
)%
 
(12.9
)%
Slovenia
(8.1
)%
 
(8.0
)%
 
(19.6
)%
Total CME Ltd. Markets
(6.8
)%
 
(4.5
)%
 
(16.8
)%
*    Romanian market excludes Moldova.
Sources: Real GDP Growth and Real Private Consumption Growth, CME Ltd. estimates based on market consensus; TV Ad Market Growth, CME Ltd. estimates at constant exchange rates.
After adjusting for inflation, in the first six months of 2020, it is estimated that GDP contracted in each of the countries in which we operate. A positive outlook in terms of growth in GDP and private consumption for 2020 changed in March with the onset of the COVID-19 pandemic. Since then, analyst expectations were revised downward, and now a contraction is forecast in all our markets in 2020 due to the severity of the contraction in the second quarter. Composite economic sentiment indicators, based on industrial, service, consumer, construction and retail trade confidence indicators, have risen in June as compared to May 2020, and the outlook for GDP recovery in all our markets is positive with growth forecast by the European Commission in the second half of 2020 compared to the second quarter of 2020, and continuing with a strong rebound in 2021.
We estimate that television advertising spending in the countries in which we operate declined by 17% on average at constant rates in the six months ended June 30, 2020 compared to the same period in 2019. The decline in television advertising markets in all countries has resulted from lower demand for advertising, as advertisers reduced spending in response to restrictive measures imposed to address the COVID-19 pandemic and the resulting economic uncertainty. In Bulgaria, this was reflected primarily in lower average market prices, due to promotions offered to small and medium sized businesses with discounted gross rating points ("GRPs"). In the Czech and Slovak Republics, in the first half of 2020 the reduced spending in the second quarter was partially offset by higher demand in the first two months of 2020 compared to the same period in 2019. Similarly, in Romania, the decline in spending in the second quarter was partially offset by higher spending in the first two months of 2020 from clients in certain sectors of the economy, including telecommunications and banking, which had reduced spending in the same period in 2019 following the introduction of new incremental sector specific taxes in Romania in early 2019. In Slovenia, the change in advertiser behavior resulted in fewer GRPs sold, however higher television viewership increased the inventory available so average prices also decreased.

29


Segment Performance
Our total Net Revenues and OIBDA by segment were as follows:
 
NET REVENUES
 
For the Three Months Ended June 30, (US$ 000's)
 
For the Six Months Ended June 30, (US$ 000's)
 
 
 
 
 
Movement
 
 
 
 
 
Movement
 
2020

 
2019

 
% Act

 
% Lfl

 
2020


2019

 
% Act

 
% Lfl

Bulgaria
$
15,276

 
$
22,607

 
(32.4
)%
 
(31.2
)%
 
$
32,231

 
$
41,900

 
(23.1
)%
 
(21.1
)%
Czech Republic
45,886

 
64,379

 
(28.7
)%
 
(23.7
)%
 
95,101

 
114,695

 
(17.1
)%
 
(12.5
)%
Romania
37,197

 
48,362

 
(23.1
)%
 
(20.3
)%
 
76,712

 
87,172

 
(12.0
)%
 
(8.4
)%
Slovak Republic
21,085

 
27,313

 
(22.8
)%
 
(21.4
)%
 
43,244

 
48,645

 
(11.1
)%
 
(8.9
)%
Slovenia
17,094

 
22,276

 
(23.3
)%
 
(21.9
)%
 
33,828

 
40,126

 
(15.7
)%
 
(13.6
)%
Intersegment revenues
(993
)
 
(1,338
)
 
NM (1)

 
NM (1)

 
(1,755
)
 
(2,380
)
 
NM (1)

 
NM (1)

Total net revenues
$
135,545

 
$
183,599

 
(26.2
)%
 
(23.2
)%
 
$
279,361

 
$
330,158

 
(15.4
)%
 
(12.1
)%
(1) 
Number is not meaningful.
 
OIBDA
 
For the Three Months Ended June 30, (US$ 000's)
 
For the Six Months Ended June 30, (US$ 000's)
 
 
 
 
 
Movement
 
 
 
 
 
Movement
 
2020

 
2019

 
% Act

 
% Lfl

 
2020

 
2019

 
% Act

 
% Lfl

Bulgaria
$
4,462

 
$
7,888

 
(43.4
)%
 
(42.5
)%
 
$
9,280

 
$
14,009

 
(33.8
)%
 
(32.2
)%
Czech Republic
20,870

 
32,293

 
(35.4
)%
 
(30.9
)%
 
36,820

 
47,240

 
(22.1
)%
 
(17.3
)%
Romania
18,769

 
25,243

 
(25.6
)%
 
(22.9
)%
 
33,833

 
42,776

 
(20.9
)%
 
(17.7
)%
Slovak Republic
8,836

 
8,555

 
3.3
 %
 
5.1
 %
 
12,781

 
10,284

 
24.3
 %
 
26.8
 %
Slovenia
7,149

 
6,213

 
15.1
 %
 
17.2
 %
 
12,011

 
11,144

 
7.8
 %
 
10.5
 %
Eliminations
9

 
(24
)
 
NM (1)

 
NM (1)

 
6

 
24

 
NM (1)

 
NM (1)

Total operating segments
60,095

 
80,168

 
(25.0
)%
 
(21.8
)%
 
104,731

 
125,477

 
(16.5
)%
 
(12.9
)%
Corporate
(5,586
)
 
(6,826
)
 
18.2
 %
 
13.6
 %
 
(13,051
)
 
(14,078
)
 
7.3
 %
 
3.3
 %
Consolidated OIBDA
$
54,509

 
$
73,342

 
(25.7
)%
 
(22.5
)%
 
$
91,680

 
$
111,399

 
(17.7
)%
 
(14.1
)%
(1) 
Number is not meaningful.

