Attached files

file filename
EX-32.01 - EXHIBIT 32.01 - CENTRAL EUROPEAN MEDIA ENTERPRISES LTDex32019302018.htm
EX-31.03 - EXHIBIT 31.03 - CENTRAL EUROPEAN MEDIA ENTERPRISES LTDex31039302018.htm
EX-31.02 - EXHIBIT 31.02 - CENTRAL EUROPEAN MEDIA ENTERPRISES LTDex31029302018.htm
EX-31.01 - EXHIBIT 31.01 - CENTRAL EUROPEAN MEDIA ENTERPRISES LTDex31019302018.htm

 
 
 
 
 
 
 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
o    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 0-24796

cmelogowithouttexta12.jpg
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
(Exact name of registrant as specified in its charter)
BERMUDA
 
98-0438382
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
O'Hara House, 3 Bermudiana Road, Hamilton, Bermuda
 
HM 08
(Address of principal executive offices)
 
(Zip Code)
Registrant's telephone number, including area code: (441) 296-1431
Indicate by check mark whether registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for each shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes T No £
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes T 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 £
Accelerated filer T
Non-accelerated filer £
Smaller reporting company £
 
 
 
Emerging growth company £
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. £
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act) Yes £ No T
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 October 15, 2018
Class A Common Stock, par value $0.08
252,853,554
 
 
 
 



CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
FORM 10-Q
For the quarterly period ended September 30, 2018

 
Page
Part I Financial Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Part II Other Information
 
 
 
 



PART I.    FINANCIAL INFORMATION
Item 1.    Financial Statements
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(US$ 000’s, except share data)
(Unaudited)
 
September 30, 2018

 
December 31, 2017

ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
56,003

 
$
54,903

Accounts receivable, net (Note 7)
129,562

 
158,903

Program rights, net (Note 6)
70,661

 
69,706

Other current assets (Note 8)
35,166

 
33,106

Assets held for sale (Note 3)
80,193

 
148,156

Total current assets
371,585

 
464,774

Non-current assets
 

 
 

Property, plant and equipment, net (Note 9)
99,362

 
103,648

Program rights, net (Note 6)
160,344

 
182,170

Goodwill (Note 4)
690,016

 
712,359

Other intangible assets, net (Note 4)
136,797

 
148,235

Other non-current assets (Note 8)
13,352

 
16,869

Total non-current assets
1,099,871

 
1,163,281

Total assets
$
1,471,456

 
$
1,628,055

LIABILITIES AND EQUITY
 
 
 
Current liabilities
 
 
 
Accounts payable and accrued liabilities (Note 10)
$
121,701

 
$
143,893

Current portion of long-term debt and other financing arrangements (Note 5)
4,392

 
2,960

Other current liabilities (Note 11)
23,122

 
9,280

Liabilities held for sale (Note 3)
13,522

 
32,131

Total current liabilities
162,737

 
188,264

Non-current liabilities
 

 
 

Long-term debt and other financing arrangements (Note 5)
789,161

 
1,085,714

Other non-current liabilities (Note 11)
61,589

 
95,254

Total non-current liabilities
850,750

 
1,180,968

Commitments and contingencies (Note 20)


 


TEMPORARY EQUITY
 
 
 
200,000 shares of Series B Convertible Redeemable Preferred Stock of $0.08 each (December 31, 2017 - 200,000) (Note 13)
269,370

 
264,593

EQUITY
 

 
 
CME Ltd. shareholders’ equity (Note 14):
 

 
 
One share of Series A Convertible Preferred Stock of $0.08 each (December 31, 2017 – one)

 

252,835,615 shares of Class A Common Stock of $0.08 each (December 31, 2017 – 145,486,497)
20,227

 
11,639

Nil shares of Class B Common Stock of $0.08 each (December 31, 2017 – nil)

 

Additional paid-in capital
2,002,574

 
1,905,779

Accumulated deficit
(1,633,906
)
 
(1,735,768
)
Accumulated other comprehensive loss
(200,318
)
 
(187,438
)
Total CME Ltd. shareholders’ equity / (deficit)
188,577

 
(5,788
)
Noncontrolling interests
22

 
18

Total equity / (deficit)
188,599

 
(5,770
)
Total liabilities and equity
$
1,471,456

 
$
1,628,055

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 September 30,
 
For the Nine Months Ended September 30,
 
2018

 
2017

 
2018


2017

Net revenues
$
123,522

 
$
119,431

 
$
422,259

 
$
378,058

Operating expenses:
 
 
 
 
 
 
 
Content costs
53,214

 
55,871

 
189,925

 
174,214

Other operating costs
11,789

 
12,612

 
36,873

 
35,747

Depreciation of property, plant and equipment
7,265

 
6,936

 
22,179

 
19,345

Amortization of broadcast licenses and other intangibles
2,216

 
2,187

 
6,839

 
6,349

Cost of revenues
74,484

 
77,606

 
255,816

 
235,655

Selling, general and administrative expenses
28,072

 
25,803

 
78,690

 
70,204

Operating income
20,966

 
16,022

 
87,753

 
72,199

Interest expense (Note 15)
(8,437
)
 
(18,352
)
 
(33,890
)
 
(54,773
)
Other non-operating income / (expense), net (Note 16)
1,571

 
3,542

 
(1,317
)
 
12,682

Income before tax
14,100

 
1,212

 
52,546

 
30,108

Provision for income taxes
(3,190
)
 
(3,157
)
 
(14,227
)
 
(12,770
)
Income / (loss) from continuing operations
10,910

 
(1,945
)
 
38,319

 
17,338

Income / (loss) from discontinued operations, net of tax (Note 3)
57,581

 
(5,988
)
 
63,269

 
(8,747
)
Net income / (loss)
68,491

 
(7,933
)
 
101,588

 
8,591

Net loss attributable to noncontrolling interests
80

 
188

 
274

 
534

Net income / (loss) attributable to CME Ltd.
$
68,571

 
$
(7,745
)
 
$
101,862

 
$
9,125

 
 
 
 
 
 
 
 
Net income / (loss)
$
68,491

 
$
(7,933
)
 
$
101,588

 
$
8,591

Other comprehensive income / (loss)
 
 
 
 
 
 
 
Currency translation adjustment
12,137

 
9,227

 
(10,707
)
 
42,203

Unrealized gain / (loss) on derivative instruments (Note 12)
1,033

 
(135
)
 
(1,895
)
 
1,083

Total other comprehensive income / (loss)
13,170

 
9,092

 
(12,602
)
 
43,286

Comprehensive income
81,661

 
1,159

 
88,986

 
51,877

Comprehensive loss / (income) attributable to noncontrolling interests
26

 
439

 
(4
)
 
1,330

Comprehensive income attributable to CME Ltd.
$
81,687

 
$
1,598

 
$
88,982

 
$
53,207

PER SHARE DATA (Note 18):
 
 
 
 
 
 
 
Net income / (loss) per share:
 
 
 
 
 
 
 
Continuing operations — basic
$
0.03

 
$
(0.03
)
 
$
0.10

 
$
0.04

Continuing operations — diluted
0.03

 
(0.03
)
 
0.09

 
0.03

Discontinued operations — basic
0.15

 
(0.04
)
 
0.19

 
(0.03
)
Discontinued operations — diluted
0.15

 
(0.04
)
 
0.18

 
(0.02
)
Net income / (loss) attributable to CME Ltd. — basic
0.18

 
(0.07
)
 
0.29

 
0.01

Net income / (loss) attributable to CME Ltd. — diluted
0.18

 
(0.07
)
 
0.27

 
0.01

 
 
 
 
 
 
 
 
Weighted average common shares used in computing per share amounts (000’s):
 
 
 
 
 
 
 
Basic
263,829

 
156,189

 
219,267

 
155,579

Diluted
264,940

 
156,189

 
255,265

 
233,761

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 (Deficit) / Equity

BALANCE
December 31, 2017
1

$

 
145,486,497

$
11,639

 

$

$
1,905,779

$
(1,735,768
)
$
(187,438
)
 
$
18

 
$
(5,770
)
Stock-based compensation


 


 


6,138



 

 
6,138

Exercise of warrants (Note 14)


 
105,652,401

8,452

 


97,200



 

 
105,652

Share issuance, stock-based compensation


 
1,696,717

136

 


(136
)


 

 

Withholding tax on net share settlement of stock-based compensation


 


 


(1,630
)


 

 
(1,630
)
Preferred dividend paid in kind


 


 


(4,777
)


 

 
(4,777
)
Net income / (loss)


 


 



101,862


 
(274
)
 
101,588

Unrealized loss on derivative instruments


 


 




(1,895
)
 

 
(1,895
)
Currency translation adjustment


 


 




(10,985
)
 
278

 
(10,707
)
BALANCE
September 30, 2018
1

$

 
252,835,615

$
20,227

 

$

$
2,002,574

$
(1,633,906
)
$
(200,318
)
 
$
22

 
$
188,599

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

3


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

 
For the Nine Months Ended September 30,
 
2018

 
2017

CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
101,588

 
$
8,591

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

 
 
(Income) / loss from discontinued operations, net of tax (Note 3)
(63,269
)
 
8,747

Amortization of program rights
189,925

 
174,214

Depreciation and other amortization
32,515

 
29,976

Interest and related Guarantee Fees paid in kind
2,934

 
14,733

Loss on extinguishment of debt (Note 16)
415

 
101

Loss / (gain) on disposal of fixed assets
7

 
(68
)
Deferred income taxes
(249
)
 
(1,300
)
Stock-based compensation (Note 17)
6,026

 
2,044

Change in fair value of derivatives
869

 
1,204

Foreign currency exchange loss / (gain), net
2,404

 
(12,459
)
Changes in assets and liabilities:
 
 
 
Accounts receivable, net
24,735

 
35,280

Accounts payable and accrued liabilities
(945
)
 
(5,435
)
Program rights
(190,277
)
 
(183,625
)
Other assets and liabilities
(70
)
 
(1,559
)
Accrued interest
(27,764
)
 
10,668

Income taxes payable
(9,230
)
 
991

Deferred revenue
16,240

 
11,645

VAT and other taxes payable
(920
)
 
(3,110
)
Net cash generated from continuing operating activities
$
84,934

 
$
90,638

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Purchase of property, plant and equipment
$
(12,098
)
 
$
(16,389
)
Disposal of property, plant and equipment
20

 
139

Net cash used in continuing investing activities
$
(12,078
)
 
$
(16,250
)
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

Repayment of debt
$
(270,780
)
 
$
(59,060
)
Debt transaction costs
(10,746
)
 
(106
)
Payment of credit facilities and capital leases
(3,016
)
 
(1,757
)
Proceeds from exercise of warrants
105,652

 
563

Proceeds from sale-leaseback transactions

 
2,746

Payments of withholding tax on net share settlement of share-based compensation
(1,630
)
 
(168
)
Net cash used in continuing financing activities
$
(180,520
)
 
$
(57,782
)
 
 
 
 
Net cash provided by discontinued operations - operating activities
13,253

 
3,273

Net cash provided by / (used in) discontinued operations - investing activities
97,774

 
(3,125
)
Net cash used in discontinued operations - financing activities
(231
)
 
(210
)
 
 
 
 
Impact of exchange rate fluctuations on cash and cash equivalents
(2,032
)
 
9,884

Net increase in cash and cash equivalents
$
1,100

 
$
26,428

CASH AND CASH EQUIVALENTS, beginning of period
54,903

 
40,606

CASH AND CASH EQUIVALENTS, end of period
$
56,003

 
$
67,034


4


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

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
 
Cash paid for interest (including mandatory cash-pay Guarantee Fees)
$
24,907

 
$
22,206

Cash paid for Guarantee Fees previously paid in kind
28,066

 

Cash paid for Guarantee Fees that may be paid in kind

 
1,411

Cash paid for income taxes, net of refunds
23,739

 
12,380

 
 
 
 
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
 
 
 
Accretion on Series B Convertible Redeemable Preferred Stock
$
4,777

 
$
7,216

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.    ORGANIZATION AND BUSINESS
Central European Media Enterprises Ltd., a Bermuda company limited by shares, is a media and entertainment company operating in Central and Eastern Europe. Our assets are held through a series of Dutch and Curaçao holding companies. We manage our business on a geographical basis, with four operating segments; Bulgaria, the Czech Republic, Romania and the Slovak Republic, which are also our reportable segments and our main operating countries. See Note 19, "Segment Data" for financial information by segment.
We are the market-leading broadcasters in each of our four operating countries with a combined portfolio of 26 television channels. Each country also develops and produces content for their television channels. We generate advertising revenues in our country operations primarily through entering into agreements with advertisers, advertising agencies and sponsors to place advertising on the television channels that we operate. We generate additional revenues by collecting fees from cable, and direct-to-home (“DTH”) and internet protocol television ("IPTV") operators for carriage of our channels. Unless otherwise indicated, we own 100% of our broadcast operating and license companies in each country.
Bulgaria
We operate one general entertainment channel, BTV, and five other channels, BTV CINEMA, BTV COMEDY, BTV ACTION, BTV LADY and RING. We own 94.0% of CME Bulgaria B.V. ("CME Bulgaria"), the subsidiary that owns our Bulgaria operations.
Czech Republic
We operate one general entertainment channel, TV NOVA, and seven other channels, NOVA 2, NOVA CINEMA, NOVA SPORT 1, NOVA SPORT 2, NOVA ACTION, NOVA GOLD and NOVA INTERNATIONAL, a general entertainment channel broadcasting in the Slovak Republic.
Romania
We operate one general entertainment channel, PRO TV, and seven other channels, PRO 2, PRO X, PRO GOLD, PRO CINEMA, PRO TV INTERNATIONAL, MTV ROMANIA, as well as PRO TV CHISINAU, a general entertainment channel broadcasting in Moldova.
Slovak Republic
We operate one general entertainment channel, TV MARKIZA, and three other channels, DOMA, DAJTO, and MARKIZA INTERNATIONAL, a general entertainment channel broadcasting in the Czech Republic.
2.    BASIS OF PRESENTATION
The terms the “Company”, “we”, “us”, and “our” are used in this Form 10-Q to refer collectively to the parent company, Central European Media Enterprises Ltd. (“CME Ltd.”), and the subsidiaries through which our various businesses are conducted. Unless otherwise noted, all statistical and financial information presented in this report has been converted into U.S. dollars using period-end exchange rates. All references to “US$”, “USD” or “dollars” are to U.S. dollars, all references to “BGN” are to the Bulgarian leva, all references to “CZK” are to the Czech koruna, all references to “RON” are to the New Romanian lei, and all references to “Euro” or “EUR” are to the European Union Euro. Where applicable, prior period presentation has been modified to conform to current year presentation.
Interim Financial Statements
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Quarterly Report on Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles in the United States of America (“US GAAP”). Amounts as of December 31, 2017 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, 2017 filed with the Securities and Exchange Commission on February 8, 2018. Our significant accounting policies have not changed since December 31, 2017, 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.
Revenue Recognition
Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services, net of taxes assessed by a government authority that are both imposed on and concurrent with the specific revenue-producing transaction and collected from the customer. The timing of revenue recognition may differ from the timing of invoicing to customers. We defer the recognition of revenues when cash payments are received or due in advance of our performance, including amounts which are refundable. We record a receivable when revenue is recognized prior to invoicing, or deferred revenue when revenue is recognized subsequent to invoicing. Invoicing typically occurs on a monthly basis and customers are obliged to pay within 30 to 60 days of issuance. For certain services and customer types, we require payment before the services are provided.
In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined our contracts do not include a significant financing component. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our products and services, not to receive financing from our customers or to provide customers with financing.

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)

Our principal revenue streams and their respective accounting treatments are discussed below:
Television advertising revenues primarily result from the sale of advertising time. Television advertising revenues are earned as the commercials are aired. In many countries, we commit to provide advertisers with certain rating levels in connection with their advertising. Revenue is recorded based on a charge per Gross Rating Point ("GRP") ordered during the month, net of estimated shortfalls. Discounts and agency commissions on television advertising revenue are recognized on a monthly basis and are reflected as a reduction to gross revenue. These amounts are known in advance or can be reasonably estimated based on historical practice.
Carriage fees and subscription revenues includes revenues from cable operators and direct-to-home broadcasters and fees from subscriptions to our streaming services. Revenues from cable operators and direct-to-home broadcasters are recognized as revenue over the period for which the channels are provided and to which the fees relate. A portion of this fee revenue is based on the number of subscribers to our channels and recognized during the period, based upon the number of subscribers. The impacts of future changes in subscriber levels are recognized when they occur as estimates of future subscribers are constrained. Revenues from subscriptions to our streaming services are recognized over the period of the subscription.
Other revenues primarily includes revenues from our internet display advertising, as well as revenues from the licensing of our content. Internet display advertising revenues are recognized on a cost-per-impression basis based on the number of times a customer's advertisement is displayed on our websites. Revenues from the licensing of our content are recognized over the license period beginning from delivery or reasonable access to the content.
Our revenue streams involve significant judgment with respect to the discounts and agency commissions we provide to certain customers based on the amount of advertising purchased. Such discounts are based on estimates of the total amount expected to be earned and reduce revenue based on a systematic and rational allocation of the cost of honoring the discounts earned and claimed to each of the underlying revenue transactions that result in progress by the customer towards earning the discount. Due to timing of the information provided by the rating agencies, significant judgment may be necessary to estimate the total volume of GRPs delivered within the contract period.
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.
Discontinued Operations and Assets Held for Sale
We present our results of operations, financial position and cash flows of operations that have either been sold or that meet the criteria for "held-for-sale accounting" as discontinued operations if the disposal represents a strategic shift that will have a major effect on our operations and financial results. At the time an operation qualifies for held-for-sale accounting, the operation is evaluated to determine whether or not the carrying amount exceeds its fair value less cost to sell. Any loss as a result of carrying amounts in excess of fair value less cost to sell is recorded in the period the operation qualifies for held-for-sale accounting. Management judgment is required to (1) assess the criteria required to qualify for held-for-sale accounting, and (2) estimate fair value. Both our Croatia operations and Slovenia operations are presented as discontinued operations for all periods in this report. Following the sale of our Croatia operations on July 31, 2018, only the Slovenia operations are classified as held for sale for the period ended September 30, 2018. See Note 3, "Discontinued Operations and Assets Held for Sale".
Basis of Consolidation
The unaudited condensed consolidated financial statements include the accounts of CME Ltd. and our subsidiaries, after the elimination of intercompany accounts and transactions. Entities in which we hold less than a majority voting interest but over which we have the ability to exercise significant influence are accounted for using the equity method. Other investments are accounted for using the cost method.
Seasonality
We experience seasonality, with advertising sales tending to be lowest during the third quarter of each calendar year due to the summer holiday period (typically July and August), and highest during the fourth quarter of each calendar year due to the winter holiday season.
Recent Accounting Pronouncements
Accounting Pronouncements Adopted
On January 1, 2018, we adopted Financial Accounting Standards Board ("FASB") Accounting Standards Codification Topic 606, Revenue from Contracts with Customers ("ASC 606") using the modified retrospective method applied to those contracts which were not completed as of the adoption date. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under legacy guidance. Based on our assessment of the guidance in ASC 606, our method of recognizing revenue did not change. Furthermore, we did not record an adjustment to opening retained earnings as of January 1, 2018 and there was no impact to revenues for the three and nine months ended September 30, 2018.
In August 2016, the FASB issued guidance which is intended to reduce the existing diversity in practice related to specific cash flow issues. As applicable to us, the guidance requires that cash flows at the settlement of zero-coupon debt instruments or debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing be bifurcated between cash outflows for operating activities for the portion attributable to accrued interest, and cash outflows for financing activities for the portion attributable to the principal. We adopted this guidance as of January 1, 2018 which did not impact our net cash flows generated from continuing operating activities in 2017 or 2018.

