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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NUMBER: 0-24796
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
BERMUDA NOT APPLICABLE
(STATE OR OTHER JURISDICTION OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.)
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CLARENDON HOUSE
CHURCH STREET
HAMILTON HM CX
BERMUDA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(441) 296-1431
(REGISTRANT'S TELEPHONE NUMBER)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
CLASS A COMMON STOCK, $0.08 PAR VALUE
9.375% NOTES DUE 2004
8.125% NOTES DUE 2004
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Indicate by check mark whether the 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 X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock of registrant held by
non-affiliates of the registrant as of March 9, 2001 was approximately
$6,152,196
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Number of shares of Class A Common Stock outstanding as of
March 9, 2001: 2,313,346
Number of shares of Class B Common Stock outstanding as of
March 9, 2001: 991,842
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DOCUMENTS INCORPORATED BY REFERENCE
LOCATION IN FORM 10-K IN WHICH
DOCUMENT DOCUMENT IS INCORPORATED
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Registrant's Proxy Statement Part III
for the Annual General Meeting of
Shareholders to be held on May 18, 2001
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TABLE OF CONTENTS
Page
PART I
Item 1. Business.............................................................................................3
Item 2. Properties..........................................................................................21
Item 3. Legal Proceedings...................................................................................21
Item 4. Submission of Matters to a Vote of Security Holders.................................................23
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...............................24
Item 6. Selected Financial Data.............................................................................24
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...............27
Item 7a. Quantitative and Qualitative Disclosures About Market Risk..........................................42
Item 8. Financial Statements and Supplementary Data.........................................................42
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................67
PART III
Item 10. Directors and Officers of the Registrant............................................................67
Item 11. Executive Compensation..............................................................................68
Item 12. Security Ownership of Certain Beneficial Owners and Management......................................68
Item 13. Certain Relationships and Related Transactions......................................................68
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.....................................69
SIGNATURES
2
PART I
ITEM 1. BUSINESS
GENERAL
Central European Media Enterprises Ltd. ("CME") is a Bermuda
corporation. All references to the "Company" include CME and its direct and
indirect Subsidiaries, and all references to "Subsidiaries" include each
corporation or partnership in which CME has a direct or indirect equity or
voting interest.
The Company's national private television stations and networks in the
Slovak Republic and Slovenia had the leading nationwide audience shares for 2000
and the Company's television network in Romania had the leading average audience
share within its area of broadcast reach for 2000. In Ukraine, for 2000, the
Company's national private television station and network had the leading
nationwide average audience share for television stations broadcasting in the
Ukrainian language.
The Company's television stations and networks, which reach an
aggregate of approximately 70 million people in four countries, consist of the
following:
POPULATION TECHNICAL ECONOMIC VOTING
COUNTRY (1) STATIONS AND NETWORKS REACH (2) INTEREST (3) INTEREST (3)
------- --- --------------------- --------- ------------ ------------
Romania...................... 22.5 PRO TV / Acasa.................. 16.2 66.0% 66.0%
Slovenia (4)................. 2.0 POP TV.......................... 1.7 85.5% 78.0%
Kanal A (5)..................... 1.6 90.0% 90.0%
Slovak Republic.............. 5.4 Markiza TV...................... 5.1 80.0% 49.0%
Ukraine...................... 49.5 Studio 1+1...................... 47.1 60.0% 60.0%
---------------- -------------
Total.................... 79.4 70.1
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(1) Country population in millions. Source: Business Central Europe.
(2) "Technical Reach" measures the number of people in millions who are able to
receive the signals of the indicated stations and networks. Source: CME
stations.
(3) See discussion below under the heading "Corporate Structure".
(4) See discussion below under the heading "Kanal A Purchase". Kanal A was
acquired on October 11, 2000.
(5) The "Technical Reach" of Kanal A has been excluded from the total to avoid
double counting.
Note: See "Status of Nova TV Dispute" below for a further discussion on Nova TV
and the ongoing dispute between CNTS and CET.
Unless otherwise noted, all statistical and financial information
presented in this report has been converted into United States dollars using
exchange rates as of December 31, 2000. All references to '$' or 'dollars' are
to United States dollars, all references to 'Kc' are to Czech korunas, all
references to 'ROL' are to Romanian lei, all references to 'SIT' are to
Slovenian tolar, all references to 'Sk' are to Slovak korunas, all references to
'Hrn' are to Ukrainian hryvna and all references to 'DM' are to German marks.
The exchange rates as of December 31, 2000 used in this report are 25,880 ROL/$;
227.38 SIT/$; 47.39 Sk/$; 5.43 Hrn/$; 2.08 DM/$ and 37.81 Kc/$.
3
STATUS OF NOVA TV DISPUTE
The Company owns a 99% voting and economic interest in Ceska nezavisla
televizni spolecnost, spol. s r.o. ("CNTS"). In January 1993, CET 21, spol. s
r.o. ("CET") was awarded a terrestrial television broadcast license in the Czech
Republic. This license expires in January 2005. CET was awarded the license with
the full knowledge and understanding of the Council of the Czech Republic for
Radio and Television Broadcasting (the "Media Council") that CEDC (the Company's
direct predecessor in interest) was a direct participant in the license
application. With the involvement of the Media Council, the Company and CET
entered into a Memorandum of Association and Investment (the "Memorandum of
Association") that provided for the creation of a company, CNTS, to operate and
broadcast the planned television station. An associated agreement further
provided that CET did not have the authority to broadcast without the direct
participation of CEDC. Between 1993 and August 1999, CNTS performed essentially
all of the activities associated with operating and broadcasting Nova TV. Nova
TV became one of the most successful television stations in Europe.
In 1997, however, under compulsion resulting from proceedings initiated
by the Media Council, the Company and CET amended the Memorandum of Association
and entered into other contracts to reflect the change in the Memorandum of
Association. One such contract (the "Cooperation Contract") expressly identified
CET as the license holder and the "television broadcasting operator" of TV Nova.
Pursuant to the Cooperation Contract CNTS prepared, completed and delivered
television programming that was then distributed by CET, which broadcast the
Nova TV signal. CNTS also collected all of Nova TV's advertising and other
revenues, and retained the balance of those revenues net of Nova TV's operating
expenses less Kc 100,000 ($2,600) per month payable to CET.
On August 5, 1999, CET pre-empted CNTS's transmission and began
broadcasting a substitute signal for Nova TV from a site other than CNTS's
studios. In addition, on the same day, CNTS received notification from CET that
CET was withdrawing from the Cooperation Contract due to CNTS's alleged failure
to supply CET with the daily program log for Nova TV on August 4, 1999. CET
representatives also stated publicly that, in future, CET would not use CNTS to
provide services for Nova TV. CET has continued to pre-empt all of CNTS's
programming for Nova TV. CNTS believes that CET's withdrawal from the
Cooperation Contract was not legally effective since CNTS did not materially
breach the Cooperation Contract and that the Cooperation Contract therefore
remains in effect.
On August 9, 1999, CNTS filed a motion in the Regional Commercial Court
in Prague for an injunction enjoining CET from entering into service
relationships with other companies and further requested the court to declare
the Cooperation Contract to be in full force and effect. The Regional Commercial
Court issued a favorable ruling on May 4, 2000 which was subsequently reversed
by a December 14, 2000 ruling from the High Court. CNTS is appealing the High
Court ruling to the Supreme Court. See Item 3, "Legal Proceedings."
As a result of CET's actions, CNTS has been unable to generate revenues
and its operations have been suspended. On September 9, 1999, the Company
announced the suspension of technical and production operations at CNTS and CNTS
has since dismissed a majority of the employees.
4
CNTS is governed by a Memorandum of Association. The Company believes
that the Memorandum of Association, the Cooperation Contract and the course of
dealing over the life of Nova TV establish that CNTS is legally entitled and
authorized to operate Nova TV in cooperation with CET.
On April 19, 1999, CNTS dismissed Dr. Vladimir Zelezny from his
position as Executive and General Director of CNTS, for taking actions that
exceeded his authority, breached his fiduciary duties and were against the
interests of CNTS. After an internal investigation, it was learned that Dr.
Zelezny had executed an unlimited CNTS guarantee for the liabilities of a Czech
television program acquisition company, AQS a.s. ("AQS"), without any
authorization. The investigation also indicated that Dr. Zelezny had reassigned
the program acquisition department of CNTS to AQS, had notified international
providers of television programming that AQS would replace CNTS as the program
service provider to Nova TV, and had taken other serious and substantial actions
contrary to the interests of CNTS.
On April 26, 1999, a wholly-owned subsidiary of the Company filed an
arbitration claim against Dr. Zelezny before the International Chamber of
Commerce Court of Arbitration in Paris, France (the "ICC Arbitration"). The
Company sought the return of $23,350,000 paid to Dr. Zelezny, plus interest, and
other unspecified damages, based on breaches by Dr. Zelezny of a share purchase
agreement entered into in 1997 under which the Company purchased from Dr.
Zelezny, Nova Consulting, a company owned by him whose sole asset was a 5.8%
interest in CNTS. The Company also sought the forgiveness of the $5,188,000
unpaid balance of the purchase price under the 1997 share purchase agreement.
On February 9, 2001, the ICC Arbitration Tribunal issued a final award,
finding that Dr. Zelezny had breached the share purchase agreement through his
actions in relation to AQS and that the share purchase agreement was a valid and
enforceable contract. In light of those holdings, the Tribunal ordered Dr.
Zelezny to immediately refund to the Company the $23,350,000 it had paid him
pursuant to the share purchase agreement, plus interest (a total of
approximately $27,100,000, accruing further interest at approximately $3,200 per
day) and costs of $250,000. The Tribunal ordered the Company to return the Nova
Consulting shares to Dr. Zelezny, but only after receipt of the money owed by
Dr. Zelezny. The Tribunal also rejected Dr. Zelezny's claim for the balance of
the purchase price. Dr. Zelezny has not yet complied with the award. The Company
is taking all steps possible to enforce the award and will continue to do so
until the award is satisfied. There can be no assurance that the Company will be
able to collect all or any significant part of the award of $27,100,000 plus the
accrued interest.
On August 23, 1999, Ronald S. Lauder, the non-Executive Chairman of
the Company's Board of Directors, instituted arbitration proceedings against the
Czech Republic under the 1992 Bilateral Investment Treaty between the United
States and the Czech Republic. Mr. Lauder initiated the proceedings in his
personal capacity as a U.S. national who owns or controls (by virtue of his
voting control over CME) an investment in the Czech Republic. The claim asserts
that the Czech Republic harmed Mr. Lauder's investment in CNTS by, among other
things, taking unfair and discriminatory actions by reversing its initial
approval of an exclusive relationship between CNTS and CET, and by failing to
act to remedy the effects of the improper actions of Dr. Zelezny. Mr. Lauder
seeks monetary damages and other relief arising from harm caused to CNTS by the
Czech Republic's actions. The arbitration was
5
heard before a tribunal of three arbitrators pursuant to the Arbitration Rules
of the United Nations Commission on International Trade Law from March 5 to
March 13, 2001. An award is expected in approximately the third quarter of this
year.
On February 22, 2000, a wholly owned subsidiary of the Company
instituted arbitration proceedings against the Czech Republic under the 1991
Bilateral Investment Treaty between The Netherlands and the Czech Republic. The
claims asserted, remedies sought and procedure to be followed are substantially
similar to those in the arbitration initiated by Mr. Lauder against the Czech
Republic. The arbitration will be heard from April 23 to May 2, 2001, in
Stockholm, Sweden.
The Company believes that CET's actions violate the Cooperation
Contract and CET's obligations under the CNTS Memorandum of Association, as well
as Czech media laws. The continued suspension of CNTS's operations has had a
material adverse effect on the Company.
SBS TRANSACTION
On February 21, 2000, the Company sold to SBS Broadcasting S.A. ("SBS")
substantially all of its Hungarian operations for $16,000,000. $12,700,000 of
the purchase price was applied to pay the programming liabilities for the
territory of Hungary which were assumed by SBS from CME and $3,300,000 plus the
net current assets of the Hungarian operations was settled in cash in March
2000. The net current assets of the Hungarian operations are subject to final
determination.
On February 21, 2000, the Company and SBS also entered into an option
agreement with respect to the ITI Note (the "ITI Note Option Agreement"). The
ITI Note was acquired by the Company in connection with the sale of its interest
in the TVN television operations in Poland to International Trading and
Investments Holding S.A. ("ITI") in December 1998. The ITI Note is in the
principal amount of $40,000,000, bears interest at a rate of 5% per annum,
matures on December 10, 2001 and was originally recorded by the Company at its
present value of approximately $20,000,000. On June 29, 2000, SBS exercised its
call option on the ITI Note for $37,250,000 plus accrued interest. This resulted
in a gain of $17,186,000.
CORPORATE STRUCTURE
Central European Media Enterprises Ltd. was incorporated on June 15,
1994 under the laws of Bermuda. CME's assets are held through a series of Dutch
and Netherlands Antilles holding companies.
Laws, regulations and policies in CME's markets generally restrict the
level of direct or indirect interests that any non-local investor such as CME
may hold in companies holding broadcast licenses. As a result, broadcast
licenses are generally held by companies majority owned by CME's local partners
and CME owns controlling interests in service companies which provide
programming, advertising and other services to the licenseholding companies.
References to POP TV, Kanal A, PRO TV, Acasa, Markiza TV and Studio 1+1 in this
report may be to either the license company or the service companies or both, as
the case may be.
6
The Company has no reason to believe that the licenses for the
television license companies will not be renewed. However, no statutory or
regulatory presumption exists for the current license holders and there can be
no assurance that licenses will be renewed upon expiration of their initial
term. The failure of any such license to be renewed could adversely affect the
results of the Company's operations. However, to date, licenses have been
renewed in the ordinary course of business.
CME CME
LICENSE VOTING TV SERVICES VOTING
COUNTRY EXPIRATION TV LICENSE COMPANY INTEREST COMPANY INTEREST
------- ---------- ------------------ -------- ------- --------
Romania................... 2003 - 2008 Pro TV S.R.L.................... 49% MPI....................... 66%
Media Pro S.R.L................. 0%
Slovenia.................. 2003 - 2007 Tele 59 ........................ 10% Pro Plus................... 78%
MMTV............................ 10%
Slovenia................. 2003 - 2010 Kanal A......................... 90% Kanal A................... 90%
Slovak Republic........... 2007 Markiza-Slovakia s.r.o.......... 0% STS..................... 49%
Ukraine................... 2006 Studio 1+1...................... 18% Innova, IMS, UAH........ 60%
Note: See "Status of Nova TV Dispute" above for a discussion on the ongoing
dispute between CNTS and CET.
ROMANIA
The Company's interest in PRO TV is governed by a Co-operation
Agreement (the "Romanian Agreement") among the Company, Adrian Sarbu and Ion
Tiriac, forming Media Pro International S.A. ("MPI"), through which PRO TV and
Acasa are operated. MPI provides programming to and sells advertising for the
stations which comprise the PRO TV and Acasa network. Pursuant to the Romanian
Agreement, the Company owns 66% of the equity of MPI. Interests in profits of
MPI are equal to the partners' equity interests. The Company has the right to
appoint three of the five members of the Council of Administration which directs
the affairs of MPI. Although the Company has majority voting power in MPI, with
respect to certain fundamental financial and corporate matters the affirmative
vote of either Mr. Sarbu or Mr. Tiriac is required. The Company owns 49% of the
equity of PRO TV, SRL which holds 20 of the 23 licenses for the stations which
comprise the PRO TV and Acasa network. Messrs. Sarbu and Tiriac own
substantially all of the remainder of PRO TV, SRL. The remaining three licenses
for the PRO TV network together with the licenses for the PRO FM and PRO AM
radio networks are held by Media Pro SRL, a company owned by Messrs. Sarbu and
Tiriac. On March 7, 2000, the Company exercised its option to purchase 44% of
Media Pro SRL for $1,300,000. This transaction is awaiting final documentation.
In addition, in Romania, the Company owns 70% of each of Media Vision SRL
("Media Vision"), a production and dubbing company, and Video Vision
International SRL ("Video Vision"), a post-production company.
SLOVENIA
The Company's interest in POP TV is governed by a Partnership Agreement
among the Company, MMTV 1 d.o.o. Ljubljana ("MMTV") and Tele 59 d.o.o. Maribor
7
("Tele 59"), forming Produkcija Plus d.o.o. ("Pro Plus"). Pro Plus provides
programming to and sells advertising for the broadcast licenseholders MMTV and
Tele 59 as well as additional affiliates. The Company currently owns 78% of the
equity in Pro Plus, but has an effective economic interest of 85.5% as a result
of its right to 33% of the profits of MMTV and 33% of the profits of Tele 59.
Tele 59 currently owns a 21% equity interest in Pro Plus and MMTV currently owns
a 1% equity interest in Pro Plus. The Company owns 10% of the equity of both
Tele 59 and MMTV. The Company also owns a 20% equity interest in MTC Holding
d.o.o. ("MTC") which owns the remaining 90% equity interest in MMTV. 76% of
MTC's equity is being separately held by a Slovene person, in trust for the
Company, until the Slovene media law is clarified or until the Company
determines final ownership. Voting power and interests in profits of Pro Plus
are equal to the partners' equity interests. All major decisions concerning the
affairs of Pro Plus are made by the general meeting of partners and require a
70% affirmative vote. Certain fundamental financial and corporate matters
require an 85% affirmative vote of the partners.
Kanal A Purchase
On October 11, 2000, the Company completed a transaction through which
the Company acquired control over the economics and the programming of Kanal A,
for $12,500,000 plus the value of the net current assets and net programming
assets of Kanal A, which are subject to final determination. Kanal A is the
second leading commercial television broadcaster in Slovenia. As a result of the
transaction, 90% of the Kanal A shares are being held by Superplus Holding d.d.
("Superplus") which is owned by individuals who are holding the share of
Superplus in trust for the Company until the Slovene media law is clarified or
until the Company determines final ownership. Consequently, Pro Plus ceased
producing programming under the name of Gabja TV and frequencies previously used
for Gajba TV are now used for Kanal A. From January 2001, Pro Plus has entered
into an agreement with Kanal A, under which Pro Plus provides all programming to
Kanal A and sells its advertising.
SLOVAK REPUBLIC
The Company's interest in Markiza TV is governed by a Participants
Agreement dated September 28, 1995 (the "Slovak Agreement") between the Company
and Markiza-Slovakia s.r.o. ("Markiza") forming Slovenska Televizna Spolocnost,
s.r.o. ("STS"). Pursuant to the Slovak Agreement, the Company is required to
fund all of the capital requirements of, and holds a 49% voting interest and an
80% economic interest in, STS. Markiza, which holds the television broadcast
license, and STS have entered into an agreement under which STS is entitled to
conduct television broadcast operations pursuant to the license. On an ongoing
basis, the Company is entitled to 80% of the profits of STS, except that until
the Company is repaid its capital contributions plus a priority return at the
rate of 6% per annum on such capital contributions, 90% of the profits will be
paid to the Company. A Board of Representatives directs the affairs of STS, the
composition of which includes two designees of the Company and three designees
(two of whom have been named) of Markiza; however, all significant financial and
operational decisions of the Board of Representatives require a vote of 80% of
its members. In addition, certain fundamental corporate matters are reserved for
decision by a general meeting of partners and require a 67% affirmative vote of
the partners. There is currently litigation pending with respect to the
ownership of Markiza. See Item 3, "Legal Proceedings".
8
UKRAINE
The Studio 1+1 Group consists of several entities in which the Company
holds direct or indirect interests. The Company owns a 60% equity interest in
each of Innova Film GmbH ("Innova"), Ukraine Advertising Holding B.V. ("UAH")
and International Media Services ("IMS"). Innova holds 100% of Intermedia, a
Ukrainian company, which in turn holds a 30% equity interest in Studio 1+1, the
license holding company in the Ukraine. UAH held a 50% interest in Prioritet,
the main vehicle for advertising sales up until January 1, 2001.
Current Ukrainian legislation limits direct foreign equity holdings in
broadcasting companies to 30%. At present the Company's interest in Studio 1+1
is, indirectly, 18%. Existing agreements commit all the shareholders of Studio
1+1 to increase the direct holding of the Company, or one of its subsidiaries,
when legislation permits this.
Innova, IMS, Intermedia and UAH have entered into arrangements
regarding the provision of programming and advertising sales services to Studio
1+1. An agreement has been signed to transfer UAH's 50% interest in Prioritet to
Video International ("VI"), a Russian based company. This transfer forms part of
an overall agreement signed with VI on March 14, 2001, for VI to sell
advertising for Studio 1+1 on an exclusive basis up until the end of the
broadcasting license in 2006.