30


Bulgaria
 
For the Three Months Ended June 30, (US$ 000's)
 
For the Six Months Ended June 30, (US$ 000's)
 
 
 
 
 
Movement
 
 
 
 
 
Movement
 
2020

 
2019

 
% Act

 
% Lfl

 
2020

 
2019

 
% Act

 
% Lfl

Television advertising
$
9,197

 
$
15,951

 
(42.3
)%
 
(41.3
)%
 
$
19,372

 
$
28,541

 
(32.1
)%
 
(30.4
)%
Carriage fees and subscriptions
5,391

 
5,283

 
2.0
 %
 
3.9
 %
 
10,975

 
10,604

 
3.5
 %
 
6.2
 %
Other
688

 
1,373

 
(49.9
)%
 
(49.0
)%
 
1,884

 
2,755

 
(31.6
)%
 
(29.9
)%
Net revenues
15,276

 
22,607

 
(32.4
)%
 
(31.2
)%
 
32,231

 
41,900

 
(23.1
)%
 
(21.1
)%
Costs charged in arriving at OIBDA
10,814

 
14,719

 
(26.5
)%
 
(25.1
)%
 
22,951

 
27,891

 
(17.7
)%
 
(15.6
)%
OIBDA
$
4,462

 
$
7,888

 
(43.4
)%
 
(42.5
)%
 
$
9,280

 
$
14,009

 
(33.8
)%
 
(32.2
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OIBDA margin
29.2
%
 
34.9
%
 
(5.7) p.p.

 
(5.8) p.p.

 
28.8
%
 
33.4
%
 
(4.6) p.p.

 
(4.7) p.p.

The television advertising market in Bulgaria declined an estimated 28% at constant rates in the six months ended June 30, 2020 compared to the same period in 2019.
Our television advertising revenues decreased on a constant currency basis in the second quarter and first half of 2020 compared to the same periods in 2019 due to selling fewer GRPs, as advertisers reduced spending in response to restrictive measures imposed to address the COVID-19 pandemic and the resulting economic uncertainty. Carriage fees and subscription revenues increased on a constant currency basis in the quarter- and year-to-date periods primarily due to higher prices.
On a constant currency basis, costs charged in arriving at OIBDA decreased in the second quarter and first half of 2020 due primarily to a decline in content costs. The spring programming line-up was adjusted in response to the COVID-19 pandemic to utilize more of our existing program library. As a result, there were fewer broadcasts of new entertainment titles, as we reduced the frequency of new episodes of certain local titles, and the production of other projects was stopped. There were also savings from changes to our refreshed late night show, which was relaunched in January 2020 with a new host and updated format, and fewer costs from sports rights due to the postponement of virtually all live sporting events.

Czech Republic
 
For the Three Months Ended June 30, (US$ 000's)
 
For the Six Months Ended June 30, (US$ 000's)
 
 
 
 
 
Movement
 
 
 
 
 
Movement
 
2020

 
2019

 
% Act

 
% Lfl

 
2020

 
2019

 
% Act

 
% Lfl

Television advertising
$
38,601

 
$
56,586

 
(31.8
)%
 
(27.0
)%
 
$
79,970

 
$
99,750

 
(19.8
)%
 
(15.4
)%
Carriage fees and subscriptions
4,774

 
4,333

 
10.2
 %
 
17.8
 %
 
9,708

 
8,601

 
12.9
 %
 
18.6
 %
Other
2,511

 
3,460

 
(27.4
)%
 
(22.3
)%
 
5,423

 
6,344

 
(14.5
)%
 
(9.8
)%
Net revenues
45,886

 
64,379

 
(28.7
)%
 
(23.7
)%
 
95,101

 
114,695

 
(17.1
)%
 
(12.5
)%
Costs charged in arriving at OIBDA
25,016

 
32,086

 
(22.0
)%
 
(16.5
)%
 
58,281

 
67,455

 
(13.6
)%
 
(9.3
)%
OIBDA
$
20,870

 
$
32,293

 
(35.4
)%
 
(30.9
)%
 
$
36,820

 
$
47,240

 
(22.1
)%
 
(17.3
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OIBDA margin
45.5
%
 
50.2
%
 
(4.7) p.p.

 
(4.7) p.p.

 
38.7
%
 
41.2
%
 
(2.5) p.p.

 
(2.2) p.p.

The television advertising market in the Czech Republic declined an estimated 13% at constant rates in the six months ended June 30, 2020 compared to the same period in 2019.
Our television advertising revenues decreased on a constant currency basis in the second quarter and first half of 2020 compared to the same periods in 2019 due to selling fewer GRPs, as advertisers reduced spending in response to restrictive measures imposed to address the COVID-19 pandemic and the resulting economic uncertainty. In the first half of 2020 this was partially offset by higher demand for GRPs in the first two months of 2020 compared to the same period in 2019. Carriage fees and subscriptions revenue increased on a constant currency basis in the quarter- and year-to-date periods due to price increases in existing contracts as well as an increase in the number of subscribers.
Costs charged in arriving at OIBDA decreased at constant rates in the second quarter and first half of 2020 due primarily to savings from content costs. The spring programming line-up was adjusted in response to the COVID-19 pandemic to substitute existing library content for certain local fiction productions that were suspended due to social distancing measures implemented. There were also fewer entertainment formats than the schedule in 2019, as well as fewer costs from sports rights due to the postponement of virtually all live sporting events. These savings were partially offset by an increase in our allowances for credit losses due to the insolvency of a local advertising agency.

31


Romania
 
For the Three Months Ended June 30, (US$ 000's)
 
For the Six Months Ended June 30, (US$ 000's)
 
 
 
 
 
Movement
 
 
 
 
 
Movement
 
2020

 
2019

 
% Act

 
% Lfl

 
2020

 
2019

 
% Act

 
% Lfl

Television advertising
$
23,654

 
$
36,553

 
(35.3
)%
 
(32.9
)%
 
$
50,055

 
$
63,103

 
(20.7
)%
 
(17.5
)%
Carriage fees and subscriptions
12,475

 
10,906

 
14.4
 %
 
18.5
 %
 
24,602

 
22,183

 
10.9
 %
 
15.5
 %
Other
1,068

 
903

 
18.3
 %
 
22.5
 %
 
2,055

 
1,886

 
9.0
 %
 
13.3
 %
Net revenues
37,197

 
48,362

 
(23.1
)%
 
(20.3
)%
 
76,712

 
87,172

 
(12.0
)%
 
(8.4
)%
Costs charged in arriving at OIBDA
18,428

 
23,119

 
(20.3
)%
 
(17.4
)%
 
42,879

 
44,396

 
(3.4
)%
 
0.6
 %
OIBDA
$
18,769

 
$
25,243

 
(25.6
)%
 
(22.9
)%
 
$
33,833

 
$
42,776

 
(20.9
)%
 
(17.7
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OIBDA margin
50.5
%
 
52.2
%
 
(1.7) p.p.