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)

Recent Accounting Pronouncements Issued
In February 2016, the FASB issued guidance to increase transparency and comparability among organizations by recognizing leasing assets and liabilities on the balance sheet and requiring additional disclosures about an entity's leasing arrangements. The guidance requires that a lessee recognize a liability to make lease payments and a right-of-use asset, with an available exception for leases shorter than twelve months. The guidance is effective for our fiscal year beginning January 1, 2019. We have completed our primary assessment of the impact the guidance is anticipated to have on our operating segments, controls and related IT systems and are in the process of making changes to ensure effective application and disclosure by the transition date.
In June 2016, the FASB issued new 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 replace the incurred loss impairment methodology in the current 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 is effective for our fiscal year beginning January 1, 2020 with early adoption permitted for our fiscal year beginning January 1, 2019. We are in the process of assessing the potential impacts of this guidance.
In August 2018, the FASB issued guidance to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software as well as hosting arrangements that include an internal use software license. We expect to early adopt this guidance in the fourth quarter of 2018 with minimal immediate impact anticipated.
3.    DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
On July 9, 2017, we entered into a framework agreement with Slovenia Broadband S.à r.l. (the "Purchaser"), a wholly owned subsidiary of United Group B.V., relating to the sale of our Croatia and Slovenia operations for cash consideration of EUR 230.0 million (the "Divestment Transaction"), subject to customary working capital adjustments.
On July 5, 2018 we signed an amended and restated framework agreement (the “Restated Framework Agreement”), which bifurcated the Divestment Transaction into individual transactions for our Croatia operations (the "Croatian Transaction") and our Slovenia operations (the "Slovenian Transaction"). On July 31, 2018, we completed the Croatian Transaction for proceeds of EUR 86.4 million (approximately US$ 101.4 million at July 31, 2018 rates), resulting in a gain on sale of US$ 58.4 million. Under the Restated Framework Agreement, cash consideration of EUR 145.0 million (approximately US$ 167.9 million) has been allocated to the closing of the Slovenian Transaction which is expected to close subject to obtaining the remaining regulatory approvals from the Competition Protection Agency in Slovenia as well as the satisfaction of other customary closing conditions. If the Restated Framework Agreement is terminated by either party because closing of the Slovenian Transaction has not occurred as of October 31, 2018 (extended from September 13, 2018), we would receive a termination fee of approximately EUR 4.4 million (approximately US$ 5.1 million), subject to certain exceptions, including if any requisite regulatory approval has not been obtained as a result of the Purchaser being required to make a specified material divestiture as a condition to such regulatory approval.
The carrying amounts of the major classes of assets and liabilities of our discontinued operations that are classified as held for sale in the condensed consolidated balance sheets at September 30, 2018 and December 31, 2017 were:
 
September 30, 2018

 
December 31, 2017

Assets held for sale
 
 
 
Cash and cash equivalents
$
3,475

 
$
8,784

Accounts receivable, net
15,973

 
43,540

Program rights, net
36,879

 
62,017

Property, plant and equipment, net
14,832

 
22,870

Other assets
9,034

 
10,945

Total assets held for sale
$
80,193

 
$
148,156

 
 
 
 
Liabilities held for sale
 
 
 
Accounts payable and accrued liabilities
$
12,097

 
$
30,073

Other liabilities
1,425

 
2,058

Total liabilities held for sale
$
13,522

 
$
32,131


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)

Income / (loss) from discontinued operations, net of tax, comprised the following for the three and nine months ended September 30, 2018 and 2017:
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2018

 
2017

 
2018

 
2017

Net revenues
$
16,899

 
$
22,742

 
$
90,281

 
$
80,973

Cost of revenues
12,804

 
18,893

 
61,302

 
61,120

Selling, general and administrative expenses
3,007

 
5,394

 
13,768

 
14,484

Operating income / (loss)
1,088

 
(1,545
)
 
15,211

 
5,369

Interest expense (1)
(1,848
)
 
(4,913
)
 
(9,082
)
 
(14,220
)
Other non-operating income, net
21

 
294

 
298

 
621

(Loss) / income from discontinued operations, before tax, before gain on sale
(739
)
 
(6,164
)
 
6,427

 
(8,230
)
Gain on sale of divested businesses
58,442

 

 
58,442

 

Income / (loss) from discontinued operations, before tax
57,703

 
(6,164
)
 
64,869

 
(8,230
)
(Provision) / credit for income taxes
(122
)
 
176

 
(1,600
)
 
(517
)
Income / (loss) from discontinued operations, net of tax
$
57,581

 
$
(5,988
)
 
$
63,269

 
$
(8,747
)
(1) 
For the nine months ended September 30, 2018 and 2017, we paid US$ 12.0 million and US$ 9.6 million, respectively, of interest and Guarantee Fees associated with the 2019 Euro Loan and the 2021 Euro Loan (each as defined in Note 5, "Long-term Debt and Other Financing Arrangements"). These payments were allocated to Net cash provided by discontinued operations - operating activities in our condensed consolidated statements of cash flows as we are required to apply the proceeds from the Divestment Transaction towards the repayment of debt and related obligations.
4.    GOODWILL AND INTANGIBLE ASSETS
Goodwill:
Goodwill by reporting unit as at September 30, 2018 and December 31, 2017 was as follows:
 
Bulgaria
 
Czech Republic
 
Romania
 
Slovak Republic
 
Total
Gross Balance, December 31, 2017
$
175,071

 
$
837,732

 
$
90,305

 
$
52,463

 
$
1,155,571

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

 
(443,212
)
Balance, December 31, 2017
30,432

 
550,187

 
79,277

 
52,463

 
712,359

Foreign currency
(1,057
)
 
(16,931
)
 
(2,527
)
 
(1,828
)
 
(22,343
)
Balance, September 30, 2018
29,375

 
533,256

 
76,750

 
50,635

 
690,016

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

 
(443,212
)
Gross Balance, September 30, 2018
$
174,014

 
$
820,801

 
$
87,778

 
$
50,635

 
$
1,133,228

Other intangible assets:
The net book values of our other intangible assets as at September 30, 2018 and December 31, 2017 are summarized as follows:
 
September 30, 2018
 
December 31, 2017
 
Gross
 
Accumulated Amortization
 
Net
 
Gross
 
Accumulated Amortization
 
Net
Indefinite-lived:
 
 
 
 
 
 
 
 
 
 
 
Trademarks
$
84,977

 
$

 
$
84,977

 
$
87,900

 
$

 
$
87,900

Amortized:
 
 
 
 
 
 
 
 
 
 
 
Broadcast licenses
213,308

 
(162,721
)
 
50,587

 
220,194

 
(161,820
)
 
58,374

Trademarks
407

 
(407
)
 

 
421

 
(421
)
 

Customer relationships
56,815

 
(55,725
)
 
1,090

 
58,771

 
(56,996
)
 
1,775

Other
1,690

 
(1,547
)
 
143

 
1,753

 
(1,567
)
 
186

Total
$
357,197

 
$
(220,400
)
 
$
136,797

 
$
369,039

 
$
(220,804
)
 
$
148,235

Broadcast licenses consist of our TV NOVA license in the Czech Republic, which is amortized on a straight-line basis through the expiration date of the license in 2025. Our customer relationships are deemed to have an economic useful life of, and are amortized on a straight-line basis over, five years to fifteen years.

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)

5.    LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS
Summary
 
September 30, 2018

 
December 31, 2017

Long-term debt
$
780,510

 
$
1,079,187

Other credit facilities and capital leases
13,043

 
9,487

Total long-term debt and other financing arrangements
793,553

 
1,088,674

Less: current maturities
(4,392
)
 
(2,960
)
Total non-current long-term debt and other financing arrangements
$
789,161

 
$
1,085,714

Financing Transactions
On February 5, 2018, we entered into an amendment to extend the maturity date of the 2019 Euro Loan (formerly the 2018 Euro Term Loan) from November 1, 2018 to May 1, 2019. On February 6, 2018, we paid EUR 50.0 million (approximately US$ 61.6 million at February 6, 2018 rates) of the outstanding principal balance of the 2019 Euro Loan.
On April 25, 2018, we entered into a series of amendments (effective on April 26, 2018) which modified certain terms of our 2021 Euro Loan (formerly the 2019 Euro Term Loan), the 2023 Euro Loan (formerly the 2021 Euro Term Loan), the 2023 Revolving Credit Facility (formerly the 2021 Revolving Credit Facility) (each as defined below) and the Reimbursement Agreement (as defined below) (collectively, the "Financing Transactions"). The Financing Transactions reduced the rates payable under the pricing grid under the Reimbursement Agreement and the 2023 Revolving Credit Facility as well as extended the maturity dates of the 2021 Euro Loan, the 2023 Euro Loan and the 2023 Revolving Credit Facility. The amount available to us under the 2023 Revolving Credit Facility increased to US$ 75.0 million from April 26, 2018.
On May 3, 2018, we paid EUR 110.0 million (approximately US$ 132.0 million at May 3, 2018 rates) of the outstanding principal balance of the 2019 Euro Loan.
On July 31, 2018, we used the proceeds from the completion of the Croatian Transaction together with cash from operations to repay (1) the outstanding principal amount of EUR 40.8 million (approximately US$ 47.9 million at July 31, 2018 rates) of the 2019 Euro Loan and accrued interest thereon and (2) EUR 25.0 million (approximately US$ 29.3 million at July 31, 2018 rates) of the 2021 Euro Loan plus accrued interest thereon. In addition, we paid US$ 41.2 million to Warner Media, LLC ("Warner Media") to repay (1) all Guarantee Fees payable to Warner Media as of the date of repayment under the 2019 Euro Loan and (2) all outstanding Guarantee Fees and the Commitment Fee, together with accrued interest thereon, previously paid in kind which were payable to Warner Media prior to repayment of the portion of the 2021 Euro Loan.
Following the above repayments, we expect to apply the proceeds from the Slovenian Transaction (see Note 3, "Discontinued Operations and Assets Held for Sale") towards the partial repayment of the 2021 Euro Loan.
Overview
Total long-term debt and credit facilities comprised the following at September 30, 2018:
 
Principal Amount of Liability Component

 
Debt Issuance
Costs (1)

 
Net Carrying Amount

2021 Euro Loan
243,484

 
(592
)
 
242,892

2023 Euro Loan
542,683

 
(5,065
)
 
537,618

2023 Revolving Credit Facility

 

 

Total long-term debt and credit facilities
$
786,167

 
$
(5,657
)
 
$
780,510

(1) 
Debt issuance costs related to the 2021 Euro Loan and 2023 Euro Loan are being amortized on a straight-line basis, which approximates the effective interest method, over the life of the respective instruments. Debt issuance costs related to the 2023 Revolving Credit Facility are classified as non-current assets in our condensed consolidated balance sheet and are being amortized on a straight-line basis over the life of the 2023 Revolving Credit Facility.
Long-term Debt
Our long-term debt comprised the following at September 30, 2018 and December 31, 2017:
 
Carrying Amount
 
Fair Value
 
September 30, 2018

 
December 31, 2017

 
September 30, 2018

 
December 31, 2017

2019 Euro Loan
$

 
$
240,545

 
$

 
$
236,337

2021 Euro Loan
242,892

 
281,871

 
235,042

 
268,858

2023 Euro Loan
537,618

 
556,771

 
504,597

 
510,882

 
$
780,510

 
$
1,079,187

 
$
739,639

 
$
1,016,077


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)

The fair values of the Euro Loans (as defined below) as at September 30, 2018 and December 31, 2017 were determined based on comparable instruments that trade in active markets. This measurement of estimated fair value uses Level 2 inputs as described in Note 12, "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 September 30, 2018, the principal amount of our floating rate senior unsecured term credit facility (the "2021 Euro Loan") outstanding was EUR 210.3 million (approximately US$ 243.5 million). The 2021 Euro Loan bears interest at three-month EURIBOR (fixed pursuant to customary hedging arrangements (see Note 12, "Financial Instruments and Fair Value Measurements")) plus a margin of between 1.1% and 1.9% depending on the credit rating of Warner Media. As at September 30, 2018, the all-in borrowing rate on amounts outstanding under the 2021 Euro Loan was 3.75%, 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 currently be prepaid at our option, in whole or in part, without premium or penalty from cash generated from our operations. From April 26, 2020, the 2021 Euro Loan may be refinanced at our option. The 2021 Euro Loan is a senior unsecured obligation of CME Ltd. and is unconditionally guaranteed by CME BV and by Warner Media and certain of its subsidiaries.
2023 Euro Loan
As at September 30, 2018, the principal amount of our floating rate senior unsecured term credit facility (the "2023 Euro Loan") outstanding was EUR 468.8 million (approximately US$ 542.7 million). The 2023 Euro Loan bears interest at three-month EURIBOR (fixed pursuant to customary hedging arrangements (see Note 12, "Financial Instruments and Fair Value Measurements")) plus a margin of between 1.1% and 1.9% depending on the credit rating of Warner Media. As at September 30, 2018, the all-in borrowing rate on amounts outstanding under the 2023 Euro Loan was 4.25%, the components of which are shown in the table below under the heading "Interest Rate Summary".
Interest on the 2023 Euro Loan is payable quarterly in arrears on each January 7, April 7, July 7 and October 7. The 2023 Euro Loan matures on April 26, 2023 and may be prepaid at our option, in whole or in part, without premium or penalty from cash generated from our operations. From April 26, 2020, the 2023 Euro Loan may be refinanced at our option. The 2023 Euro Loan is a senior unsecured obligation of CME BV and is unconditionally guaranteed by CME Ltd. and by Warner Media and certain of its subsidiaries.
Reimbursement Agreement and Guarantee Fees
In connection with Warner Media’s guarantees of the 2019 Euro Loan, 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 jointly and severally guaranteed by both our 100% owned subsidiary Central European Media Enterprises N.V. ("CME NV") and CME BV and is secured by a pledge over 100% of the outstanding shares of each of CME NV and CME BV. The covenants and events of default under the Reimbursement Agreement are substantially the same as under the 2023 Revolving Credit Facility (described below).
We pay Guarantee Fees to Warner Media based on the amounts outstanding on the Euro Loans calculated on a per annum basis and on our consolidated net leverage (as defined in the Reimbursement Agreement) as shown in the tables below:
All-in Rate
Consolidated Net Leverage
2021 Euro Loan

 
2023 Euro Loan

7.0x
 
 
 
6.00
%
 
6.50
%
<
7.0x
-
6.0x
 
5.00
%
 
5.50
%
<
6.0x
-
5.0x
 
4.25
%
 
4.75
%
<
5.0x
-
4.0x
 
3.75
%
 
4.25
%
<
4.0x
-
3.0x
 
3.25
%
 
3.75
%
<
3.0x
 
 
 
3.25
%
 
3.50
%
Our consolidated net leverage as at September 30, 2018 and December 31, 2017 was 3.8x and 5.4x, respectively. For the three and nine months ended September 30, 2018 and 2017, we recognized US$ 4.3 million and US$ 18.2 million; and US$ 11.8 million and US$ 36.3 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 11, "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.

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)

Interest Rate Summary
 
Base Rate

 
Rate Fixed Pursuant to Interest Rate Hedges

 
Guarantee Fee Rate

 
All-in Borrowing Rate

2021 Euro Loan
1.28
%
 
0.31
%
(1) 
2.16
%
 
3.75
%
2023 Euro Loan
1.28
%
 
0.28
%
(2) 
2.69
%
 
4.25
%
2023 Revolving Credit Facility (if drawn)
6.40
%
(3) 
%
 
%
 
6.40
%
(1) 
Effective until November 1, 2019. From November 1, 2019 through maturity on November 1, 2021, the rate fixed pursuant to interest rate hedges will increase to 0.47%, with a corresponding decrease in the Guarantee Fee rate, such that the all-in borrowing rate remains 3.75% if our net leverage ratio remains unchanged.
(2) 
Effective until February 19, 2021. From February 19, 2021 through maturity on April 26, 2023, the rate fixed pursuant to interest rate hedges will increase to 0.97%, with a corresponding decrease in the Guarantee Fee rate, such that the all-in borrowing rate remains 4.25% if our net leverage ratio remains unchanged.
(3) 
Based on the three month LIBOR of 2.40% as at September 30, 2018.
2023 Revolving Credit Facility
We had no balance outstanding under the US$ 75.0 million revolving credit facility (the "2023 Revolving Credit Facility") as at September 30, 2018.
The 2023 Revolving Credit Facility bears interest at a rate per annum based on, at our option, an alternate base rate ("ABR Loans" as defined in the 2023 Revolving Credit Facility Agreement) plus the spread applicable to ABR Loans based on our consolidated net leverage or an amount equal to the greater of (i) an adjusted LIBO rate and (ii) 1.0%, plus the spread applicable to the Eurodollar Loans (as defined in the 2023 Revolving Credit Facility Agreement) based on our consolidated net leverage ratio (as defined in the Reimbursement Agreement), with all amounts payable in cash. The maturity date of the 2023 Revolving Credit Facility is April 26, 2023. When drawn, the 2023 Revolving Credit Facility permits prepayment at our option in whole or in part without penalty.
Pursuant to the Financing Transactions, the following spreads are applicable:
Consolidated Net Leverage
Alternate Base Rate Loans

 
Eurodollar Loans

7.0x
 
 
 
5.25
%
 
6.25
%
<
7.0x
-
6.0x
 
4.25
%
 
5.25
%
<
6.0x
-
5.0x
 
3.50
%
 
4.50
%
<
5.0x
-
4.0x
 
3.00
%
 
4.00
%
<
4.0x
-
3.0x
 
2.50
%
 
3.50
%
<
3.0x
 
 
 
2.25
%
 
3.25
%
The 2023 Revolving Credit Facility is jointly and severally guaranteed by CME NV and CME BV and is secured by a pledge over 100% of the outstanding shares of each of CME NV and CME BV. The 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.