All significant decisions of the entities in the Studio 1+1 Group are
taken by the shareholders, requiring a majority vote (other than decisions of
the shareholders of the Studio 1+1 Group, which require a 75% vote). Certain
fundamental corporate matters of the other entities require 61% shareholder
approval.
CORPORATE
CME Development Corporation, a wholly owned subsidiary of the Company,
provides sales, financial and legal services to the Company. CME Programming
Services, Inc., a wholly owned subsidiary of the Company, provides programming
services to the Company's television broadcast operations in Central and Eastern
Europe. See below under the heading "Corporate Operations."
The Company's registered offices are located at Clarendon House, Church
Street, Hamilton HM CX Bermuda, and its telephone number is 441-296-1431.
Certain of the Subsidiaries maintain offices at, 8th Floor, Aldwych House, 71-91
Aldwych, London, WC2B 4HN, England, telephone number 44-20-7430-5430/1.
OPERATING ENVIRONMENT
The following two tables set forth (i) the population, number of TV
households, per capita GDP and cable penetration for those countries of Central
and Eastern Europe where the Company has broadcast operations and (ii) the
recent growth in television advertising expenditures in those countries.
9
TV
POPULATION (1) HOUSEHOLDS (2) PER CAPITA GDP % CABLE
COUNTRY (IN MILLIONS) (IN MILLIONS) 2000 (3) PENETRATION (4)
------- ------------- ------------- -------- ---------------
Romania............................. 22.5 6.7 $1,538 55%
Slovenia............................ 2.0 0.6 $10,450 40%
Slovak Republic..................... 5.4 1.8 $3,727 33%
Ukraine............................. 49.5 18.6 $644 35%
-------------------- -------------------
Total........................... 79.4 27.7
==================== ===================
(1) Source: Business Central Europe
(2) Source: IP European Key Facts: Television '99. A TV household is a
residential dwelling with one or more television sets
(3) Source: Business Central Europe
(4) Source: IP European Key Facts: Television '99 (except Slovenia, Source: CME
stations)
TELEVISION ADVERTISING EXPENDITURES
COUNTRY 1996 1997 1998 1999 2000
-------- ---- ---- ---- ---- ----
US DOLLARS (MILLIONS)
-------------------------------------------------------------
Romania.......................................... 44 74 87 69 69
Slovenia ........................................ 35 39 51 49 47
Slovak Republic.................................. 39 47 56 43 42
Ukraine.......................................... 21 53 65 32 35
Note: All figures are current Company estimates.
In Romania, television advertising revenues remained flat throughout
2000 due to a lack of economic reform and political uncertainties resulting from
recent elections. In the Slovak Republic, television advertising revenues
increased by 10% in local currency terms but the Slovak koruna depreciated by
12% against the US dollar during 2000, thus television advertising expenditures
decreased in dollar terms. In Slovenia, television advertising revenues
increased by 11% in local currency terms but the Slovenian tolar depreciated by
16% against the US dollar during 2000, thus the television advertising
expenditures decreased in dollar terms. In Ukraine, television advertising
revenues experienced a moderate increase from the very low levels recorded in
1999.
EUROPEAN REGULATIONS
Access to the available frequencies is controlled by regulatory bodies
in each country in which the Company operates. New awards of licenses to use
broadcast frequencies occur infrequently.
THE EUROPEAN UNION
If any Central or Eastern European country in which the Company
operates becomes a member of the European Union (the "EU"), the Company's
broadcast operations in such country would be subject to relevant legislation of
the EU, including programming content regulations. Romania, the Slovak Republic
and Slovenia have entered into or signed Association Agreements with the EU and
some
10
or all of these countries may be admitted to the EU in the first wave of the
enlargement process.
The EU's Television Without Frontiers directive (the "EU Directive")
sets forth the legal framework for television broadcasting in the EU. It
requires broadcasters, where "practicable and by appropriate means," to reserve
a majority proportion of their broadcast time for "European works." Such works
are defined as originating from an EU member state or a signatory to the Council
of Europe's Convention on Transfrontier Television, as well as written and
produced mainly by residents of the EU or Council of Europe member states. In
addition, the EU Directive provides for a 10% quota of either broadcast time or
programming budget for programs made by European producers who are independent
of broadcasters. News, sports, games, advertising, teletext services and
teleshopping are excluded from the calculation of these quotas. Further, the EU
Directive provides for regulations on advertising, including limits on the
amount of time that may be devoted to advertising spots, including direct sales
advertising. Member states are free to introduce stricter content requirements
than those in the EU Directive for broadcasters within their jurisdiction. The
Company intends to align its broadcast operations with any applicable EU
legislation. The Company believes that the EU Directive, as currently drafted,
will not have a material adverse effect on its operations.
COUNCIL OF EUROPE
The Company's broadcast operations are all located in countries which
are members of the Council of Europe, a supranational body through which
international conventions are negotiated. In 1990, the Council of Europe adopted
a Convention on Transfrontier Television, which provides for European
programming content quotas similar to those in the EU Directive. This Convention
has been ratified by some of the countries in which the Company operates, but
all countries in which the Company operates have already implemented its
principles into their national media legislation.
CORPORATE OPERATIONS
The Company's London based central service organization provides each
television operation with a central resource. The service functions provided
include sales, financial and legal services, including financial planning and
analysis, cost control and network management. Through CME Programming Services
Inc, the Company also provides program-related services including facilitating
international contacts, scheduling advice and co-ordinating the exchange of best
practices and expertise among the stations and various programming related
studies.
The rankings of the Company's stations in their respective markets are
reflected below.
TECHNICAL 2000 AUDIENCE RANK IN
CME STATION (1) LAUNCH DATE REACH (2) SHARE (3) MARKET (3)
- --------------- ----------- --------- --------- ----------
PRO TV........................... December 1995 72% 31.0% 1
POP TV........................... December 1995 84% 40.0% 1
Kanal A (4)................. October 2000 81% 15.0% 3
Markiza TV....................... August 1996 95% 51.0% 1
Studio 1+1....................... January 1997 95% 28.0% 2
11
(1) Second channel in Romania (Acasa) is not included in this table.
(2) Source: CME stations.
(3) Nationwide audience share and rank (except Romania, which is audience share
and rank within coverage area). Source: (Romania: CSOP Gallup/Taylor Nelson
Sofres, Slovenia: POP TV CATI, Kanal A AGB Slovenia, Slovak Republic:
Visio/MVK, Ukraine: Peoplemeters AGB Ukraine).
(4) Kanal A was acquired on October 11, 2000. See above under the heading
"Slovenia".
OPERATIONS IN ROMANIA: PRO TV AND ACASA
General
Romania is a parliamentary democracy of approximately 22.5 million
people. Per capita GDP was an estimated $1,538 in 2000 ($1,515 in 1999).
Approximately 86% of Romanian households have one or more television sets, and
cable penetration is approximately 55%. According to the Company's estimates,
television advertising totalled approximately $69 million in 2000.
PRO TV is a national television broadcast network in Romania which was
launched in December 1995. PRO TV reaches approximately 72% of the Romanian
population of 22.5 million, including 100% of the urban population. PRO TV
broadcasts from studios located in Bucharest via digitally encoded satellite
signals which deliver programming to terrestrial broadcast facilities and to
approximately 417 cable systems throughout Romania. Independent research from
CSOP Gallup/Taylor Nelson Sofres in Romania shows that PRO TV is currently the
top-rated television station in its broadcast area, with an average television
viewer share for December 2000 of 29% for the whole day and 31% for prime time.
In February 1998, MPI launched Acasa, a station reaching approximately
60% of the Romanian population, including approximately 86% of the urban
population via satellite and cable distribution. For 2000 Acasa had an average
television viewer share in its broadcast area of approximately 9%.
The Company has a controlling interest in Media Vision and Video
Vision. Media Vision is the leading television production company in Romania and
produces a significant portion of PRO TV's entertainment programming, performs
dubbing and produces advertising spots for third party clients such as Coca
Cola, Procter & Gamble and Unilever. Video Vision, Romania's leading provider of
television post-production and graphics, provides a significant portion of PRO
TV's and Acasa's graphics.
MPI also operates PRO FM, a radio network which is broadcast through
owned and affiliate stations to approximately 9.5 million people in Romania. In
2000, PRO FM had an average audience share of 24% in the Bucharest area.
12
Programming
PRO TV's programming strategy is to appeal to a mass market audience
through a wide range of programming, including movies and series, news, sitcoms,
telenovellas, soap operas and game shows. PRO TV broadcasts 24 hours of
programming daily by means of cable and satellite. Approximately 40% of PRO TV's
programming is comprised of locally produced programming, including, news and
news related programs, sports, a breakfast show, talk shows, entertainment and
comedy shows.
PRO TV has secured exclusive broadcast rights in Romania to a large
number of quality American and Western European programs and films produced by
such companies as Warner Bros. and Twentieth Century Fox. PRO TV also receives
foreign news reports and film footage from Reuters, APTN and ENEX to integrate
into its news programs. All foreign language programs and films are subtitled in
Romanian.
Acasa broadcasts 24 hours of programming daily by means of cable and
satellite. Its programming strategy is to target a female audience with
programming including telenovellas, films and soap operas as well as news, daily
local production for women and family, talk shows and entertainment. Acasa's
viewer demographics are complementary to PRO TV's, providing an attractive
advertising medium for small to medium sized companies that would not otherwise
advertise on television. Approximately 40% of Acasa's total programming is
locally produced, including 19 hours of original self-produced programming per
week.
Advertising
PRO TV derives revenues principally from the sale of commercial
advertising time, sold both through independent agencies and media buying
groups. PRO TV currently serves approximately 250 advertisers, including
multinational companies such as Wrigley, Henkel, Mobifon, Unilever and Procter &
Gamble. Procter & Gamble was the largest advertiser on PRO TV, accounting for
10.7% of the station's revenue and Henkel was the largest advertiser on Acasa,
accounting for 14.1% of the station's revenue.
PRO TV is permitted to broadcast advertising for up to 20% of its
broadcast time in any hour, subject to an overall daily limit of 15% of
broadcast time. An additional 5% of broadcast time may be used for direct sales
advertising. There are also restrictions on the frequency of advertising breaks
(for example, news and children's programs shorter than 30 minutes cannot be
interrupted). These restrictions are the same for public and private
broadcasters.
Competition
Prior to the launch of PRO TV, TVR 1, a public station, was the
dominant broadcaster in Romania. In December 2000, PRO TV achieved an average
audience share of 31% in its coverage area, while TVR 1's December 2000 average
audience share in PRO TV's coverage area was approximately 15%. TVR 1 reaches
99% of the Romanian population. Other competitors include the second public
national station, TVR 2, with a 70% broadcast reach, and privately owned Antena
1, Tele 7 ABC and Prima TV, which reach approximately 70%, 60% and 65% of the
population, respectively.
13
Additional competitors include cable and satellite stations. Cable and
satellite currently penetrate approximately 55% and 9%, respectively, of the
Romanian market. PRO TV competes for advertising revenues with other media such
as newspapers, radio, magazines, outdoor advertising, telephone directory
advertising and direct mail.
Regulation
Licenses for the television stations which show programming provided by
PRO TV and which broadcast advertising sold by PRO TV are regulated by Romania's
National Audio-Visual Commission. PRO TV's television licenses have been granted
for nine-year periods. Licenses which cover 17% of the Romanian population,
including the license for Bucharest, expire in 2003. The remaining licenses
expire on dates ranging from 2004 to 2008. Under regulations established by the
National Audio-Visual Commission and the various licenses of stations which
broadcast PRO TV, programming and advertising provided by PRO TV is required to
comply with certain restrictions. These restrictions include a requirement that
at least 40% of programming be "own" produced.
Regulations relating to advertising content include (i) a ban on
tobacco and restrictions on alcohol advertising, (ii) advertising targeted at
children or during children's programming must account for the overall
sensitivity of that age group and (iii) members of the news department of PRO TV
are prohibited from appearing in advertisements.
OPERATIONS IN SLOVENIA: POP TV AND KANAL A
General
Slovenia, a parliamentary democracy of 2.0 million people, had an
estimated per capita GDP of approximately $10,450 in 2000, the highest among the
former Eastern bloc countries. Approximately 96% of Slovenian households have
one or more televisions. According to the Company's estimates, television
advertising totalled $47 million in 2000.
The national television broadcast network POP TV reaches approximately
84% of the population of Slovenia, including Ljubljana, the capital of Slovenia,
and Maribor, Slovenia's second largest city. Independent research shows that in
the areas of Slovenia in which POP TV can be seen, the network had an average
television viewer share of approximately 40% for 2000, the largest share of
television viewers in Slovenia.
Kanal A reaches approximately 81% of the population of Slovenia,
including Ljubljana and Maribor. Independent research shows that in the areas of
Slovenia in which Kanal A can be seen, the network had an average television
viewer share of approximately 15% for 2000, making it the third most watched
television channel in Slovenia.
In October 1997, the Company launched Gajba TV. Gajba TV was operated
through Pro Plus and provided programming to, and sold advertising for, its
affiliate broadcasters. In connection with the acquisition of Kanal A in October
2000, Gajba TV ceased broadcasting in October 2000.
14
Programming
POP TV's programming strategy is to appeal to a mass market audience
through a wide variety of programming including series, movies, news, variety
shows and features. POP TV broadcasts 18 hours of programming daily, of which
approximately 25% is locally produced programming, including news, game shows,
music shows and variety shows.
Pro Plus, the broadcast servicing company for POP TV, has secured
exclusive program rights in Slovenia to a number of successful American and
Western European programs and films produced by studios such as Warner Bros.,
Twentieth Century Fox and Paramount. Special events aired in 2000 included the
Academy Awards, Miss World and Formula One Racing. POP TV currently holds
exclusive rights for the Slovenian version of "Who Wants to be a Millionaire".
Pro Plus has agreements with CNN, Reuters and APTN to receive foreign news
reports and film footage to integrate into news programs. All foreign language
programs and films are subtitled in Slovenian.
Kanal A's programming strategy is to complement the programming
strategy of POP TV with a mixture of locally produced and acquired foreign
programs including films and series. Kanal A broadcasts for 16 hours daily,
including locally produced formats for Blind Date, the Newlywed game show, music
shows and basketball.
Advertising
POP TV derives revenues principally from the sale of commercial
advertising time. Current multinational advertisers include firms such as
Benckiser, Henkel, Procter & Gamble, Wrigley and Colgate, though no one
advertiser dominates the market. During 1999 and 2000, "Peoplemeter" devices
were placed in a number of television homes, although they are not yet the
primary source for POP TV's rating information. POP TV is permitted to broadcast
advertising for up to 15% of its daily broadcast time and there are also
restrictions on the frequency of advertising breaks during films and other
programs. The same rules apply to its competitors.
Kanal A derives revenues principally from the sale of commercial
advertising time and has clients similar to those of POP TV.
Competition
Historically, the television market in Slovenia has been dominated by
SLO 1, a national public television station. The other national public station,
SLO 2 provides programming which is complementary to SLO 1. SLO 1 reaches nearly
all of Slovenia's TV households, and SLO 2 reaches 97% of Slovenia's TV
households. No national private television frequency has been made available in
Slovenia. One other private television station competes with POP TV and Kanal A
in Slovenia, TV3, it has achieved a relatively small audience share, less than
1.2%, due primarily to their low budget programming and lack of extensive news
programming.
POP TV and Kanal A also compete with foreign television stations,
particularly Croatian, Italian, German and Austrian stations. Cable penetration
at 40% is
15
relatively high compared with other countries in Central and Eastern Europe and
approximately 21% of households have satellite dishes. In addition, POP TV and
Kanal A compete for revenues with other media, such as newspapers, radio,
magazines, outdoor advertising, telephone directory advertising and direct mail.
Regulation
The POP TV and Kanal A network stations operate under licenses
regulated pursuant to the Law on Public Media adopted in 1994 and pursuant to
the Law on Telecommunications adopted in 1997. The licenses granted to POP TV's
affiliate stations have been granted for 10-year terms expiring in 2003 with
respect to licenses reaching 53% of the population and in 2006 and 2007 with
respect to the remaining licenses. The licenses granted to Kanal A expire
between 2003 and 2010.
Under Slovenian television regulations, POP TV, its affiliate stations
and Kanal A are required to comply with a number of restrictions on programming
and advertising. These restrictions include that 10% of the station's broadcast
time must be internally produced programming, certain films and other programs
may only be broadcast between 11:00 p.m. and 6:00 am, and POP TV or Kanal A news
editors, journalists and correspondents must not reflect a biased approach
toward news reporting.
In addition to the restrictions discussed above and under the
sub-heading "Advertising," advertising is not permitted during news, documentary
or children's programming under 30 minutes in duration, or during religious
programming. Restrictions on advertising content include a prohibition on
tobacco advertising and on the advertising of alcoholic beverages other than low
alcohol content beer.
OPERATIONS IN THE SLOVAK REPUBLIC: MARKIZA TV
General
The Slovak Republic is a parliamentary democracy with a population of
5.4 million where nearly 99% of households have television. Per capita GDP was
an estimated $3,727 in 2000. Television advertising was approximately $42
million in 2000, according to the Company's estimates.
Markiza TV was launched as a national television station in the Slovak
Republic in August 1996. Markiza TV reaches approximately 95% of the Slovak
Republic's population, including virtually all of its major cities. According to
independent research, Markiza TV had an average national television viewer share
for 2000 of approximately 51% versus 14% for its nearest competitor, STV 1. See
Item 3, "Legal Proceedings".
Programming
Markiza TV's programming strategy is to appeal to a broad audience with
specific groups targeted in marginal broadcasting hours. Markiza TV provides an
average of 21 hours of programming daily, including news, movies, entertainment
programmes and sport (including coverage of European Champion's League soccer,
Formula One racing and Ice Hockey World Championships). Approximately 42% of
16
Markiza TV's programming is locally produced, including a daily breakfast show,
game shows, talk shows and news.
Markiza TV has secured exclusive broadcast rights in the Slovak
Republic to a large number of popular United States and European series, films
and telenovellas produced by major international studios including Warner Bros.,
Columbia Tri Star, Polygram, Paramount Pictures, Twentieth Century Fox, Walt
Disney Television International and RTL Television. Markiza TV currently holds
exclusive rights for the Slovakian version of "Who Wants to be a Millionaire".
All foreign language programming (other than that in the Czech language) is
dubbed into the Slovak language. Markiza TV also receives foreign news reports
and film footage from CNN, Reuters and APTN, which it integrates into news
programs.
Advertising
Markiza TV derives revenues principally from the sale of commercial
advertising time through media buying groups and independent agencies.
Advertisers include large multinational firms such as Procter & Gamble, Henkel,
Unilever, Wrigley, Kraft Jacobs, Ferrero, Suchard, Danone Group, Nestle and
Benckiser though no one advertiser dominates the market. Television stations are
permitted to broadcast advertising for up to 10% of total daily broadcast time
and up to 20% of broadcast time in any single hour.
Currently, approximately 30% of Markiza TV's advertising revenues are
sourced from agencies based in the Czech Republic.
Competition
The Slovak Republic is served by two national public television
stations, STV1 and STV2, which dominated the ratings until Markiza TV began
broadcasting in 1996. STV1 and STV2 reach nearly all of the Slovak population.
Nova TV had an approximate 9% audience share in the Slovak Republic for 2000.
Markiza TV also competes with the private broadcasters TV Luna and Global TV
(which began broadcasting in April 2000). TV Luna and Global TV reach 36% and
17% of the population, respectively. Markiza TV also competes with public
television stations located in Austria, the Czech Republic and Hungary with
signals that reach the Slovak Republic; additional foreign private television
stations; and foreign satellite stations.
Regulation
Markiza TV's broadcast operations are subject to regulations imposed by
the Act on Broadcasting and Retransmission, the Act on Advertising and
conditions contained in the license granted by the Council of the Slovak
Republic for Broadcasting and Television Transmission (the "Slovak Broadcasting
and Retransmission Council"). The Slovak Television Council granted the license
to operate Markiza TV to the Company's local partner in STS for a period of 12
years, expiring in September 2007, under terms requiring the Company's local
partner to enter into a partnership with the Company to found STS. The license
granted to the Company's local partner remains valid under the new Act on
Broadcasting and Retransmission.
17
Under the license pursuant to which Markiza TV operates and the new
legal regulatory framework, Markiza TV is required to comply with several
restrictions on programming, including but not limited to the origin of the
programming content. These restrictions include the following broadcast time
rules: a minimum of 40% must be Slovak production; 10% must be programming for
children or youth; broadcasts of first run films and series must have a minimum
of 47% European production (of which there must be a minimum of 8% Slovak
production) and no more than 45% of production from the United States; and no
more than 40% of foreign first run films and series may be in the Czech language
(decreasing to 20% by the fourth year of broadcasting).