 
(1.7) p.p.

 
44.1
%
 
49.1
%
 
(5.0) p.p.

 
(5.0) p.p.

The television advertising market in Romania declined an estimated 18% at constant rates in the six months ended June 30, 2020 compared to the same period in 2019.
Our television advertising revenues decreased on a constant currency basis in the second quarter and first half of 2020 compared to the same periods in 2019 due to selling fewer GRPs, as advertisers reduced spending in response to restrictive measures imposed to address the COVID-19 pandemic and the resulting economic uncertainty. The decline in the first half of 2020 was less than it was in the second quarter because the decline in spending in the second quarter was partially offset by higher spending in the first two months of 2020 from clients in certain sectors of the economy, including telecommunications and banking, who reduced spending in the same period in 2019 following the introduction of new incremental sector specific taxes in early 2019. Carriage fees and subscriptions revenue increased in the quarter- and year-to-date periods due to higher prices and an increase in the average number of subscribers.
On a constant currency basis, costs charged in arriving at OIBDA decreased in the second quarter primarily due to a decline in content costs compared to 2019. The spring programming line-up was adjusted in response to the COVID-19 pandemic to utilize foreign fiction, as well as existing library content, to replace premier episodes of local fiction and entertainment. There were also fewer costs from sports rights due to the postponement of virtually all live sporting events. In the first six months of 2020, costs were broadly flat at constant rates as the change in programming mix since March was offset by higher content costs overall in the first quarter compared to the same period in 2019, when we implemented cost saving measures in the schedule as a result of lower spending from the sectors impacted by incremental taxes early last year. Expenses were also lower in the first quarter of 2019 from the reversal of provisions that did not repeat in the first quarter of 2020.

Slovak Republic
 
For the Three Months Ended June 30, (US$ 000's)
 
For the Six Months Ended June 30, (US$ 000's)
 
 
 
 
 
Movement
 
 
 
 
 
Movement
 
2020

 
2019

 
% Act

 
% Lfl

 
2020

 
2019

 
% Act

 
% Lfl

Television advertising
$
17,390

 
$
23,516

 
(26.1
)%
 
(24.7
)%
 
$
36,228

 
$
41,449

 
(12.6
)%
 
(10.4
)%
Carriage fees and subscriptions
2,531

 
2,291

 
10.5
 %
 
12.4
 %
 
5,020

 
4,563

 
10.0
 %
 
12.9
 %
Other
1,164

 
1,506

 
(22.7
)%
 
(21.2
)%
 
1,996

 
2,633

 
(24.2
)%
 
(22.3
)%
Net revenues
21,085

 
27,313

 
(22.8
)%
 
(21.4
)%
 
43,244

 
48,645

 
(11.1
)%
 
(8.9
)%
Costs charged in arriving at OIBDA
12,249

 
18,758

 
(34.7
)%
 
(33.5
)%
 
30,463

 
38,361

 
(20.6
)%
 
(18.5
)%
OIBDA
$
8,836

 
$
8,555

 
3.3
 %
 
5.1
 %
 
$
12,781

 
$
10,284

 
24.3
 %
 
26.8
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OIBDA margin
41.9
%
 
31.3
%
 
10.6 p.p.

 
10.6 p.p.

 
29.6
%
 
21.1
%
 
8.5 p.p.

 
8.4 p.p.

The television advertising market in the Slovak Republic declined an estimated 13% at constant rates in the six months ended June 30, 2020 compared to the same period in 2019.
Our television advertising revenues decreased on a constant currency basis in the second quarter and first half of 2020 compared to the same periods in 2019 due to selling fewer GRPs, as advertisers reduced spending in response to restrictive measures imposed to address the COVID-19 pandemic and the resulting economic uncertainty. In the first half of 2020 this was partially offset by higher demand for GRPs in the first two months of 2020 compared to the same period in 2019. Carriage fees and subscriptions revenue increased in the quarter- and year-to-date periods from higher prices in new and existing contracts.
On a constant currency basis, costs charged in arriving at OIBDA decreased in the second quarter and first half of 2020 due primarily to a decline in content costs. While we had to modify the format of our popular entertainment format in order to safely produce new episodes without an audience and finish the season, overall the spring programming line-up was adjusted in March in response to the COVID-19 pandemic. As a result, the number of premier episodes of local content in the second quarter declined significantly compared to the same period last year, which were replaced by existing library titles.

32


Slovenia
 
For the Three Months Ended June 30, (US$ 000's)
 
For the Six Months Ended June 30, (US$ 000's)
 
 
 
 
 
Movement
 
 
 
 
 
Movement
 
2020

 
2019

 
% Act

 
% Lfl

 
2020

 
2019

 
% Act

 
% Lfl

Television advertising
$
9,913

 
$
14,578

 
(32.0
)%
 
(30.8
)%
 
$
19,585

 
$
25,388

 
(22.9
)%
 
(20.9
)%
Carriage fees and subscriptions
6,339

 
6,426

 
(1.4
)%
 
0.4
 %
 
12,789

 
12,838

 
(0.4
)%
 
2.2
 %
Other
842

 
1,272

 
(33.8
)%
 
(32.6
)%
 
1,454

 
1,900

 
(23.5
)%
 
(21.7
)%
Net revenues
17,094

 
22,276

 
(23.3
)%
 
(21.9
)%
 
33,828

 
40,126

 
(15.7
)%
 
(13.6
)%
Costs charged in arriving at OIBDA
9,945

 
16,063

 
(38.1
)%
 
(37.0
)%
 
21,817

 
28,982

 
(24.7
)%
 
(22.8
)%
OIBDA
$
7,149

 
$
6,213

 
15.1
 %
 
17.2
 %
 
$
12,011

 
$
11,144

 
7.8
 %
 
10.5
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OIBDA margin
41.8
%
 
27.9
%
 
13.9 p.p.