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)

Other Credit Facilities and Capital Lease Obligations
Other credit facilities and capital lease obligations comprised the following at September 30, 2018 and December 31, 2017:
 
September 30, 2018

 
December 31, 2017

Credit facilities (1) – (3)
$

 
$

Capital leases
13,043

 
9,487

Total credit facilities and capital leases
13,043

 
9,487

Less: current maturities
(4,392
)
 
(2,960
)
Total non-current credit facilities and capital leases
$
8,651

 
$
6,527

(1) 
We have a cash pooling arrangement with Bank Mendes Gans (“BMG”), a subsidiary of ING Bank N.V. (“ING”), which enables us to receive credit 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 September 30, 2018, we had deposits of US$ 21.4 million in and no drawings on the BMG cash pool. Interest is earned on deposits at the relevant money market rate. As at December 31, 2017, we had deposits of US$ 12.4 million in and no drawings on the BMG cash pool.
(2)
Under a factoring framework agreement with Factoring Česka spořitelna a.s., up to CZK 575.0 million (approximately US$ 26.2 million) of receivables from certain customers in the Czech Republic may be factored on a recourse or non-recourse basis. The facility has a factoring fee of 0.19% of any factored receivable and bears interest at one-month PRIBOR plus 0.95% per annum for the period that receivables are factored and outstanding.
(3) 
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.
Total Group
At September 30, 2018, the maturity of our long-term debt and credit facilities was as follows:
2018
$

2019

2020

2021
243,484

2022

2023 and thereafter
542,683

Total long-term debt and credit facilities
786,167

Debt issuance costs
(5,657
)
Carrying amount of long-term debt and credit facilities
$
780,510

Capital Lease Commitments
We lease machinery and equipment under various leasing arrangements. The future minimum lease payments, by year and in the aggregate, under capital leases with initial or remaining non-cancellable lease terms in excess of one year, consisted of the following at September 30, 2018:
2018
$
1,219

2019
4,506

2020
4,201

2021
2,916

2022
603

2023 and thereafter

Total undiscounted payments
13,445

Less: amount representing interest
(402
)
Present value of net minimum lease payments
$
13,043


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)

6.    PROGRAM RIGHTS
Program rights comprised the following at September 30, 2018 and December 31, 2017:
 
September 30, 2018

 
December 31, 2017

Program rights:
 
 
 
Acquired program rights, net of amortization
$
138,344

 
$
161,929

Less: current portion of acquired program rights
(70,661
)
 
(69,706
)
Total non-current acquired program rights
67,683

 
92,223

Produced program rights – Feature Films:
 
 
 

Released, net of amortization
715

 
939

Produced program rights – Television Programs:
 

 
 

Released, net of amortization
54,029

 
49,888

Completed and not released
8,384

 
9,987

In production
29,243

 
28,971

Development and pre-production
290

 
162

Total produced program rights
92,661

 
89,947

Total non-current acquired program rights and produced program rights
$
160,344

 
$
182,170

7.    ACCOUNTS RECEIVABLE
Accounts receivable comprised the following at September 30, 2018 and December 31, 2017:
 
September 30, 2018

 
December 31, 2017

Third-party customers
$
139,386

 
$
168,805

Less: allowance for bad debts and credit notes
(9,824
)
 
(9,902
)
Total accounts receivable
$
129,562

 
$
158,903

8.    OTHER ASSETS
Other current and non-current assets comprised the following at September 30, 2018 and December 31, 2017:
 
September 30, 2018

 
December 31, 2017

 Current:
 
 
 
Prepaid acquired programming
$
24,883

 
$
22,579

Other prepaid expenses
7,448

 
7,616

VAT recoverable
733

 
650

Income taxes recoverable
978

 
109

Other
1,124

 
2,152

Total other current assets
$
35,166

 
$
33,106

 
 
 
 
 
September 30, 2018

 
December 31, 2017

Non-current:
 

 
 

Capitalized debt costs
$
10,333

 
$
12,947

Deferred tax
2,726

 
2,964

Other
293

 
958

Total other non-current assets
$
13,352

 
$
16,869

Capitalized debt costs are being amortized over the term of the 2023 Revolving Credit Facility using the straight-line method, which approximates the effective interest method.

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)

9.    PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment comprised the following at September 30, 2018 and December 31, 2017:
 
September 30, 2018

 
December 31, 2017

Land and buildings
$
84,401

 
$
86,480

Machinery, fixtures and equipment
198,667

 
195,682

Other equipment
15,848

 
16,121

Software
54,172

 
53,143

Construction in progress
5,644

 
3,026

Total cost
358,732

 
354,452

Less: accumulated depreciation
(259,370
)
 
(250,804
)
Total net book value
$
99,362

 
$
103,648

 
 
 
 
Assets held under capital leases (included in the above)
 

 
 

Machinery, fixtures and equipment
$
19,582

 
$
14,193

Total cost
19,582

 
14,193

Less: accumulated depreciation
(7,521
)
 
(5,151
)
Total net book value
$
12,061

 
$
9,042

The movement in the net book value of property, plant and equipment during the nine months ended September 30, 2018 and 2017 was comprised of:
 
For the Nine Months Ended September 30,
 
2018

 
2017

Opening balance
$
103,648

 
$
89,080

Additions (1)
21,147

 
18,547

Disposals
(27
)
 
(71
)
Depreciation
(22,179
)
 
(19,345
)
Foreign currency movements
(3,227
)
 
12,097

Ending balance
$
99,362

 
$
100,308

(1) 
Includes assets acquired under capital leases of US$ 9.2 million and US$ 5.5 million for the nine months ended September 30, 2018 and 2017, respectively.
10.    ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities comprised the following at September 30, 2018 and December 31, 2017:
 
September 30, 2018

 
December 31, 2017

Accounts payable and accrued expenses
$
55,382

 
$
53,408

Related party accounts payable
123

 
252

Programming liabilities
13,079

 
16,923

Related party programming liabilities
11,274

 
20,027

Duties and other taxes payable
7,681

 
8,769

Accrued staff costs
15,832

 
18,430

Accrued interest payable
2,404

 
3,326

Related party accrued interest payable (including Guarantee Fees)
7,689

 
6,273

Income taxes payable
5,898

 
14,018

Other accrued liabilities
2,339

 
2,467

Total accounts payable and accrued liabilities
$
121,701

 
$
143,893


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)

11.    OTHER LIABILITIES
Other current and non-current liabilities comprised the following at September 30, 2018 and December 31, 2017:
 
September 30, 2018

 
December 31, 2017

Current:
 
 
 
Deferred revenue
$
20,245

 
$
5,675

Legal provisions
1,979

 
2,907

Other
898

 
698

Total other current liabilities
$
23,122

 
$
9,280

 
 
 
 
 
September 30, 2018

 
December 31, 2017

Non-current:
 

 
 

Deferred tax
$
19,544

 
$
20,569

Related party commitment fee payable (1)

 
10,765

Related party Guarantee Fee payable (Note 5)
33,465

 
58,855

Other
8,580

 
5,065

Total other non-current liabilities
$
61,589

 
$
95,254

(1) 
The Commitment Fee was paid on July 31, 2018, see Note 5, "Long-term Debt and Other Financing Arrangements".
During the three and nine months ended September 30, 2018 and 2017, we recognized revenue of US$ 1.1 million and US$ 5.2 million; and US$ 1.0 million; and US$ 4.7 million which we had deferred as at December 31, 2017 and 2016, respectively.
12.    FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
ASC 820, “Fair Value Measurements and Disclosure”, establishes a hierarchy that prioritizes the inputs to those valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are:
Basis of Fair Value Measurement
Level 1
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted instruments.
Level 2
Quoted prices in markets that are not considered to be active or financial instruments for which all significant inputs are observable, either directly or indirectly.
Level 3
Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
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 5, "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.
The effective portion of the changes in the fair value of the designated instruments is recorded in accumulated other comprehensive income / loss and subsequently reclassified to interest expense when the hedged item affects earnings. The ineffective portion of changes in the fair value is recognized immediately in other non-operating income / expense, net in our condensed consolidated statements of operations and comprehensive income / loss. For the three and nine months ended September 30, 2018 and 2017, we did not recognize any charges related to hedge ineffectiveness. All changes in fair value are recorded in other non-operating income / expense, net in our condensed consolidated statements of operations and comprehensive income / loss.

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)

Information relating to interest rates swaps is as follows:
Trade Date
 
Number of Contracts

 
Aggregate Notional Amount

 
Designated Portion

 
Maturity Date
 
Objective
 
Fair Value as at September 30, 2018

November 10,
2015
 
3

 
EUR
210,335

 
EUR
65,204

 
November 1,
2019
 
Interest rate hedge underlying 2021 Euro Loan
 
$
(830
)
April 26,
2018
 
3

 
EUR
210,335

 
EUR
65,204

 
November 1,
2021
 
Interest rate hedge underlying 2021 Euro Loan, forward starting on November 1, 2019
 
$
(773
)
April 5,
 2016
 
5

 
EUR
468,800

 
EUR
468,800

 
February 19,
2021
 
Interest rate hedge underlying 2023 Euro Loan
 
$
(2,197
)
April 26,
2018
 
4

 
EUR
468,800

 
EUR
468,800

 
April 26,
2023
 
Interest rate hedge underlying 2023 Euro Loan, forward starting on February 19, 2021
 
$
(2,344
)
As a part of the Financing Transactions (see Note 5, "Long-term Debt and Other Financing Arrangements"), we entered into forward starting interest rate swap agreements to mitigate our exposure to interest rate fluctuations on the outstanding principal amount of the 2021 Euro Loan and the 2023 Euro Loan for the period from maturity of the current instruments until the prolonged maturity date of the related Euro Loan.
The expected proceeds from the Slovenian Transaction will be used to satisfy amounts owing in respect of the 2021 Euro Loan (see Note 5, "Long-term Debt and Other Financing Arrangements"). The anticipated reduction of principal amounts owing in respect of the 2021 Euro Loan will reduce future interest payments that the interest rate swaps maturing on November 1, 2019 and November 1, 2021, respectively, are designed to hedge. To maintain the effectiveness of these interest rate swaps, only a portion of each instrument is designated to effectively align the notional amount of the instruments with the 2021 Euro Loan principal that will remain after the application of the Slovenian Transaction proceeds. For the portions that are not designated as hedging instruments, all related fair value adjustments, including those previously recognized in accumulated other comprehensive income / loss, are recognized in other non-operating income / expense, net in our condensed consolidated statements of operations and comprehensive income / loss (see Note 14, "Equity").
Foreign Currency Risk
From time to time, we have entered into forward foreign exchange contracts to reduce our exposure to movements in foreign exchange rates related to contractual payments under certain dollar-denominated agreements. As at September 30, 2018, we had no such forward foreign exchange contracts outstanding.
Fair Value of Derivatives
The change in fair value of derivatives not recognized within accumulated other comprehensive income / loss comprised the following for the three and nine months ended September 30, 2018 and 2017:
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2018

 
2017

 
2018

 
2017

Loss on currency swaps
$

 
$
(696
)
 
$

 
$
(1,428
)
Gain / (loss) on interest rate swaps
67

 
(454
)
 
(1,262
)
 
(454
)
Change in fair value of derivatives
$
67

 
$
(1,150
)
 
$
(1,262
)
 
$
(1,882
)
13.    CONVERTIBLE REDEEMABLE PREFERRED SHARES
200,000 shares of our Series B Convertible Redeemable Preferred Stock, par value US$ 0.08 per share (the “Series B Preferred Shares”) were issued and outstanding as at September 30, 2018 and December 31, 2017. As at September 30, 2018 and December 31, 2017, the accreted value of the Series B Preferred Shares was US$ 269.4 million and US$ 264.6 million, respectively. The Series B Preferred Shares are held by Time Warner Media Holdings B.V. ("TW Investor"), a wholly owned subsidiary of AT&T. As of September 30, 2018, the 200,000 shares of Series B preferred stock were convertible into approximately 111.1 million shares of Class A common stock.
The stated value of the Series B Preferred Shares of US$ 1,000 per share accreted at an annual rate of 3.75%, compounded quarterly, from June 25, 2016 until June 24, 2018. The Series B Preferred Shares will not accrete further. Each Series B Preferred Share may, at the holder's option, be converted into the number of shares of our Class A common stock determined by dividing (i) the accreted stated value plus accrued but unpaid dividends, if any, in each case as of the conversion date, by (ii) the conversion price, which was approximately US$ 2.42 at September 30, 2018, 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.

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)

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. For the three months ended September 30, 2018, there was no accretion on the Series B Preferred Shares. For the nine months ended September 30, 2018, we recognized accretion on the Series B Preferred Shares of US$ 4.8 million, with a corresponding decrease in additional paid-in capital. For the three and nine months ended September 30, 2017, we recognized accretion on the Series B Preferred Shares of US$ 2.5 million and US$ 7.2 million, respectively, with corresponding decreases in additional paid-in capital.
14.    EQUITY
Preferred Stock
5,000,000 shares of Preferred Stock were authorized as at September 30, 2018 and December 31, 2017.
One share of Series A Convertible Preferred Stock (the "Series A Preferred Share") was issued and outstanding as at September 30, 2018 and December 31, 2017. The Series A Preferred Share is convertible into 11,211,449 shares of Class A common stock on the date that is 61 days after the date on which the ownership of our outstanding shares of Class A common stock by a group that includes TW Investor and its affiliates would not be greater than 49.9%. The Series A Preferred Share is entitled to one vote per each share of Class A common stock into which it is convertible and has such other rights, powers and preferences, including potential adjustments to the number of shares of Class A common stock to be issued upon conversion, as are set forth in the Certificate of Designation for the Series A Preferred Share.
200,000 shares of Series B Preferred Shares were issued and outstanding as at September 30, 2018 and December 31, 2017 (see Note 13, "Convertible Redeemable Preferred Shares"). As of September 30, 2018, the Series B Preferred Shares were convertible into approximately 111.1 million shares of Class A common stock.
Class A and Class B Common Stock
440,000,000 shares of Class A common stock and 15,000,000 shares of Class B common stock were authorized as at September 30, 2018 and December 31, 2017. The rights of the holders of Class A common stock and Class B common stock are identical except for voting rights. The shares of Class A common stock are entitled to one vote per share and the shares of Class B common stock are entitled to ten votes per share. Shares of Class B common stock are convertible into shares of Class A common stock on a one-for-one basis for no additional consideration and automatically convert into shares of Class A common stock on a one-for-one basis when the number of shares of Class B common stock is less than 10% of the total number of shares of common stock outstanding. Holders of each class of shares are entitled to receive dividends and upon liquidation or dissolution are entitled to receive all assets available for distribution to holders of our common stock. Under our bye-laws, the holders of each class have no preemptive or other subscription rights and there are no redemption or sinking fund provisions with respect to such shares.
There were 252.8 million and 145.5 million shares of Class A common stock outstanding at September 30, 2018 and December 31, 2017, respectively, and no shares of Class B common stock outstanding at September 30, 2018 or December 31, 2017.
As at September 30, 2018, TW Investor owns 64.2% of the outstanding shares of Class A common stock. In connection with the exercise of warrants by Warner Media and TW Investor (described below), each of them issued standing proxies to the independent directors of the Company, pursuant to which they granted the right to vote the shares received on the exercise of those warrants (the “Warrant Shares”) on all matters other than a change in control. In accordance with these proxies, the Warrant Shares will be voted in proportion to votes cast at a general meeting of the Company, excluding such Warrant Shares. Warner Media and TW Investor have undertaken to maintain this proxy arrangement in effect until April 2020 and may at their option extend it for an additional year. As a result of the standing proxies, after giving effect to its ownership of the Series A Preferred Share, TW Investor has a 44.5% voting interest in the Company.
Warrants
On May 2, 2014, we issued 114,000,000 warrants in connection with a rights offering. Each warrant was exercisable until May 2, 2018 and entitled the holder thereof to receive one share of our Class A common stock at an exercise price of US$ 1.00 per share in cash. During 2018, 105,652,401 warrants were exercised, including 100,926,996 by Warner Media (Time Warner, Inc. at date of exercise) and TW Investor, resulting in net proceeds to us of approximately US$ 105.7 million. Of the 114,000,000 issued warrants, 202,175 expired unexercised.

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)

Accumulated Other Comprehensive Loss
The movement in accumulated other comprehensive loss during the nine months ended September 30, 2018 comprised the following:
 
Currency translation adjustment, net

 
Unrealized (loss) / gain on derivative instruments designated as hedging instruments

 
TOTAL
Accumulated Other Comprehensive Loss

BALANCE December 31, 2017
$
(184,256
)
 
$
(3,182
)
 
$
(187,438
)
Other comprehensive (loss) / income before reclassifications:
 
 
 
 
 
Foreign exchange gain on intercompany loans (1)
1,370

 

 
1,370

Foreign exchange loss on the Series B Preferred Shares
(9,579
)
 

 
(9,579
)
Currency translation adjustment
(2,776
)
 

 
(2,776
)
Change in the fair value of hedging instruments

 
(5,115
)
 
(5,115
)
Amounts reclassified from accumulated other comprehensive loss:
 
 
 
 


Changes in fair value reclassified to interest expense

 
1,784

 
1,784

Changes in fair value reclassified to other non-operating income / expense, net (2)

 
1,436

 
1,436

Net other comprehensive loss
(10,985
)
 
(1,895
)
 
(12,880
)
BALANCE September 30, 2018
$
(195,241
)
 
$
(5,077
)
 
$
(200,318
)
(1) 
Represents foreign exchange losses on intercompany loans that are of a long-term investment nature which are reported in the same manner as translation adjustments.
(2) 
We expect to repay a portion of the 2021 Euro Loan with the expected proceeds from the Slovenian Transaction (see Note 5, "Long-term Debt and Other Financing Arrangements"). This anticipated reduction of principal amounts owing in respect of the 2021 Euro Loan will reduce future interest payments that the interest rate swaps maturing on November 1, 2019 and November 1, 2021, are designed to hedge (see Note 12, "Financial Instruments and Fair Value Measurements").
15.    INTEREST EXPENSE
Interest expense comprised the following for the three and nine months ended September 30, 2018 and 2017:
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2018

 
2017

 
2018

 
2017

Interest on long-term debt and other financing arrangements
$
7,564

 
$
16,850

 
$
30,393

 
$
50,491

Amortization of capitalized debt issuance costs
873

 
1,502

 
3,497

 
4,282

Total interest expense
$
8,437

 
$
18,352

 
$
33,890

 
$
54,773

We paid cash interest (including mandatory cash-pay Guarantee Fees) of US$ 24.9 million and US$ 22.2 million during the nine months ended September 30, 2018 and 2017, respectively. In addition, we paid US$ 28.1 million of accrued Guarantee Fees during the nine months ended September 30, 2018, which we had previously elected to pay in kind. Interest expense related to the 2019 Euro Loan and 2021 Euro Loan has been allocated to results from discontinued operations relative to the proportion of those principal balances expected to be repaid from the proceeds of the Divestment Transaction (see Note 3, "Discontinued Operations and Assets Held for Sale").
16.    OTHER NON-OPERATING INCOME / EXPENSE, NET
Other non-operating income / expense, net comprised the following for the three and nine months ended September 30, 2018 and 2017:
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2018

 
2017

 
2018

 
2017

Interest income
$
141

 
$
139

 
$
487

 
$
326

Foreign currency exchange gain / (loss), net
1,387

 
4,609

 
(401
)
 
14,085

Change in fair value of derivatives (Note 12)
67

 
(1,150
)
 
(1,262
)
 
(1,882
)
Loss on extinguishment of debt
(127
)
 
(101
)
 
(415
)
 
(101
)
Other income, net
103

 
45

 
274

 
254

Total other non-operating income / (expense), net
$
1,571

 
$
3,542

 
$
(1,317
)
 
$
12,682


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)

17.    STOCK-BASED COMPENSATION
Under our 2015 Stock Incentive Plan (the "2015 Plan"), 6,000,000 shares of Class A common stock are authorized for grants of stock options, restricted stock units ("RSU"), restricted stock and stock appreciation rights to employees and non-employee directors. In addition, any shares available under our Amended and Restated Stock Incentive Plan (which expired on June 1, 2015), including in respect of any awards that expire, terminate, are forfeited or withheld, will be available for awards under the 2015 Plan. Under the 2015 Plan, awards are made to employees and directors at the discretion of the Compensation Committee. Any awards previously issued under the Amended and Restated Stock Incentive Plan will continue to be governed by the terms of that plan.
The charge for stock-based compensation in our condensed consolidated statement of operations and comprehensive income / loss was as follows:
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2018

 
2017

 
2018

 
2017

Stock-based compensation expense from continuing operations
$
3,864

 
$
431

 
$
6,026

 
$
2,044

Stock-based compensation expense from discontinued operations
34

 
34

 
112

 
96

Stock Options
Grants of options allow the holders to purchase shares of Class A common stock at an exercise price, which is generally the market price prevailing at the date of the grant, with vesting between one and four years after the awards are granted. There was no option activity during the nine months ended September 30, 2018. The summary of stock options outstanding as at September 30, 2018 and December 31, 2017 is presented below:
 
Shares

 
Weighted Average Exercise Price per Share

 
Weighted Average Remaining Contractual Term (years)
 
Aggregate Intrinsic Value

Outstanding at December 31, 2017
2,011,392

 
$
2.32

 
7.58
 
$
4,677

Outstanding at September 30, 2018
2,011,392

 
2.32

 
6.83
 
2,867

Vested and expected to vest
2,011,392

 
2.32

 
6.83
 
2,867

Exercisable at September 30, 2018
1,405,696

 
$
2.31

 
6.79
 
$
2,017

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 September 30, 2018, the maximum life of options that were issued under the 2015 Plan was ten years. Upon providing the appropriate written notification, holders pay the exercise price and receive shares. Shares delivered in respect of stock option exercises are newly issued shares.
The fair value of stock options is estimated on the grant date using the Black-Scholes option-pricing model and recognized ratably over the requisite service period as a component of selling, general and administrative expenses. The aggregate intrinsic value (the difference between the stock price on the last day of trading of the third quarter of September 30, 2018 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 September 30, 2018. This amount changes based on the fair value of our Class A common stock. As at September 30, 2018, there was US$ 0.6 million of unrecognized compensation expense related to stock options which is expected to be recognized over a weighted-average period of 0.9 years.
Restricted Stock Units
Each RSU represents a right to receive one share of Class A common stock of the Company for each RSU that vests in accordance with a time-based vesting schedule, generally between one to four years from the date of grant. Upon vesting, shares of Class A common stock are issued from authorized but unissued shares. Holders of RSU awards are not entitled to receive cash dividend equivalents and are not entitled to vote. The grant date fair value of RSUs is calculated as the closing price of our Class A common shares on the date of grant and presented as a component of selling, general and administrative expenses.
The following table summarizes information about unvested RSU as at September 30, 2018 and December 31, 2017:
 
Number of
Shares / Units

 
Weighted Average
Grant Date
Fair Value

Unvested at December 31, 2017
2,694,063

 
$
3.07

Granted
1,423,557

 
4.15

Vested
(2,121,265
)
 
3.49

Unvested at September 30, 2018
1,996,355

 
$
3.68

As at December 31, 2017, there were 719,109 of unvested RSUs with performance conditions of which 239,703 RSUs vested in March 2018. Following the completion of the sale of the Company's Croatian operations, and in accordance with the terms of the corresponding award agreements, the remaining RSUs with performance conditions vested along with an additional 461,188 RSUs that were granted and immediately vested. See Note 3, "Discontinued Operations and Assets Held for Sale". There were no unvested RSUs with performance conditions as at September 30, 2018. The intrinsic value of unvested RSUs was US$ 7.5 million as at September 30, 2018. Total unrecognized compensation cost related to unvested RSUs as at September 30, 2018 was US$ 5.9 million and is expected to be recognized over a weighted-average period of 2.7 years.