In addition to the restrictions discussed above and under
"Advertising", there are additional regulations that relate to advertising
content. These include, but are not limited to: (a) a ban on tobacco
advertising, and (b) a ban on advertisements of alcoholic beverages between
6.00am and 10.00pm, save for beer. There are also restrictions as to the
frequency of advertising breaks both during and between programs.
OPERATIONS IN UKRAINE: STUDIO 1+1 GROUP
General
Ukraine, a parliamentary democracy of 49.5 million people, is the most
populous market served by the Company. Nearly 100% of Ukrainian households have
television and cable penetration is approximately 35% in main regional centers.
Per capita GDP of approximately $644 for 2000 is the lowest of all the Company's
markets. After a decade of negative growth, 2000 saw a recovery with GDP rising
by approximately 5%. However, economic, political and privatisation programs
have lagged behind schedule.
Studio 1+1 broadcasts programming and sells advertising on Ukrainian
National Channel Two ("UT-2"), one of Ukraine's state-owned television channels.
UT-2 reaches approximately 95% of Ukraine's population. Television advertising
revenue staged a slight recovery in 2000, to approximately $35 million. However,
this is still substantially less than the level attained prior to the 1998
Russian financial crisis. Studio 1+1 attained 28% average prime time audience
share during 2000 (32% in the target under 45 age group). Studio 1+1 began
broadcasting on UT-2 in January 1997.
Programming
Studio 1+1's programming strategy is to appeal to a mass market
audience with an emphasis on the below aged 45 target audience. During the
fourth quarter 2000, Studio 1+1 had established itself as the leader, in terms
of revenue share, in the Ukrainian market. This success was achieved due to a
new programming strategy that resulted in a balanced combination of both United
States originated programming and new, popular, local programs, including
Russian criminal and action series and self-produced Ukrainian shows, programs
and news scheduled in prime-time. The station broadcasts for 13 hours per day,
including locally produced news, variety shows, game shows and magazine programs
as well as a broad range of popular and high quality films from international
distributors. Studio 1+1 broadcasts a Ukrainian version of "Who Wants to be a
Millionaire". In 2000, Studio
18
1+1 produced and co-produced approximately 1,500 hours of programming, which
primarily consists of a daily breakfast show, news broadcasts and news related
programs, talk shows, criminal investigations, game shows, sport and lifestyle
magazine shows and comedy shows. In 2000, such original local programming
together with other Ukrainian programming considered local programming by
Ukrainian laws comprised approximately 55% of Studio 1+1's total broadcast time.
Studio 1+1 has secured exclusive territorial or local language
broadcast rights in Ukraine to a large number of successful high quality
American, Russian and Western European programs and films from many of the major
studios, including Twentieth Century Fox, Warner Bros., Paramount Pictures, Walt
Disney, Universal Pictures and CBS. Special events aired include the Academy
Awards ceremony as well as several important political events such as exclusive
coverage of then President Bill Clinton's visit to Ukraine which included a live
broadcast of President Clinton's speech to the citizens of Ukraine and
`Dialogues on Democracy', a one hour live talk show with then Secretary of State
Madeline Albright. Studio 1+1 has agreements with Reuters for foreign news
packages and other footage to be integrated into its programming. In 2000,
Studio 1+1 became a member of ENEX, the European News Exchange Organisation. All
foreign language programs and films (other than those in the Russian language)
are dubbed into the Ukrainian language. Studio 1+1 broadcasts more than 80% of
its total air time in the Ukrainian language.
Advertising
Studio 1+1 derives revenues principally from the sale of commercial
advertising time through both media buying groups and independent agencies.
Advertisers include large multinational firms such as Wrigley, Procter & Gamble,
Colgate - Palmolive, Coca-Cola, Unilever, Nestle, Mars and Kraft Jacobs. In
2000, Wrigley accounted for 11% of Studio 1+1's advertising revenues. Studio 1+1
is permitted to sell 15% of its overall broadcast time for advertising and is
subject to restrictions on the frequency of advertising breaks. The advertising
restrictions are the same for public and private broadcasters.
Competition
Ukraine is served by six television channels: UT-1, UT-2 (on which
Studio 1+1 broadcasts) and UT-3 (all with effective national coverage), which
are state owned, and ICTV, STB and Novi Canal, which are private broadcasters.
Novi Canal began broadcasting in 2000 and has attained an average prime time
share of approximately 4%. Studio 1+1, through UT-2, has a broadcast reach of
95% of the Ukrainian population. The state run station UT-1 has a broadcast
reach of approximately 98% of the Ukrainian population. ICTV and STB, both
private stations, reach approximately 32% of Ukraine's population. The private
station Inter, through UT-3, has a broadcast reach of approximately 78% of the
Ukrainian population. Inter, Studio 1+1's main competitor, has a program
schedule which consists primarily of rebroadcasts of the Russian-language ORT
network. In 2000, Inter's average prime time audience share decreased from 40%
to 32% and for the month of December, Studio 1+1 led Inter in terms of prime
time audience share. In addition, there are numerous cable and satellite
stations that provide pirate broadcasting of European and US networks.
19
Regulation
Studio 1+1 provides programming to UT-2 pursuant to a ten-year
television broadcast license contract expiring in 2006. Broadcasts of Studio
1+1's programming and advertising on UT-2 are regulated by the State Committee
on Television and Radio of Ukraine and the National Council on Television and
Radio of Ukraine. These agencies enforce Ukraine's media laws, which include
restrictions on the content of programming and advertising and limitations on
the amount and placement of advertising in programs. All advertising of alcohol
and tobacco on TV is banned in Ukraine. Programming produced in Ukraine must
account for at least 70% of all programming (including dubbing of purchased
programming into the Ukrainian language) and programming produced by Studio 1+1
must account for 49% of all programming.
SEASONALITY
The Company, like other television operators, experiences seasonality,
with advertising sales tending to be lowest during the third quarter of each
calendar year, which includes the summer holiday period (typically July and
August), and highest during the fourth quarter of each calendar year.
EMPLOYEES
As of March 1, 2001, CME had a corporate operations staff of 19
employees (versus 19 as of December 31, 1999) and its Subsidiaries had a total
of approximately 1,910 employees (versus 2,000 as of December 31, 1999). None of
CME's employees or the employees of any of its Subsidiaries are covered by a
collective bargaining agreement. The Company believes that its relations with
its employees are good.
For additional information with regard to Segment Data see Part II,
Item 8, Note 14, "Segment Data".
ITEM 2. PROPERTIES
CME Development Corporation leases office space in London in one
location. The lease, for 3,958 square feet of office space, expires in 2015.
The Company has entered into an agreement on behalf of MPI which gives
the Company the option to acquire the facility in Bucharest which contains PRO
TV's studios for a purchase price of approximately $1.8 million. The Company
owns a portion of a building in Ljubljana which contains POP TV's studios and
offices. STS owns its principal office facility near Bratislava. Studio 1+1
leases office and studio space.
CNTS owns a building of approximately 65,000 square feet which contains
modern studios in Prague, Czech Republic.
ITEM 3. LEGAL PROCEEDINGS
On April 26, 1999, a wholly-owned subsidiary of the Company filed an
arbitration claim against Dr. Vladimir Zelezny before the International Chamber
of Commerce Court of Arbitration in Paris, France (the "ICC Arbitration"). The
20
Company sought the return of $23,350,000 paid to Dr. Zelezny, plus interest, and
other unspecified damages, based on breaches by Dr. Zelezny of a share purchase
agreement entered into in 1997 under which the Company purchased from Dr.
Zelezny, Nova Consulting, a company owned by him whose sole asset was a 5.8%
interest in CNTS. The Company also sought the forgiveness of the $5,188,000
unpaid balance of the purchase price under the 1997 share purchase agreement.
On February 9, 2001, the ICC Arbitration Tribunal issued a final award
in this proceeding, finding that Dr. Zelezny had breached the share purchase
agreement through his actions in relation to AQS and that the share purchase
agreement was a valid and enforceable contract. In light of those holdings, the
Tribunal ordered Dr. Zelezny to immediately refund to the Company the
$23,350,000 it had paid him pursuant to the share purchase agreement, plus
interest (a total of approximately $27,100,000, accruing further interest at
approximately $3,200 per day) and costs of $250,000. The Tribunal ordered the
Company to return the Nova Consulting shares to Dr. Zelezny, but only after
receipt of the money owed by Dr. Zelezny. The Tribunal also rejected Dr.
Zelezny's claim for the balance of the purchase price. Dr. Zelezny has not yet
complied with the award. The Company is taking all steps possible to enforce the
award and will continue to do so until the award is satisfied. There can be no
assurance that the Company will be able to collect all or any significant part
of the award of $27,100,000 plus the accrued interest.
In May 1999, CET filed an action with the Regional Commercial Court in
Prague, requesting that the court declare the Cooperation Contract invalid for
vagueness and other reasons. On December 14, 2000, the High Court confirmed the
Regional Commercial Court's decision denying the application.
On June 30, 1999, CNTS filed an action with the Regional Commercial
Court of Prague requesting that the court declare invalid an agreement between
CET and another Czech company, Produkce, a.s. under which CET purported to
transfer CET's 1% participation interest in CNTS to Produkce, a.s., since that
transfer did not comply with the CNTS Memorandum of Association. The Court
determined that the transfer was invalid; CET and Produkce have appealed and the
appeal is pending.
On August 9, 1999, CNTS filed a motion in the Regional Commercial Court
of Prague for an injunction enjoining CET from entering into service
relationships with other companies and further requested the court to declare
the Cooperation Contract to be in full force and effect. The Regional Commercial
Court issued a favorable ruling on May 4, 2000, which was subsequently reversed
by a December 14, 2000 ruling from the High Court. CNTS is appealing the High
Court ruling to the Supreme Court.
In December 1999, the Media Council approved CET's request for a share
capital increase, which was subsequently approved by CET. As a result of the CET
share capital increase, Dr. Zelezny's participation interest in CET was reduced
from 60% to 11.8% since he did not subscribe to any of the additional share
capital. CME believes that the reduction of Dr. Zelezny's participation interest
in CET was designed to frustrate the enforcement of the preliminary order issued
in the arbitration, as well as any final award of damages against Dr.
Zelezny.
21
On February 22, 2000, a wholly owned subsidiary of the Company
instituted arbitration proceedings against the Czech Republic under the 1991
Bilateral Investment Treaty between The Netherlands and the Czech Republic. The
claims asserted, remedies sought and procedure to be followed are substantially
similar to those in the arbitration proceedings initiated by Mr. Lauder against
the Czech Republic. See Item 1, "Status of Nova TV Dispute". The arbitration
will be heard from April 23, to May 2, 2001, in Stockholm, Sweden.
In August 1998, Gamatex Ltd., a Slovak company, asserted that it had
obtained 100% ownership of Markiza-Slovakia s r.o. through an auction process
arising out of an unsatisfied claim against Markiza-Slovakia s r.o.
Markiza-Slovakia s r.o. holds the Markiza TV broadcast license and owns a 51%
voting interest in STS. A number of legal proceedings were initiated in the
District Court of Bratislava and Regional Court of Bratislava in which the
original owners of Markiza-Slovakia s r.o. have claimed that Gamatex's ownership
claims are not legally valid. STS has materially supported Markiza-Slovakia s
r.o. in a number of such proceedings, in particular proceedings to; (i) confirm
the interests of the original owners of Markiza-Slovakia s r.o.; (ii) declare
invalid Markiza-Slovakia s r.o. and STS shareholders' meetings called by Gamatex
without proper notice; and (iii) declare invalid Gamatex's claim to ownership in
Markiza-Slovakia s r.o. Ultimately STS acquired 100% of the shares in a company
that controlled Gamatex to ensure that whatever the outcome of the ongoing
litigation it will not be negatively affected by any decision supporting
Gamatex's claims to ownership in Markiza-Slovakia s.r.o. As a separate matter,
certain owners of Markiza-Slovakia s r.o. are still involved in litigation
concerning their ownership of Markiza-Slovakia s r.o. and the matter remains
unresolved.
In July 1996, the Company, together with MMTV and Tele 59, entered into
an agreement to purchase a 66% equity interest in Kanal A, a privately owned
television station in Slovenia (the "Kanal A Agreement"). SBS claimed to have
certain rights to the equity of Kanal A pursuant to various agreements and
challenged the validity of the CME-Kanal A Agreement in a United Kingdom court.
The Court enjoined both SBS and the Company from taking certain actions either
to enforce such entity's claim to equity in Kanal A or to block the claim of the
other entity to equity in Kanal A. The Company instituted a number of actions in
courts in Slovenia to resolve these claims. As a result of the Kanal A purchase
these actions have been terminated. See Item 1, under the heading "Slovenia" for
further details.
In January 2001, AITI, a television station in Ukraine commenced an
action, in Ukraine, against the National Council for TV and Radio Broadcasting
(the "Ukraine TV Council") challenging the validity of the modifications made to
Studio 1+1's license which extended the number of hours per day that Studio 1+1
could broadcast. The basis of this challenge is the allegation that the Ukraine
TV Council failed to follow the correct procedure when granting an extension to
the number of hours per day that Studio 1+1 could broadcast. Studio 1+1 is
involved in this litigation as a third party acting together with the Ukraine TV
Council. While Ukrainian media legislation does not set out the procedure for
modifying a broadcasting license, the Company believes that this action is
without merit.
The Company is, from time to time, a party to litigation that arises in
the normal course of its business operations. The Company is not presently a
party to
22
any such litigation which could reasonably be expected to have a material
adverse effect on its business or operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
CME's Class A Common Stock began trading on the Nasdaq National Market
on October 13, 1994 under the trading symbol "CETV." On October 10, 2000, CME's
Class A Common Stock was delisted from the Nasdaq National Market and began
trading on the quotation service provided by the National Quotation Bureau, LLC
"Pink Sheets" and on the OTC Bulletin Board under the trading symbol "CETVF.OB".
On March 9, 2001, the last reported sales price for the Class A Common Stock was
$2.5625. The following table sets forth the high and low sales prices for the
Class A Common Stock for each quarterly period during the last two fiscal years
of the Company and for the first quarter of 2001. All share information has been
adjusted to reflect the one-for-eight reverse stock split which took effect on
December 15, 1999.
PRICE PERIOD HIGH LOW
1999
First Quarter......................................... 104.000 55.000
Second Quarter........................................ 100.000 41.000
Third Quarter......................................... 63.000 8.000
Fourth Quarter........................................ 22.000 9.504
2000
First Quarter......................................... 19.250 6.500
Second Quarter........................................ 12.063 6.750
Third Quarter......................................... 10.813 1.594
Fourth Quarter........................................ 3.125 0.219
2001
First Quarter (through March 9, 2001)................. 3.250 0.344
At March 9, 2001, there were 31 holders of record (including
brokerage firms and other nominees) of the Class A Common Stock and five holders
of record of the Class B Common Stock. There is no established public trading
market for the Class B Common Stock.
DIVIDEND POLICY
The Company has not declared or paid and has no present intention to
declare or pay in the foreseeable future any cash dividends in respect to any
class of its Common Stock. The Company's ability to pay cash dividends is
primarily
23
dependent upon receipt of dividends or distributions from its Subsidiaries over
which it has limited control. In addition, the indentures which govern the
Company's 9.375% Senior Notes Due 2004 and 8.125% Senior Notes Due 2004 restrict
the ability of CME to declare and pay cash dividends. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
ITEM 6. SELECTED FINANCIAL DATA
(Selected Financial Data begins on the following page and ends on the
page immediately preceding Item 7).
SELECTED CONSOLIDATED FINANCIAL DATA
(dollars in thousands, except per share data)
The selected financial information presented below for the five years
ended December 31, 2000 is derived from the audited Consolidated Financial
Statements of the Company. The following selected financial information should
be read in conjunction with the Company's Consolidated Financial Statements and
Notes thereto for the years ended December 31, 2000, 1999 and 1998, included
elsewhere herein.
YEARS ENDED DECEMBER 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
OPERATING DATA: (DOLLARS IN THOUSANDS)
Net revenues...................................... $76,813 $129,323 $174,291 $146,155 $134,278
--------- -------- ---------- --------- --------
Total station operating costs and expenses........ 77,808 139,405 112,836 92,925 83,888
Selling, general and administrative expenses...... 19,402 25,898 25,250 21,162 20,458
Corporate operating costs and development
expenses.......................................... 11,417 18,753 22,670 25,467 15,782
Amortization of goodwill and allowance for
development costs................................. 1,670 49,091 10,606 14,584 2,940
Capital registration tax.......................... -- -- -- -- 809
Restructuring charge ............................. -- -- 2,552 -- --
--------- -------- ---------- --------- --------
Total operating expenses.......................... 110,297 233,147 173,914 154,138 123,877
--------- -------- ---------- --------- --------
Operating (loss)/income........................... (33,484) (103,824) 377 (7,983) 10,401
Equity in loss of unconsolidated affiliates....... (514) (11,021) (3,398) (10,340) (17,867)
Loss on impairment of investments in
unconsolidated affiliates (1)..................... -- -- -- (20,707) --
Interest and other income......................... 3,543 5,974 25,094 10,087 2,590
Interest expense.................................. (21,788) (20,003) (42,644) (15,858) (4,700)
Foreign currency exchange (losses)/gains.......... (2,286) 12,983 (6,999) (5,283) (2,861)
Gain on sale of investment........................ 17,186 25,870 -- -- --
Other income...................................... -- 8,250 -- --
--------- -------- ---------- --------- --------
Loss before provision for income taxes,
minority interest and discontinued operations..... (37,343) (81,771) (27,570) (50,084) (12,437)
Provision for income taxes........................ (96) (1,518) (15,856) (14,608) (16,410)
--------- -------- ---------- --------- --------
Loss before minority interest and discontinued
operations........................................ (37,439) (83,289) (43,426) (64,692) (28,847)
Minority interest in (income)/loss of
consolidated subsidiaries......................... (59) 213 (156) 1,066 (1,072)
--------- -------- ---------- --------- --------
Net loss from continuing operations............... (37,498) (83,076) (43,582) (63,626) (29,919)
Discontinued operations (2):
Operating loss of discontinued operations
(Hungary)..................................... -- (10,208) (37,576) (4,480) (84)
Gain on disposal of discontinued
operations (Hungary).......................... -- 3,414 -- -- --
24
Operating loss on discontinued operations
(Poland)...................................... -- -- (15,289) -- --
Loss on disposal of discontinued operations
(Poland)...................................... -- -- (28,805) (16,986) --
--------- -------- ---------- --------- --------
Net loss.......................................... $(37,498) $(89,870) $(125,252) $(85,092) $(30,003)
========= ======== ========== ========= ========
Net loss per common share from:
Continuing operations - basic and diluted..... $(11.35) $(25.78) $(14.45) $(21.29) $(12.36)
Discontinued operations - basic and
diluted....................................... -- (2.11) (27.08) (7.18) (0.03)
--------- -------- ---------- --------- --------
$(11.35) $(27.89) $(41.53) $(28.47) $(12.39)
========= ======== ========== ========= ========
Common shares used in computing per share
amounts (000s)
Basic and diluted............................. 3,305 3,223 3,016 2,988 2,421
========= ======== ========== ========= ========
OTHER DATA:
Broadcast cash flow (3)........................... $4,260 $15,366 $49,938 $42,695 $41,444
Cash flow from operations......................... (15,529) (12,702) (9,172) (21,210) (2,537)
BALANCE SHEET DATA:
Current assets.................................... $91,666 $103,070 $152,283 $174,631 $145,515
Total assets...................................... 197,099 236,187 374,507 447,997 364,380
Total debt........................................ 191,482 198,128 230,771 230,720 55,096
Shareholders' (deficit)/equity.................... (65,878) (35,236) 65,707 157,582 249,320
(1) On May 13, 1997, the Company announced its decision to discontinue funding
of 1A TV Beteiligungsgessellschaft GmbH & Co. Betriebs KG ("1A TV"), which
operated PULS, a regional television station in the Berlin-Brandenburg area
of Germany. In May 1997, 1A TV declared bankruptcy. The Company wrote down
its investments in Germany by $20,707,000 in 1997, thereby fully
eliminating the carrying value of such investments.
(2) During the third quarter of 1999 the Company announced that is was selling
substantially all of its Hungarian operations to SBS. The Company's
financial statements have been restated for all periods presented in order
to reflect the operations of Hungary as discontinued operations. During the
fourth quarter of 1998, the Company sold its interests in the TVN
television operations in Poland at a loss, resulting in the treatment of
these interests and related operations as discontinued operations for all
periods presented. The Company's financial statements have been restated
for all periods presented in order to reflect the operations of Poland as
discontinued operations.