 
13.9 p.p.

 
35.5
%
 
27.8
%
 
7.7 p.p.

 
7.7 p.p.

The television advertising market in Slovenia declined an estimated 20% at constant rates in the six months ended June 30, 2020 compared to the same period in 2019.
Our television advertising revenues decreased on a constant currency basis in the second quarter and first half of 2020 compared to the same periods in 2019 due to selling fewer GRPs, as advertisers reduced spending in response to restrictive measures imposed to address the COVID-19 pandemic and the resulting economic uncertainty. Carriage fees and subscription revenues were flat on a constant currency basis in the second quarter and increased in the first half of 2020 from an increase in the overall number of subscribers.
On a constant currency basis, costs charged in arriving at OIBDA decreased in the second quarter and first half of 2020 due primarily to a decline in content costs. The spring programming line-up was adjusted in response to the COVID-19 pandemic to utilize more existing library titles. As a result, there were fewer broadcasts of premier local content. There were also fewer costs from sports rights due to the postponement of virtually all live sporting events.




33


III.    Analysis of the Results of Operations and Financial Position
 
For the Three Months Ended June 30, (US$ 000's)
 
 
 
 
 
Movement
 
2020

 
2019

 
% Act

 
% Lfl

Revenue:
 
 
 
 
 
 
 
Television advertising
$
98,755

 
$
147,184

 
(32.9
)%
 
(30.1
)%
Carriage fees and subscriptions
31,510

 
29,239

 
7.8
 %
 
11.2
 %
Other revenue
5,280

 
7,176

 
(26.4
)%
 
(23.6
)%
Net Revenues
135,545

 
183,599

 
(26.2
)%
 
(23.2
)%
Operating expenses:
 
 
 
 
 
 
 
Content costs
43,693

 
70,356

 
(37.9
)%
 
(35.6
)%
Other operating costs
12,549

 
13,806

 
(9.1
)%
 
(5.3
)%
Depreciation of property, plant and equipment
7,972

 
8,154

 
(2.2
)%
 
1.7
 %
Amortization of broadcast licenses and other intangibles
2,110

 
2,113

 
(0.1
)%
 
6.6
 %
Cost of revenues
66,324

 
94,429

 
(29.8
)%
 
(27.1
)%
Selling, general and administrative expenses
25,047

 
28,708

 
(12.8
)%
 
(9.1
)%
Operating income
$
44,174

 
$
60,462

 
(26.9
)%
 
(23.8
)%
 
For the Six Months Ended June 30, (US$ 000's)
 
 
 
 
 
Movement
 
2020

 
2019

 
% Act

 
% Lfl

Revenue:
 
 
 
 
 
 
 
Television advertising
$
205,210

 
$
258,231

 
(20.5
)%
 
(17.3
)%
Carriage fees and subscriptions
63,094

 
58,789

 
7.3
 %
 
11.1
 %
Other revenue
11,057

 
13,138

 
(15.8
)%
 
(12.7
)%
Net Revenues
279,361

 
330,158

 
(15.4
)%
 
(12.1
)%
Operating expenses:
 
 
 
 
 
 
 
Content costs
108,725

 
140,716

 
(22.7
)%
 
(19.9
)%
Other operating costs
26,196

 
27,054

 
(3.2
)%
 
0.5
 %
Depreciation of property, plant and equipment
15,899

 
16,380

 
(2.9
)%
 
0.7
 %
Amortization of broadcast licenses and other intangibles
4,277

 
4,307

 
(0.7
)%
 
4.2
 %
Cost of revenues
155,097

 
188,457

 
(17.7
)%
 
(14.7
)%
Selling, general and administrative expenses
53,893

 
53,602

 
0.5
 %
 
4.4
 %
Operating income
$
70,371

 
$
88,099

 
(20.1
)%
 
(16.5
)%
Revenue:
Television advertising revenues: We estimate television advertising spending in our markets decreased on average by 17% at constant rates in the six months ended June 30, 2020 as compared to the same period in 2019. Television advertising revenues decreased during the three and six months ended June 30, 2020, as compared to the same periods in 2019 as many advertisers reduced, postponed, or canceled their advertising campaigns in response to the economic uncertainty caused by governmental responses to the COVID-19 pandemic. See "Overview - Segment Performance" above for additional information on television advertising revenues for each of our operating segments.
Carriage fees and subscriptions: Carriage fees and subscriptions revenues during the three and six months ended June 30, 2020 grew approximately 11% at constant rates as compared to the same periods in 2019, primarily due to price increases in existing contracts as well as an increase in the number of subscribers. See "Overview - Segment Performance" above for additional information on carriage fees and subscription revenues for each of our operating segments.
Other revenues: Other revenues include primarily internet advertising revenues and revenues generated through the licensing of our own productions. Other revenues decreased during the three and six months ended June 30, 2020 as compared to the same periods in 2019, in connection with the economic uncertainty caused by the governmental responses to the COVID-19 pandemic.
Operating Expenses:
Content costs: Content costs (including production costs and amortization and impairment of program rights) decreased during the three and six months ended June 30, 2020, compared to the same periods in 2019 primarily due to the use of lower cost programming following the postponement of certain productions due to measures imposed to address the COVID-19 pandemic.
Other operating costs: Other operating costs (excluding content costs, depreciation of property, plant and equipment, amortization of broadcast licenses and other intangibles as well as selling, general and administrative expenses) decreased during the three months ended June 30, 2020 as compared to the same period in 2019 primarily due to lower copyright fees in Romania and lower salaries and staff-related costs in the Czech Republic and the Slovak Republic. This decrease was partially offset by operating lease expense for production facilities that remained idle due to the governmental restrictions related to the COVID-19 pandemic and therefore were not capitalized into the cost of a program.