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)

18.    EARNINGS PER SHARE
We determined that the Series B Preferred Shares are a participating security, and accordingly, our basic and diluted net income / loss per share is calculated using the two-class method. Under the two-class method, basic net income / loss per common share is computed by dividing the net income available to common shareholders after deducting contractual amounts of accretion on our Series B Preferred Shares 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.
The Company identified an error in the calculation of earnings per share disclosed in its financial statements for the nine months ended September 30, 2017. The error arose due to the misallocation of the results of discontinued operations to the Series B Preferred Shares. The error is not considered to be either quantitatively or qualitatively material to the nine months ended September 30, 2017, and has been corrected in the information disclosed below. The error did not impact net income, the condensed consolidated balance sheet, the condensed consolidated statements of equity or the condensed consolidated statements of cash flows.
The components of basic and diluted earnings per share are as follows:
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2018

 
2017

 
2018

 
2017

 
 
 
 
 
 
 
(As adjusted)

Income / (loss) from continuing operations
$
10,910

 
$
(1,945
)
 
$
38,319

 
$
17,338

Net loss attributable to noncontrolling interests
80

 
188

 
274

 
534

Less: preferred share accretion paid in kind (Note 13)

 
(2,454
)
 
(4,777
)
 
(7,216
)
Less: income allocated to Series B Preferred Shares
(3,257
)
 

 
(11,332
)
 
(4,334
)
Income / (loss) from continuing operations available to common shareholders, net of noncontrolling interest
7,733

 
(4,211
)
 
22,484

 
6,322

Income / (loss) from discontinued operations, net of tax (Note 3)
57,581

 
(5,988
)
 
63,269

 
(8,747
)
Less: (income) / loss allocated to Series B Preferred Shares
(17,067
)
 

 
(21,201
)
 
3,558

Net income / (loss) attributable to CME Ltd. available to common shareholders — basic
48,247

 
(10,199
)
 
64,552

 
1,133

 
 
 
 
 
 
 
 
Effect of dilutive securities
 
 
 
 
 
 
 
Dilutive effect of Series B Preferred Shares
60

 

 
3,202

 
178

Net income / (loss) attributable to CME Ltd. available to common shareholders — diluted
$
48,307

 
$
(10,199
)
 
$
67,754

 
$
1,311

 
 
 
 
 
 
 
 
Weighted average outstanding shares of common stock — basic (1)
263,829

 
156,189

 
219,267

 
155,579

Dilutive effect of common stock warrants, employee stock options and RSUs
1,111

 

 
35,998

 
78,182

Weighted average outstanding shares of common stock — diluted
264,940

 
156,189

 
255,265

 
233,761

 
 
 
 
 
 
 
 
Net income / (loss) per share:
 
 
 
 
 
 
 
Continuing operations — basic
$
0.03

 
$
(0.03
)
 
$
0.10

 
$
0.04

Continuing operations — diluted
0.03

 
(0.03
)
 
0.09

 
0.03

Discontinued operations — basic
0.15

 
(0.04
)
 
0.19

 
(0.03
)
Discontinued operations — diluted
0.15

 
(0.04
)
 
0.18

 
(0.02
)
Net income / (loss) attributable to CME Ltd. — basic
0.18

 
(0.07
)
 
0.29

 
0.01

Net income / (loss) attributable to CME Ltd. — diluted
0.18

 
(0.07
)
 
0.27

 
0.01

(1) 
For the purpose of computing basic earnings per share, the 11,211,449 shares of Class A common stock underlying the Series A Preferred Share are included in the weighted average outstanding shares of common stock - basic, because the holder of the Series A Preferred Share is entitled to receive any dividends payable when dividends are declared by the Board of Directors with respect to any shares of the common stock.

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)

The following weighted-average, equity awards and convertible shares were excluded from the calculation of diluted earnings per share because their effect would have been anti-dilutive for the periods presented:
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2018

 
2017

 
2018

 
2017

RSUs
1,004

 
719

 
1,004

 
719

Series B Preferred Shares

 
107,643

 

 

Total
1,004

 
108,362

 
1,004

 
719

These instruments may become dilutive in the future. As set forth in the Certificate of Designation for the Series B Preferred Shares, the holders of our Series B Preferred Shares are not contractually obligated to share in our losses.
19.    SEGMENT DATA
We manage our business on a geographical basis, with four operating segments: Bulgaria, the Czech Republic, Romania and the Slovak Republic, which are also our reportable segments and our main operating countries. These segments reflect how CME Ltd.’s operating performance is evaluated by our chief operating decision makers, who we have identified as our co-Chief Executive Officers; how operations are managed by segment managers; and the structure of our internal financial reporting.
Our segments generate revenues primarily from the sale of advertising and sponsorship on our channels. This is supplemented by revenues from cable and satellite television service providers 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 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. From January 1, 2018, stock-based compensation and certain operating costs incurred on behalf of our segments at the corporate level have been allocated to our segments for purposes of evaluating their performance. Prior period information has been recast to conform to the current period presentation.
Below are tables showing our net revenues, OIBDA, total assets, capital expenditures and long-lived assets for our continuing operations by segment for the three and nine months ended September 30, 2018 and 2017 for condensed consolidated statements of operations and comprehensive income / loss data and condensed consolidated statements of cash flow data; and as at September 30, 2018 and December 31, 2017 for condensed consolidated balance sheet data.
Net revenues:
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,


2018

 
2017

 
2018

 
2017

Bulgaria
$
16,348

 
$
16,039

 
$
59,208

 
$
52,118

Czech Republic
45,489

 
42,681

 
158,051

 
135,526

Romania
41,128

 
40,469

 
136,683

 
127,983

Slovak Republic
20,867

 
20,384

 
70,590

 
63,348

Intersegment revenues (1)
(310
)
 
(142
)
 
(2,273
)
 
(917
)
Total net revenues
$
123,522

 
$
119,431

 
$
422,259

 
$
378,058

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

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)

OIBDA:
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
2018

 
2017

 
2018

 
2017

Bulgaria
$
4,481

 
$
2,425

 
$
13,084

 
$
6,668

Czech Republic
15,388

 
12,397

 
59,009

 
48,521

Romania
15,607

 
15,259

 
58,696

 
51,790

Slovak Republic
5,032

 
2,809

 
10,041

 
10,966

Elimination
(25
)
 
13

 
15

 
29

Total operating segments
40,483

 
32,903

 
140,845

 
117,974

Corporate
(6,884
)
 
(7,758
)
 
(20,922
)
 
(20,081
)
Total OIBDA
33,599

 
25,145

 
119,923

 
97,893

Depreciation of property, plant and equipment
(7,265
)
 
(6,936
)
 
(22,179
)
 
(19,345
)
Amortization of broadcast licenses and other intangibles
(2,216
)
 
(2,187
)
 
(6,839
)
 
(6,349
)
Other items (1)
(3,152
)
 

 
(3,152
)
 

Operating income
20,966

 
16,022

 
87,753

 
72,199

Interest expense (Note 15)
(8,437
)
 
(18,352
)
 
(33,890
)
 
(54,773
)
Other non-operating income / (expense), net (Note 16)
1,571

 
3,542

 
(1,317
)
 
12,682

Income before tax
$
14,100

 
$
1,212

 
$
52,546

 
$
30,108

(1) 
Other items consists solely of expense related to the accelerated vesting of RSUs with performance conditions in accordance with the terms of the corresponding award agreement following the completion of sale of the Company's Croatian operations on such date. See Note 17, "Stock-based Compensation".
Total assets: (1)
September 30, 2018

 
December 31, 2017

Bulgaria
$
141,122

 
$
155,885

Czech Republic
777,326

 
842,716

Romania
291,087

 
307,286

Slovak Republic
153,198

 
149,866

Total operating segments
1,362,733

 
1,455,753

Corporate
28,530

 
24,146

Assets held for sale (Note 3)
80,193

 
148,156

Total assets
$
1,471,456

 
$
1,628,055

(1) 
Segment assets exclude any intercompany balances.
Capital expenditures:
For the Nine Months Ended September 30,


2018


2017

Bulgaria
$
2,939

 
$
2,487

Czech Republic
5,450

 
6,768

Romania
2,009

 
4,369

Slovak Republic
1,210

 
1,520

Total operating segments
11,608

 
15,144

Corporate
490

 
1,245

Total capital expenditures
$
12,098

 
$
16,389

Long-lived assets: (1)
September 30, 2018

 
December 31, 2017

Bulgaria
$
10,634

 
$
7,863

Czech Republic
40,228

 
46,146

Romania
28,929

 
28,515

Slovak Republic
17,033

 
17,450

Total operating segments
96,824

 
99,974

Corporate
2,538

 
3,674

Total long-lived assets
$
99,362

 
$
103,648

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

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)

Revenues from contracts with customers comprised the following for the three and nine months ended September 30, 2018 and 2017:
Consolidated revenue by type:
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2018

 
2017

 
2018

 
2017

Television advertising
$
96,015

 
$
93,830

 
$
338,750

 
$
303,486

Carriage fees and subscriptions
22,813

 
21,547

 
68,984

 
61,597

Other
4,694

 
4,054

 
14,525

 
12,975

Total net revenues
$
123,522

 
$
119,431

 
$
422,259

 
$
378,058

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.
20.    COMMITMENTS AND CONTINGENCIES
Commitments
a) Programming Rights Agreements and Other Commitments
At September 30, 2018, we had total commitments of US$ 84.8 million (December 31, 2017: US$ 99.1 million) in respect of future programming, including contracts signed with license periods starting after the balance sheet date. In addition, we have digital transmission obligations, future minimum operating lease payments for non-cancellable operating leases with remaining terms in excess of one year (net of any sublease income) and other commitments as follows:
 
Programming purchase obligations

 
Other commitments (1)

 
Operating leases

 
Capital expenditures

2018
$
10,760

 
$
5,046

 
$
843

 
$
1,295

2019
32,815

 
4,037

 
1,564

 
206

2020
19,417

 
2,172

 
1,081

 

2021
14,323

 
215

 
546

 

2022
3,986

 
193

 
366

 

2023 and thereafter
3,458

 
148

 
1,972

 

Total
$
84,759

 
$
11,811

 
$
6,372

 
$
1,501

(1) 
Other commitments are primarily comprised of digital transmission commitments.
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 consolidated financial statements.
In the fourth quarter of 2016, our Slovak subsidiary MARKIZA-SLOVAKIA, spol. s.r.o. (“Markiza”) was notified of claims that were filed in June 2016 in a court of first instance in Bratislava, the Slovak Republic to collect amounts allegedly owing under four promissory notes that have a collective face value of approximately EUR 69.0 million. These four promissory notes were purportedly issued in June 2000 by Pavol Rusko in his personal capacity and were purportedly guaranteed by Markiza under the signature of Mr. Rusko, who was an executive director of Markiza at that time as well as one of its shareholders. The notes purport to be issued in favor of Marian Kocner, a controversial Slovak businessman, and to a former associate of Mr. Kocner, and were supposedly assigned several times, ultimately to Sprava a inkaso zmeniek, s.r.o., a company owned by Mr. Kocner that is the plaintiff in these proceedings.
Two of the notes, each of which purportedly has a face value of approximately EUR 8.3 million, allegedly matured in 2015; and the other two, each of which purportedly has a face value of approximately EUR 26.2 million, allegedly matured in 2016. The four notes accrue interest from their purported maturity dates. Although Mr. Rusko has asserted, both in written responses to active claims filed in respect of three of the promissory notes as well as in subsequent oral testimony, that he signed the notes in June 2000, we do not believe that the notes were signed in June 2000 or that any of the notes are authentic.
Despite a random case assignment system in the Slovak Republic, claims in respect of three of the notes were initially assigned to the same judge. One of those claims, concerning one of the promissory notes having a face value of approximately EUR 8.3 million (the “First PN Case”), was subsequently reassigned. Proceedings on the claim in respect of the fourth promissory note (in the amount of approximately EUR 26.2 million) were terminated in January 2017 by the presiding judge because the plaintiff failed to pay court fees and were terminated a second time by a different presiding judge in September 2017 after the plaintiff refiled but failed to pay court fees a second time.
During the first quarter of 2018, the court of first instance began to schedule hearings in respect of the First PN Case as well as the claims relating to the second promissory note having a face value of approximately EUR 8.3 million (the “Second PN Case”) and one of the promissory notes having a face value of approximately EUR 26.2 million (the “Third PN Case”). On April 26, 2018, the judge in the First PN Case ruled in favor of the plaintiff. Markiza has appealed that decision.

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)

On May 14, 2018, Markiza filed a criminal complaint with the Office of the Special Prosecutor 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. The Special Prosecutor’s Office opened criminal proceedings in the matter at that time.
On June 20, 2018, the Special Prosecutor’s Office issued a decision to formally charge Mr. Kocner and Mr. Rusko with counterfeiting, falsification, and illegal production of money and securities and with obstruction or perversion of justice. Subsequently, Mr. Kocner has been taken into pre-trial custody by the Slovak authorities.
On October 12, 2018, the court of first instance terminated proceedings in respect of the Second PN Case because the plaintiff failed to continue to pursue the claim. The plaintiff can appeal this decision. There have been no hearings held in respect of the Third PN Case since the initiation of the criminal proceedings.
Markiza is seeking to have the civil proceedings either suspended until the conclusion of the criminal proceedings or dismissed. In the event any of the civil proceedings are not suspended or dismissed, Markiza will continue to vigorously defend the claims.
Based on the facts and circumstances of these cases, we have not accrued any amounts in respect of these claims.
21.    RELATED PARTY TRANSACTIONS
We consider our related parties to be our officers, directors and shareholders who have direct control and/or influence over the Company as well as other parties that can significantly influence management. On June 14, 2018, AT&T acquired the outstanding shares of Warner Media. We have identified transactions with individuals or entities associated with AT&T, which is represented on our Board of Directors and holds a 44.5% voting interest in CME Ltd. (see Note 14, "Equity") as at September 30, 2018, as material related party transactions.
AT&T
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2018

 
2017

 
2018

 
2017

Cost of revenues
$
4,989

 
$
4,504

 
$
14,922

 
$
11,696

Interest expense
3,365

 
14,170

 
20,346

 
41,423

 
September 30, 2018

 
December 31, 2017

Programming liabilities
$
11,274

 
$
20,027

Other accounts payable and accrued liabilities
123

 
252

Accrued interest payable (1)
7,689

 
6,273

Other non-current liabilities (2)
33,465

 
69,620

(1) 
Amount represents accrued Guarantee Fees for which we have not yet paid. See Note 5, "Long-term Debt and Other Financing Arrangements".
(2) 
Amount represents Guarantee Fees for which we had previously made an election to pay in kind. The balance as at December 31, 2017 included the Commitment Fee which was paid on July 31, 2018. See Note 5, "Long-term Debt and Other Financing Arrangements".