(3) "Broadcast cash flow", a broadcasting industry measure of performance, is
defined as net broadcast revenues, less (i) station operating costs and
expenses (excluding depreciation and amortization of acquired programming
and of intangible assets), (ii) broadcast selling, general and
administrative expenses, and (iii) cash program rights costs. Cash program
rights costs are included in the period in which payment is made, which may
not necessarily correspond to the timing of program use or amortization.
Broadcast cash flow should not be considered as a substitute measure of
operating performance or liquidity prepared in accordance with GAAP (see
the accompanying Consolidated Financial Statements).
QUARTERLY RESULTS AND SEASONALITY
The following table sets forth unaudited financial data for each of
CME's last eight fiscal quarters
YEAR ENDED DECEMBER 31, 2000
-----------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------ ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
-----------------------------------------------------------------
INCOME STATEMENT DATA:
Net revenues.............................. 15,370 19,955 13,940 27,548
Operating loss............................ (9,732) (11,720) (8,458) (3,574)
Net loss.................................. (13,669) (3,105) (10,994) (9,730)
NET LOSS PER SHARE:
Basic and diluted......................... (4.14) (0.94) (3.33) (2.94)
25
YEAR ENDED DECEMBER 31, 1999
-----------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER (2) QUARTER
------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
-----------------------------------------------------------------
INCOME STATEMENT DATA:
Net revenues................................ 35,506 46,776 17,538 29,503
Operating (loss)/income..................... (11,172) 2,812 (86,785) (8,679)
Income/(loss) from continuing operations 15,039 (1,515) (86,943) (9,657)
Operating loss of discontinued operations
(Hungary)................................... (2,951) (1,997) (2,957) (2,171)
(Loss)/Gain on disposal of discontinued
operations (Hungary)........................ - - (1,913) 5,327
Net income/(loss)........................... 12,088 (3,512) (91,945) (6,501)
NET INCOME/(LOSS) PER SHARE:
Basic and diluted (1)....................... 3.77 (1.09) (28.65) (2.02)
(1) Basic and diluted earning per share for fiscal 1999 in total is $0.1 lower
than the sum of the applicable amount for each of the quarters of fiscal
1999 due to the impact of stock issuances on the weighted average number of
shares outstanding.
(2) Differences of $132,000 in operating loss from continuing operations and
operating loss of discontinued operations in the table above compared to
the quarterly reported numbers relate to a reclassification due to the
disposal of the Hungarian operations in the third quarter of 1999.
The decline in net revenues from the second quarter of 1999 is
primarily due to the cessation of broadcasting by CNTS. See Part I, Item 1,
"Status of Nova TV Dispute" for a further discussion of Nova TV and the ongoing
dispute between CNTS and CET.
The Company, like other television operators, experiences seasonality,
with advertising sales tending to be lowest during the third quarter of each
calendar year, which includes the summer holiday period (typically July and
August), and highest during the fourth quarter of each calendar year.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The Company's revenues are derived principally from the sale of
television advertising to local, national and international advertisers. To a
limited extent, the Company engages in barter transactions in which its stations
exchange commercial advertising time for goods and services. The Company, like
other television operators, experiences seasonality, with advertising sales
tending to be lowest during the third quarter of each calendar year, which
includes the summer holiday period, and highest during the fourth quarter of
each calendar year. The primary expenses incurred in television operations are
programming and production costs, employee salaries, broadcast transmission
expenses and selling, general and administrative expenses.
The primary internal sources of cash available for corporate operating
costs are dividends and other distributions from Subsidiaries. To date, the only
Subsidiary to distribute dividends has been CNTS which suspended operations on
August 5, 1999. See Part 1, Item 1, "Status of Nova TV Dispute" for a further
discussion on Nova TV and the ongoing dispute between CNTS and CET. As a result,
CNTS will be unable to distribute dividends in the future and consequently the
major internal source of cash available for corporate operating costs and
development expenses has been affected. The Company's ability to obtain
dividends or other distributions is subject to, among other things, restrictions
on dividends under applicable local
26
laws and foreign currency exchange regulations of the jurisdictions in which its
Subsidiaries operate. The Subsidiaries' ability to make distributions is also
subject to the legal availability of sufficient operating funds not needed for
operations, obligations or other business plans and, in some cases, the approval
of the other partners, shareholders or creditors of these entities. The laws
under which the Company's operating Subsidiaries are organized provide generally
that dividends may be declared by the partners or shareholders out of yearly
profits subject to the maintenance of registered capital and required reserves
and after the recovery of accumulated losses.
SELECTED COMBINED AND ATTRIBUTABLE FINANCIAL INFORMATION
The following two tables are neither required by United States
generally accepted accounting principles ("GAAP") nor intended to replace the
Consolidated Financial Statements prepared in accordance with GAAP. The tables
set forth certain combined and attributable financial information for the years
ended December 31, 2000, 1999 and 1998 for the Company's operating entities.
This financial information departs materially from GAAP.
In the table "Selected Combined Financial Information," revenues and
operating expenses of Markiza TV and the Studio 1+1 Group (for 1998 only) not
consolidated in the Consolidated Statements of Operations during the periods
shown, are aggregated with those of the Company's consolidated operations.
Certain entities of the Studio 1+1 Group (for 2000 and 1999 only) not
consolidated in the Consolidated Statements of Operations during the periods
shown, are aggregated with those of the Company's consolidated operations. In
the table "Selected Attributable Financial Information", combined information is
adjusted for CME's economic interest in each entity, which economic interest is
the basis used for consolidation and equity method accounting in the Company's
GAAP Consolidated Financial Statements as of December 31, 2000.
The tables are presented solely for additional analysis and not as a
presentation of results of operations of each component, nor as combined or
consolidated financial data presented in accordance with GAAP. See "Application
of Accounting Principles". The following supplementary unaudited combined and
attributable information includes certain financial information of Markiza TV
and the Studio 1+1 Group on a line-by-line basis, similar to that of the
Company's consolidated entities. Intercompany transactions such as management
service charges are not reflected in the tables. The Company believes that this
unaudited combined and attributable information provides useful disclosure.
Total Stations refer to PRO TV, POP TV, Kanal A, Markiza TV and the
Studio 1+1 Group. PRO TV and POP TV began operations in December 1995, Markiza
TV began operations in August 1996, Studio 1+1 began to generate significant
revenues during the second quarter of 1997 and Kanal A was acquired on October
11, 2000.
EBITDA consists of earnings before interest, income taxes, depreciation
and amortization of intangible assets (which does not include programming
rights). EBITDA is provided because it is a measure of operating performance
commonly used in the television industry. It is presented to enhance an
understanding of the Company's operating results and is not intended to
represent results of operations or cash flows in accordance with GAAP for the
periods indicated, both of which are
27
discussed elsewhere in Management's Discussion and Analysis of Financial
Conditions and Results of Operations.
The term "station expenses" used in the discussion of EBITDA
immediately following the tables refers to the total of a station's (i) other
operating costs and expenses, (ii) amortization of programming rights and (iii)
selling, general and administrative expenses.
"Broadcast cash flow", a broadcasting industry measure of performance,
is defined as net broadcast revenues, less (i) station operating costs and
expenses (excluding depreciation and amortization of acquired programming and of
intangible assets), (ii) broadcast selling, general and administrative expenses,
and (iii) cash program rights costs. Cash program rights costs are included in
the period in which payment is made, which may not necessarily correspond to the
timing of program use or amortization. Broadcast cash flow should not be
considered as a substitute measure of operating performance or liquidity
prepared in accordance with GAAP (see the accompanying Consolidated Financial
Statements).
28
SELECTED COMBINED FINANCIAL INFORMATION (1)
(UNAUDITED)
($000S)
YEAR
ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------------------
NET REVENUE EBITDA BROADCAST CASH FLOW
-------------------------------- ------------------------------- ----------------------------------
-------------------------------- ------------------------------- ----------------------------------
2000 1999 1998 2000 1999 (3) 1998 (3) 2000 1999 (3) 1998 (3)
---- ---- ---- ---- -------- -------- ---- -------- --------
PRO TV............... 39,591 40,627 41,937 1,564 (2,987) (1,916) 1,584 3,655 (2,969)
Markiza TV .......... 33,155 32,217 37,793 4,368 2,739 2,583 4,670 5,214 2,734
POP TV............... 21,651 23,347 22,122 4,954 4,655 (709) 6,261 4,372 (1,915)
Kanal A (2).......... 2,517 - - 1,070 - - 945 - -
Studio 1+1........... 17,164 14,501 23,598 775 (8,443) (1,947) 581 (6,270) (4,050)
---------- --------- --------- -------- --------- ---------- --------- ---------- ----------
TOTAL STATIONS............ 114,078 110,692 125,450 12,731 (4,036) (1,989) 14,041 6,971 (6,200)
========== ========= ========= ======== ========= ========== ========= ========== ==========
(1) Important information about this table appears under the heading "Selected
Combined and Attributable Financial Information" immediately preceding this
table.
(2) Kanal A was acquired on October 11, 2000.
(3) EBITDA and Broadcast Cash Flow data for 1999 and 1998 has been restated to
exclude the effect of intercompany transactions.
29
SELECTED ATTRIBUTABLE FINANCIAL INFORMATION (1)
(UNAUDITED)
($000S)
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------------------------
ECONOMIC
INTEREST NET REVENUE EBITDA BROADCAST CASH FLOW
-------- -------------------------------- ------------------------------- ------------------------------
2000 1999 1998 2000 1999 (3) 1998 (3) 2000 1999 (3) 1998 (3)
---- ---- ---- ---- -------- -------- ---- -------- --------
PRO TV............ 66% 26,130 26,814 27,678 1,032 (1,971) (1,265) 1,045 2,412 (1,960)
Markiza TV........ 80% 26,524 25,774 30,234 3,494 2,191 2,066 3,736 4,171 2,187
POP TV ........... 85.5% 18,512 19,962 18,914 4,236 3,980 (606) 5,353 3,738 (1,637)
Kanal A (2)....... 90% 2,265 - - 963 - - 851 - -
Studio 1+1........ 60% 10,298 8,701 14,159 465 (5,066) (1,168) 349 (3,762) (2,430)
========== ========== ========== ========= ========== ========== ========= ========== ==========
TOTAL STATIONS....... 83,729 81,251 90,985 10,190 (866) (973) 11,334 6,559 (3,840)
========== ========== ========== ========= ========== ========== ========= ========== ==========
(1) Important information about this table appears under the heading "Selected
Combined and Attributable Financial Information" immediately preceding this
table.
(2) Kanal A was acquired on October 11, 2000.
(3) EBITDA and Broadcast Cash Flow data for 1999 and 1998 has been restated to
exclude the effect of intercompany transactions.
30
Combined EBITDA for the year ended December 31, 2000 compared to the year ended
December 31, 1999
The total combined EBITDA for the Company's Stations increased by
$16,767,000 from negative $4,036,000 to positive $12,731,000 for the year ended
December 31, 2000 compared to the year ended December 31, 1999. This increase
was due to increases in EBITDA at Studio 1+1 of $9,218,000, PRO TV of
$4,551,000, Markiza TV of $1,629,000 and POP TV of $299,000. Additionally, Kanal
A, acquired on October 11, 2000, recorded EBITDA of $1,070,000.
Studio 1+1's EBITDA increased by $9,218,000 to positive $775,000 for
2000 compared to negative $8,443,000 for 1999. This increase was partially as a
result of an increase in net revenues but primarily as a result of a decrease in
operating costs. Throughout 2000, there was a slight recovery in the Ukrainian
television advertising market which resulted in Studio 1+1 recording an increase
in net revenues of $2,663,000, or 18%. Despite the slight recovery experienced
by the Ukrainian television advertising market during 2000 the market is still
46% below its highest level recorded in 1998. Studio 1+1 reduced operating costs
by $6,555,000, or 29%, primarily as a result of reductions in amortization of
program rights costs, production expenses and broadcast operations and
engineering expenses. Reductions in amortization of program rights costs are as
a result of lower programming purchases and more efficient programming
scheduling.
PRO TV's EBITDA increased by $4,551,000 to positive $1,564,000 for 2000
compared to negative $2,987,000 for 1999. This increase in EBITDA was achieved
despite a reduction in net revenues of $1,036,000, or 3%, for 2000 compared to
1999. This reduction in net revenues was as a result of increased competition
within Romania combined with a television advertising market that remained flat
year over year. This increase in EBITDA was as a result of reductions of
$5,587,000, or 13%, in operating costs. Reduction in operating costs was
primarily as a result of reductions in amortization of program rights costs.
This reduction was as a result of lower programming purchases.
Markiza TV's EBITDA increased by $1,629,000 to $4,368,000 for 2000
compared to $2,739,000 for 1999. This increase was partially as a result of an
increase in net revenues and partially as a result of a decrease in operating
costs. Markiza TV increased net revenues by $938,000, or 3%, due to a slight
increase in the local currency denominated television advertising market.
Markiza TV reduced operating costs by $691,000, or 2%, primarily as a result of
reductions in amortization of programming rights costs, broadcast operations and
engineering expenses and selling, general and administrative costs partially
offset by an increase in salary and benefits costs. This increase in salary and
benefits costs was as a result of increases in staff levels and higher
commission for the sales staff.
POP TV's EBITDA increased by $299,000 to $4,954,000 for 2000 compared
to $4,655,000 for 1999. This increase was despite a reduction of $1,696,000, or
7%, in the dollar denominated net revenues for 2000 compared to 1999. In local
currency terms POP TV recorded an increase of 14% in net revenues for 2000
compared to 1999. This increase in EBITDA was as a result of a $1,995,000, or
11%, reduction in operating costs. This reduction in operating costs was
primarily as a result of reductions in acquired programming costs, salary and
benefits costs and selling, general and administrative costs partially offset by
an increase in production expenses. This increase in production expenses was as
a result of higher set costs and increased prize money awarded on game shows.
31
Kanal A, the second leading commercial television broadcaster in
Slovenia, was acquired by the Company on October 11, 2000. EBITDA from October
11, 2000 to December 31, 2000 was positive $1,070,000.
For the reasons described above total combined EBITDA increased by
$16,767,000 to positive $12,731,000 in 2000 compared to negative $4,036,000 in
1999.
Broadcast Cash Flow
Differences between EBITDA and broadcast cash flow are the result of
timing differences between programming use and programming payments. See
"Liquidity and Capital Resources" for a complete discussion of cash flows from
operating, investing and financing activities.
APPLICATION OF ACCOUNTING PRINCIPLES
Although the Company conducts operations largely in foreign currencies,
the Company prepares its consolidated financial statements in United States
dollars and in accordance with GAAP. In CME's Consolidated Statements of
Operations, consolidated entities include wholly-owned Subsidiaries and the
results of PRO TV, POP TV, Kanal A, and certain entities of the Studio 1+1 Group
(for 2000 and 1999 only), Media Vision, Video Vision and CNTS and separately set
forth the minority interests attributable to other owners of such companies. The
results of Markiza TV and Studio 1+1 (for the year ending December 31, 1998
only) and certain entities of the Studio 1+1 group (for the years ended December
31, 2000 and 1999) have been accounted for using the equity method such that
CME's interests in net earnings or losses of those operations is included in the
consolidated earnings and an adjustment is made to the carrying value at which
the investment is recorded on the Consolidated Balance Sheet. The Company
records other investments at the lower of cost or market value.
FOREIGN CURRENCY
The Company generates revenues primarily in Romanian lei ("ROL"),
Slovak korunas ("Sk"), Slovenian tolar ("SIT"), Ukrainian hryvna ("Hrn") and
Czech korunas ("Kc") and incurs expenses in those currencies as well as German
marks, British pounds and United States dollars. The Romanian lei, Slovak
koruna, Slovenian tolar and Ukrainian hryvna are managed currencies with limited
convertibility. The Company incurs operating expenses for acquired programming
in United States dollars and other foreign currencies. For entities operating in
economies considered non-highly inflationary, including POP TV, Kanal A, Markiza
TV, certain entities of the Studio 1+1 Group and CNTS, balance sheet accounts
are translated from foreign currencies into United States dollars at the
relevant period end exchange rate and statement of operations accounts are
translated from foreign currencies into United States dollars at the weighted
average exchange rates for the respective periods. The resulting translation
adjustments are reflected in a component of shareholders' equity (in accumulated
other comprehensive income (loss)) with no effect on the consolidated statements
of operations.
PRO TV and certain entities of the Studio 1+1 Group operate in
economies considered highly inflationary. Accordingly, non-monetary assets are
translated at historical exchange rates, monetary assets are translated at
current exchange rates and translation adjustments are included in the
determination of net income. Currency translation adjustments relating to
transactions of the Company in currencies other than the functional currency of
the entity involved are reflected in the operating results of the Company.
32
The exchange rates at the end of and for the periods indicated are
shown in the table below.
BALANCE SHEET INCOME STATEMENT
--------------------------------- ---------------------------------------
AT DECEMBER 31, WEIGHTED AVERAGE FOR THE YEARS ENDING
DECEMBER 31,
2000 1999 % CHANGE 2000 1999 % CHANGE
---- ---- -------- ---- ---- --------
Czech koruna equivalent of $1.00 37.81 35.98 (5.1)% 38.60 34.73 (11.1)%
German mark equivalent of $1.00 2.08 1.95 (6.7)% 2.12 1.89 (12.2)%
Romanian lei equivalent of $1.00 25,880 18,255 (41.8)% 21,659 15,310 (41.5)%
Slovak koruna equivalent of $1.00 47.39 42.27 (12.1)% 46.76 41.71 (12.1)%
Slovenian tolar equivalent of $1.00 227.38 196.77 (15.6)% 226.05 183.98 (22.9)%
Ukrainian hryvna equivalent of $1.00 5.43 5.22 (4.0)% 5.44 4.13 (31.7)%
The Company's results of operations and financial position during 2000
were impacted by changes in foreign currency exchange rates since December 31,
1999.
RESULTS OF OPERATIONS
Discontinued Operations
On February 21, 2000, the Company sold substantially all of its
operations in Hungary to SBS. This has resulted in these operations being
treated as discontinued operations for all periods described in Results of
Operations. The Company's financial statements have been restated for all
periods presented in order to reflect the operations in Hungary as discontinued
operations.
During the fourth quarter of 1998, the Company sold its interests in
the TVN television operations in Poland at a loss, resulting in the treatment of
these interests and operations as discontinued operations. The Company's
financial statements for 1998 reflect these operations in Poland as discontinued
operations.
Year ended December 31, 2000 compared to year ended December 31, 1999
CME's consolidated net revenues decreased by $52,510,000, or 41%, to
$76,813,000 for 2000 from $129,323,000 for 1999. The decrease was primarily
attributable to the suspension of the broadcast operations of CNTS and partially
due to decreases in the net revenues of POP TV, PRO TV and the consolidated
entities of the Studio 1+1 Group. CNTS suspended broadcast operations on August
5, 1999 and has not generated any material revenues since that time. See Part I,
Item 1, "Status of Nova TV Dispute" and below for a further discussion on Nova
TV and the ongoing dispute between CNTS and CET.
POP TV's US dollar net revenues declined for 2000 compared to 1999;
however in local currency terms, POP TV's net revenues increased by 14%. The net
revenues of PRO TV declined year over year as a result of increased competition
in an advertising market which showed no growth year over year. The Romanian
advertising market was adversely affected by the elections at the end of 2000
and a lack of Government reforms.
Total station operating costs and expenses (including amortization of
program rights and depreciation of fixed assets and other intangibles) decreased
by $61,597,000, or 44%, to $77,808,000 for 2000 from $139,405,000 for 1999. The
decrease in total station operating costs and expenses was primarily due to the
cessation of broadcasting
33
by CNTS and partially attributable to reductions in total station operating
costs and expenses at PRO TV and POP TV. See Part I, Item 1, "Status of Nova TV
dispute" for a further discussion of Nova TV and the on-going dispute between
CNTS and CET. The decrease at PRO TV is as a result of a reduction in
amortization of programming rights of $5,984,000 and a reduction in depreciation
of station fixed assets and other intangibles of $1,053,000. This reduction was
partially off-set by an increase in other operating costs and expenses of
$475,000 as a result of an increase in production expenses relating to new show
formats. The decrease at POP TV is as a result of a reduction in amortization of
programming rights of $879,000, other operating costs and expenses of $735,000
and depreciation of station fixed assets and other intangibles of $377,000 for
2000 compared to 1999. The consolidated entities of the Studio 1+1 Group
recorded a decrease in amortization of programming rights of $2,716,000 and a
decrease in other operating costs and expenses of $1,080,000 for 2000 compared
to 1999. These decreases were off-set by an increase in depreciation of station
fixed assets and other intangibles of $9,235,000. This increase was primarily
the result of a Company review of the carrying value of the goodwill relating to
the Studio 1+1 asset and the subsequent determination to write the goodwill
down. This review was conducted according to SFAS 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of",
and the remaining goodwill relating to the Studio 1+1 asset is $4,916,000. See
Item 8, Consolidated Financial Statements, Note 4, "Impairment of Studio 1+1
Goodwill".