34


At constant rates, other operating costs during the six months ended June 30, 2020, was in line with the same period in 2019.
Depreciation of property, plant and equipment: At constant rates, total depreciation of property, plant and equipment during the three and six months ended June 30, 2020 remained in line with the same periods in 2019.
Amortization of broadcast licenses and other intangibles: At constant rates, total amortization of broadcast licenses and other intangibles for the three and six months ended June 30, 2020 increased compared to the same periods in 2019 due to the amortization of software acquired in 2020 and 2019.
Selling, general and administrative expenses: Selling, general and administrative expenses decreased during the three months ended June 30, 2020 as compared to the same period in 2019 primarily due to costs incurred in 2019 as a result of the proposed Merger and due to lower salaries and staff-related costs. These decreases were partially offset by increases in our allowance for credit losses in the Czech Republic and Bulgaria.
For the six months ended June 30, 2020 the selling, general and administrative expenses increased compared to the same period in 2019 primarily due to an increase in our allowances for credit losses in the Czech Republic, Romania and Bulgaria as well as due to the 2019 reversal of a legal accrual in Romania and the release of bad debt in Romania and Bulgaria in 2019. The increase was partially offset by costs incurred in 2019 as a result of the proposed Merger and due to reductions in advertising, marketing and corporate salary and staff-related costs in 2020.
Non-cash stock-based compensation charges for the three and six months ended June 30, 2020 and 2019 were US$ 0.8 million and US$ 1.7 million and US$ 1.1 million and US$ 2.1 million, respectively. See Item 1, Note 16, "Stock-based Compensation".
Operating income: Operating income decreased during the three and six months ended June 30, 2020 as compared to the same periods in 2019 primarily due to the impact of the COVID-19 pandemic on our television advertising revenues.
Our operating margin, which is determined as operating income divided by net revenues, was 32.6% and 25.2% for the three and six months ended June 30, 2020, respectively, compared to 32.9% and 26.7% for the three and six months ended June 30, 2019 respectively.
Other income / (expense):
 
For the Three Months Ended June 30, (US$ 000's)
 
For the Six Months Ended June 30, (US$ 000's)
 
2020

 
2019

 
% Act

 
2020

 
2019

 
% Act

Interest expense
$
(5,754
)
 
$
(7,735
)
 
25.6
%
 
$
(12,349
)
 
$
(15,977
)
 
22.7
%
Other non-operating income / (expense):
 
 
 
 
 
 
 
 
 
 
 
Interest income
151

 
115

 
31.3
%
 
293

 
267

 
9.7
%
Foreign currency exchange gain / (loss), net
7

 
2,155

 
NM (1)

 
(6,335
)
 
(922
)
 
NM (1)

Change in fair value of derivatives

 

 
NM (1)

 

 
(36
)
 
NM (1)

Loss on extinguishment of debt

 
(84
)
 
NM (1)

 

 
(235
)
 
NM (1)

Other income, net
170

 
51

 
233.3
%
 
234

 
66

 
254.5
%
Provision for income taxes
(7,646
)
 
(10,886
)
 
29.8
%
 
(12,142
)
 
(15,433
)
 
21.3
%
Net loss / (income) attributable to noncontrolling interests
77

 
(119
)
 
NM (1)

 
148

 
(112
)
 
NM (1)

(1) 
Number is not meaningful.
Interest expense: Interest expense during the three and six months ended June 30, 2020 decreased compared to the same periods in 2019, primarily due to the partial repayment of the 2021 Euro Loan in 2019 as well as reduced borrowing costs following a reduction in our net leverage ratio as defined within the Reimbursement Agreement. See Item 1, Note 4, "Long-term Debt and Other Financing Arrangements".
Interest income: Interest income primarily reflects earnings on cash balances and was not material in either period presented.
Foreign currency exchange gain / (loss), net: We are exposed to fluctuations in foreign exchange rates on the revaluation of monetary assets and liabilities denominated in currencies other than the local functional currency of the relevant subsidiaries. This includes third party receivables and payables, as well as those intercompany loans which are not considered to be of a long-term investment nature. Our subsidiaries generally receive funding via loans that are denominated in currencies other than the functional currency of the lender, therefore any change in the relevant exchange rate will require us to recognize a transaction gain or loss on revaluation. Certain of our intercompany loans are classified as long-term in nature, and therefore gains or losses on revaluation are not recorded through the statement of operations and comprehensive income / loss. See the discussion under "Currency translation adjustment, net" below.
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2020

 
2019

 
2020

 
2019

Revaluation of intercompany loans
$
338

 
$
939

 
$
(284
)
 
$
759

Transaction gains / (losses) on long-term debt and other financing arrangements
814

 
422

 
(76
)
 
(305
)
Transaction (losses) / gains on revaluation of monetary assets and liabilities
(1,145
)
 
794

 
(5,975
)
 
(1,376
)
Foreign currency exchange gains / (losses), net
$
7

 
$
2,155

 
$
(6,335
)
 
$
(922
)
Change in fair value of derivatives: For the six months ended June 30, 2019, we recognized losses as a result of the partial settlement of our interest rate swaps in connection with the repayment of debt. We did not settle any portion of our interest rate swaps during the six months ended June 30, 2020.
Loss on extinguishment of debt: During the three and six months ended June 30, 2019, we recognized losses on extinguishment of debt related to partial repayments of the 2021 Euro Loan. We did not prepay any principal amounts of our Euro Loans during the three and six months ended June 30, 2020.
Other income, net: Our other income, net during the three and six months ended June 30, 2020 increased compared with the same period in 2019 primarily due to the sale of used company vehicles in Bulgaria.