25


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:
"2019 Euro Loan" refers to our floating rate senior unsecured term credit facility guaranteed by Warner Media, dated as of November 14, 2014, as amended on March 9, 2015, February 19, 2016, June 22, 2017 and February 5, 2018 which was repaid in full on July 31, 2018;
"2021 Euro Loan" refers to our floating rate senior unsecured term credit facility due November 1, 2021, guaranteed by Warner Media, 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 2019 Euro Loan (when outstanding), 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;
"Divestment Transaction" refers to the framework agreement dated July 9, 2017 with Slovenia Broadband S.à r.l., as amended on April 10, 2018, amended and restated on July 5, 2018 and as further amended on September 13, 2018 for the sale of our Croatia and Slovenia operations (see Item 1, Note 3, "Discontinued Operations and Assets Held for Sale" for further information);
"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;
"CME NV" refers to Central European Media Enterprises N.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; and
"TW Investor" refers to Time Warner Media Holdings B.V., a wholly owned subsidiary of Warner Media
The exchange rates used in this report are as at September 30, 2018, unless otherwise indicated.
Please note that we may announce information using SEC filings, press releases, public conference calls, webcasts and posts to the "Investors" section of our website, www.cme.net. We intend to continue to use these channels to communicate important information about CME Ltd. and our operations. We encourage investors, the media, our customers and others interested in the Company to review the information we post at www.cme.net.
I.     Forward-looking Statements
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 22E of the Securities Exchange Act of 1934 (the "Exchange Act"), including those relating to our capital needs, business strategy, expectations and intentions. Statements that use the terms “believe”, “anticipate”, “trend”, “expect”, “plan”, “estimate”, “forecast”, “should”, “intend” and similar expressions of a future or forward-looking nature identify forward-looking statements for purposes of the U.S. federal securities laws or otherwise. In particular, information appearing under the sections entitled "Business," "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" includes forward looking-statements. For these statements and all other forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy or are otherwise beyond our control and some of which might not even be anticipated. Forward-looking statements reflect our current views with respect to future events and because our business is subject to such risks and uncertainties, actual results, our strategic plan, our financial position, results of operations and cash flows could differ materially from those described in or contemplated by the forward-looking statements contained in this report.
Important factors that contribute to such risks include, but are not limited to, those factors set forth under "Risk Factors” as well as the following: the effect of changes in global and regional economic conditions and the extent, timing and duration of the recovery in our markets; levels of television advertising spending and the rate of development of the advertising markets in the countries in which we operate; the extent to which our 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 ability to refinance our existing indebtedness; our success in continuing our initiatives to diversify and enhance our revenue streams; our ability to make cost-effective investments in our television businesses, including investments in programming; our ability to develop and acquire necessary programming and attract audiences; our ability to consummate the sale of our Slovenian operations; 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 four countries in Central and Eastern Europe. We manage our business on a geographical basis, with four operating segments: Bulgaria, the Czech Republic, Romania, and the Slovak Republic, 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 July 9, 2017, we entered into a framework agreement with Slovenia Broadband S.à r.l., a wholly owned subsidiary of United Group B.V., relating to the sale of our Croatia and Slovenia operations. The sale of our Croatian operations was completed on July 31, 2018. The sale of our Slovenian operations is expected to close subject to obtaining the remaining regulatory approvals from the Competition Protection Agency in Slovenia as well as the satisfaction of other customary closing conditions. Accordingly, the Slovenia operations are classified as held for sale and both businesses are presented as discontinued operations for all periods in this report; and the discussion below relates to our continuing operations in the four remaining operating segments.
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. From January 1, 2018, stock-based compensation and certain operating costs incurred on behalf of our segments at the corporate level have been allocated to our segments for purposes of evaluating their performance. Prior period information has been recast to conform to the current period presentation. 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 now must 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 as well as proceeds from asset divestitures 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 19, "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”). 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 nine months ended September 30, 2018 and 2017.
Executive Summary
The following table provides a summary of our consolidated results of our continuing operations for the three and nine months ended September 30, 2018 and 2017:
 
For the Three Months Ended September 30, (US$ 000's)
 
For the Nine Months Ended September 30, (US$ 000's)
 
 
 
 
 
Movement
 
 
 
 
 
Movement
 
2018

 
2017

 
% Act

 
% Lfl

 
2018

 
2017

 
% Act

 
% Lfl

Net revenues
$
123,522

 
$
119,431

 
3.4
%
 
4.1
%
 
$
422,259

 
$
378,058

 
11.7
%
 
3.3
%
Operating income
20,966

 
16,022

 
30.9
%
 
34.2
%
 
87,753

 
72,199

 
21.5
%
 
14.4
%
Operating margin
17.0
%
 
13.4
%
 
3.6 p.p.

 
3.8 p.p.

 
20.8
%
 
19.1
%
 
1.7 p.p.

 
2.0 p.p.

OIBDA
$
33,599

 
$
25,145

 
33.6
%
 
35.7
%
 
$
119,923

 
$
97,893

 
22.5
%
 
14.4
%
OIBDA margin
27.2
%
 
21.1
%
 
6.1 p.p.

 
6.3 p.p.

 
28.4
%
 
25.9
%
 
2.5 p.p.

 
2.8 p.p.

Our consolidated net revenues increased at constant rates in the three and nine months ended September 30, 2018 compared to the corresponding periods in 2017 due to increases in both television advertising revenues and carriage fees and subscription revenues. Television advertising spending overall in the markets of the countries in which we operate grew an estimated 4% at constant rates in the first nine months of 2018 compared to 2017. Our television advertising revenues grew 12% at actual rates and 3% at constant rates during the same period as more advertising was sold and average prices were higher in certain countries due to increased demand for advertising campaigns. Carriage fees and subscription revenues increased 12% at actual rates and 5% at constant rates in the nine months ended September 30, 2018 compared to the corresponding period in 2017 as the subscriber base continued to grow and average prices increased.

27


Costs charged in arriving at OIBDA in the third quarter decreased 5% at actual rates and 4% at constant rates, due primarily to a decrease of 4% in content costs at constant rates, as we focused on the most efficient spending for summer programming to maintain our leading audience share positions in competitive markets. In the nine months ended September 30, 2018, costs increased 8% at actual rates due to a stronger Euro compared to the dollar in the first half of the year, but were broadly flat at constant rates compared to the first nine months in 2017. Content costs were broadly flat at constant rates, as the cost savings in the third quarter offset increased investments in popular local content in first half of the year.
Since we continue to focus on controlling costs while revenues increase, our OIBDA margin improved in the three and nine months ended September 30, 2018. This dynamic also drove an increase in operating income, with a similar improvement in operating margin. We expect revenues to grow at a faster pace than costs in 2018 and for the next few years, leading to continued OIBDA margin expansion year on year, although trends may vary from quarter to quarter.
We launched the fall season in all countries during the third quarter, and our networks continue to provide the best reach for advertisers in each territory. We are seeing increased competition for audience share in all markets, and the FIFA World Cup also drove increased ratings of the public broadcasters in our territories during the tournament in June and July. We continue to leverage popular content we produce for our prime time schedules, and supplement that with both foreign and locally acquired content to ensure we continue to attract the largest audience in each of our countries in the most profitable manner.
Improved Capital Structure
On February 5, 2018, we entered into an amendment to extend the maturity date of the 2019 Euro Loan from November 1, 2018 to May 1, 2019, and subsequently repaid EUR 50.0 million (approximately US$ 61.6 million at February 6, 2018 rates) of the outstanding principal balance of that loan.
On April 25, 2018, we entered into a series of amendments which modified certain terms of the 2021 Euro Loan, the 2023 Euro Loan, the 2023 Revolving Credit Facility and the Reimbursement Agreement (collectively, the "Financing Transactions"), which were effective on April 26, 2018. The Financing Transactions reduced the rates under the pricing grid in the Reimbursement Agreement used to calculate the Guarantee Fees payable, and extended the maturity dates of each of the 2021 Euro Loan, the 2023 Euro Loan and the 2023 Revolving Credit Facility.
On April 25, 2018, Warner Media exercised 100,926,996 warrants resulting in proceeds of US$ 100.9 million, and an additional 2.4 million warrants were exercised by other shareholders during the second quarter prior to their expiration on May 2, 2018. On May 3, 2018, we used proceeds from the warrant exercises, together with excess cash on hand, to repay EUR 110.0 million (approximately US$ 132.0 million at May 3, 2018 rates) of the outstanding principal balance of the 2019 Euro Loan.
Divestment Transaction to Accelerate Deleveraging
On July 9, 2017, we agreed to sell our operations in Croatia and Slovenia to Slovenia Broadband S.à r.l. (the "Purchaser"), a subsidiary of United Group B.V. (the "United Group"), subject to obtaining regulatory approvals and other customary closing conditions. On July 5, 2018 the Divestment Transaction was amended to allow the closing of the sale of the Croatia operations (the "Croatian Transaction") and the Slovenia operations (the "Slovenian Transaction") separately.
The Croatian Transaction was completed on July 31, 2018 and we received cash consideration of EUR 86.4 million (approximately US$ 101.4 million at July 31, 2018 rates), inclusive of a EUR 1.4 million (approximately US$ 1.6 million at July 31, 2018 rates) estimated net working capital adjustment. The proceeds from the Croatian Transaction, supplemented by cash flow from continuing operations, were used to repay the outstanding principal amount of EUR 40.8 million (approximately US$ 47.9 million at July 31, 2018 rates) of the 2019 Euro Loan and accrued interest thereon, and to repay EUR 25.0 million (approximately US$ 29.3 million at July 31, 2018 rates) of the 2021 Euro Loan plus accrued interest thereon. In addition, we paid US$ 41.2 million to Warner Media, to repay (1) all Guarantee Fees payable to Warner Media as of the date of repayment under the 2019 Euro Loan and (2) all outstanding Guarantee Fees and the Commitment Fee, together with accrued interest thereon, previously paid in kind that were payable to Warner Media prior to repayment of the portion of the 2021 Euro Loan.
Following these repayments, our nearest debt maturity is November 2021, and together with the continued improvement in our operations, our net leverage ratio improved to 3.8x at the end of the third quarter. With the pricing grids applicable to the Euro Loans, we expect our weighted average cost of borrowing will be 3.5% effective from October 22, 2018, down from 6.00% at the start of the year.
The Slovenian Transaction, with a purchase price of EUR 145.0 million (approximately US$ 167.9 million) plus any working capital adjustment, remains subject to certain closing conditions, including regulatory approvals from the Competition Protection Agency in Slovenia. The long-stop date of the Slovenian Transaction is October 31, 2018, and the parties continue working to satisfy the applicable closing conditions. If the Slovenian Transaction had closed on September 30, 2018, the incremental repayment of debt and related payables would have further reduced our net leverage ratio from 3.8x to 3.3x at the end of the third quarter.

28


Free Cash Flow and Unlevered Free Cash Flow
 
For the Nine Months Ended September 30, (US$ 000's)
 
2018

 
2017

 
Movement

Net cash generated from continuing operating activities
$
84,934

 
$
90,638

 
(6.3
)%
Capital expenditures, net
(12,078
)
 
(16,250
)
 
25.7
 %
Free cash flow
72,856

 
74,388

 
(2.1
)%
Cash paid for interest (including mandatory cash-pay Guarantee Fees)
24,907

 
22,206

 
12.2
 %
Cash paid for Guarantee Fees previously paid in kind
28,066

 

 
NM (1)

Cash paid for Guarantee Fees that may be paid in kind

 
1,411

 
(100.0
)%
Unlevered free cash flow
$
125,829

 
$
98,005

 
28.4
 %
(1) 
Number is not meaningful.
(US$ 000's)
September 30, 2018

 
December 31, 2017

 
Movement

Cash and cash equivalents
$
56,003

 
$
54,903

 
2.0
%
Our unlevered free cash flow increased during the first nine months of 2018 compared to the same period in 2017 reflecting higher collections of cash from receivables generated during the significant improvement in fourth quarter performance in 2017 and first half of 2018 when compared to the respective periods in the prior years, as well as increased prepayments from customers and lower capital expenditures. This was partially offset by higher cash paid for income taxes.
Although our interest expense decreased significantly during the nine months ended September 30, 2018 compared to the corresponding period in 2017, the proportion of interest expense required to be paid in cash increased. In addition to this, we used proceeds from the Croatia Transaction as well as cash generated by the business to repay debt and related payables during the third quarter, which included the repayment of US$ 28.1 million of accrued Guarantee Fees that were paid in kind in prior years. The cash paid for Guarantee Fees previously paid in kind was reflected in both free cash flow and net cash generated from continuing operating activities.
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 our countries for the nine months ended September 30, 2018:
 
For the Nine Months Ended September 30, 2018
Country
Real GDP Growth

 
Real Private Consumption Growth

 
Net TV Ad Market Growth

Bulgaria
3.5
%
 
6.7
%
 
6.6
%
Czech Republic
3.1
%
 
3.9
%
 
2.7
%
Romania*
3.8
%
 
4.9
%
 
4.3
%
Slovak Republic
3.9
%
 
3.0
%
 
3.0
%
Total CME Ltd. Markets
3.5
%
 
4.3
%
 
3.7
%
*    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, we estimate that during the first nine months of 2018, GDP grew in each of the countries in which we operate at a rate that exceeded the average growth rate for Western Europe. Analysts forecast this trend to continue for the duration of 2018, which would make four consecutive years that growth in these territories outpaces more developed markets. Higher average wages continues to support significant growth in private consumption, and unemployment remains at historically low rates in Bulgaria and the Czech and Slovak Republics, with the Czech Republic seeing the lowest unemployment rate in the European Union. It has been reported that an expansion of consumer credit in Bulgaria is also contributing to growth in private consumption in the country. We believe the growth in real private consumption forecast for 2018 will support overall growth in the television advertising markets across the four countries where we continue to operate.
We estimate that the TV advertising markets in the countries in which we operate increased by 4% on average at constant rates in the nine months ended September 30, 2018 compared to the same period in 2017. In Bulgaria, we estimate the market grew due to selling more of the gross ratings points ("GRPs") produced, which was partially offset by lower average market prices. In the Czech Republic, estimated market growth was driven primarily by selling more GRPs, with more spending outside peak seasons as well as additional inventory available on competing channels. In Romania, the market grew due to higher average prices, as well as more GRPs sold related to a new prime-time format on a competing channel. In the Slovak Republic, the market growth resulted from higher average prices, which were partially offset by the competition selling fewer GRPs.

29


Segment Performance
Our total Net Revenues and OIBDA by segment were as follows:
 
NET REVENUES
 
For the Three Months Ended September 30, (US$ 000's)
 
For the Nine Months Ended September 30, (US$ 000's)
 
 
 
 
 
Movement
 
 
 
 
 
Movement
 
2018

 
2017

 
% Act

 
% Lfl

 
2018


2017

 
% Act

 
% Lfl

Bulgaria
$
16,348

 
$
16,039

 
1.9
%
 
2.4
%
 
$
59,208

 
$
52,118

 
13.6
%
 
5.8
%
Czech Republic
45,489

 
42,681

 
6.6
%
 
5.8
%
 
158,051

 
135,526

 
16.6
%
 
4.6
%
Romania
41,128

 
40,469

 
1.6
%
 
3.8
%
 
136,683

 
127,983

 
6.8
%
 
1.5
%
Slovak Republic
20,867

 
20,384

 
2.4
%
 
3.2
%
 
70,590

 
63,348

 
11.4
%
 
3.8
%
Intersegment revenues
(310
)
 
(142
)
 
NM (1)

 
NM (1)

 
(2,273
)
 
(917
)
 
NM (1)

 
NM (1)

Total net revenues
$
123,522

 
$
119,431

 
3.4
%
 
4.1
%
 
$
422,259

 
$
378,058

 
11.7
%
 
3.3
%
(1) 
Number is not meaningful.
 
OIBDA
 
For the Three Months Ended September 30, (US$ 000's)
 
For the Nine Months Ended September 30, (US$ 000's)
 
 
 
 
 
Movement
 
 
 
 
 
Movement
 
2018

 
2017

 
% Act

 
% Lfl

 
2018

 
2017

 
% Act

 
% Lfl

Bulgaria
$
4,481

 
$
2,425

 
84.8
%
 
84.7
%
 
$
13,084

 
$
6,668

 
96.2
 %
 
86.5
 %
Czech Republic
15,388

 
12,397

 
24.1
%
 
23.8
%
 
59,009

 
48,521

 
21.6
 %
 
9.5
 %
Romania
15,607

 
15,259

 
2.3
%
 
4.2
%
 
58,696

 
51,790

 
13.3
 %
 
7.9
 %
Slovak Republic
5,032

 
2,809

 
79.1
%
 
81.6
%
 
10,041

 
10,966

 
(8.4
)%
 
(13.6
)%
Eliminations
(25
)
 
13

 
NM (1)

 
NM (1)

 
15

 
29

 
NM (1)

 
NM (1)

Total operating segments
40,483

 
32,903

 
23.0
%
 
24.2
%
 
140,845

 
117,974

 
19.4
 %
 
11.0
 %
Corporate
(6,884
)
 
(7,758
)
 
11.3
%
 
12.1
%
 
(20,922
)
 
(20,081
)
 
(4.2
)%
 
5.4
 %
Consolidated OIBDA
$
33,599

 
$
25,145

 
33.6
%
 
35.7
%
 
$
119,923

 
$
97,893

 
22.5
 %
 
14.4
 %
(1) 
Number is not meaningful.

30


Bulgaria
 
Three Months Ended September 30, (US$ 000's)
 
Nine Months Ended September 30, (US$ 000's)
 
 
 
 
 
Movement
 
 
 
 
 
Movement
 
2018

 
2017

 
% Act

 
% Lfl

 
2018

 
2017

 
% Act

 
% Lfl

Television advertising
$
10,071

 
$
10,239

 
(1.6
)%
 
(1.1
)%
 
$
40,051

 
$
34,550

 
15.9
%
 
7.9
 %
Carriage fees and subscriptions
5,267

 
4,923

 
7.0
 %
 
7.4
 %
 
15,775

 
14,378

 
9.7
%
 
2.2
 %
Other
1,010

 
877

 
15.2
 %
 
15.6
 %
 
3,382

 
3,190

 
6.0
%
 
(1.0
)%
Net revenues
16,348

 
16,039

 
1.9
 %
 
2.4
 %
 
59,208

 
52,118

 
13.6
%
 
5.8
 %
Costs charged in arriving at OIBDA
11,867

 
13,614

 
(12.8
)%
 
(12.3
)%
 
46,124

 
45,450

 
1.5
%
 
(5.8
)%
OIBDA
$
4,481

 
$
2,425

 
84.8
 %
 
84.7
 %
 
$
13,084

 
$
6,668

 
96.2
%
 
86.5
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OIBDA margin
27.4
%
 
15.1
%
 
12.3 p.p.

 
12.2 p.p.

 
22.1
%
 
12.8
%
 
9.3 p.p.

 
9.6 p.p.

The television advertising market in Bulgaria increased an estimated 7% at constant rates in the nine months ended September 30, 2018 compared to the same period in 2017.
While growth in our television advertising revenues outpaced growth in the market year-to-date, our television advertising revenues were broadly flat at constant rates in the third quarter of 2018 compared to the same period in 2017, as an increase in GRPs sold was offset by a decrease in average prices reflecting a different mix of advertisers in the quarter. Average prices increased in the first nine months of 2018 compared to 2017, which together with more GRPs sold, contributed to a significant increase in television advertising revenues in the first nine months of this year. Carriage fees and subscription revenues increased in the third quarter of 2018 compared to 2017 due to increases in both prices as well as the overall subscriber base.
On a constant currency basis, costs charged in arriving at OIBDA decreased in the third quarter of 2018 compared to 2017 primarily due to lower content costs, which resulted from both lower sport rights and savings from foreign acquired content, and due to phasing we anticipate content costs will increase year-on-year in the fourth quarter. There was also lower bad debt charges in the third quarter and first nine months of 2018, which more than offset the cost of a new telenovela on our main channel in the access-prime time slot in both the spring and fall seasons.

Czech Republic
 
Three Months Ended September 30, (US$ 000's)
 
Nine Months Ended September 30, (US$ 000's)
 
 
 
 
 
Movement
 
 
 
 
 
Movement
 
2018

 
2017

 
% Act

 
% Lfl

 
2018

 
2017

 
% Act

 
% Lfl

Television advertising
$
39,530

 
$
37,792

 
4.6
 %
 
3.8
 %
 
$
138,920

 
$
121,453

 
14.4
%
 
2.6
%
Carriage fees and subscriptions
4,004

 
3,269

 
22.5
 %
 
21.1
 %
 
11,847

 
8,790

 
34.8
%
 
21.4
%
Other
1,955

 
1,620

 
20.7
 %
 
19.8
 %
 
7,284

 
5,283

 
37.9
%
 
23.8
%
Net revenues
45,489

 
42,681

 
6.6
 %
 
5.8
 %
 
158,051

 
135,526

 
16.6
%
 
4.6
%
Costs charged in arriving at OIBDA
30,101

 
30,284

 
(0.6
)%
 
(1.6
)%
 
99,042

 
87,005

 
13.8
%
 
1.9
%
OIBDA
$
15,388

 
$
12,397

 
24.1
 %
 
23.8
 %
 
$
59,009

 
$
48,521

 
21.6
%
 
9.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OIBDA margin
33.8
%
 
29.0
%
 
4.8 p.p.

 
4.9 p.p.

 
37.3
%
 
35.8
%
 
1.5 p.p.

 
1.6 p.p.