Station selling, general and administrative expenses decreased by
$6,496,000, or 25%, to $19,402,000 for 2000 from $25,898,000 for 1999. The
decrease is primarily attributable the cessation of broadcasting by CNTS and
partially attributable to reductions in total station selling, general and
administrative expenses at PRO TV and POP TV. See Part I, Item 1, "Status of
Nova TV dispute" for a further discussion of Nova TV and the on-going dispute
between CNTS and CET. PRO TV recorded a reduction in station selling, general
and administrative expenses of $78,000. POP TV recorded a reduction in station
selling, general and administrative expenses of $381,000 primarily due to a
reduction in taxes. The consolidated entities of the Studio 1+1 Group recorded
an increase in station selling, general and administrative expenses of $62,000.
Corporate operating costs and development expenses decreased by
$7,336,000, or 39%, to $11,417,000 in 2000 from $18,753,000 in 1999, mainly due
to lower corporate operating expenses.
Amortization of goodwill and allowance for development costs decreased
by $47,421,000, or 97%, to $1,670,000 in 2000 from $49,091,000 in 1999. This
decrease is primarily attributable to the charge of $40,511,000 recorded in 1999
which resulted from a write-down of the goodwill relating to the purchases of
additional equity interests in CNTS made by the Company in August 1996 and
August 1997. No such charge was recorded in 2000. See Part I, Item 1, "Status of
Nova TV dispute" for a further discussion of Nova TV and the on-going dispute
between CNTS and CET.
As a result of the above factors, the Company generated an operating
loss of $33,484,000 in 2000 compared to an operating loss of $103,824,000 in
1999.
Equity in loss of unconsolidated affiliates decreased by $10,507,000 to
a loss of $514,000 in 2000 compared to a loss of $11,021,000 in 1999. This
decrease is as a result of Markiza TV recording a loss of $1,773,000 in 2000
compared to a loss of $4,611,000 in 1999 and certain entities of the Studio 1+1
group that are not consolidated recording a net income of $1,259,000 in 2000
compared to a loss of $6,410,000 in 1999.
34
Net interest and other income changed by $4,216,000 to an expense of
$18,245,000 in 2000 compared to an expense of $14,029,000 in 1999. This increase
is as a result of a company review of the potential interest and penalties
relating to outstanding tax obligations of PRO TV and a determination to provide
for these charges in the amount of $4,000,000.
Net foreign currency exchange loss of $2,286,000 in 2000 compares to a
net foreign exchange gain of $12,983,000 in 1999. In 1999 the Company recorded a
large foreign exchange gain due to the significant weakening of the German mark
and the Czech koruna. In 2000, the Company recorded a loss on the dividends
declared by CNTS due to weakening of the Czech Koruna against the Dollar between
the date of declaration and the date the income was recorded.
Gain on sale of investment of $17,186,000 in 2000 relates to SBS
exercising its call option on the ITI Note, see Item 8, Consolidated Financial
Statements, Note 15, "Sale of Investment in ITI Note".
Provision for income taxes was $96,000 in 2000 compared to $1,518,000
in 1999. This decrease is due to the suspension of the broadcasting operations
of CNTS and the resulting decrease in net income. See Part I, Item 1, "Status of
Nova TV Dispute" for a further discussion on Nova TV and the ongoing dispute
between CNTS and CET.
Minority interest in income of consolidated subsidiaries was $59,000 in
2000 compared to a minority interest in loss of $213,000 in 1999. This change
was due to the losses incurred by CNTS off-set by income of Kanal A. See Part I,
Item 1, "Status of Nova TV Dispute" for a further discussion on Nova TV and the
ongoing dispute between CNTS and CET and see Item 8, Consolidated Financial
Statements, Note 16, "Kanal A Purchase".
As a result of these factors, the net loss of the Company was
$37,498,000 in 2000 compared to $89,870,000 in 1999.
Year ended December 31, 1999 compared to year ended December 31, 1998
CME's consolidated net revenues decreased by $44,968,000, or 26%, to
$129,323,000 for 1999 from $174,291,000, for 1998. The decrease was due to a
decrease of $55,463,000 in the net revenues of CNTS and the decrease of
$1,310,000 in the net revenues of PRO TV, offset by a $1,225,000 increase in net
revenues at POP TV and the inclusion of Studio 1+1 as a consolidated entity for
the year ended December 31, 1999. CNTS suspended broadcast operations on August
5, 1999 and has not generated any material revenues since that time. See Part I,
Item 1, "Status of Nova TV Dispute" for a further discussion on Nova TV and the
ongoing dispute between CNTS and CET. The suspension of operations at CNTS led
to a large reduction in net revenues in 1999 compared to 1998.
POP TV's net revenues increased as it continued to capitalize on its
market leading position. In Ukraine and Romania the advertising markets declined
year over year as the economies experienced recessionary effects from the
Russian financial crisis and lack of economic reform.
Total station operating costs and expenses (including amortization of
program rights and depreciation of fixed assets and other intangibles) increased
by $26,569,000, or 24%, to $139,405,000 for 1999 from $112,836,000 for 1998. The
increase in total station operating costs and expenses was primarily due to the
inclusion of Studio 1+1 as a
35
consolidated entity for the year ended December 31, 1999 and an increase in
amortization of programming rights of $30,132,000. This increase is primarily
due to the write-down of $21,480,000 on the full value of the CNTS programming
library and the increase of $5,691,000 in amortization of programming rights at
PRO TV. See Part I, Item 1 "Status of Nova TV Dispute" for a further discussion
on Nova TV and the ongoing dispute between CNTS and CET. The increase in
amortization of programming rights was partially offset by a reduction in
amortization of programming rights at POP TV of $1,204,000. The increase in
total station operating costs and expenses was partially offset by reductions in
station operating costs and expenses at PRO TV of $2,594,000, due to reduced
salary and benefit costs and POP TV of $1,382,000, primarily due to lower
production expenses and reduced salary and benefit costs.
Station selling, general and administrative expenses increased by
$648,000, or 3%, to $25,898,000 for 1999 from $25,250,000 for 1998. The increase
was attributable to the inclusion of Studio 1+1 as a consolidated entity for the
year ended December 31, 1999 offset by reductions in selling, general and
administrative costs at PRO TV of $3,337,000 and POP TV of $1,553,000. In 1999,
PRO TV reduced marketing costs and administrative costs and POP TV reduced
marketing costs compared to 1998.
Corporate operating costs and development expenses decreased by
$3,917,000, or 17%, from $22,670,000 in 1998 to $18,753,000 in 1999, mainly due
to reduced corporate headcount and lower corporate operating expenses.
Amortization of goodwill and allowance for development costs increased
by $38,485,000 from $10,606,000 for 1998 to $49,091,000 for 1999. This increase
was attributable to the additional $40,511,000 write-down of the goodwill
relating to the purchases of additional equity interests in CNTS made by the
Company in August 1996 and August 1997.
In the second quarter of 1998, the Company recorded a restructuring
charge of $2,552,000 based on its decision to change its focus from aggressive
development and growth to further enhancing the operating performance of the
Company's existing assets and pursuing opportunities for focused growth. The
restructuring charge was comprised of severance and other associated costs and
has been fully expensed.
As a result of the above factors, the Company generated an operating
loss of $103,824,000 for 1999 compared to operating income of $377,000 for 1998.
Equity in loss of unconsolidated affiliates increased by $7,623,000 to
a loss of $11,021,000 for 1999 from a loss of $3,398,000 for 1998. This increase
was a result of Markiza TV recording a higher loss for 1999 than 1998 and
certain entities of the Studio 1+1 group that are not consolidated recording a
loss of $6,410,000 for 1999.
Net interest and other income changed by $3,521,000 to an expense of
$14,029,000 for 1999 from an expense of $17,550,000 for 1998. This decrease was
due to reduced borrowing at all stations with the exception of POP TV.
The net foreign currency exchange gain of $12,983,000 for 1999 compared
to the net foreign exchange loss of $6,999,000 for 1998 was primarily
attributable to the effect of a weaker German mark on the Deutsche mark
denominated portion of CME's Senior Notes obligations and the effect of a weaker
Czech koruna on the Czech koruna debt funding for the 1996 purchase by the
Company of CS Bank's economic interest in CNTS.
36
Gain on sale of investment of $25,870,000 in 1999 related to the sale
by the Company of its interest in a Romanian mobile telephone company MobilRom
S.A.
Other income of $8,250,000 related to the cash received from SBS on the
termination of the agreement entered into in March 1999 under which SBS would
have purchased all of the assets and assumed all of the liabilities of the
Company in exchange for the Company's shareholders receiving shares of SBS
capital stock.
Provision for income taxes was $1,518,000 for 1999 compared to
$15,856,000 for 1998. This decrease was due to the suspension of the
broadcasting operations of CNTS and the resulting decrease in net income. See
Part I, Item 1, "Status of Nova TV Dispute" for a further discussion on Nova TV
and the ongoing dispute between CNTS and CET.
Minority interest in loss of consolidated subsidiaries was $213,000 in
1999 compared to minority interest in income of $156,000 for 1998. This change
was due to the losses incurred by CNTS. See Part I, Item 1, "Status of Nova TV
Dispute" for a further discussion on Nova TV and the ongoing dispute between
CNTS and CET.
As a result of these factors, the net loss of the Company was
$89,870,000 for 1999 compared to $125,252,000 for 1998.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $15,529,000 in 2000 compared
to $12,702,000 in 1999. The change of $2,827,000 is primarily the result of the
cessation of broadcasting by CNTS. See Part I, Item 1, "Status of Nova TV
Dispute" for a further discussion on Nova TV and the ongoing dispute between
CNTS and CET.
Net cash provided by investing activities was $19,516,000 in 2000
compared to $14,364,000 in 1999. The increase of $5,152,000 was primarily
attributable to no investments in discontinued operations, lower fixed asset
purchases, a decrease in the amount of restricted cash and cash received from
the sale of the ITI Note in 2000.
Net cash used in financing activities for 2000 was $2,398,000 compared
to $6,377,000 in 1999. The change of $3,979,000 was primarily due to lower
payments on credit facilities and capital leases for 2000 compared to 1999.
The Company had cash and cash equivalents of $37,510,000 at December
31, 2000 compared to $36,990,000 at December 31, 1999.
In August 1997, CME issued two tranches of Senior Notes (the "Senior
Notes") the principal of which becomes due in August 2004. The United States
dollar tranche totals $100,000,000 in principal amount and bears interest at a
rate of 9.375% per annum. The German mark tranche totals DM 140,000,000
($67,308,000) in principal amount and bears interest at a rate of 8.125% per
annum. The Senior Notes raised net proceeds of approximately $170,000,000. The
Senior Notes are denominated in United States dollars, in part, and in German
marks, in part. The indentures governing the Senior Notes contain certain
restrictions relating to the ability of CME and its Subsidiaries and affiliates
to incur additional indebtedness, incur liens on assets, make investments in
unconsolidated companies, declare and pay dividends (in the case of CME), sell
assets and engage in extraordinary transactions.
37
On October 20, 2000, the Company entered into an agreement (the
"Noteholders Agreement") with certain of its Noteholders ("Consenting Holders").
The Noteholders Agreement was reached with holders of over 60% of the 9.375%
Senior Notes and holders of over 60% of the 8.125% Senior Notes. The Noteholders
Agreement resulted from discussions commenced with a group of holders of the
Senior Notes in August 2000 relating to a possible consensual restructuring of
the Senior Notes. CME determined the need to restructure the Senior Notes as a
result of an ongoing dispute involving its operations in the Czech Republic.
Pursuant to the Noteholders Agreement, on October 20, 2000, the Company
made the semi-annual interest payment on the Senior Notes which was due on
August 15, 2000. Due to the delayed interest payment the Company was in default
under the indentures between September 15 and October 20, 2000. As a result of
such payment, the Company is no longer in default under the indentures relating
to the Senior Notes. The Consenting Holders had agreed to accept their pro rata
share of $100 million in cash (including the interest payment due on August 15,
2000), 25% of the equity of the Company and four-year warrants for 5% of the
equity of the Company in exchange for their Senior Notes if such an offer was
made by the Company to the holders of the Senior Notes and such restructuring of
the Senior Notes was consummated on or prior to January 15, 2001. The Company
was unable to raise new financing to provide it with the financial resources to
purchase the Senior Notes on the terms previously described and as such the
Noteholders Agreement expired on January 15, 2001. The Company made the
semi-annual interest payment on the Senior Notes which was due on February 15,
2001.
On August 1, 1996, the Company purchased Ceska Sporitelna's ("CS's")
22% economic interest and virtually all of CS's voting rights in CNTS for a
purchase price of Kc 1 billion ($36,590,000). The Company also entered into a
loan agreement with CS to finance 85% of the purchase price. The principal
outstanding at December 31, 2000 was Kc 335,080,600 ($8,862,000). Quarterly
repayments on the loan are required in the amount Kc 42,500,000 ($1,124,000)
during the period from February 2001 through May 2002, and Kc 37,580,000
($994,000) in August 2002. In November 2000 the Company approached CS to seek a
restructuring of the loan. The Company and CS have agreed that the Company would
receive a principal repayment holiday until November 20, 2001. At that time, CS
will review the financial condition of the Company to assess whether another
annual principal repayment holiday is required. This agreement is subject to
final documentation and approval.
In April 1998, POP TV entered into a multicurrency $5,000,000 loan
agreement with Creditanstalt AG which matures in May 2005. As of December 31,
2000, the loan was fully drawn. The loan is secured by the land, buildings and
equipment of POP TV and is guaranteed by CME. This credit agreement contains
certain covenants with which the Company is not in compliance, but for which the
Company has received a waiver.
PRO TV has one borrowing facility with Tiriac Bank in Romania. This
facility is for $4,000,000 and matures in December 2002. At December 31, 2000,
$1,827,000 was borrowed under this facility. This facility is secured by PRO
TV's equipment and vehicles. In addition, PRO TV has an overdraft facility with
Tiriac Bank in Romania for $3,000,000 which matures in October 2001. As at
December 31, 2000, $2,477,000 was drawn under this overdraft facility. This
overdraft facility is secured by an assignment of receivables and a promissory
note.
38
CNTS has been the subject of a VAT inspection by the Czech Republic tax
authorities for the years 1997 and 1998. As a result of this inspection the
Czech tax authorities had levied an assessment seeking VAT payments of
Kc232,777,000 ($6,156,000). The Czech authorities asserted that CNTS was
providing certain services to CET and that these services should have been
subject to VAT. On February 28, 2001, CNTS received notification from the Czech
Republic tax authorities that all tax investigations and assessments had been
cancelled. The Czech tax authorities had previously frozen CNTS' 1998 and 1999
income tax prepayments in the amount of Kc281,790,000 ($7,452,000). These income
tax prepayments were returned to CNTS on February 20, 2001.
The Company's subsidiary in Slovenia, Produkcija Plus d.o.o. ("Pro
Plus") has been the subject of an income tax inspection by the Republic of
Slovenia tax authorities for the years 1995 to 1998. As a result of these
inspections the Slovene tax authorities had levied an assessment seeking unpaid
income taxes, customs duties and interest charges of SIT1,073,000,000
($4,719,000). The Slovene authorities have asserted that capital contributions
and loans made by CME in the years 1995 and 1996 to Pro Plus should be
extraordinary revenue to Pro Plus. On this basis, the Slovene authorities claim
that Pro Plus made a profit in 1995 and 1996 for which it owes income taxes and
interest. Additionally, the Slovene tax authorities claim that the fixed assets
imported as capital contributions were subject to customs duties which were not
paid. On February 9, 2001, the Slovene tax authorities approved the cash capital
contributions for 1995 and 1996. This has reduced the assessment to
SIT636,800,000 ($2,801,000). The Administrative Court of Ljubljana has issued an
injunction to prevent the tax authorities from demanding payment until a hearing
on the matter has been concluded. There is currently no date set for this
hearing.
The laws under which CME's operating Subsidiaries are organized provide
generally that dividends may be declared by the partners or shareholders out of
yearly profits subject to the maintenance of registered capital, required
reserves and after the recovery of accumulated losses. In the case of the
Company's Dutch and Netherlands Antilles subsidiaries, the Company's voting
power is sufficient to compel the making of distributions. In the case of PRO
TV, distributions may be paid from the profits of PRO TV subject to a reserve of
5% of annual profits until the aggregate reserves equal 20% of PRO TV's
registered capital. A majority vote can compel PRO TV to make distributions.
There are no legal reserve requirements in Slovenia. In the case of Markiza TV,
distributions may be paid from net profits subject to an initial reserve
requirement of 10% of net profits until the reserve fund equals 5% of registered
capital. Subsequently, the reserve requirement is equal to 5% of net profits
until the reserve fund equals 10% of registered capital. The Company's voting
power in Markiza TV is not sufficient to compel the distribution of dividends.
The Company's voting power in the Studio 1+1 Group is sufficient to compel the
distribution of dividends.
The Company's future cash needs, over and above working capital
requirements, will depend on the Company's overall financial performance and its
future acquisition and development decisions. The Company believes that, taken
together, its current cash balances, internally generated cash flow and local
financing of broadcast operations should result in the Company having adequate
cash resources to meet its debt service and other financial obligations for the
next 12 months. The Senior Notes in the amount of $167,308,000 mature in August
2004. The Company's ability to refinance or repay the
39
Senior Notes will depend upon market conditions, pending litigation, renewals of
broadcasting licenses, the financial performance of the Company and other
factors through to August 2004.
EURO CONVERSION
As part of the European Economic and Monetary Union (EMU), a single
currency, the euro, will replace the national currencies of many of the member
countries of the European Union. Although the Company does not currently conduct
business in any of the countries which are adopting the euro, it holds debt
denominated in German marks, one of the currencies scheduled to be replaced by
the euro. Additionally, it is expected that several of the countries in which
the Company operates are likely to join EMU at some point in the future.
The conversion rates between the euro and the participating nations'
currencies were fixed irrevocably as of January 1, 1999 and the participating
national currencies will be removed from circulation between January 1, and June
30, 2002 and replaced by euro notes and coinage. During the "transition period"
from January 1, 1999 through December 31, 2001, public and private entities as
well as individuals may pay for goods and services using either checks, drafts,
or wire transfers denominated in euro or the participating country's national
currency.
Under the regulations governing the transition to a single currency,
there is a "no compulsion, no prohibition" rule which states that no one is
obliged to use the euro until the notes and coinage have been introduced on
January 1, 2002. In keeping with this rule, the Company expects to be euro
"compliant" (able to receive euro denominated payments and able to invoice in
euros as requested by vendors and suppliers, respectively) by the time national
currencies are removed from circulation. The cost of software and business
process conversion is not expected to be material.
FORWARD-LOOKING STATEMENTS
Statements made in Part I, Item 1, under the heading "Status of Nova TV
Dispute", Part 2, Item 7, under the heading "Results of Operations" and
"Liquidity and Capital Resources" as well as statements regarding future
operations of CNTS, the ongoing dispute between CNTS and CET, future investments
in existing television broadcast operations, business strategies and
commitments, anticipated corporate cash expenditures and ability to repay or
refinance the Senior Notes are forward-looking statements. Forward-looking
statements are inherently subject to risks and uncertainties, many of which
cannot be predicted with accuracy and some of which might not even be
anticipated. Future events and actual results, financial and otherwise, could
differ materially from those described in or contemplated by the forward-looking
statements. Important factors that contribute to such risks include the ability
to acquire programming, the ability to attract audiences, the rate of
development of advertising markets in countries where the Company currently
operates and general market and economic conditions in these countries.
Important factors with respect to the future operations of CNTS in the Czech
Republic and the ongoing dispute between CNTS and CET, include legal, political
and regulatory conditions and developments in the Czech Republic.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company conducts business in a number of foreign currencies. As a
result, it is subject to foreign currency exchange rate risk due to the effects
that foreign exchange
40
rate movements of these currencies have on the Company's costs and on the cash
flows it receives from certain Subsidiaries. Several of the Company's
Subsidiaries hold long-term debt under credit facilities that provide for
interest at a spread above a basis rate (such as LIBOR). A significant rise in
these basis rates would not materially adversely affect the Company's business,
financial condition or results of operations. The Company does not utilize
derivative financial instruments to hedge against changes in interest rates. The
Company believes that it currently has no material exposure to market risk
associated with activities in derivative or other financial instruments.