35


Provision for income taxes: The provision for income taxes for the three and six months ended June 30, 2020 was calculated using the discrete method and reflects income tax charges on profits in each of our operating segments and the impact of losses on which no tax benefit has been received.
The provision for income taxes for the three months ended June 30, 2019 reflects income taxes on profits in each of our segments and the impact of losses on which no tax benefit has been received.
Our operating subsidiaries are subject to income taxes at statutory rates of 10% in Bulgaria, 16% in Romania, 19% in the Czech Republic, 19% in Slovenia and 21% in the Slovak Republic.
Net loss / (income) attributable to noncontrolling interests: The results attributable to noncontrolling interests for the three and six months ended June 30, 2020 and 2019 relate to the noncontrolling interest share of our Bulgaria operations.
Other comprehensive (loss) / income:
 
For the Three Months Ended June 30, (US$ 000's)
 
For the Six Months Ended June 30, (US$ 000's)
 
2020

 
2019

 
% Act
 
2020

 
2019

 
% Act
Currency translation adjustment, net
$
25,583

 
$
17,002

 
NM (1)
 
$
(35,466
)
 
$
1,159


NM (1)
Unrealized gain / (loss) on derivative instruments
122

 
(1,220
)
 
NM (1)
 
342

 
(4,551
)
 
NM (1)
(1) 
Number is not meaningful.
Currency translation adjustment, net: The underlying equity value of our investments (which are denominated in the functional currency of the relevant entity) are converted into dollars at each balance sheet date, with any change in value of the underlying assets and liabilities being recorded as a currency translation adjustment to the balance sheet rather than net income / loss. Certain of our intercompany loans are denominated in currencies other than the functional currency of the lender and are considered to be of a long-term investment nature as the repayment of these loans is neither planned nor anticipated for the foreseeable future. The foreign exchange gains on the remeasurement of these intercompany loans to the lender's functional currency are treated in the same manner as currency translation adjustments. Other comprehensive (loss) / income due to currency translation adjustment, net comprised the following for the three and six months ended June 30, 2020 and 2019:
 
For the Three Months Ended June 30, (US$ 000's)
 
For the Six Months Ended June 30, (US$ 000's)
 
2020

 
2019

 
% Act
 
2020

 
2019

 
% Act
Foreign exchange gain / (loss) on intercompany loans
$
5,180

 
$
2,868

 
NM (1)
 
$
(12,894
)
 
$
2,256

 
NM (1)
Foreign exchange gain / (loss) on the Series B Preferred Shares
5,884

 
3,455

 
NM (1)
 
(866
)
 
(1,651
)
 
NM (1)
Currency translation adjustment
14,519

 
10,679

 
NM (1)
 
(21,706
)
 
554

 
NM (1)
Currency translation adjustment, net
$
25,583

 
$
17,002

 
NM (1)
 
$
(35,466
)
 
$
1,159

 
NM (1)
(1) 
Number is not meaningful.

36


The following charts depict the movement of the dollar versus the functional currencies of our operations, based on monthly closing rates, during the six months ended June 30, 2020 and 2019.
Percent Change During the Six Months Ended June 30, 2020
chart-e3565a1fc867557a823a03.jpg
Percent Change During the Six Months Ended June 30, 2019
chart-65e1711adefd5654bb9a03.jpg
Unrealized gain / (loss) on derivative instrumentsThe unrealized gain / (loss) on derivatives is due to the portion of changes in the fair value of our interest rate swaps designated as cash flow hedges and recognized in other comprehensive income/ (loss). See Item 1, Note 11, "Financial Instruments and Fair Value Measurements".

37


Condensed consolidated balance sheets as at June 30, 2020 and December 31, 2019:
 
Condensed Consolidated Balance Sheet (US$ 000’s)
 

 

 
% Act

 
% Lfl

Current assets
$
340,895

 
$
349,980

 
(2.6
)%
 
(0.6
)%
Non-current assets
1,121,647

 
1,097,882

 
2.2
 %
 
7.3
 %
Current liabilities
167,145

 
156,001

 
7.1
 %
 
12.3
 %
Non-current liabilities
677,200

 
680,273

 
(0.5
)%
 
1.2
 %
Temporary equity
269,370

 
269,370

 
 %
 
 %
CME Ltd. shareholders’ equity
348,441

 
341,705

 
NM (1)

 
NM (1)

Noncontrolling interests in consolidated subsidiaries
386

 
513

 
(24.8
)%
 
(27.9
)%
(1) 
Number is not meaningful.
Note: The analysis below is intended to highlight the key factors at constant rates that led to the movements from December 31, 2019 to June 30, 2020, excluding the impact of foreign currency translation.
Current assets: Current assets at June 30, 2020 decreased from December 31, 2019 primarily due to the adoption of new accounting guidance which no longer requires programming content to be classified as current based on its expected timing of usage as well as the impact of the COVID-19 pandemic and seasonality on sales.
Non-current assets: Non-current assets at June 30, 2020 increased from December 31, 2019 primarily due to the adoption of new accounting guidance as noted above, offset by depreciation and amortization of assets purchased or leased in both 2020 and 2019.
Current liabilities: Current liabilities at June 30, 2020 increased from December 31, 2019 primarily due to higher deferred revenue from customer prepayments and higher programming-related payables, offset by fewer production and fixed asset related payables and the payment of accrued bonuses related to 2019 performance.
Non-current liabilities: On a constant currency basis, non-current liabilities at June 30, 2020 remained in line with December 31, 2019. See Item 1, Note 4, "Long-term Debt and Other Financing Arrangements".
Temporary equity: Temporary equity represents the accreted value of the Series B Preferred Shares.
CME Ltd. shareholders’ equity: The increase in shareholders' equity during the six months ended June 30, 2020 primarily reflects the impact of currency translation adjustment, offset by net income attributable to CME Ltd.
Noncontrolling interests in consolidated subsidiaries: Noncontrolling interests in consolidated subsidiaries represents the noncontrolling interest in Bulgaria.