The television advertising market in the Czech Republic increased an estimated 3% at constant rates in the nine months ended September 30, 2018 compared to the same period in 2017.
Television advertising revenues increased in the third quarter due to higher average prices, and increased in the first nine months of 2018 from selling more GRPs, reflecting overall increased demand for advertising in the market, particularly due to more spending placed outside of peak seasons. Carriage fees and subscription revenues increased on a constant currency basis due to an increase in the number of subscribers as well as new contracts with higher prices.
Costs charged in arriving at OIBDA decreased at constant rates in the third quarter due to a decline in content costs, as the savings from fewer local entertainment titles in the fall schedule this year compared to 2017 more than offset the cost of additional acquired programming. Costs increased at constant rates in the first nine months of 2018 due to higher content costs, which reflected higher quality local fiction productions in the spring schedule compared to 2017.

31


Romania
 
Three Months Ended September 30, (US$ 000's)
 
Nine Months Ended September 30, (US$ 000's)
 
 
 
 
 
Movement
 
 
 
 
 
Movement
 
2018

 
2017

 
% Act

 
% Lfl

 
2018

 
2017

 
% Act

 
% Lfl

Television advertising
$
28,485

 
$
28,445

 
0.1
%
 
2.3
%
 
$
98,712

 
$
92,782

 
6.4
%
 
1.1
 %
Carriage fees and subscriptions
11,462

 
11,260

 
1.8
%
 
3.9
%
 
34,846

 
32,781

 
6.3
%
 
1.3
 %
Other
1,181

 
764

 
54.6
%
 
57.5
%
 
3,125

 
2,420

 
29.1
%
 
22.5
 %
Net revenues
41,128

 
40,469

 
1.6
%
 
3.8
%
 
136,683

 
127,983

 
6.8
%
 
1.5
 %
Costs charged in arriving at OIBDA
25,521

 
25,210

 
1.2
%
 
3.5
%
 
77,987

 
76,193

 
2.4
%
 
(2.7
)%
OIBDA
$
15,607

 
$
15,259

 
2.3
%
 
4.2
%
 
$
58,696

 
$
51,790

 
13.3
%
 
7.9
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OIBDA margin
37.9
%
 
37.7
%
 
0.2 p.p.

 
0.1 p.p.

 
42.9
%
 
40.5
%
 
2.4 p.p.

 
2.5 p.p.

The television advertising market in Romania increased an estimated 4% at constant rates in the nine months ended September 30, 2018 compared to the same period in 2017.
Our television advertising revenues increased at constant rates in the third quarter from higher average prices, which were partially offset by selling fewer GRPs due to lower ratings. During the first nine months of 2018 we have seen some spending shift to the lower priced competition, which has generated more inventory to sell and the market remains largely sold out. Carriage fees and subscription revenues increased on a constant currency basis during the quarter primarily due to an increase in the average number of subscribers.
Costs charged in arriving at OIBDA increased at constant rates during the third quarter due to higher content costs resulting from new localized versions of entertainment formats in the fall schedule, which was partially offset by savings on foreign acquired program rights. These additional costs in the third quarter were more than offset by savings on production costs for locally produced formats in the spring season when compared to the schedule in 2017, as well as additional savings on acquired programming, resulting in lower costs at constant rates in the first nine months of 2018.

Slovak Republic
 
Three Months Ended September 30, (US$ 000's)
 
Nine Months Ended September 30, (US$ 000's)
 
 
 
 
 
Movement
 
 
 
 
 
Movement
 
2018

 
2017

 
% Act

 
% Lfl

 
2018

 
2017

 
% Act

 
% Lfl

Television advertising
$
17,929

 
$
17,354

 
3.3
 %
 
4.2
 %
 
$
61,067

 
$
54,701

 
11.6
 %
 
4.0
 %
Carriage fees and subscriptions
2,080

 
2,095

 
(0.7
)%
 
(0.2
)%
 
6,516

 
5,649

 
15.3
 %
 
8.1
 %
Other
858

 
935

 
(8.2
)%
 
(7.6
)%
 
3,007

 
2,998

 
0.3
 %
 
(8.5
)%
Net revenues
20,867

 
20,384

 
2.4
 %
 
3.2
 %
 
70,590

 
63,348

 
11.4
 %
 
3.8
 %
Costs charged in arriving at OIBDA
15,835

 
17,575

 
(9.9
)%
 
(9.3
)%
 
60,549

 
52,382

 
15.6
 %
 
7.4
 %
OIBDA
$
5,032

 
$
2,809

 
79.1
 %
 
81.6
 %
 
$
10,041

 
$
10,966

 
(8.4
)%
 
(13.6
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OIBDA margin
24.1
%
 
13.8
%
 
10.3 p.p.

 
10.4 p.p.

 
14.2
%
 
17.3
%
 
(3.1) p.p.

 
(2.9) p.p.


The television advertising market in the Slovak Republic increased an estimated 3% at constant rates in the nine months ended September 30, 2018 compared to the same period in 2017.
Our television advertising revenues increased on a constant currency basis in the third quarter and first nine months of 2018, and we gained market share, due to higher average prices for GRPs. There was also higher spending on sponsorship compared to the corresponding periods of last year, since sellout rates remain elevated. Following our exit from digital terrestrial transmission of our channels at the beginning of last year, carriage fees and subscriptions revenue increased significantly in the first nine months of 2018 from higher prices as certain contracts were signed in the first half of 2017.
On a constant currency basis, costs charged in arriving at OIBDA decreased significantly during the third quarter due to lower content costs as the fall season started later than in 2017 and last year included local fiction and entertainment formats during the summer months. There was also a decrease in personnel costs from reduced headcount. Costs increased in the first nine months of 2018 because the cost savings in the third quarter were more than offset by increased spending on content in the first half of the year, including higher costs associated with a new series launched in 2018 in the access-prime time slot. We also incurred significant legal and professional fees (see Item 1, Note 20 Commitments and Contingencies).


32


III.    Analysis of the Results of Operations and Financial Position
 
For the Three Months Ended September 30, (US$ 000's)
 
 
 
 
 
Movement
 
2018

 
2017

 
% Act

 
% Lfl

Revenue:
 
 
 
 
 
 
 
Television advertising
$
96,015

 
$
93,830

 
2.3
 %
 
2.9
 %
Carriage fees and subscriptions
22,813

 
21,547

 
5.9
 %
 
7.0
 %
Other revenue
4,694

 
4,054

 
15.8
 %
 
16.2
 %
Net Revenues
123,522

 
119,431

 
3.4
 %
 
4.1
 %
Operating expenses:
 
 
 
 
 
 
 
Content costs
53,214

 
55,871

 
(4.8
)%
 
(4.1
)%
Other operating costs
11,789

 
12,612

 
(6.5
)%
 
(6.5
)%
Depreciation of property, plant and equipment
7,265

 
6,936

 
4.7
 %
 
4.8
 %
Amortization of broadcast licenses and other intangibles
2,216

 
2,187

 
1.3
 %
 
0.2
 %
Cost of revenues
74,484

 
77,606

 
(4.0
)%
 
(3.6
)%
Selling, general and administrative expenses
28,072

 
25,803

 
8.8
 %
 
8.8
 %
Operating income
$
20,966

 
$
16,022

 
30.9
 %
 
34.2
 %
 
For the Nine Months Ended September 30, (US$ 000's)
 
 
 
 
 
Movement
 
2018

 
2017

 
% Act

 
% Lfl

Revenue:
 
 
 
 
 
 
 
Television advertising
$
338,750

 
$
303,486

 
11.6
%
 
3.0
 %
Carriage fees and subscriptions
68,984

 
61,597

 
12.0
%
 
5.1
 %
Other revenue
14,525

 
12,975

 
11.9
%
 
3.1
 %
Net Revenues
422,259

 
378,058

 
11.7
%
 
3.3
 %
Operating expenses:
 
 
 
 
 
 
 
Content costs
189,925

 
174,214

 
9.0
%
 
0.6
 %
Other operating costs
36,873

 
35,747

 
3.1
%
 
(5.2
)%
Depreciation of property, plant and equipment
22,179

 
19,345

 
14.6
%
 
5.4
 %
Amortization of broadcast licenses and other intangibles
6,839

 
6,349

 
7.7
%
 
(3.4
)%
Cost of revenues
255,816

 
235,655

 
8.6
%
 
 %
Selling, general and administrative expenses
78,690

 
70,204

 
12.1
%
 
3.3
 %
Operating income
$
87,753

 
$
72,199

 
21.5
%
 
14.4
 %
Revenue:
Television advertising revenues: We estimate television advertising spending in our markets grew on average by 4% at constant rates in the nine months ended September 30, 2018 as compared to the same period in 2017, positively impacting our television advertising revenues. See "Overview - Segment Performance" above for additional information on television advertising revenues for each of our operating countries.
Carriage fees and subscriptions: Carriage fees and subscriptions revenues during the three and nine months ended September 30, 2018 grew approximately 7% and 5% at constant rates, respectively, as compared to the same periods in 2017 primarily due to new contracts with higher prices and an increase in the number of subscribers. See "Overview - Segment Performance" above for additional information on carriage fees and subscription revenues for each of our operating countries.
Other revenues: Other revenues include primarily internet advertising revenues and revenues generated through the licensing of our own productions. Other revenues increased during the three and nine months ended September 30, 2018 as compared to the same periods in 2017 primarily due to higher online revenues in the Czech Republic.
Operating Expenses:
Content costs: Content costs (including production costs and amortization and impairment of program rights) decreased during the three months ended September 30, 2018 compared to the same period in 2017 primarily due to less local production in the Slovak Republic as well as fewer sporting events and cheaper acquired fiction in Bulgaria.
Content costs increased slightly at constant rates during the nine months ended September 30, 2018 compared to the same period in 2017 primarily due to the inclusion of more hours of local productions in our broadcast schedules.
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 September 30, 2018 compared to the same period in 2017 primarily due to payroll and related cost savings in the Slovak Republic.

33


Other operating costs decreased at constant rates during the nine months ended September 30, 2018 compared to the same period in 2017 primarily due to payroll and related cost savings in the Slovak Republic and Bulgaria as well as reductions in transmission costs in the Slovak Republic, which were partially offset by higher amounts paid for authors' rights in Romania.
Depreciation of property, plant and equipment: Total depreciation of property, plant and equipment increased during the three and nine months ended September 30, 2018 compared to the same periods in 2017 primarily due to depreciation on machinery and equipment placed in service during 2017.
Amortization of broadcast licenses and other intangibles: Total amortization of broadcast licenses and other intangibles for the three months ended September 30, 2018 was comparable to the same period in 2017 at constant rates. Total amortization of broadcast licenses and other intangibles decreased at constant rates during the nine months ended September 30, 2018 compared to the same period in 2017 primarily due to certain intangibles in the Czech Republic and Romania becoming fully amortized in 2017.
Selling, general and administrative expenses: Selling, general and administrative expenses increased during the three months ended September 30, 2018 as compared to the same period in 2017 primarily due to higher charges in respect of non-cash stock-based compensation and higher legal fees in the Slovak Republic, partially offset by lower bad debt charges in Bulgaria.
Selling, general and administrative expenses increased during the nine months ended September 30, 2018 as compared to the same period in 2017 primarily due to higher charges in respect of non-cash stock-based compensation, higher legal fees in the Slovak Republic and higher bad debt charges in Romania, partially offset by lower bad debt charges in Bulgaria and the revision of a legal provision in Romania due to a change in our estimated exposure.
Non-cash stock-based compensation charges for the three and nine months ended September 30, 2018 and 2017 were US$ 3.9 million and US$ 6.0 million; and US$ 0.4 million and US$ 2.0 million, respectively. The increase in non-cash stock-based compensation charges is mainly due to an accelerated vesting of RSUs with performance conditions on July 31, 2018 in accordance with the terms of the corresponding award agreement following the completion of sale of the Company's Croatian operations on such date. See Item 1, Note 17, "Stock-based Compensation".
Operating income: Operating income during the three months ended September 30, 2018 increased compared to the same period in 2017 primarily due to increases in television advertising and carriage fee revenues, which outpaced the increase in selling, general and administrative expenses; and due to reductions in content costs and other operating costs.
Operating income during the nine months ended September 30, 2018 increased compared to the same period in 2017 primarily due to increases in television advertising and carriage fee revenues, which outpaced the increases in content costs and in selling, general and administrative expenses.
Our operating margin, which is determined as operating income divided by net revenues, was 17.0% and 20.8% for the three and nine months ended September 30, 2018 compared to 13.4% and 19.1% for the three and nine months ended September 30, 2017.
Other income / (expense):
 
For the Three Months Ended
September 30, (US$ 000's)
 
For the Nine Months Ended
September 30, (US$ 000's)
 
2018

 
2017

 
% Act

 
2018

 
2017

 
% Act

Interest expense
$
(8,437
)
 
$
(18,352
)
 
54.0
 %
 
$
(33,890
)
 
$
(54,773
)
 
38.1
 %
Other non-operating income / (expense):
 
 
 
 
 
 
 
 
 
 
 
Interest income
141

 
139

 
1.4
 %
 
487

 
326

 
49.4
 %
Foreign currency exchange gain / (loss), net
1,387

 
4,609

 
(69.9
)%
 
(401
)
 
14,085

 
NM (1)

Change in fair value of derivatives
67

 
(1,150
)
 
NM (1)

 
(1,262
)
 
(1,882
)
 
32.9
 %
Loss on extinguishment of debt
(127
)
 
(101
)
 
(25.7
)%
 
(415
)
 
(101
)
 
NM (1)

Other income, net
103

 
45

 
128.9
 %
 
274

 
254

 
7.9
 %
Provision for income taxes
(3,190
)
 
(3,157
)
 
(1.0
)%
 
(14,227
)
 
(12,770
)
 
(11.4
)%
Income / (loss) from discontinued operations, net of tax
57,581

 
(5,988
)
 
NM (1)

 
63,269

 
(8,747
)
 
NM (1)

Net loss attributable to noncontrolling interests
80

 
188

 
(57.4
)%
 
274

 
534

 
(48.7
)%
(1) 
Number is not meaningful.
Interest expense: Interest expense during the three and nine months ended September 30, 2018 decreased compared to the same periods in 2017. This reflects the repricing of our Guarantee Fees in April 2018, the repayment of outstanding amounts of the 2019 Euro Loan, the partial repayment of the 2021 Euro Loan as well as reduced borrowing costs following a reduction in our net leverage ratio as defined within the Reimbursement Agreement. See Item 1, Note 5, "Long-term Debt and Other Financing Arrangements".
Interest income: Interest income primarily reflects earnings on cash balances and was not material.
Foreign currency exchange gain / (loss), net: We are exposed to fluctuations in foreign exchange rates on the revaluation of monetary assets and liabilities denominated in currencies other than the local functional currency of the relevant subsidiary. This includes third party receivables and payables, as well as certain of our intercompany loans which are not considered of a long-term investment nature. Our subsidiaries generally receive funding via loans that are denominated in currencies other than the 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.
During the nine months ended September 30, 2018, we recognized a net loss of US$ 0.4 million comprised of transaction gains of US$ 0.5 million relating to the revaluation of intercompany loans, transaction losses of approximately US$ 2.7 million on our long-term debt and other financing arrangements and transaction gains of US$ 1.8 million relating to the revaluation of monetary assets and liabilities denominated in currencies other than the local functional currency of the relevant subsidiary.

34


During the nine months ended September 30, 2017, we recognized a net gain of US$ 14.1 million comprised of transaction gains of US$ 7.7 million relating to the revaluation of intercompany loans, transaction gains of approximately US$ 2.4 million on our long-term debt and other financing arrangements and transaction gains of US$ 4.0 million relating to the revaluation of monetary assets and liabilities denominated in currencies other than the local functional currency of the relevant subsidiary.
Change in fair value of derivatives: During the three and nine months ended September 30, 2018, we recognized a gain and a loss, respectively, as a result of the change in the fair value of our interest rate swaps that are not designated as hedging instruments. During the three and nine months ended September 30, 2017, we recognized losses as a result of the change in the fair value of our since settled USD/EUR foreign currency forward contracts. See Item 1, Note 12, "Financial Instruments and Fair Value Measurements".
Loss on extinguishment of debt: During the three and nine months ended September 30, 2018, we recognized losses on extinguishment of debt related to our full repayment of the 2019 Euro Loan and partial repayment of the 2021 Euro Loan.
Other income, net: Our other income / expense, net during the three and nine months ended September 30, 2018 and 2017 was not material.
Provision for income taxes: The provision for income taxes for the three and nine months ended September 30, 2018 and for the same periods in 2017 reflects income tax charges on profits in the Czech Republic, Romania and the Slovak Republic 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 and 21% in the Slovak Republic.
Income / (loss) from discontinued operations, net of tax: Income from discontinued operations, net of tax for the three and nine months ended September 30, 2018 is comprised of the gain on sale of our Croatia operations, results of the Slovenia operations and the Croatia operations through the date of sale as well as the allocation of interest expense and Guarantee Fees and transaction costs. Loss from discontinued operations, net of tax for the three and nine months ended September 30, 2017 is comprised of the results of the Croatia and Slovenia operations as well as the allocation of interest expense and Guarantee Fees and transaction costs. See Item 1, Note 3, "Discontinued Operations and Assets Held for Sale" and Note 5, "Long-term Debt and Other Financing Arrangements".
Net loss attributable to noncontrolling interests: The results attributable to noncontrolling interests for the three and nine months ended September 30, 2018 and 2017 relate to the noncontrolling interest share of our Bulgaria operations.
Other comprehensive income / (loss):
 
For the Three Months Ended
September 30, (US$ 000's)
 
For the Nine Months Ended
September 30, (US$ 000's)
 
2018

 
2017

 
% Act

 
2018

 
2017

 
% Act
Currency translation adjustment, net
$
12,137

 
$
9,227

 
31.5
%
 
$
(10,707
)
 
$
42,203


NM (1)
Unrealized gain / (loss) on derivative instruments
1,033

 
(135
)
 
NM (1)

 
(1,895
)
 
1,083

 
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 income / (loss) due to currency translation adjustment, net comprised the following for the three and nine months ended September 30, 2018 and 2017:
 
For the Three Months Ended
September 30, (US$ 000's)
 
For the Nine Months Ended
September 30, (US$ 000's)
 
2018

 
2017

 
% Act

 
2018

 
2017

 
% Act

Foreign exchange gain on intercompany transactions
$
4,894

 
$
1,142

 
NM (1)

 
$
1,370

 
$
7,824

 
(82.5
)%
Foreign exchange (loss) / gain on the Series B Preferred Shares
(1,902
)
 
8,833

 
NM (1)

 
(9,579
)
 
29,284

 
NM (1)

Currency translation adjustment
9,145

 
(748
)
 
NM (1)

 
(2,498
)
 
5,095

 
NM (1)

Currency translation adjustment, net
$
12,137

 
$
9,227

 
31.5
%
 
$
(10,707
)
 
$
42,203

 
NM (1)

(1) 
Number is not meaningful.

35


The following charts depict the movement of the dollar versus the functional currencies of our operations, based on monthly closing rates, during the nine months ended September 30, 2018 and September 30, 2017.
Percent Change During the Nine Months Ended September 30, 2018
chart-351eecf30a3254dc8ce.jpg
Percent Change During the Nine Months Ended September 30, 2017
chart-e289e2ab497a51af89e.jpg
Unrealized gain / (loss) on derivative instrumentsThe gains / (losses) on derivatives classified as cash flow hedges of the 2021 and 2023 Euro Loans, which are recognized in accumulated other comprehensive income / (loss), for the three and nine months ended September 30, 2018 and 2017 are due to the effective portion of the changes in the fair value of our interest rate swaps on the 2021 and 2023 Euro Loans. See Item 1, Note 12, "Financial Instruments and Fair Value Measurements".