In limited instances the Company enters into forward foreign exchange
contracts to hedge foreign currency exchange rate risk. At December 31, 2000 the
Company held no foreign exchange contracts.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(Financial Statements and Supplementary data begin on the following
page and end on the page immediately preceding Item 9.)
41
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Central European Media Enterprises Ltd:
We have audited the accompanying consolidated balance sheets of Central
European Media Enterprises Ltd. (a Bermuda corporation) and subsidiaries as of
December 31, 2000 and 1999, and the related consolidated statements of
operations, shareholders' equity (deficit) and cash flows for each of the three
years in the period ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of Produkcija Plus d.o.o. and Super Plus Holding d.d.
(acquired on October 11, 2000) which statements reflect total assets and total
revenues of 4 percent and 31 percent in 2000, and 2 percent and 18 percent in
1999, respectively, of the related consolidated totals. Those statements were
audited by other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to the amounts included for those entities, is
based solely on the reports of the other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other
auditors, the financial statements referred to above present fairly, in all
material respects, the financial position of Central European Media Enterprises
Ltd. as of December 31, 2000 and 1999, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2000 in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN
Hamilton, Bermuda
March 15, 2001
42
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Partners of Produkcija Plus d.o.o.
Ljubljana, Slovenia
We have audited the accompanying balance sheets of Produkcija Plus d.o.o. as of
December 31, 2000 and 1999, and related statements of operations and cash flows
for the years ended December 31, 2000 and 1999 (not presented separately
herein). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an option on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Produkcija Plus d.o.o. at December 31,
2000 and 1999, and the results of its operations and cash flows for the years
ended December 31, 2000 and 1999 in conformity with United States generally
accepted accounting principles.
Deloitte & Touche
Ljubljana, Slovenia
February 16, 2001
43
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Partners of Super Plus Holding d.d.
Ljubljana, Slovenia
We have audited the accompanying consolidated balance sheets of Super Plus
Holding d.d. as of December 31, 2000, and related consolidated statements of
operations and cash flows for the period then ended, and its subsidiary
(Kanal A d.d.) from October 11, 2000 to December 31, 2000 (not presented
separately herein). These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
option on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements referred to in the first
paragraph above present fairly, in all material respects, the financial position
of Super Plus Holdings d.d. and its subsidiary at December 31, 2000, and the
consolidated results of its operations and cash flows for the period ended
December 31, 2000 in conformity with United States generally accepted accounting
principles.
Deloitte & Touche
Ljubljana, Slovenia
February 26, 2001
44
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
(US$000S, EXCEPT PER SHARE DATA)
ASSETS DECEMBER 31,
-------------------------
2000 1999
----- ----
CURRENT ASSETS:
Cash and cash equivalents...................................................... $ 37,510 $ 36,990
Restricted cash................................................................ 1,527 4,784
Accounts receivable (net of allowances of $3,539 , $2,597)..................... 23,785 15,099
Program rights costs........................................................... 7,090 9,883
Advances to affiliates......................................................... 9,081 20,507
Income taxes receivable........................................................ 7,452 7,640
Other short-term assets........................................................ 5,221 8,167
---------- -----------
TOTAL CURRENT ASSETS........................................... 91,666 103,070
Investments in unconsolidated affiliates....................................... 20,428 23,095
Loans to affiliates............................................................ 15,606 4,863
Property, plant and equipment (net of depreciation of $63,343, $56,292)........ 32,824 48,471
Program rights costs........................................................... 6,305 8,911
License costs and other intangibles (net of amortization of $6,609, $10,376)... 2,158 2,912
Goodwill (net of amortization of $90,674, $79,263)............................. 20,909 19,393
Note receivable................................................................ - 20,071
Deferred tax asset............................................................. 175 138
Other assets................................................................... 7,028 5,263
---------- -----------
TOTAL ASSETS................................................... $ 197,099 $ 236,187
========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued liabilities....................................... $ 50,799 $ 51,504
Duties and other taxes payable................................................. 11,421 11,678
Income taxes payable........................................................... 374 864
Current portion of credit facilities and obligations under capital leases...... 10,006 6,409
Investments payable............................................................ 6,444 5,188
Advances from affiliates....................................................... 2,241 1,028
---------- -----------
TOTAL CURRENT LIABILITIES...................................... 81,285 76,671
Long-term portion of credit facilities and obligations under capital leases... 8,078 15,115
$100,000,000 9 3/8 % Senior Notes.............................................. 99,920 99,897
DM 140,000,000 8 1/8 % Senior Notes............................................ 67,034 71,519
Other Liabilities.............................................................. 6,493 7,843
Minority interest in consolidated subsidiaries................................. 167 378
Commitments and contingencies (Note 11)
SHAREHOLDERS' DEFICIT:
Class A Common Stock, $0.08 par value: authorized:
100,000,000 shares at December 31, 2000 and December 31, 1999; issued
and outstanding: 2,313,346 at December 31, 2000 and December 31, 1999........ 185 185
Class B Common Stock, $0.08 par value: authorized:
15,000,000 shares at December 31, 2000 and December 31, 1999; issued
and outstanding: 991,842 at December 31, 2000 and December 31, 1999.......... 79 79
Additional paid-in capital..................................................... 356,385 356,385
Accumulated deficit............................................................ (415,716) (378,218)
Accumulated other comprehensive loss........................................... (6,811) (13,667)
---------- -----------
TOTAL SHAREHOLDERS' DEFICIT.................................... (65,878) (35,236)
---------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT.................................... $ 197,099 $ 236,187
========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
45
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(US$000S, EXCEPT PER SHARE DATA)
FOR THE YEARS
ENDED DECEMBER, 31
----------------------------------------
2000 1999 1998
---- ---- ----
Gross revenues......................................................... $ 91,739 $158,388 $ 225,442
Discounts and agency commissions....................................... (14,926) (29,065) (51,151)
------------ ------------ -------------
Net revenues........................................................... 76,813 129,323 174,291
STATION EXPENSES:
Other operating costs and expenses............................... 37,160 59,747 68,799
Amortization of programming rights............................... 15,994 57,991 27,859
Depreciation of station fixed assets and other intangibles....... 24,654 21,667 16,178
------------ ------------ -------------
Total station operating costs and expenses....................... 77,808 139,405 112,836
Selling, general and administrative expenses .................... 19,402 25,898 25,250
CORPORATE EXPENSES:
Corporate operating costs and development expenses............... 11,417 18,753 22,670
Amortization of goodwill and allowance for development costs..... 1,670 49,091 10,606
Restructuring charge ............................................ - - 2,552
------------ ------------ -------------
13,087 67,844 35,828
------------ ------------ -------------
Operating (loss)/income................................................ (33,484) (103,824) 377
Equity in loss of unconsolidated affiliates (Note 13).................. (514) (11,021) (3,398)
Net interest and other income/(expense)................................ (18,245) (14,029) (17,550)
Foreign currency exchange (loss)/gain,net.............................. (2,286) 12,983 (6,999)
Gain on sale of investment (Note 15)................................... 17,186 25,870 -
Other Income .......................................................... - 8,250 -
------------ ------------ -------------
Loss before provision for income taxes, minority interest and
discontinued operations................................................ (37,343) (81,771) (27,570)
Provision for income taxes............................................. (96) (1,518) (15,856)
------------ ------------ -------------
Loss before minority interest and discontinued operations.............. (37,439) (83,289) (43,426)
Minority interest in (income)/loss of consolidated subsidiaries........ (59) 213 (156)
------------ ------------ -------------
Net loss from continuing operations.................................... (37,498) (83,076) (43,582)
Discontinued operations:
Operating loss of discontinued operations (Hungary).............. - (10,208) (37,576)
Gain on disposal of discontinued operations (Hungary)............ - 3,414 -
Operating loss on discontinued operations (Poland)............... - - (15,289)
Loss on disposal of discontinued operations (Poland)............. - - (28,805)
------------ ------------ -------------
- (6,794) (81,670)
------------ ------------ -------------
NET LOSS............................................................... $ (37,498) $(89,870) $ (125,252)
============ ============ =============
PER SHARE DATA Net loss per share (Note 3)
Continuing operations - Basic and diluted........................ $ (11.35) $ (25.78) $ (14.45)
Discontinued operations - Basic and diluted...................... - (2.11) (27.08)
============ ============ =============
Total............................................................ $ (11.35) $ (27.89) $ (41.53)
============ ============ =============
Weighted average common shares used in computing per share amounts:
Basic and diluted................................................ 3,305 3,223 3,016
============ ============ =============
The accompanying notes are an integral part of these consolidated
financial statements.
46
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM DECEMBER 31, 1997 TO DECEMBER 31, 2000
(US$000S, EXCEPT PER SHARE DATA)
ACCUMULATED
OTHER
COMPREHENSIVE CLASS A CLASS B ACCUMULATED COMPREHENSIVE TOTAL
INCOME COMMON COMMON CAPITAL DEFICIT INCOME SHAREHOLDERS'
(LOSS) STOCK STOCK SURPLUS (a) (LOSS) (b) EQUITY/(DEFICIT)
---------------------------------------------------------------------------------------------
BALANCE, December 31, 1997 169 71 332,386 (163,096) (11,947) 157,583
Comprehensive income (loss):
Net Loss (125,252) (125,252) (125,252)
Other comprehensive income
(loss):
Unrealized translation adjustments 9,367 9,367 9,367
--------------
Comprehensive loss (115,885)
==============
Stock issued:
Capital contributed by shareholders,
net of costs of $227 12 5 23,992 - - 24,009
-------------------------------------------------------------------------
BALANCE, December 31, 1998 181 76 356,378 (288,348) (2,580) 65,707
Comprehensive income (loss):
Net Loss (89,870) (89,870) (89,870)
Other comprehensive income (loss):
Unrealized translation adjustments (11,087) (11,087) (11,087)
--------------
Comprehensive loss (100,957)
==============
Stock issued:
Capital contributed by shareholders 4 3 7 - - 14
-------------------------------------------------------------------------
BALANCE, December 31, 1999 185 79 356,385 (378,218) (13,667) (35,236)
Comprehensive income (loss):
Net Loss (37,498) (37,498) (37,498)
Other comprehensive income (loss):
Unrealized translation adjustments 6,856 6,856 6,856
--------------
Comprehensive loss (30,642)
==============
Stock issued:
Capital contributed by shareholders - -
-------------------------------------------------------------------------
BALANCE, December 31, 2000 185 79 356,385 (415,716) (6,811) (65,878)
=========================================================================
(a) Of the accumulated deficit of $ 415,716 at December 31, 2000, $ 96,699
represents accumulated losses in unconsolidated affiliates.
(b) Represents foreign currency translation adjustments.
The accompanying notes are an integral part of these consolidated
financial statements.
47
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD
CONSOLIDATED STATEMENTS OF CASH FLOWS
(US$000S)
FOR THE YEARS ENDED DECEMBER 31,
2000 1999 1998
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss .................................................................... $ (37,498) $ (89,870) $(125,252)
Adjustments to reconcile net loss to net cash used in operating activities:
Equity in loss of unconsolidated affiliates ............................. 514 11,021 3,398
Depreciation and amortization (excluding amortization of barter
programs) ............................................................... 43,930 130,361 55,817
Discontinued operations ................................................. -- 6,794 81,670
Gain on disposal of investment .......................................... (17,186) (25,870) --
interest in income (loss) of consolidated subsidiaries .................. 59 (213) 156
Foreign currency exchange loss (gain), net .............................. 2,286 (12,983) 6,999
Accounts receivable ..................................................... (9,033) 19,007 705
Cash paid for program rights ............................................ (15,518) (28,312) (30,304)
Advances to affiliates .................................................. 10,756 (7,000) (1,158)
Other short-term assets ................................................. 2,238 6,398 (3,417)
Accounts payable and accrued liabilities ................................ 4,736 (14,361) 3,062
Income and other taxes payable .......................................... (813) (7,674) (848)
--------- --------- ---------
Net cash used in operating activities ............................. (15,529) (12,702) (9,172)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in unconsolidated affiliates ................................ -- -- (7,148)
Other investments ....................................................... (13,163) (6,063) (34)
Investments in discontinued operations .................................. -- (9,373) (46,770)
Cash proceeds from disposal of discontinued operations .................. 4,416 39,260 10,000
Cash proceeds from disposal of investment ............................... 37,250 -- --
Restricted cash ......................................................... 3,161 (4,717) 733
Acquisition of fixed assets ............................................. (617) (6,052) (14,884)
Acquisition of minority interest ........................................ -- -- (9,930)
Loans and advances to affiliates ....................................... (8,171) 1,383 (5,051)
Payments for license costs, other assets and intangibles ................ (3,360) (74) (1,773)
--------- --------- ---------
Net cash provided by (used in) investing activities ................. 19,516 14,364 (74,857)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Credit facilities and payments under capital leases .................... (2,087) (6,358) (2,495)
Dividends paid to minority shareholders ................................. (311) -- (1,777)
Capital contributed by shareholders ..................................... -- 14 24,007
Other long term liabilities ............................................. -- (33) 2,532
--------- --------- ---------
Net cash (used in) provided by financing activities ................ (2,398) (6,377) 22,267
--------- --------- ---------
IMPACT OF EXCHANGE RATE FLUCTUATIONS ON CASH ................................ (1,069) (1,649) 1,344
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents ............... 520 (6,364) (60,418)
CASH AND CASH EQUIVALENTS, beginning of period ............................. 36,990 43,354 103,772
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period .................................. 37,510 $ 36,990 $ 43,354
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest ............................................................ $ 16,664 $ 19,522 $ 20,413
Income Taxes ........................................................ $ 623 $ 9,488 $ 16,519
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING TRANSACTIONS
Capital lease obligations incurred $ 195 $ 516 --
Supplemental disclosures of non-cash financing transactions:
As part of the February 21, 2000 sale of substantially all of its Hungarian
operations to SBS, programming rights valued at $12,700 and associated
liabilities of $12,195 were transferred to SBS.
The accompanying notes are an integral part of these consolidated financial
statements.
48
1. ORGANIZATION AND BUSINESS
Central European Media Enterprises Ltd. ("CME"), a Bermuda corporation,
was formed in June 1994. CME has been in operation since 1991. CME, together
with its subsidiaries and affiliates (CME and its subsidiaries and affiliates
are collectively referred to as the "Company"), invests in, develops, and
operates national and regional commercial television stations and networks in
Central and Eastern Europe.
On December 15, 1999, the Company effected a one-for-eight reverse
stock split. Except as otherwise noted, all share and per share information in
this Form 10-K has been retroactively adjusted to reflect the one-for-eight
reverse stock split.
The Company owns a 99% voting and economic interest in Ceska nezavisla
televizni spolecnost, spol. s.r.o. ("CNTS"). In January 1993, CET 21, spol.
s.r.o. ("CET") was awarded a terrestrial television broadcast license in the
Czech Republic. That license expires in January 2005. CET was awarded that
license with the full knowledge and understanding of the Council of the Czech
Republic for Radio and Television Broadcasting (the "Media Council") that CEDC
(the Company's direct predecessor in interest) was a direct participant in the
license application. With the involvement of the Media Council, the Company and
CET entered into a Memorandum of Association and Investment (the "Memorandum of
Association") that provided for the creation of a company, CNTS, to operate and
broadcast the planned television station. An associated agreement further
provided that CET did not have the authority to broadcast without the direct
participation of CEDC. Between 1993 and August 1999, CNTS performed essentially
all of the activities associated with operating and broadcasting Nova TV.
On August 5, 1999, CET pre-empted CNTS's transmission and began
broadcasting a substitute signal for Nova TV from a site other than CNTS's
studios. In addition, on the same day, CNTS received notification from CET that
CET was withdrawing from the Cooperation Contract due to CNTS's alleged failure
to supply CET with the daily program log for Nova TV on August 4, 1999. CET
representatives also stated publicly that, in future, CET would not use CNTS to
provide services for Nova TV. CET has continued to pre-empt all of CNTS's
programming for Nova TV. As a result of this situation, CNTS has been unable to
generate revenues and its operations have been suspended. On September 9, 1999,
the Company announced the suspension of technical and production operations at
CNTS and CNTS has since dismissed a majority of the employees.
The Company and Ronald S. Lauder, the non-executive Chairman of the
Company's Board of Directors, have sought remedies in a number of court and
arbitration proceedings. See Note 17, "Subsequent Events". The Company is
seeking various forms of relief, reinstatement of its status and rights, and
reimbursement of previous amounts paid to Dr. Zelezny and of costs incurred and
damages sustained during or as a result of this dispute. No gains for such
claims have been recorded.
In Romania, the Company and its local partners operate PRO TV, a
commercial television network, and a second channel, Acasa, through Media Pro
International S.A. ("Media Pro International"). The Company owns a 66% equity
interest in Media Pro International. The Company owns 49% of the equity of PRO
TV, SRL, an affiliate station of Media Pro International holding many of the
licenses for the stations comprising the PRO TV and Acasa network.
In Slovenia, the Company operates POP TV, together with MMTV 1 d.o.o.
Ljubljana ("MMTV") and Tele 59 d.o.o. Maribor ("Tele 59"), through Produkcija
Plus d.o.o. ("Pro Plus"). Under the name POP TV, Pro Plus provides programming
to, and sells advertising
49
for, affiliated stations. The Company owns 78% of the equity of Pro Plus, but
has an effective economic interest of 85.5% as a result of a 33% economic
interest in MMTV and a 33% economic interest in Tele 59. Tele 59 owns a 21%
equity interest in Pro Plus, and MMTV currently owns a 1% equity interest in Pro
Plus. The Company also owns a 20% equity interest in MTC Holding d.o.o. ("MTC")
which owns the remaining 90% equity interest in MMTV. 76% of MTC's equity is
being separately held by a Slovene person, in trust for the Company, until the
Slovene media law is clarified or until the Company determines final ownership.
On October 11, 2000, the Company completed a transaction through which
the Company acquired control over the economics and the programming of Kanal A,
for $12,500,000 plus the value of the net current assets and net programming
assets of Kanal A, which are subject to final determination. Kanal A is the
second leading commercial television broadcaster in Slovenia. As a result of the
transaction, 90% of the Kanal A shares are being held by Superplus Holding d.d.
("Superplus") which is owned by individuals who are holding the share of
Superplus in trust for the Company until the Slovene media law is clarified or
until the Company determines final ownership. Consequently, Pro Plus ceased
producing programming under the name of Gabja TV and frequencies previously used
for Gajba TV are now used for Kanal A. From January 2001, Pro Plus has entered
into an agreement with Kanal A, under which Pro Plus provides all programming to
Kanal A and sells its advertising. See Note 16, "Kanal A Purchase".
In the Slovak Republic, the Company owns an 80% non-controlling
economic interest and a 49% voting interest in Slovenska Televizna Spolocnost
s.r.o. ("STS"), which operates the national television station Markiza TV.
Markiza-Slovakia s.r.o., the broadcast license holder, and STS have entered into
an agreement pursuant to which STS is entitled to provide exclusive commercial
television services to Markiza-Slovakia s.r.o.
In Ukraine, the Company owns a 60% interest in a group of companies
(collectively, the "Studio 1+1 Group"), which have the right to broadcast
programming and sell advertising on Ukrainian National Channel 2 ("UT-2"). The
Company owns a 60% equity interest in each of Innova Film GmbH ("Innova"),
Ukraine Advertising Holding B.V. ("UAH") and International Media Services
("IMS"). Innova holds 100% of Intermedia, a Ukrainian company, which in turn
holds a 30% equity interest in Studio 1+1, the license holding company in the
Ukraine. UAH held a 50% interest in Prioritet, the main vehicle for advertising
sales up until January 1, 2001. See Note 17, "Subsequent Events".
2. FINANCING OF OPERATING AND CAPITAL NEEDS
The Company had cash of $37,510,000 at December 31, 2000 to enable it
to finance its future activities.
In 2000, the Company used the cash proceeds of $3,300,000 from the sale
of its Hungarian assets to SBS, the cash proceeds of $37,250,000 plus accrued
interest from the exercise of the option on the ITI Note granted to SBS and cash
received from its stations.
The Company's future cash needs, over and above working capital
requirements, will depend on the Company's overall financial performance and its
future acquisition and development decisions. The Company believes that, taken
together, its current cash balances, internally generated cash flow and local
financing of broadcast operations should result in the Company having adequate
cash resources to meet its debt service and other financial obligations for the
next 12 months. The Senior Notes in the amount of $167,308,000 mature in August
2004. The Company's ability to refinance or repay the Senior Notes will depend
upon market conditions, pending litigation, renewals of
50
broadcasting licenses, the financial performance of the Company and other
factors through to August 2004.