38


IV.    Liquidity and Capital Resources
IV (a)    Summary of Cash Flows
Cash and cash equivalents increased by US$ 139.5 million during the six months ended June 30, 2020. The change in cash and cash equivalents for the period presented below is summarized as follows:
 
For the Six Months Ended June 30, (US$ 000's)
 
2020

 
2019

Net cash generated from operating activities
$
154,995

 
$
140,280

Net cash used in investing activities
(8,658
)
 
(8,266
)
Net cash used in financing activities
(3,929
)
 
(118,929
)
Impact of exchange rate fluctuations on cash and cash equivalents
(2,935
)
 
(477
)
Net increase in cash and cash equivalents
$
139,473

 
$
12,608

Operating Activities
Net cash generated from operating activities increased during the six months ended June 30, 2020 when compared to the same period in 2019 primarily due to lower payments for own-produced programming and taxes. We paid cash interest (including Guarantee Fees) of US$ 10.5 million during the six months ended June 30, 2020 compared to US$ 14.0 million during the six months ended June 30, 2019.
Investing Activities
Net cash used in investing activities for the six months ended June 30, 2020 and 2019 primarily reflects capital expenditures for production-related facilities and equipment in Bulgaria, the Czech Republic and Romania.
Financing Activities
Net cash used in financing activities during the six months ended June 30, 2020 primarily reflects payments on our finance leases. Cash used in financing activities during the six months ended June 30, 2019 primarily reflects principal repayments on our obligations under the 2021 Euro Loan.
IV (b)    Sources and Uses of Cash
Our ongoing source of cash is primarily the receipt of payments from advertisers, advertising agencies and distributors of our television channels. As at June 30, 2020, we also had available the aggregate principal amount of US$ 75.0 million under the 2023 Revolving Credit Facility (see Item 1, Note 4, "Long-term Debt and Other Financing Arrangements"). Surplus cash, after funding ongoing operations, may be remitted to us, where appropriate, by our subsidiaries in the form of debt interest payments, principal repayments, dividends, and other distributions and loans from our subsidiaries.
Corporate law in the Central and Eastern European countries in which we operate stipulates generally that dividends may be declared by the partners or shareholders out of yearly profits subject to the maintenance of registered capital, required reserves (if applicable) and after the recovery of accumulated losses. The reserve requirement restriction generally provides that before dividends may be distributed, a portion of annual net profits (typically at least 5.0%) be allocated to a reserve, which is capped at a proportion of the registered capital of a company (ranging from 5.0% to 20.0%). There are no third-party restrictions that limit our subsidiaries' ability to transfer amounts to us in the form of loans or advances.
IV (c)    Contractual Obligations, Commitments and Off-Balance Sheet Arrangements
Our future contractual obligations as at June 30, 2020 were as follows:
 
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
$
592,526

 
$

 
$
592,526

 
$

 
$

Long-term debt – interest
94,647

 
21,312

 
73,335

 

 

Unconditional purchase obligations
79,969

 
24,670

 
38,016

 
14,831

 
2,452

Operating lease obligations
13,421

 
3,831

 
5,004

 
2,823

 
1,763

Finance lease obligations
15,012

 
7,185

 
6,973

 
854

 

Other long-term obligations
25,170

 
11,296

 
11,202

 
2,672

 

Total contractual obligations
$
820,745

 
$
68,294

 
$
727,056

 
$
21,180

 
$
4,215

Long-Term Debt
For more information on our long-term debt, see Item 1, Note 4, "Long-term Debt and Other Financing Arrangements". Interest payable on our long-term debt is calculated using interest rates and exchange rates in effect as at June 30, 2020.

39


Unconditional Purchase Obligations
Unconditional purchase obligations primarily comprise future programming commitments. At June 30, 2020, we had commitments in respect of future programming of US$ 79.2 million. This includes signed contracts with license periods starting after June 30, 2020.
Operating and Finance Leases
For more information on our operating and finance lease commitments, see Item 1, Note 10, "Leases".
Other Long-Term Obligations
Other long-term obligations are primarily comprised of digital transmission commitments.
Other
Top Tone Media Holdings Limited has exercised its right to acquire additional equity in CME Bulgaria. However, the closing of this transaction has not yet occurred because purchaser financing is still pending. If consummated, we would own 90.0% of our Bulgaria operations. The option strike price is the fair value of the equity in CME Bulgaria, as determined by an independent valuation.
IV (d)    Cash Outlook
For the six months ended June 30, 2020, net cash generated from operating activities and unlevered free cash flow was US$ 155.0 million and US$ 157.1 million, respectively, compared to US$ 140.3 million and US$ 146.0 million, respectively, for the six months ended June 30, 2019 (See Section II, Overview). As at June 30, 2020, we had US$ 176.1 million in cash and cash equivalents and US$ 75.0 million of available aggregate principal amount under the 2023 Revolving Credit Facility. Our nearest debt maturity of EUR 60.3 million (US$ 67.6 million) is in November 2021.
As at June 30, 2020, our net leverage ratio was 2.4x which resulted in a weighted average all-in rate applicable to the Euro Loans and Guarantee Fees previously paid in kind of approximately 3.4%. In 2019, we repaid US$ 168.9 million of debt. As a result, we expect cash paid for interest and Guarantee Fees to decline in 2020 compared to 2019.
Our financial position and cash generation remains robust and we do not expect any near-term liquidity constraints. Cash flows during the first half of 2020 reflect a significant decline in payments for own-produced programming, including during the temporary suspension of productions between March and May 2020, as well as lower cash paid for taxes as we utilized national stimulus plans, such as provisions relating to delaying the payment of corporate income tax. While cash flow is normally lower in the second half of the year and we expect cash collections will be lower compared to 2019 from the year-on-year decline in second quarter net revenues, we are able to take steps to bolster our cash position, including through changes in programming and production, as well as the deferral of all non-essential capital expenditures and reductions in discretionary spending.
Credit ratings and future debt issuances
Our corporate credit is rated B1 by Moody's Investors Service with a stable outlook and B+ by Standard & Poor's, on watch with negative implications due to the proposed Merger. Our ratings show each agency's opinion of our financial strength, operating performance and ability to meet our debt obligations as they become due, as well as the proposed Merger and the uncertainty around the magnitude and timing of the disruptions caused by the COVID-19 outbreak. These ratings take into account the particular emphasis the ratings agencies place on metrics such as leverage ratio and cash flow, which they use as measurements of a company's liquidity and financial strength. They also reflect the consideration placed by the rating agencies on the historically strong financial support from Warner Media. We may be subject to downgrades if our operating performance deteriorates or we fail to maintain adequate levels of liquidity.
Credit risk of financial counterparties
We have entered into a number of significant contracts with financial counterparties as follows:
Interest Rate Swaps
We are party to interest rate swap agreements to mitigate our exposure to interest rate fluctuations on our Euro Loans. These interest rate swaps are designated as cash flow hedges and provide the Company with variable-rate cash receipts in exchange for fixed-rate payments over the lives of the agreements, with no exchange of the underlying notional amount.
Foreign Exchange Forwards
We are exposed to movements in the exchange rates of USD to the functional currencies of our operating segments related to contractual payments under dollar-denominated agreements. To reduce this exposure, we may decide to enter into forward foreign exchange contracts. We had no such agreements outstanding during the period ending June 30, 2020.
Cash Deposits
We may deposit cash in the global money markets with a range of bank counterparties and review the counterparties we choose regularly. The maximum period of deposit is three months, but we have more recently held amounts on deposit for shorter periods, up to one week. The credit rating of a bank is a critical factor in determining the size of cash deposits and we will only deposit cash with banks of investment grade rating. In addition, we also closely monitor the credit default swap spreads and other market information for each of the banks with which we consider depositing or have deposited funds.
IV (e)    Off-Balance Sheet Arrangements
None.