36


Condensed consolidated balance sheets as at September 30, 2018 and December 31, 2017:
 
Condensed Consolidated Balance Sheet (US$ 000’s)
 
September 30, 2018

 
December 31, 2017

 
% Act

 
% Lfl

Current assets
$
371,585

 
$
464,774

 
(20.1
)%
 
(17.6
)%
Non-current assets
1,099,871

 
1,163,281

 
(5.5
)%
 
(2.3
)%
Current liabilities
162,737

 
188,264

 
(13.6
)%
 
(10.8
)%
Non-current liabilities
850,750

 
1,180,968

 
(28.0
)%
 
(25.5
)%
Temporary equity
269,370

 
264,593

 
1.8
 %
 
1.8
 %
CME Ltd. shareholders’ equity / (deficit)
188,577

 
(5,788
)
 
NM (1)

 
NM (1)

Noncontrolling interests in consolidated subsidiaries
22

 
18

 
22.2
 %
 
(92.2
)%
(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, 2017, excluding the impact of foreign currency translation.
Current assets: Excluding the impact of assets held for sale, current assets at September 30, 2018 decreased from December 31, 2017 primarily due to a reduction in accounts receivable caused by seasonality trends of our business as our advertising sales tend to be lowest during the third quarter of each calendar year due to the summer holiday period, and highest during the fourth quarter of each calendar year due to the winter holiday season.
Non-current assets: Non-current assets at September 30, 2018 decreased from December 31, 2017 primarily due to amortization of own produced program rights related to significant projects aired during 2018, as well as depreciation of property, plant and equipment and amortization of broadcast licenses in the Czech Republic, partially offset by additions to property, plant and equipment.
Current liabilities: Excluding the impact of liabilities held for sale, current liabilities at September 30, 2018 decreased from December 31, 2017 primarily due to lower programming and income taxes payables, partially offset by higher deferred revenue from customer prepayments on their fall 2018 advertising campaigns.
Non-current liabilities: Non-current liabilities at September 30, 2018 decreased from December 31, 2017 primarily due to the repayment of amounts outstanding of the 2019 Euro Loan and the partial repayment of the 2021 Euro Loan together with related Guarantee Fees and the Commitment Fee. See Item 1, Note 5, "Long-term Debt and Other Financing Arrangements".
Temporary equity: Temporary equity at September 30, 2018 and December 31, 2017 represents the accreted value of the Series B Preferred Shares.
CME Ltd. shareholders’ equity / (deficit): The increase in shareholders' equity primarily reflects the exercise of warrants and net income attributable to CME Ltd. during the nine months ended September 30, 2018 partially offset by the impact of currency translation adjustments in accumulated other comprehensive loss.
Noncontrolling interests in consolidated subsidiaries: Noncontrolling interests in consolidated subsidiaries at September 30, 2018 decreased at constant rates from December 31, 2017 due to the net loss attributable to the noncontrolling interest in Bulgaria.
IV.    Liquidity and Capital Resources
IV (a)    Summary of Cash Flows
Cash and cash equivalents increased by US$ 1.1 million during the nine months ended September 30, 2018. The change in cash and cash equivalents for the periods presented below is summarized as follows:
 
For the Nine Months Ended September 30, (US$ 000's)
 
2018

 
2017

Net cash generated from continuing operating activities
$
84,934

 
$
90,638

Net cash used in continuing investing activities
(12,078
)
 
(16,250
)
Net cash used in continuing financing activities
(180,520
)
 
(57,782
)
Net cash provided by / (used in) discontinued operations
110,796

 
(62
)
Impact of exchange rate fluctuations on cash and cash equivalents
(2,032
)
 
9,884

Net increase in cash and cash equivalents
$
1,100

 
$
26,428

Operating Activities
Net cash generated from continuing operations declined during the nine months ended September 30, 2018 when compared to the same period in 2017. While we saw an increase in cash collections due to improved operating performance and higher prepayments from customers, we paid a significant amount of Guarantee Fees that we previously paid in kind and we also paid more cash for income taxes. We paid cash interest (including mandatory cash-pay Guarantee Fees) of US$ 24.9 million during the nine months ended September 30, 2018 compared to US$ 22.2 million during the nine months ended September 30, 2017.
Investing Activities
Our net cash used in continuing investing activities decreased for the nine months ended September 30, 2018 and 2017 primarily due to the timing of capital expenditures for property, plant and equipment and increases in capital leasing.

37


Financing Activities
Net cash used in continuing financing activities during the nine months ended September 30, 2018 primarily reflects principal repayments made on our obligations under the 2019 and 2021 Euro Loans offset by the proceeds from the issuance of warrants. Cash used by continuing financing activities during the nine months ended September 30, 2017 primarily reflected principal repayments made on our obligations under the 2019 Euro Loan offset by proceeds from a sale-leaseback transaction entered into in Romania.
Discontinued Operations
The increase in net cash provided by discontinued operations during the nine months ended September 30, 2018 primarily reflects the the proceeds from the sale of our Croatia operations as well as cash collections from improved operating performance of our former Slovenia operations. See Item 1, Note 3, "Discontinued Operations and Assets Held for Sale".
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 September 30, 2018, we also had available the aggregate principal amount under the 2023 Revolving Credit Facility of US$ 75.0 million (see Item 1, Note 5, "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 September 30, 2018 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
$
786,167

 
$

 
$

 
$
786,167

 
$

Long-term debt – interest
184,884

 
34,093

 
68,613

 
82,178

 

Unconditional purchase obligations
86,260

 
39,212

 
35,035

 
8,818

 
3,195

Operating leases
6,372

 
2,078

 
1,864

 
725

 
1,705

Capital lease obligations
13,445

 
4,605

 
7,729

 
1,111

 

Other long-term obligations
11,811

 
8,254

 
3,153

 
388

 
16

Total contractual obligations
$
1,088,939

 
$
88,242

 
$
116,394

 
$
879,387

 
$
4,916

Long-Term Debt
For more information on our long-term debt, see Item 1, Note 5, "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 September 30, 2018.
Unconditional Purchase Obligations
Unconditional purchase obligations primarily comprise future programming commitments. At September 30, 2018, we had commitments in respect of future programming of US$ 84.8 million. This includes contracts signed with license periods starting after September 30, 2018.
Operating Leases
For more information on our operating lease commitments, see Item 1, Note 20, "Commitments and Contingencies".
Other Long-Term Obligations
Other long-term obligations are primarily comprised of digital transmission commitments.
Other
Top Tone Media Holdings Limited has exercised its right to acquire additional equity in CME Bulgaria. However, the closing of this transaction has not yet occurred because purchaser financing is still pending. If consummated, we would own 90.0% of our Bulgaria broadcast operations. The option strike price is the fair value of the equity in CME Bulgaria, as determined by an independent valuation.
IV (d)    Cash Outlook
Because cash flows from operating activities were negative from 2012 to 2014, we relied on equity and debt financings to ensure adequate funding for our operations. Since 2015, our cash flow from operating activities has been positive and our cost of borrowing has consistently decreased. For the nine months ending September 30, 2018, net cash generated from continuing operations and unlevered free cash flow were US$ 84.9 million and US$ 125.8 million, respectively, compared to

38


US$ 90.6 million and US$ 98.0 million for the nine months ended September 30, 2017 (See Section II, Overview). As at September 30, 2018, we had US$ 56.0 million in cash and cash equivalents.
On April 25, 2018, Warner Media and TW Investor exercised 100,926,996 warrants at US$ 1.00 per share. We applied the US$ 100.9 million proceeds and together with cash from operations to repay EUR 110.0 million (approximately US$ 132.0 million at May 3, 2018 rates) of the outstanding principal of the 2019 Euro Loan, reducing the outstanding amount to EUR 40.8 million. Following the closing of the Croatian Transaction, we used the proceeds of EUR 86.4 million (approximately US$ 101.4 million at July 31, 2018 rates) and cash from operations to pay down the balance of the 2019 Euro Loan and to repay the accrued Commitment Fee and accrued Guarantee Fees of US$ 41.2 million, as well as EUR 25.0 million (approximately US$ 29.3 million at July 31, 2018 rates) of the principal balance of the 2021 Euro Loan. As a result, our nearest debt maturity is November 1, 2021.
As at September 30, 2018, the weighted average all-in rate (comprising interest and Guarantee Fees) applicable to the Euro Loans was approximately 4.1%, all of which is payable in cash. Our net leverage as at September 30, 2018, improved from 4.4x to 3.8x from the previous quarter. As a result, the weighted average all-in rate applicable to the Euro Loans will decline by 0.5% to approximately 3.5%, effective October 2018. We expect the all-in rates to decline further upon additional deleveraging following further improvements in our operating results and the closing of the Slovenian Transaction.
In addition, while we expect our unlevered free cash flow to grow due to continuous improvement in our operating results, we anticipate the amounts of cash paid for income taxes will continue to increase in 2018 and to further converge with local statutory tax rates as our operating companies in each jurisdiction have returned to generating profits and previous tax losses were utilized.
Credit ratings and future debt issuances
Our corporate credit is rated B1 by Moody's Investors Service with a positive outlook and B+ by Standard & Poor's with a positive outlook. Our ratings show each agency's opinion of our financial strength, operating performance and ability to meet our debt obligations as they become due. These ratings take into account the particular emphasis the ratings agencies place on metrics such as leverage ratio and cash flow, which they use as measurements of a company's liquidity and financial strength. They also reflect an emphasis by the ratings agencies on the track record of strong financial support from Warner Media. We may be subject to downgrades if our operating performance deteriorates or we fail to maintain adequate levels of liquidity. In addition, our ratings may be downgraded if the agencies form a view that material support from Warner Media is not as strong, or the strategic importance of CME to Warner Media is not as significant as it has been in the past.
Credit risk of financial counterparties
We have entered into a number of significant contracts with financial counterparties as follows:
Interest Rate Swaps
We are party to interest rate swap agreements to mitigate our exposure to interest rate fluctuations on our Euro Loans. These interest rate swaps, certain of which are designated as cash flow hedges, provide the Company with variable-rate cash receipts in exchange for fixed-rate payments over the lives of the agreements, with no exchange of the underlying notional amount.
Foreign Exchange Forwards
We are exposed to movements in the USD to EUR exchange rates related to contractual payments under dollar-denominated agreements. To reduce this exposure, from time to time we enter into pay-Euro receive-dollar forward foreign exchange contracts. We had no such agreements outstanding at September 30, 2018.
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, mainly overnight. The credit rating of a bank is a critical factor in determining the size of cash deposits and we will only deposit cash with banks of investment grade rating. In addition, we also closely monitor the credit default swap spreads and other market information for each of the banks with which we consider depositing or have deposited funds.
IV (e)    Off-Balance Sheet Arrangements
None.
V.    Critical Accounting Policies and Estimates
Our accounting policies that have a material effect on our financial condition and results of operations are more fully described in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2017 filed with the Securities and Exchange Commission ("SEC") on February 8, 2018. 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, income taxes, foreign exchange, determination of the fair value of financial instruments, contingencies and discontinued operations. 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.

39


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:
September 30, 2018:
Expected Maturity Dates
 
2018

 
2019

 
2020

 
2021
 
2022

 
Thereafter
Long-term Debt (000's):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Variable rate (EUR) 
 

 

 

 
210,335

 
 

 
468,800

 
Average interest rate (1)
 

 

 

 
1.28
%
 
 

 
1.28
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest Rate Swaps (000's):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Variable to fixed (EUR)
 

 
210,335

 

 
679,135

(2) 
 

 
468,800

(3) 
Average pay rate
 

 
0.31
%
 

 
0.33
%
 
 

 
0.97
%
 
Average receive rate
 

 
%
 

 
%
 
 

 
%
 
(1) 
As discussed in Item 1, Note 5, "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 3.75% per annum and the all-in borrowing rate on the 2023 Euro Loan was 4.25% per annum as of September 30, 2018.
(2) 
The interest rate swaps related to the 2021 Euro Loan maturing in 2021 are forward starting to coincide with the maturity date of the interest rate swaps maturing in 2019. See Item 1, Note 12, "Financial Instruments and Fair Value Measurements".
(3) 
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 12, "Financial Instruments and Fair Value Measurements".
December 31, 2017:
Expected Maturity Dates
 
2018

 
2019

 
2020

 
2021

 
2022

 
Thereafter

Long-term Debt (000's):
 
 
 
 
 
 
 
 
 
 
 
 
Variable rate (EUR)
 
200,800

 
235,335

 

 
468,800

 

 

Average interest rate (1)
 
1.50
%
 
1.50
%
 

 
1.50
%
 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
Interest Rate Swaps (000's):
 
 
 
 
 
 
 
 
 
 
 
 
Variable to fixed (EUR)
 
200,800

 
235,335

 

 
468,800

 

 

Average pay rate
 
0.14
%
 
0.31
%
 

 
0.28
%
 

 

Average receive rate
 
%
 
%
 

 
%
 

 

(1) 
As discussed in Item 1, Note 5, "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. As of December 31, 2017, the all-in borrowing rate on each of the Euro Loans was 6.0% per annum.
Foreign Currency Exchange Risk Management
We conduct business in a number of currencies other than our functional currencies. As a result, we are subject to foreign currency exchange rate risk due to the effects that foreign exchange rate movements of these currencies have on our costs and on the cash flows we receive from our subsidiaries. In limited instances we enter into forward foreign exchange contracts to minimize foreign currency exchange rate risk.
We periodically enter into forward foreign exchange contracts to reduce our exposure to movements in the USD to EUR exchange rates related to contractual payments under dollar-denominated agreements. At September 30, 2018, 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 12, "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 September 30, 2018 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 September 30, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

40


PART II.    OTHER INFORMATION
Item 1.    Legal Proceedings
General
Litigation
We are from time to time party to legal proceedings, arbitrations and regulatory proceedings arising in the normal course of our business operations, including the proceeding described below. We evaluate, on a quarterly basis, developments in such matters and provide accruals for such matters, as appropriate. In making such decisions, we consider the degree of probability of an unfavorable outcome and our ability to make a reasonable estimate of the amount of a loss. An unfavorable outcome in any such proceedings, if material, could have an adverse effect on our business or consolidated financial statements.
In the fourth quarter of 2016, our Slovak subsidiary MARKIZA-SLOVAKIA, spol. s.r.o. (“Markiza”) was notified of claims that were filed in June 2016 in a court of first instance in Bratislava, the Slovak Republic to collect amounts allegedly owing under four promissory notes that have a collective face value of approximately EUR 69.0 million. These four promissory notes were purportedly issued in June 2000 by Pavol Rusko in his personal capacity and were purportedly guaranteed by Markiza under the signature of Mr. Rusko, who was an executive director of Markiza at that time as well as one of its shareholders. The notes purport to be issued in favor of Marian Kocner, a controversial Slovak businessman, and to a former associate of Mr. Kocner, and were supposedly assigned several times, ultimately to Sprava a inkaso zmeniek, s.r.o., a company owned by Mr. Kocner that is the plaintiff in these proceedings.
Two of the notes, each of which purportedly has a face value of approximately EUR 8.3 million, allegedly matured in 2015; and the other two, each of which purportedly has a face value of approximately EUR 26.2 million, allegedly matured in 2016. The four notes accrue interest from their purported maturity dates. Although Mr. Rusko has asserted, both in written responses to active claims filed in respect of three of the promissory notes as well as in subsequent oral testimony, that he signed the notes in June 2000, we do not believe that the notes were signed in June 2000 or that any of the notes are authentic.
Despite a random case assignment system in the Slovak Republic, claims in respect of three of the notes were initially assigned to the same judge. One of those claims, concerning one of the promissory notes having a face value of approximately EUR 8.3 million (the “First PN Case”), was subsequently reassigned. Proceedings on the claim in respect of the fourth promissory note (in the amount of approximately EUR 26.2 million) were terminated in January 2017 by the presiding judge because the plaintiff failed to pay court fees and were terminated a second time by a different presiding judge in September 2017 after the plaintiff refiled but failed to pay court fees a second time.
During the first quarter of 2018, the court of first instance began to schedule hearings in respect of the First PN Case as well as the claims relating to the second promissory note having a face value of approximately EUR 8.3 million (the “Second PN Case”) and one of the promissory notes having a face value of approximately EUR 26.2 million (the “Third PN Case”). On April 26, 2018, the judge in the First PN Case ruled in favor of the plaintiff. Markiza has appealed that decision.
On May 14, 2018, Markiza filed a criminal complaint with the Office of the Special Prosecutor 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. The Special Prosecutor’s Office opened criminal proceedings in the matter at that time.
On June 20, 2018, the Special Prosecutor’s Office issued a decision to formally charge Mr. Kocner and Mr. Rusko with counterfeiting, falsification, and illegal production of money and securities and with obstruction or perversion of justice. Subsequently, Mr. Kocner has been taken into pre-trial custody by the Slovak authorities.
On October 12, 2018, the court of first instance terminated proceedings in respect of the Second PN Case because the plaintiff failed to continue to pursue the claim. The plaintiff can appeal this decision. There have been no hearings held in respect of the Third PN Case since the initiation of the criminal proceedings.
Markiza is seeking to have the civil proceedings either suspended until the conclusion of the criminal proceedings or dismissed. In the event any of the civil proceedings are not suspended or dismissed, Markiza will continue to vigorously defend the claims.
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
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. Our markets have experienced overall growth in real GDP (as adjusted for inflation) and advertising spending since 2014; however, we cannot predict if the current growth trends will continue in the future. Recessions or periods of low or negative growth in the region or globally in the future may cause a deterioration of general economic conditions in one or more of our markets, which would have an adverse economic impact on our advertising revenues. The United States has imposed tariffs on certain products from many of its trading partners, and if trade tensions escalate between the United States and Europe this may result in the imposition of tariffs on cars and auto part exports from Europe. Such tariffs could have a significant adverse impact on the economies of our countries of operation. Other factors that may affect general economic conditions in our markets include defaults by sovereigns or systemically important companies, austerity programs, natural disasters, acts of terrorism, civil or military conflicts or general political instability and responses to it, any of which may also reduce advertising spending. In addition, although we believe the advertising spend per capita of the countries in which we operate and advertising intensity (the ratio of total advertising spend per capita to nominal GDP per capita) will eventually converge with developed markets in Europe, such convergence may not occur in the time frame we expect, or at all. Any of these developments would have a significant negative effect on our financial position, results of operations and cash flows.