DIVIDENDS FROM CONSOLIDATED SUBSIDIARIES AND UNCONSOLIDATED AFFILIATES
The laws under which CME's operating Subsidiaries are organized provide
generally that dividends may be declared by the partners or shareholders out of
yearly profits subject to the maintenance of registered capital, required
reserves and after the recovery of accumulated losses. In the case of the
Company's Dutch and Netherlands Antilles subsidiaries, the Company's voting
power is sufficient to compel the making of distributions. In the case of PRO
TV, distributions may be paid from the profits of PRO TV subject to a reserve of
5% of annual profits until the aggregate reserves equal 20% of PRO TV's
registered capital. A majority vote can compel PRO TV to make distributions.
There are no legal reserve requirements in Slovenia. In the case of Markiza TV,
distributions may be paid from net profits subject to an initial reserve
requirement of 10% of net profits until the reserve fund equals 5% of registered
capital. Subsequently, the reserve requirement is equal to 5% of net profits
until the reserve fund equals 10% of registered capital. The Company's voting
power in Markiza TV is not sufficient to compel the distribution of dividends.
The Company's voting power in the Studio 1+1 Group is sufficient to compel the
distribution of dividends.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in accordance with
accounting principles generally accepted in the United States. The significant
accounting policies are summarized as follows:
DISCONTINUED OPERATIONS
On February 21, 2000, the Company sold substantially all of its
operations in Hungary to SBS. This has resulted in these operations being
treated as discontinued operations for all periods described in Results of
Operations. The Company's financial statements have been restated for all
periods presented in order to reflect the operations in Hungary as discontinued
operations.
During the fourth quarter of 1998, the Company sold its interests in
the TVN television operations in Poland at a loss, resulting in the treatment of
these interests and operations as discontinued operations. The Company's
financial statements for 1998 reflect these operations in Poland as discontinued
operations.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of the Company's wholly-owned subsidiaries and the results of PRO TV, POP TV,
Kanal A, and certain entities of the Studio 1+1 Group (for 2000 and 1999 only),
Media Vision, Video Vision and CNTS (the "Consolidated Affiliates"), as
consolidated entities and reflect the interests of the minority owners of these
entities for the periods presented, as applicable. The results of Markiza TV and
Studio 1+1 (for 1998 only) and certain entities of the Studio 1+1 Group (for
2000 and 1999 only), (the "Unconsolidated Affiliates") in which the
51
Company has, or during the periods presented had, minority or non-controlling
ownership interests, are included in the accompanying consolidated financial
statements using the equity method.
REVENUE RECOGNITION
Revenues primarily result from the sale of advertising time and are
recognized in the period in which advertising is aired.
BARTER TRANSACTIONS
Revenue from barter transactions (television advertising time provided
in exchange for goods and services) is recognized as income when commercials are
broadcast, and programming, merchandise or services received are charged to
expense or capitalized as appropriate when received or used.
The Company records barter transactions at the estimated fair market
value of goods or services received. In cases where bartered programs can only
be obtained through a barter agreement, the Company values the barter at the
value of the asset conveyed in exchange for the programs. In other cases where
the Company has elected to enter into barter agreements as an alternate method
of payment, strictly for economic reasons, the Company values the barter
agreement at the value of the asset received. If merchandise or services are
received prior to the broadcast of a commercial, a liability is recorded.
Likewise, if a commercial is broadcast by the Company's station prior to
receiving the merchandise or services, a receivable is recorded.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes unrestricted cash in banks and
highly liquid investments with original maturities of less than three months.
Restricted cash (restricted for guarantees to third parties or vendors) at
December 31, 2000 and 1999 is $1,527,000 and $4,784,000 respectively.
LONG-LIVED ASSETS
The Company periodically evaluates its long-lived assets using
projected undiscounted future cash flows and operating income for each
subsidiary as a measure of the expected recovery of these costs. (See Note 4,
"Impairment of Studio 1+1 Goodwill").
PROGRAM RIGHTS AND PRODUCTION COSTS
Program rights acquired by the Company under license agreements and the
related obligations incurred are recorded as assets and liabilities when the
program is available and the license period begins. The assets are amortized
using straight-line and accelerated methods based on the estimated period of
usage, ranging from one to five years. The unamortized cost of such rights and
liability for future payments under these agreements are included in the
accompanying Consolidated Balance Sheets. Amortization estimates for program
rights are reviewed periodically and adjusted prospectively.
Payments made for program rights in which the license period has not
begun before year end are classified as prepaid expenses.
Production costs for self-produced programs are expensed when first
broadcast except where the programming has potential to generate future
revenues. When this is the
52
case, production costs are capitalized and amortized on the same basis as
programming obtained from third parties.
INTANGIBLE ASSETS
Intangible assets include goodwill, broadcast license, license
acquisition costs and capitalized debt costs.
Goodwill represents the Company's excess cost over the fair value of
net assets acquired and is being amortized on a straight-line basis over the
estimated useful life of the assets. Amounts recognized to date have been
amortized over periods ranging from 2 to 10 years from the original date of
acquisition. (See Note 4, "Impairment of Studio 1+1 Goodwill").
License costs and other intangibles reflect the costs of acquiring
licenses to broadcast and the excess of the Company's investment above the
Company's share of net assets received from newly formed, consolidated entities
as well as the amounts paid to secure licenses. Broadcast license costs are
capitalized and amortized over the life of the related license. License
acquisition costs are amortized over the lives of the related licenses which
range from 5 to 10 years. These costs are reviewed for impairment whenever
events or circumstances provide evidence that suggests that the carrying amount
of license acquisition costs may not be recoverable.
Capitalized debt costs represent the costs incurred in connection with
obtaining debt financing. These costs are amortized over the life of the related
debt instrument.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company accounts for the fair value of financial instruments in
accordance with SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments". To meet the reporting requirements of SFAS No. 107, the Company
calculates the fair value of financial instruments and includes this additional
information in the notes to financial statements when the fair value is
different from book value of those financial instruments. When the fair value is
equal to the book value, no additional disclosure is made. The Company uses
quoted market prices whenever available to calculate these fair values. When
quoted market prices are not available, the Company uses standard pricing models
for various types of financial instruments which take into account the present
value of estimated future cash flows. The market value of the Senior Notes as at
December 31, 2000 was $25,000,000 with regard to the $100,000,000 9.375% Senior
Notes and DM 40,593,000 ($19,516,000) with regard to the DM 140,000,000 8.125%
Senior Notes. The Company does not record these at market value because the
Company is obligated to pay the Senior Notes in full in August 2004. At December
31, 2000 and 1999, the carrying value of all financial instruments (primarily
loans payable and receivable and, in limited circumstances, foreign exchange
contracts) approximated fair value.
INCOME TAXES
Deferred income taxes are provided on temporary differences between
financial statement and taxable income. The primary sources of these differences
are depreciation, amortization and tax losses carried forward.
53
FOREIGN CURRENCY TRANSLATION
The Company generates revenues primarily in Czech korunas ("Kc"),
Romanian lei ("ROL"), Slovak korunas ("Sk"), Slovenian tolar ("SIT") and
Ukrainian hryvna ("Hrn") and incurs expenses in those currencies as well as
German marks, British pounds and United States dollars. The Romanian lei, Slovak
koruna, Slovenian tolar and Ukrainian hryvna are managed currencies with limited
convertibility. The Company incurs operating expenses for acquired programming
in United States dollars and other foreign currencies. For entities operating in
economies considered non-highly inflationary, including CNTS, POP TV, Markiza TV
and certain entities of the Studio 1+1 Group, balance sheet accounts are
translated from foreign currencies into United States dollars at the relevant
period end exchange rate; statement of operations accounts are translated from
foreign currencies into United States dollars at the weighted average exchange
rates for the respective periods. The resulting translation adjustments are
reflected in a component of shareholders' equity with no effect on the
consolidated statements of operations.
PRO TV and certain entities of the Studio 1+1 Group operate in
economies considered highly inflationary. Accordingly, non-monetary assets are
translated at historical exchange rates, monetary assets are translated at
current exchange rates and translation adjustments are included in the
determination of net income. Currency translation adjustments relating to
transactions of the Company in currencies other than the functional currency of
the entity involved are reflected in the operating results of the Company.
The exchange rates at the end of and for the periods indicated are
shown in the table below.
BALANCE SHEET INCOME STATEMENT
--------------------------------- --------------------------------------
AT DECEMBER 31, WEIGHTED AVERAGE FOR THE YEARS
ENDING DECEMBER 31,
2000 1999 % CHANGE 2000 1999 % CHANGE
---- ---- -------- ---- ---- --------
Czech koruna equivalent of $1.00 37.81 35.98 (5.1)% 38.60 34.73 (11.1)%
German mark equivalent of $1.00 2.08 1.95 (6.7)% 2.12 1.89 (12.2)%
Romanian lei equivalent of $1.00 25,880 18,255 (41.8)% 21,659 15,310 (41.5)%
Slovak koruna equivalent of $1.00 47.39 42.27 (12.1)% 46.76 41.71 (12.1)%
Slovenian tolar equivalent of $1.00 227.38 196.77 (15.6)% 226.05 183.98 (22.9)%
Ukrainian hryvna equivalent of $1.00 5.43 5.22 (4.0)% 5.44 4.13 (31.7)%
In the accompanying notes, $ equivalents of Kc, DM, ROL, Sk, SIT and
Hrn amounts have been included at December 31, 2000, 1999 or historical rates,
as applicable, for illustrative purposes only. In limited instances, the Company
enters into forward foreign exchange contracts and purchases foreign currency
options to hedge foreign currency transactions for periods consistent with its
identified exposures. Premiums on foreign currency options are amortized over
the option period being hedged.
EARNINGS PER SHARE
The Company accounts for earnings per share pursuant to SFAS No. 128,
"Earnings Per Share." Basic net income per common share ("Basic EPS") is
computed by dividing net income by the weighted average number of common shares
outstanding. Diluted net income per common share ("Diluted EPS") is computed by
dividing net income by the weighted average number of common shares and dilutive
common share equivalents then outstanding. SFAS No. 128 requires the
presentation of both Basic EPS and Diluted EPS on the face of the consolidated
statement of operations. A reconciliation between the numerator and denominator
of Basic EPS and Diluted EPS is as follows:
54
FOR THE YEARS ENDED DECEMBER 31,
NET LOSS COMMON SHARES NET LOSS PER COMMON SHARE
---------------------------- -------------------- ---------------------------
2000 1999 1998 2000 1999 1998 2000 1999 1998
---- ---- ---- ---- ---- ---- ---- ---- ----
Basic EPS
- ---------
Net loss
attributable to
common stock $(37,498) $(89,870) $(125,252) 3,305 3,223 3,016 $(11.35) $(27.89) $(41.53)
Effect of
dilutive
securities:
stock options - - - - - - - - -
----------- ----------- ----------- ------- ------- -------- ---------- ----------- ----------
Diluted EPS
- -----------
Net loss
attributable to
common stock
and assumed
option exercises ________ ________ ________ _____ _____ _____ ______ _______ _______
$(37,498) $(89,870) $(125,252) 3,305 3,223 3,016 $(11.35) $(27.89) $(41.53)
=========== =========== =========== ======= ======= ======== ========== =========== ==========
Diluted EPS for the years ended December 31, 2000, 1999 and 1998 do not
include the impact of stock options then outstanding as their inclusion would be
anti-dilutive. See Note 10, "Stock Option Plan".
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles 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 year. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications were made to prior period amounts to conform
to current period classifications.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No.
133 establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting.
SFAS No. 133, as amended by SFAS 137 and SFAS 138, will be effective
for fiscal years beginning after June 15, 2000. A company may also implement the
Statement as of the beginning of any fiscal quarter after issuance (that is,
fiscal quarters beginning June 16, 1999 and thereafter). SFAS No. 133 cannot be
applied retroactively.
The Company occasionally enters into forward foreign exchange
contracts. There was no material impact as a result of the adoption of SFAS No.
133 when it was adopted on January 1, 2001.
55
4. IMPAIRMENT OF STUDIO 1+1 GOODWILL
Due to the economic conditions prevailing in Ukraine and the large
decrease in the advertising market since its levels of 1998, the Company has
reviewed the carrying value of the goodwill relating to the Studio 1+1 asset.
This review was conducted according to SFAS 121, "Accounting for the Impairment
of Long-lived Assets and for Long-lived Assets to be Disposed of". The Company
has determined an impairment in goodwill, and determined to write the goodwill
down, in the amount of $9,836,000. The remaining goodwill relating to the Studio
1+1 asset is $4,916,000 with a remaining useful life of 6 years.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is carried at cost, less accumulated
depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of the related assets. It consists of the following:
DECEMBER 31,
USEFUL ---------------------------
LIVES 2000 1999
----- ---- ----
YEARS $000 $000
Land and buildings............................. 25-50 20,036 23,170
Station machinery, fixtures and equipment...... 4-8 69,782 67,887
Other equipment................................ 3-8 4,174 10,114
Construction in progress....................... -- 2,175 3,592
------------- -------------
96,167 104,763
Less - Accumulated depreciation................ (63,343) (56,292)
============= =============
32,824 48,471
============= =============
6. OTHER ASSETS
Other assets consist of the following:
DECEMBER 31,
-------------------------------
2000 1999
---- ----
$000 $000
Current:
Net receivable on Hungary Disposal................ - 3,353
Prepaid program rights and dubbing................ - 509
VAT recoverable................................... 419 492
Other............................................. 4,802 3,813
================ ===============
5,221 8,167
================ ===============
Long term:
Satellite transponder deposits (See Note 11,
"Commitments and Contingencies)................... 796 824
Capitalized debt costs............................ 3,415 4,379
Other............................................. 2,817 60
================ ===============
7,028 5,263
================ ===============
Capitalized debt costs represent the costs incurred in connection with
obtaining debt financing. These costs are amortized over the life of the related
debt instrument.
56
7. INCOME TAXES PAYABLE
Provision for income taxes related primarily to the profits of CNTS.
Due to the suspension of the CNTS operations and the resulting elimination of
revenues, CNTS recorded a net loss for 1999 and 2000.
DECEMBER 31,
-----------------------------------------
2000 1999 1998
---- ---- ----
$000 $000 $000
Current, domestic taxes........ 299 1,743 15,712
Deferred foreign taxes......... (203) (225) 144
============= ============= =============
96 1,518 15,856
============= ============= =============
At the present time no income, profit, capital or capital gain taxes
are levied in Bermuda and, accordingly, no provision for such taxes has been
recorded by the Company. In the event that such taxes are levied, the Company
has received an undertaking from the Bermuda Government exempting it from all
such taxes until March 28, 2016.
DEFERRED INCOME TAX ASSETS
DECEMBER 31,
-----------------------------
2000 1999
---- ----
$000 $000
------------- -------------
Tax loss carryforwards................ 175 175
------------- -------------
DEFERRED INCOME TAX LIABILITIES
DECEMBER 31,
----------------------------
2000 1999
---- ----
$000 $000
Other................................. - 37
============= ==============
Net deferred tax asset................ 175 138
============= ==============
Net operating losses incurred in 2000, 1999 and 1998 in Romania,
Slovakia and Ukraine and net operating losses incurred in 1999 and 1998 in
Slovenia are available for offset against taxable income in those countries in
the future. Net operating losses experienced in these jurisdictions in certain
years may not be fully available for offset against taxable income in the future
in those countries.
A valuation allowance has been provided for net operating loss
carryforwards in these jurisdictions, as it is more likely than not, for a
variety of reasons, including the uncertainties in the tax regimes, that they
may not be utilized.
8. INVESTMENTS PAYABLE
DECEMBER 31,
---------------------------
2000 1999
---- ----
$000 $000
Short Term:
CNTS....................................... 5,188 5,188
Payable to SBS (Kanal A Purchase).......... 1,256 -
============== ===========
6,444 5,188
============== ===========
57
CNTS
On August 11, 1997, the Company made the Second 1997 CNTS Purchase when
it purchased Nova Consulting a.s. ("NC") from certain of the partners of CET,
for a purchase price of $28,537,000, to be paid on an installment basis through
February 15, 2000. Due to the ongoing dispute between CNTS and CET, CME withheld
the last two payments, totalling $5,188,000, that were due on August 15, 1999
and February 15, 2000, awaiting the final ruling from the International Chamber
of Commerce Court of Arbitration. See Note 17, "Subsequent Events".
Payable to SBS
In connection with the purchase of Kanal A from SBS the Company is
obligated to reimburse SBS for the value of Kanal A's net assets and programming
inventory at October 11, 2000, the date of purchase. See Note 16, "Kanal A
Purchase".
9. LOAN AND OVERDRAFT OBLIGATIONS
Group loan obligations and overdraft facilities consist of the
following:
DECEMBER 31,
-----------------------------
2000 1999
---- ----
$000 $000
CME B.V.
Ceska Sporitelna Loan...................... (a) 8,862 12,874
Tele 59 loan............................... (b) 196 348
PRO TV
Line of credit............................. (c) - 502
Long-term loan............................. (d) 1,827 2,838
Overdraft Facility......................... (e) 2,477 -
POP TV
Long-term loan............................. (f) 4,124 4,446
Capital lease, net of interest, and
unsecured short-term loans................. 598 516
-------------- -------------
18,084 21,524
Less current maturities.................... (10,006) (6,409)
============== =============
8,078 15,115
============== =============
CME B.V.
(a) On August 1, 1996, the Company entered into an agreement for the
purchase of the 22% economic interest of Ceska Sporitelna Bank ("CS") and
virtually all of CS's voting rights in CNTS for a purchase price of Kc 1 billion
($36,590,000). The Company has also entered into a loan agreement with CS to
finance 85% of the purchase price. Quarterly repayments are required in the
amount of Kc 42,500,000 during the period from February 2000 through May 2002,
and Kc 37,580,000 in August 2002. The loan bears interest at 12.9% per annum. In
November 2000 the Company approached CS to seek a restructuring of the loan. The
Company and CS have agreed that the Company would receive a principal repayment
holiday until November 20, 2001. At that time, CS will review the financial
condition of the Company to assess whether another annual principal repayment
holiday is required. This agreement is subject to final documentation and
approval.
58
(b) The Company entered into a loan agreement on November 21, 1996 with
Tele 59 to finance a loan to Tele 59 from SKB banka d.d. ("SKB"). The principal
amount of the loan is DM 1,496,000 with principal repayments of DM 136,000 twice
yearly. This loan matures in May 2004 and bears interest at 7.8% per annum.
PRO TV
(c) This facility matured in June 2000.
(d) The long-term loan, obtained from Tiriac Bank, has a maximum
facility of $4,000,000. This facility matures in December 2002 and bears
interest at a rate of 9.12% at December 31, 2000.
(e) The overdraft facility, obtained from Tiriac Bank, has a maximum
value of $3,000,000. This overdraft facility matures in October 2001 and bears
interest at a rate of 9.44% at December 31, 2000.
POP TV
(f) Multicurrency $5,000,000 loan agreement with Creditanstalt AG. This
loan matures in May 2005 and has been drawn down in euros and bears interest at
a rate of 3% over the LIBOR rate (7.00% at December 31, 2000) until the loan is
equal to or less than $2,000,000 then the interest rate falls to 2% over the
respective LIBOR rate. This credit agreement contains certain covenants with
which the Company is not in compliance, but for which the Company has received a
waiver.
At December 31, 2000, maturities of debt are as follows:
TOTAL
$000
----
2001.......................... 10,006
2002.......................... 5,085
2003.......................... 868
2004.......................... 2,125
============
18,084
============
Loan notes payable
On August 20, 1997, the Company issued Senior Notes of $100,000,000 at
9.375% and DM 140,000,000 at 8.125%, due 2004 (collectively the "Senior Notes").
The Senior Notes are unsecured senior indebtedness of the Company and rank pari
passu with all existing and future unsecured unsubordinated indebtedness of the
Company and are effectively subordinated to all existing and future indebtedness
of the Company's subsidiaries.
The Senior Notes are redeemable at the option of the Company, in whole
or in part, at any time on or after August 15, 2001 at the redemption prices set
forth below.
DOLLAR NOTE DM NOTE
REDEMPTION REDEMPTION
PRICE PRICE
----- -----
2001............................. 104.68750% 104.06250%
2002............................. 102.34375% 102.03125%
2003 and thereafter.............. 100.00000% 100.00000%
59
Interest is payable semi-annually in arrears on each February 15 and
August 15, commencing February 15, 1998. On October 20, 2000, the Company paid
the August 15 installment after an agreement had been reached with a majority of
noteholders and due to the payment delay penalty interest was incurred. Interest
expense on the US dollar denominated Senior Notes and DM denominated Senior
Notes for the year ending December 31, 2000 was $9,455,000 and DM 11,458,000
($5,536,000), respectively. The Company made the semi-annual interest payment on
the Senior Notes which was due on February 15, 2001.