40


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.

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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:
June 30, 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 June 30, 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) 
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 December 31, 2019.
(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 June 30, 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 June 30, 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 June 30, 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 associated with 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 have included 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. While governments in the countries in which we operate have taken steps to relax or lift a number of restrictions (including restrictions on the conduct of non-essential business, shelter in place orders, certain social distancing orders and certain travel restrictions and border controls), the imposition of these various measures has impacted our business and the continuation of such measures or the re-imposition of similar or stricter measures may further impact our business.
Restrictions implemented on business activity and uncertainty in the global economic outlook has caused advertisers to adjust their purchasing plans and reduce their spending on advertising and a deterioration in economic conditions globally or in the markets in which we operate may cause advertisers to further adjust purchases of advertising in the future. Risks related to changes in global or regional economic conditions are described in more detail below. Furthermore, uncertainty in the global or regional economic outlook 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 day-to-day 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 ability of governmental authorities to contain the COVID-19 virus, the severity and scope of any future COVID-19 outbreaks as well as the types and scope of measures imposed by governmental authorities to contain future outbreaks of the virus or address its impact and the duration of those actions and measures. While governments in the countries in which we operate have relaxed or lifted a number of the restrictive measures, the measures that remain in place and the re-imposition of similar or more 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 those growth trends will continue in the immediate future, given the 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 and the governments in our markets have taken steps to relax or lift several restrictive measures, it is not yet possible to establish the impact of such steps. Recessions or periods of low or negative growth in the region or globally, including 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.

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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.
In 2015 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 to address economic softness and a slowdown in growth of consumer prices in the Eurozone. The 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. In addition, European Union ("EU") leaders have agreed on a COVID-19 recovery fund of EUR 750 billion; the recovery fund, which must be approved by the European parliament , is to be comprised of grants, particularly for EU member states most affected by the pandemic, and loans. There can be no assurance that the stability mechanism in Europe, any quantitative easing program or the recovery fund, when adopted, 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 in the markets in which we operate 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.
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.
On January 31, 2020, the United Kingdom formally left the EU (generally referred to as “Brexit”); however, it remains in the single market and is subject to the EU’s rules and regulations during a transition period ending December 31, 2020. While it is expected that economic conditions in the EU will be impacted by Brexit, the impact on our business 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 future relationship with the EU. Given the ongoing uncertainty over the final terms 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. 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 following the end of the transition period 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 deteriorates, 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".

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We may be subject to changes in tax rates and exposure to additional tax liabilities.
We are subject to taxes in a number of 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.
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, we purchase a significant amount of foreign programming 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 stable 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 the consideration 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.

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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.
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 suspended all in-process productions of own-produced titles and deferred certain other productions in response to restrictive social distancing measures that were imposed earlier in the year in the countries in which we operate in response to the COVID-19 pandemic. Following the relaxation of social distancing measures, we have resumed production of local titles in each of our country operations and adjusted our procedures in order to do so in a safe manner. The resumption and continuation of all productions will depend on the timing and scope of the relaxation of these measures as well as the absence of a need to reimpose relevant restrictive measures in the future. 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.

46


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), arbitrary or biased regulatory or judicial practice, corruption and increased taxes, fines 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, fines, penalties and other costs 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.
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.

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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 75.5%. 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. This proxy arrangement will remain in effect 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.
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.

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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 requisite vote of the Company's shareholders, 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, 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 to January 27, 2021, by CME or Parent under certain circumstances if the receipt of certain competition and other regulatory approvals is not satisfied by October 27, 2020, 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.
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. 

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Item 6.    Exhibits

EXHIBIT INDEX

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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:
Executive Vice President and Chief Financial Officer
Principal Financial Officer and Principal Accounting Officer

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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
Filed on:7/21/208-K
7/17/204
For Period end:6/30/20
3/31/2010-Q
2/27/208-K
2/6/2010-K,  8-K
1/31/20
1/10/20DEFM14A
1/1/20
12/31/1910-K,  10-K/A
10/27/198-K
10/1/19
6/30/1910-Q
3/31/1910-Q
3/19/19
12/31/1810-K
6/24/18
6/20/183
5/14/18
4/26/1810-Q,  4,  8-K
4/25/184,  8-K
6/22/17
4/5/16
2/19/168-K
9/30/1510-Q,  8-K
11/14/148-K
5/2/144,  8-K
 List all Filings 
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