41


Changes to the quantitative easing program implemented by the European Central Bank ("ECB") and the impact on the region of the United Kingdom’s exit from the European Union (“EU”) may adversely affect our financial position and results of operations.
The ECB embarked upon quantitative easing in 2015 to address economic softness and a slowdown in growth of consumer prices in the Eurozone. The ECB also created funding and stability mechanisms to provide liquidity and financial assistance to Eurozone member states and financial institutions. Economic growth in recent years in the Eurozone, including strong growth in 2017, has been helped by the ECB’s quantitative easing program which was recalibrated in January 2018. Citing improved economic conditions, the ECB has confirmed plans to reduce and then end its quantitative easing program by the end of December 2018. The tapering of quantitative easing may adversely impact future growth in Eurozone countries, including the countries we operate in which would negatively impact our business.
On March 29, 2017, the United Kingdom formally initiated the process to leave the EU, commonly referred to as "Brexit", triggering a two-year period to finalize the terms for its leaving the EU. It is expected that economic conditions in the EU will be impacted by Brexit. While the overall economic impact of Brexit on the EU and the Euro is difficult to estimate at present, decisions to conserve cash and reduce spending by consumers and businesses in the United Kingdom would have a negative impact on economic growth rates in the United Kingdom and, to a lesser extent, in the EU, in particular those countries that are significant exporters to the United Kingdom. There is also significant uncertainty regarding the terms on which the United Kingdom will leave the EU, and pressure to reach an agreement ahead of the approaching deadline may result in terms that would have a more prolonged economic impact. In addition, if other countries seek to leave the EU, that would increase uncertainty in the region, which may have a further negative impact on investment and economic growth rates. Furthermore, the departure of the United Kingdom from the EU may further affect the budgetary contributions and allocations among the EU member states in the medium term, including the countries in which we operate, which are net recipients of EU funding. Economic uncertainty caused by Brexit or other instability in the EU resulting from Brexit could cause significant volatility in EU markets and reduce economic growth rates in the countries in which we operate, which would negatively impact our business.
Our operating results will be adversely affected if we cannot generate strong advertising sales.
We generate the majority of our revenues from the sale of advertising airtime on our television channels. 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 DTT in the Slovak Republic 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 and increase advertising sales could have a material adverse effect on our financial position, results of operations and cash flows.
We may be unable to refinance our existing indebtedness and may not be able to obtain favorable refinancing terms.
We have a substantial amount of indebtedness. Under the Reimbursement Agreement and the 2023 Revolving Credit Facility (when drawn), we can incur only limited amounts of additional indebtedness, other than indebtedness incurred to refinance existing indebtedness. In addition, pursuant to the Reimbursement Agreement, the all-in rates on 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. Pursuant to the Reimbursement Agreement, all commitments under the 2023 Revolving Credit Facility terminate on the refinancing of any Euro Loan. We face the risk that we will not be able to renew, repay or refinance our indebtedness when due, or that the terms of any renewal or refinancing will not be on better terms than those of such indebtedness being refinanced. In the event we are not able to refinance our indebtedness, we might be forced to dispose of assets on disadvantageous terms or reduce or suspend operations, any of which would materially and adversely affect our financial condition, results of operations and cash flows.
If the Slovenian Transaction fails to complete or is terminated, we may need to find alternative sources of funds to repay certain of our indebtedness
On July 9, 2017, we entered into a framework agreement (the “Framework Agreement”) with Slovenia Broadband S.à r.l. (the "Purchaser"), a wholly owned subsidiary of United Group B.V., relating to the sale of our Croatia and Slovenia operations (the "Divestment Transaction") for cash consideration of EUR 230.0 million, subject to customary working capital adjustments as well as the receipt of regulatory approvals and the satisfaction of other customary closing conditions. On July 5, 2018, the terms of the Framework Agreement were amended and restated (the “Restated Framework Agreement”) to provide that the sale of our Croatia operations (the "Croatian Transaction") is independent from the sale of our Slovenia operations (the "Slovenian Transaction"). The Croatian Transaction closed on July 31, 2018. On September 13, 2018, the terms of the Restated Framework Agreement were further amended to provide that the date after which we and the Purchaser may terminate the Restated Framework Agreement if the Slovenian Transaction has not closed be extended until October 31, 2018 (the "Long Stop Date"). There is no guarantee that all necessary regulatory approvals required to close the sale of our Slovenia operations will be obtained by the Long Stop Date. In the event the required regulatory approvals for the Slovenian Transaction are not obtained by the Long Stop Date or the parties have not otherwise agreed to extend that date, both we and the Purchaser have the right to terminate the Restated Framework Agreement on notice to the other party. If the Slovenian Transaction does not close or is terminated, we would not be able to repay indebtedness we planned to repay with expected proceeds of such transactions.

42


Our debt service obligations and covenants may restrict our ability to conduct our operations.
We have significant 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 the Slovenian Transaction does not close and cash flows from operations do not meet our forecasts, we would not be able to reduce our indebtedness as planned and would continue to 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. We may have a proportionally higher level of debt and debt service obligations than our competitors, which may put us at a competitive disadvantage by limiting our flexibility in planning for, or reacting to, changes in our business, economic conditions or our industry. For additional information regarding the Reimbursement Agreement, the 2023 Revolving Credit Facility and the WM Guarantees, see Part I, Item 1, Note 5, "Long-term Debt and Other Financing Arrangements".
We may be subject to changes in tax rates and exposure to additional tax liabilities.
We are subject to taxes in a number of foreign jurisdictions, including in respect of our operations as well as capital transactions undertaken by us. We are subject to regular review and audit by tax authorities, and in the ordinary course of our business there are transactions and calculations where the ultimate tax determination is unknown. Significant judgment is required in determining our provision for taxes. The final determination of our tax liabilities resulting from tax audits, related proceedings or otherwise could be materially different from our tax provisions. Economic and political pressures to increase receipts in various jurisdictions may make taxation and tax rates subject to significant change and the satisfactory resolution of any tax disputes more difficult. The occurrence of any of these events could have a material adverse effect on our financial position, results of operations and cash flows.
A default by us in connection with our obligations under our outstanding indebtedness could result in our inability to continue to conduct our business.
Pursuant to the Reimbursement Agreement and the 2023 Revolving Credit Facility, we pledged all of the shares of CME NV and of CME BV, which together own all of our interests in our operating subsidiaries, in favor of Warner Media as security for this indebtedness. If we or these subsidiaries 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 may negatively impact programming costs. While local programming is generally purchased in local currencies, a significant portion of our content costs relates to foreign programming purchased pursuant to dollar-denominated agreements. If the dollar appreciates against the functional currencies of our operating segments, the cost of acquiring such content would be adversely affected, which could have a material adverse effect on our results of operations and cash flows.
Our strategies to enhance our carriage fees and diversify our revenues may not be successful.
We are focused on creating additional revenue streams from our broadcast operations as well as increasing revenues generated from television advertising, which is how we generate most of our revenues. Our main efforts with respect to this strategy are on increasing carriage fees from cable, satellite and IPTV operators for carriage of our channels as well as continuing to seek improvements in advertising pricing. Agreements with operators generally have a term of one or more years, at which time agreements must be renewed. There can be no assurance that we will be successful in renewing carriage fee agreements on similar or better terms. During negotiations to implement our carriage fees strategy in prior years, some cable and satellite operators suspended the broadcast of our channels, which negatively affected the reach and audience shares of those operations and, as a result, advertising revenues. There is a risk that operators may refuse to carry our channels while carriage fee negotiations are ongoing, which would temporarily reduce the reach of those channels and may result in clients withdrawing advertising from our channels. The occurrence of any of these events may have an adverse impact on our financial position, results of operations and cash flows. If we are ineffective in negotiations with carriers or in achieving further carriage fee increases, our profitability will continue to be dependent primarily on television advertising revenues, which increases the importance placed on our ability to improve advertising pricing and generate advertising revenues. In addition to carriage fees, we are also working to build-out our offerings of advertising video-on-demand products and other opportunities for advertising online. There can be no assurances that our revenue diversification initiatives will ultimately be successful, and if unsuccessful, this may have an adverse impact on our financial position, results of operations and cash flows.
A downgrading of our corporate credit ratings may adversely affect our ability to raise additional financing.
Moody’s Investors Service rates our corporate credit as B1 with a positive outlook. Standard & Poor’s rates our corporate credit B+ (currently with a positive outlook). Our ratings show each agency's opinion of our financial strength, operating performance and ability to meet our debt obligations as they become due. These ratings take into account the particular emphasis the ratings agencies place on metrics such as leverage ratio and cash flow, which they use as measurements of a company's liquidity and financial strength. They also reflect an emphasis placed by the ratings agencies on a track record of strong financial support from Warner Media. We may be subject to downgrades if our operating performance deteriorates or we fail to maintain adequate levels of liquidity. In addition, our ratings may be downgraded if the agencies form a view that material support from Warner Media is not as strong, or the strategic importance of CME to Warner Media is not as significant as it has been in the past. 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 4, "Goodwill and Intangible Assets" for the carrying amounts of goodwill in each of our reporting units.

43


Risks Relating to Our Operations
Content may become more expensive to produce or acquire or we may not be able to develop or acquire content that is attractive to our audiences.
Television programming is one of the most significant components of our operating costs. The ability of our programming to generate advertising revenues depends substantially on our ability to develop, produce or acquire programming that matches audience tastes and attracts high audience shares, which is difficult to predict. The commercial success of a program depends on several tangible and intangible factors, including the impact of competing programs, the availability of alternate forms of entertainment and leisure time activities, our ability to anticipate and adapt to changes in consumer tastes and behavior, and general economic conditions. 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, changes in audience tastes in our markets or from the implementation of any new laws and regulations mandating the broadcast of a greater number of locally produced programs. In addition, we typically acquire syndicated programming rights under multi-year commitments before knowing how such programming will perform in our markets. In the event any such programming does not attract adequate audience share, it may be necessary to increase our expenditures by investing in additional programming, subject to the availability of adequate financial resources, as well as to write down the value of any underperforming programming. Any material increase in content costs could have a material adverse effect on our financial condition, results of operations or cash flows.
Our operations are vulnerable to significant changes in viewing habits and technology that could adversely affect us.
The television broadcasting industry is affected by rapid innovations in technology. The implementation of these new technologies and the introduction of non-traditional content distribution systems have increased competition for audiences and advertisers. Platforms such as direct-to-home cable and satellite distribution systems, the internet, subscription and advertising video-on-demand, user-generated content sites and the availability of content on portable digital devices have changed consumer behavior by increasing the number of entertainment choices available to audiences and the methods for the distribution, storage and consumption of content. This development has fragmented television audiences in more developed markets and could adversely affect our ability to retain audience share and attract advertisers as such technologies penetrate our markets. As we adapt to changing viewing patterns, it may be necessary to expend substantial financial and managerial resources to ensure necessary access to new technologies or distribution systems. Such initiatives may not develop into profitable business models. Furthermore, technologies that enable viewers to choose when, how, where and what content to watch, as well as to fast-forward or skip advertisements, may cause changes in consumer behavior that could have a negative impact on our advertising revenues. In addition, compression techniques and other technological developments allow for an increase in the number of channels that may be broadcast in our markets and expanded programming offerings that may be offered to highly targeted audiences. Reductions in the cost of launching new channels could lower entry barriers and encourage the development of increasingly targeted niche programming on various distribution platforms. This could increase the competitive demand for popular programming, resulting in an increase in content costs as we compete for audiences and advertising revenues. A failure to successfully adapt to changes in our industry as a result of technological advances may have an adverse effect on our financial position, results of operations and cash flows.
Our operating results are dependent on the importance of television as an advertising medium.
We generate most of our revenues from the sale of our advertising airtime on television channels in our markets. Television competes with various other media, such as print, radio, the internet and outdoor advertising, for advertising spending. In all of the countries in which we operate, television constitutes the single largest component of all advertising spending. There can be no 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, employment laws, data protection requirements including the new 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.
We have become aware of provisions in the tax regulations of one of our markets that shift the liability for taxes on gains resulting from certain capital transactions from the seller to the buyer. This provision may have been applicable to an acquisition made by us, although we do not believe we have any liability connected to this transaction. In addition, in 2016, the prosecuting authorities in Romania requested information in respect of an investigation into certain transactions entered into by Pro TV in 2014 primarily with certain related parties. We believe that the transactions under review are fully supported and have cooperated with the authorities in responding to the information request. 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.

44


Our operations are in developing markets where there are additional risks related to political and economic uncertainty, biased treatment and compliance with evolving legal and regulatory systems.
Our revenue-generating operations are located in Central and Eastern Europe and we may be significantly affected by risks that may be different to those posed by investments in more developed markets. These risks include, but are not limited to, social and political instability, changes in local regulatory requirements including restrictions on foreign ownership, inconsistent regulatory or judicial practice, corruption and increased taxes and other costs. The economic and political systems, legal and tax regimes, regulatory practices, standards of corporate governance and business practices of countries in this region continue to develop. Policies and practices may be subject to significant adjustments, including following changes in political leadership, as well as to the influence of commercial and governmental actors. This may result in inconsistent application of tax and legal regulations, arbitrary or biased treatment, and other general business risks as well as social or political instability or disruptions and the potential for political influence on the media. The relative level of development of our markets, the risk of corruption, and the influence of local commercial and governmental actors also present a potential for biased or unfair treatment of us before regulators or courts in the event of disputes. If such a dispute occurs, those regulators or courts may not act with integrity or may favor local interests over our interests. Other potential risks inherent in markets with evolving economic and political environments include exchange controls, higher taxes, tariffs and other levies as well as longer payment cycles. Ultimately, the occurrence of any of these could have a material adverse impact on our business, financial position, results of operations and cash flows.
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.
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 new 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.
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 are valid for indefinite time periods, our other broadcasting licenses expire at various times from 2019 through 2028. While we expect that our material licenses and authorizations will be renewed or extended as required to continue to operate our business, we cannot guarantee that this will occur or that they will not be subject to revocation, particularly in markets where there is relatively greater political risk as a result of less developed political and legal institutions. The failure to comply in all material respects with the terms of broadcasting licenses or other authorizations or with applications filed in respect thereto may result in such licenses or other authorizations not being renewed or otherwise being terminated. Furthermore, no assurances can be given that renewals or extensions of existing licenses will be issued on the same terms as existing licenses or that further restrictions or conditions will not be imposed in the future. Any non-renewal or termination of any other broadcasting or operating licenses or other authorizations or material modification of the terms of any renewed licenses may have a material adverse effect on our financial position, results of operations and cash flows.
Our success depends on attracting and retaining key personnel.
Our success depends partly upon the efforts and abilities of our key personnel and our ability to attract and retain key personnel. Our management teams have significant experience in the media industry and have made important contributions to our growth and success. Although we have been successful in attracting and retaining such people in the past, competition for highly skilled individuals is intense. There can be no assurance that we will continue to be successful in attracting and retaining such individuals in the future. The loss of the services of any of these individuals could have an adverse effect on our businesses, results of operations and cash flows.
Risks Relating to Enforcement Rights
We are a Bermuda company and enforcement of civil liabilities and judgments may be difficult.
We are a Bermuda company. Substantially all of our assets and all of our operations are located, and all of our revenues are derived, outside the United States. In addition, several of our directors and officers are non-residents of the United States, and all or a substantial portion of the assets of such persons are or may be located outside the United States. As a result, investors may be unable to effect service of process within the United States upon such persons, or to enforce against them judgments obtained in the United States courts, including judgments predicated upon the civil liability provisions of the United States federal and state securities laws. There is uncertainty as to whether the courts of Bermuda and the countries in which we operate would enforce (a) judgments of United States courts obtained against us or such persons predicated upon the civil liability provisions of the United States federal and state securities laws or (b) in original actions brought in such countries, liabilities against us or such persons predicated upon the United States federal and state securities laws.

45


Our Bye-laws restrict shareholders from bringing legal action against our officers and directors.
Our Bye-laws contain a broad waiver by our shareholders of any claim or right of action in Bermuda, both individually and on our behalf, against any of our officers or directors. The waiver applies to any action taken or concurred in by an officer or director, or the failure of an officer or director to take any action, in the performance of his or her duties, except with respect to any matter involving any fraud or dishonesty on the part of the officer or director. This waiver limits the right of shareholders to assert claims against our officers and directors unless the act or failure to act involves fraud or dishonesty.
Risks Relating to our Common Stock
Our share price may be adversely affected by sales of unregistered shares or future issuances of our shares.
Following the completion of the AT&T and Time Warner, Inc. merger on June 14, 2018, AT&T, through its wholly owned subsidiaries Warner Media and TW Investor, is the largest beneficial owner of shares of our Class A common stock, holding 162,334,771 unregistered shares of Class A common stock, one share of Series A preferred stock ("Series A Preferred Share"), 200,000 shares of Series B preferred stock ("Series B Preferred Shares") and on April 25, 2018, Warner Media (formerly Time Warner, Inc. at date of exercise) exercised warrants to acquire 100,926,996 shares of our Class A common stock. The share of Series A Preferred Shares is convertible into 11,211,449 shares of Class A common stock and the Series B Preferred Shares are convertible into approximately 111.1 million shares of Class A common stock at the option of Warner Media (subject to certain exceptions). Warner Media has registration rights with respect to all its shares of Class A common stock now held or hereafter acquired. For additional information on the Series A Preferred Shares, Series B Preferred Shares and warrants, see Part I, Item 1, Note 13, "Convertible Redeemable Preferred Shares" and Note 14, "Equity".
We cannot predict what effect, if any, the entry into trading of previously issued unregistered shares of Class A common stock will have on the market price of our shares. We may also issue additional shares of Class A common stock or securities convertible into our equity in the future. If more shares of our Class A common stock (or securities convertible into or exchangeable for shares of our Class A common stock) are issued to Warner Media, the economic interests of current shareholders may be diluted and the price of our shares may be adversely affected.
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 75.9%. 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 right to vote the shares received on the exercise of those warrants (the “Warrant Shares”) on all matters other than a change in control. In accordance with these proxies, the Warrant Shares will be voted in proportion to votes cast at a general meeting of the Company, excluding such Warrant Shares. Warner Media and TW Investor have undertaken to maintain this proxy arrangement until April 2020 and may extend it for an additional year at their option. In addition to the Warrant Shares subject to the standing proxies, AT&T beneficially owns 61,407,775 shares of Class A common stock and one share of the Series A Preferred Stock, which is entitled to one vote for each of the 11,211,449 shares of Class A common stock underlying it. 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 election of directors or certain transactions.
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 preemptive right (subject to certain exclusions) with respect to issuances of the Company’s equity securities, which permits it to maintain its pro rata economic interest as well as a right to top any offer that would result in a change of control of the Company. Under Bermuda law, there is no takeover code or similar legislation requiring an acquirer of a certain percentage of our Class A common stock to tender for the remaining publically held shares. 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 above under “Risks Relating to Our Operations” as well as the following: general economic and business trends, variations in quarterly operating results, license renewals, regulatory developments in our operating countries and the European Union, the condition of the media industry in our operating countries, the volume of trading in shares of our Class A common stock, future issuances of shares of our Class A common stock and investors’ and securities analysts’ perception of us and other companies that investors or securities analysts deem comparable in the television broadcasting industry. In addition, stock markets in general have experienced extreme price and volume fluctuations that have often been unrelated to and disproportionate to the operating performance of broadcasting companies. These broad market and industry factors may materially impact the market price of shares of our Class A common stock, regardless of our operating performance.
Our business could be negatively impacted as a result of shareholder activism.
In January 2017, TCS Capital Management, LLC ("TCS Capital"), filed an amendment to its Schedule 13D in which it disclosed its opinion that the Company should hire an investment bank to run a process to sell the Company as well as replace the Company's Board of Directors with new directors recommended by TCS Capital. In recent years, shareholder activists have become involved in numerous public companies. Shareholder activists frequently propose to involve themselves in the governance, strategic direction and operations of the Company. Such proposals may disrupt our business and divert the attention of our management and employees, and any perceived uncertainties as to our future direction resulting from such a situation could result in the loss of potential business opportunities, be exploited by our competitors, cause concern to our current or potential customers, and make it more difficult to attract and retain qualified personnel and business partners, all of which could adversely affect our business. In addition, actions of activist shareholders may cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.

46


Item 6.    Exhibits
EXHIBIT INDEX
Exhibit Number
 
Description
10.01*
 
 
 
 
31.01
 
 
 
 
31.02
 
 
 
 
31.03
 
 
 
 
32.01
 
 
 
 
101.INS
 
XBRL Instance Document
 
 
 
101.SCH
 
XBRL Taxonomy Schema Document
 
 
 
101.CAL
 
XBRL Taxonomy Calculation Linkbase Document
 
 
 
101.DEF
 
XBRL Taxonomy Definition Linkbase Document
 
 
 
101.LAB
 
XBRL Taxonomy Label Linkbase Document
 
 
 
101.PRE
 
XBRL Taxonomy Presentation Linkbase Document
*Previously filed exhibit.

47


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:
October 18, 2018
/s/ David Sturgeon
David Sturgeon
Executive Vice President and Chief Financial Officer
Principal Financial Officer and Principal Accounting Officer

48