The indentures pursuant to which the Senior Notes were issued contain
certain restrictive covenants, which among other things, restrict the ability of
the Company and its subsidiaries to: (i) incur additional indebtedness, (ii) pay
dividends or make certain other distributions, (iii) make certain investments
and other restricted payments, (iv) enter into certain transactions with
affiliates, (v) create liens, (vi) sell assets and also create restrictions on
the ability of certain of its subsidiaries to make certain payments to the
Company. Management believes that, as of December 31, 2000, the Company was in
compliance with such restrictive covenants.
10. STOCK OPTION PLAN
The Company adopted the 1995 Stock Option Plan in August 1995 and it
was amended and restated in October 1999 ("Revised and Restated 95 Stock Option
Plan"). Under the Revised and Restated 95 Stock Option Plan the Compensation
Committee is authorized to grant options for up to 400,000 shares of the
Company's Class A or Class B Common Stock. The maximum term of the options
granted under the Stock Option Plan is ten years. Options granted may be either
incentive stock options under the Internal Revenue Code of 1986, as amended (the
"Code"), or non-qualified stock options. Under the 1995 Amended Stock Option
Plan, non-affiliated directors are automatically granted each year options to
purchase 1,250 shares of Class A Common Stock or Class B Common Stock.
Under the Revised and Restated 95 Stock Option Plan the option exercise
price is either equal to or greater than the stock's market price on the date of
grant. Options granted under the Revised and Restated 95 Stock Option Plan can
have vesting periods of up to five years and expire, at the latest, after ten
years.
On September 18, 1998, the Company adopted the Stock Appreciation
Rights Plan. This plan allows the company to grant up to 125,000 Stock
Appreciation Rights (SARs). The SARs are subject to the same vesting and other
general conditions as options granted under the Revised and Restated 95 Stock
Option Plan. When the SARs are exercised the employees will receive in cash the
amount by which the CME stock price exceeds the exercise price at the time of
exercise, if any, rather than purchase CME shares. No SARs were granted in the
year ended December 31, 2000.
A summary of the status of the Company's two stock option plans at
December 31, 2000, 1999 and 1998 and changes during the years 2000, 1999 and
1998 is presented in the table and narrative below. The following table does not
include the SARs and no compensation costs were required to be recognized in the
current year.
60
2000 1999 1998
------------------------------- --------------------------------- -----------------------------------
WTD. WTD. WTD.
AVG. AVG. AVG.
EXERCISE OPTION EXERCISE OPTION EXERCISE OPTION
SHARES PRICE $ PRICE$ SHARES PRICE $ PRICE SHARES PRICE $ PRICE
--------- ---------- ------------ --------- -------- ----------- ------- -------- ---------------
Outstanding
at start of
year........ 309,454 148.66 1.60-268.00 322,692 164.32 1.60-268.00 288,619 162.48 1.60-268.00
Granted..... 173,250 11.88 11.88 61,250 79.05 6.688-104.00 72,500 162.24 91.52-196.48
Exercised... - - - (4,500) 1.60 1.60 (16,719) 92.64 1.60-174.00
Forfeited... (237,705) 125.67 6.69-268.00 (69,988) 169.26 1.60-268.00 (21,708) 188.80 117.00-268.00
-------- -------- ---------
Outstanding
at end of year 244,999 74.24 1.60-268.00 309,454 148.66 1.60-268.00 322,692 164.32 1.60-268.00
======== ====== =========== ======== ======= ============= ========= ======== ================
At December 31, 2000, 1999 and 1998, 99,516, 283,423 and 205,484 shares
were exercisable, respectively.
The Company accounts for these plans under APB No. 25, under which no
compensation cost was recognized for stock options granted to employees with an
exercise price at or above the prevailing market price on the date of the grant.
Had compensation cost for these plans been determined consistent with the fair
value approach required by SFAS No. 123, the Company's net loss and net loss per
common share would increase to the following pro forma amounts:
YEAR ENDED
DECEMBER 31,
---------------------------------------------
2000 1999 1998
---- ---- ----
$000S $000S $000S
Net Loss from continuing operations As Reported (37,498) (83,076) (43,582)
Pro Forma (40,150) (87,779) (51,001)
Net Loss from discontinued operations As Reported - (6,794) (81,670)
Pro Forma - (6,794) (81,670)
Net Loss As Reported (37,498) (89,870) (125,252)
Pro Forma (40,150) (94,573) (132,671)
Net Loss Per Common Share from ($) As Reported (11.35) (25.78) (14.45)
Continuing operations - basic and diluted Pro Forma (12.15) (27.24) (16.91)
Net Loss Per Common Share from ($) As Reported - (2.11) (27.08)
Discontinued operations - basic and diluted Pro Forma - (2.11) (27.08)
Total net Loss Per Common Share ($) As Reported (11.35) (27.89) (41.53)
Basic and Diluted....................... Pro Forma (12.15) (29.34) (43.99)
The fair value of each option grant is estimated on the date of the
grant using the Black-Scholes option pricing model, with the following
assumptions used.
Expected dividends yield are assumed to be 0% for each grant; expected
lives range from 4 to 5 years; expected stock price volatility of 178.91%, 110%
and 59.14% for 2000, 1999 and 1998, respectively.
AVERAGE
DATE OF OPTION GRANT RISK FREE
INTEREST RATE
----------------------------------------------------------- -----------------
From February 27, 1997 to March 8, 2000 5.80%
The effects of applying SFAS No. 123 in this pro forma disclosure may
not be indicative of future amounts because SFAS No. 123 does not apply to stock
options granted prior to January 1, 1995 and additional stock option grants are
anticipated in future years.
61
11. COMMITMENTS AND CONTINGENCIES
Litigation
The Company is, from time to time, a party to litigation that arises in
the normal course of its business operations. The Company is not presently a
party to any such litigation which could reasonably be expected to have a
material adverse effect on its business or operations.
Financial Commitments -- Existing Entities
The Company's existing operations will be self-supporting in terms of
funding during 2001, with cash being available through local credit facilities
and/or generated from operations.
Satellite Costs
In June 1995 the Company, through CME Programming Services Inc.,
obtained leasehold rights for a 12 year period to a 33 MHz transponder on the
Eutelsat Hot Bird 3 satellite ("Hot Bird 3"), which launched in October 1997.
The Company has paid a deposit of $350,000 against this lease. The annual charge
for the lease is euro 3,443,000. Provided that the contract does not terminate
before the expiration date (September 2009), the deposit is repayable to the
Company by deduction from the final two invoices.
In October 1997, the Company, through CME Media Enterprises B.V.,
obtained leasehold rights for an approximate 12 year period to a 16.5 MHz
transponder on the Eutelsat Hot Bird 5 satellite ("Hot Bird 5"), which launched
in November 1998.The Company has paid a deposit of euro 475,000 ($446,000). The
annual charge for the lease is euro 1,900,000. Provided that the contract does
not terminate before the expiration date (October 2010), the deposit is
repayable to the Company by deduction from the final three invoices.
Pledged Assets
Enterprise Intermedia, one of the consolidated entities of the Studio
1+1 Group, has pledged fixed assets in the amount of $1,100,000 as security for
a bank loan given to Studio 1+1, a non-consolidated entity of the Studio 1+1
Group.
Licenses
The Company has no reason to believe that the licenses for the
television license companies will not be renewed. However, no statutory or
regulatory presumption exists for the current license holders and there can be
no assurance that licenses will be renewed upon expiration of their initial
term. The failure of any such license to be renewed could adversely affect the
results of the Company's operations. However, to date, licenses have been
renewed in the ordinary course of business.
Currency exchange rate fluctuation
The Company and its subsidiaries generate revenues and incur expenses
in a variety of currencies. Fluctuations in the value of foreign currencies may
cause United States dollar translated amounts to change in comparison with
previous periods. Other than as described below under "Foreign Exchange
Contracts", the Company has not hedged against fluctuations in foreign currency
rates. Due to the number of currencies involved, the constantly changing
currency exposures and the fact that all foreign currencies do not fluctuate in
the same manner against the United States dollar, the Company cannot anticipate
the effect of exchange rate fluctuations on its financial condition.
62
Foreign Exchange Contracts
In limited instances, the Company enters into forward foreign exchange
contracts to hedge foreign currency transactions for periods consistent with its
identified exposures. At December 31, 2000, there were no foreign exchange
contracts outstanding.
Station Programming Rights Agreements
The Company had programming rights commitments for $4,555,000 in
respect of future programming which includes contracts signed with license
periods starting after December 31, 2000.
Lease Commitments
For the fiscal years ended December 31, 2000, 1999 and 1998, the
Company paid aggregate rent on all facilities of $1,178,000, $1,972,000 and
$1,937,000, respectively. Future minimum lease payments at December 31, 2000 for
non-cancellable operating leases with remaining terms in excess of one year (net
of amounts to be recharged to third parties) are payable as follows:
AT DECEMBER 31,
2000
-----------------------
$000S
2001............................. 1,164
2002............................. 962
2003............................. 1,150
2004............................. 1,133
2005............................. 1,112
2006 and thereafter.............. 5,160
-----------------------
10,681
=======================
12. RELATED PARTY TRANSACTIONS
Related party transactions involve transactions between the Company and
its stations, shareholders and partners and transactions between the stations
and their shareholders and partners.
CONSOLIDATED BALANCE SHEET ITEMS
AS OF
DECEMBER 31,
------------------------
2000 1999
---- ----
Advances to Affiliates $000 $000
Amounts due from Unconsolidated Affiliates
Markiza TV................................ 3,000 6,321
Advances to Affiliates
Innova/Studio 1 + 1....................... - 8,150
POP TV.................................... 916 872
PRO TV.................................... 2,316 1,626
Media Vision.............................. 90 -
Video Vision.............................. 1,480 -
CNTS...................................... 352 -
Adrian Sarbu.............................. - 2,561
Alexander Rodnyansky...................... 1,000 900
Other..................................... (73) 77
----------- -----------
Total 9,081 20,507
=========== ===========
63
Loans to Affiliates
Amounts due from Unconsolidated Affiliates
Markiza TV............................... 2,341 -
Loans to Unconsolidated Affiliates
Innova/Studio 1 + 1 ..................... 6,077 -
Adrian Sarbu............................. 1,259 -
Intermedia............................... 1,302 -
Alexander Rodnyansky..................... 3,850 4,100
Markiza TV............................... 777 777
Other.................................... - (14)
------------- ----------
Total 15,606 4,863
============= ==========
Advance From Affiliates
Advances From Affiliates
Marjan Jurenec.............. 13 12
MMTV........................ 244 325
Tele 59..................... 53 10
Pro TV...................... 966 548
Media Vision................ 775 -
Video Vision................ 190 -
Innova/Studio 1+1........... - 133
--------------- -------------
Total 2,241 1,028
=============== =============
The Company from time to time enters into transactions with entities
controlled wholly or in part by Ronald S. Lauder, the non-executive Chairman of
the Company's Board of Directors. The Company's management believes that these
transactions were on a basis which approximates an arm's-length value.
CONSOLIDATED STATEMENTS OF OPERATIONS ITEMS
YEAR ENDED
DECEMBER 31,
2000 1999 1998
---- ---- ----
$000 $000 $000
Corporate Operating Costs and Development Expenses
Shareholder controlled affiliates.................. 246 386 364
13. SUMMARY FINANCIAL INFORMATION FOR MARKIZA TV
DECEMBER 31, DECEMBER 31,
2000 1999
------------------- ---------------
MARKIZA TV MARKIZA TV
------------------- ---------------
$000S $000S
----- -----
Current assets................................. 13,206 16,303
Non-current assets............................. 10,567 15,864
Current liabilities............................ (12,432) (16,354)
Non-current liabilities........................ (1,121) (835)
------------ ----------
Net assets..................................... 10,220 14,978
============ ==========
64
FOR THE YEARS ENDED
DECEMBER 31, DECEMBER 31,
2000 1999
MARKIZA TV MARKIZA TV
$000S $000S
----- -----
Net revenues 33,155 32,217
Operating loss (1,273) (2,767)
Net loss (3,154) (7,613)
The Company's share of the income/(losses) in Unconsolidated Affiliates
(after inter-company eliminations) for 2000 was $(1,773,000) for Markiza TV and
$1,259,000 for certain entities of the Studio 1+1 Group.
14. SEGMENT DATA
The Company manages its business segments primarily on a geographic
basis. The Company's reportable segments are comprised of PRO TV (Romania),
Markiza TV (Slovakia), POP TV and Kanal A (Slovenia), the Studio 1+1 Group
(Ukraine) and CNTS (Czech Republic). Each operating segment provides products
and services as further described below.
The Company evaluates the performance of its segments based on segment
EBITDA (earnings before interest, taxes, depreciation and amortization). Costs
for programming amortization are included in segment EBITDA. Costs excluded from
segment EBITDA primarily consist of interest and foreign exchange gains and
losses, corporate expenses and goodwill amortization and equity in losses of
unconsolidated affiliates and other non-recurring charges for impairment of
investments or discontinued operations. The assets and liabilities of the
Company are managed centrally and are reported internally in the same manner as
the consolidated financial statements, thus no additional information is
provided. Summary information by segment as of and for the years ended December
31, 2000, 1999 and 1998 is as follows:
SEGMENT FINANCIAL INFORMATION
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------
($000S)
--------------------------------- ----------------------------------------
NET REVENUES EBITDA
--------------------------------- ----------------------------------------
STATION 2000 1999 1998 2000 1999 1998
------- ---- ---- ---- ---- ---- ----
PRO TV ........................... 39,591 40,627 41,937 1,564 (2,987) (1,916)
POP TV ........................... 21,651 23,347 22,122 4,954 4,655 (709)
Kanal A........................... 2,517 - - 1,070 - -
Studio 1+1........................(1) 9,795 11,976 - (1,369) (2,922) -
CNTS..............................(2) 3,257 53,363 108,826 (1,933) (13,038) 54,886
Other Operations.................. 2 10 1,406 (29) (21) (514)
---------- ---------- ---------- ------------- -------------------------
Total Consolidated Operations 76,813 129,323 174,291 4,257 (14,313) 51,747
Studio 1+1 Group.................. - - 23,598 - - (1,947)
Markiza TV........................ 33,155 32,217 37,793 4,368 2,739 2,583
---------- ---------- ---------- ------------- ------------- ----------
Total Unconsolidated Operations 33,155 32,217 61,391 4,368 2,739 636
---------- ---------- ---------- ------------- ------------- ----------
Total Operations...................... 109,968 161,540 235,682 8,625 (11,574) 52,383
========== ========== ========== ============= ============= ==========
65
RECONCILIATION TO CONSOLIDATED STATEMENTS OF OPERATIONS:
CONSOLIDATED OPERATIONS $4,257 $ (14,313) $ 51,747
Intercompany elimination - - 636
Station depreciation (24,654) (21,667) (16,178)
Corporate expenses (13,087) (67,844) (35,828)
OPERATING (LOSS)/INCOME FROM
CONTINUING OPERATIONS: $(33,484) $(103,824) $377
(1) Studio 1+1 Group was consolidated effective December 23, 1998. Amounts
shown in the table above for Net Revenues for the year ended December 31,
2000 and 1999 differ by $7,369,000 and $2,525,000, respectively and amounts
shown in the table above for EBITDA for the year ended December 31, 2000
and 1999 differ by $2,144,000 and $(5,521,000), respectively, from similar
information shown in Selected Combined Financial Information in Part II,
Item 7. These differences relate to the use of consolidated numbers in the
table above and combined numbers (which includes Studio 1+1 entities which
are accounted for under the equity method) in Item 7.
(2) CNTS ceased broadcast operations during 1999. See Part I, Item 1 "Status of
Nova Dispute" for a further discussion on Nova TV and the on-going dispute
between CNTS and CET.
15. SALE OF INVESTMENT IN ITI NOTE
On February 21, 2000, the Company and SBS entered into an option
agreement with respect to the ITI Note (the "ITI Note Option Agreement"). The
ITI Note was acquired by the Company in connection with the sale of its interest
in the TVN television operations in Poland to International Trading and
Investments Holding S.A. ("ITI") in December 1998. The ITI Note is in the
principal amount of $40,000,000, bears interest at a rate of 5% per annum,
matures on December 10, 2001 and was originally recorded by the Company at its
present value of approximately $20,000,000. On June 29, 2000, SBS exercised its
call option on the ITI Note for $37,250,000 plus accrued interest. This resulted
in a gain of $17,186,000.
16. KANAL A PURCHASE
On October 11, 2000, the Company completed a transaction through which
the Company acquired control over the economics and the programming of Kanal A,
for $12,500,000 plus the value of the net current assets and net programming
assets of Kanal A, which are subject to final determination. Kanal A is the
second leading commercial television broadcaster in Slovenia. As a result of the
transaction, 90% of the Kanal A shares are being held by Superplus Holding d.d.
("Superplus") which is owned by individuals who are holding the share of
Superplus in trust for the Company until the Slovene media law is clarified or
until the Company determines final ownership. This resulted in goodwill of
$14,051,000 which is to be written off over nine and a half years, being the
length of the primary license.
Supplemental pro forma information showing the results for the Company
as if Kanal A had been consolidated as of the beginning of 2000 are as follows:
66
CME as reported Kanal A Acquisition CME including
Year Ended January 1- Adjustments Kanal A for
December 31, 2000 October 10, 2000 full Year 2000
-----------------------------------------------------------------------
$000's $000's $000's $000's
------ ------ ------ ------
NET REVENUE 76,813 5,399 - 82,212
INCOME BEFORE EXTRAORDINARY ITEMS (37,498) (6,929) (152) (44,579)
NET INCOME (37,498) (6,929) (152) (44,579)
LOSS PER SHARE (ACTUAL) (11.35) (2.10) (0.04) (13.49)
Kanal A's results for the year 1999 were not material.
17. SUBSEQUENT EVENTS
International Chamber of Commerce Court of Arbitration Award
On February 9, 2001, the ICC Arbitration Tribunal issued a final award,
finding that Dr. Zelezny had breached the share purchase agreement through his
actions in relation to AQS and that the share purchase agreement was a valid and
enforceable contract. In light of those holdings, the Tribunal ordered Dr.
Zelezny to immediately refund to the Company the $23,350,000 it had paid him
pursuant to the share purchase agreement, plus interest (a total of
approximately $27,100,000, accruing further interest at approximately $3,200 per
day) and costs of $250,000. The Tribunal ordered the Company to return the Nova
Consulting shares to Dr. Zelezny, but only after receipt of the money owed by
Dr. Zelezny. The Tribunal also rejected Dr. Zelezny's claim for the balance of
the purchase price. Dr. Zelezny has not yet complied with the award. The Company
is taking all steps possible to enforce the award and will continue to do so
until the award is satisfied. There can be no assurance that the Company will be
able to collect all or any significant part of the award of $27,100,000 plus the
accrued interest.
Czech Tax Issue
CNTS has been the subject of a VAT inspection by the Czech Republic tax
authorities for the years 1997 and 1998. As a result of this inspection the
Czech tax authorities had levied an assessment seeking VAT payments of
Kc232,777,000 ($6,156,000). The Czech authorities asserted that CNTS was
providing certain services to CET and that these services should have been
subject to VAT. On February 28, 2001, CNTS received notification from the Czech
Republic tax authorities that all tax investigations and assessments had been
cancelled.
The Czech tax authorities had previously frozen CNTS' 1998 and 1999
income tax prepayments in the amount of Kc281,790,000 ($7,452,000). These income
tax prepayments were returned to CNTS on February 20, 2001.
Video International Agreement
An agreement has been signed to transfer UAH's 50% interest in
Prioritet to Video International ("VI"), a Russian based company. This transfer
forms part of an overall agreement signed with VI on March 14, 2001, for VI to
sell advertising for Studio 1+1 on an exclusive basis up until the end of the
broadcasting license in 2006.
67
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is incorporated herein by reference
to the section entitled "Election of Directors and Executive Officers" in the
Company's Proxy Statement for the 2001 Annual General Meeting of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference
to the sections entitled "Executive Compensation," "Compensation Committee
Report on Executive Compensation" and "Performance Graph" in the Company's Proxy
Statement for the 2001 Annual General Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated herein by reference
to the section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the Company's Proxy Statement for the 2001 Annual General Meeting
of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference
to the section entitled "Certain Relationships and Related Transactions" in the
Company's Proxy Statement for the 2001 Annual General Meeting of Shareholders.
68
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following Financial Statements of the Company are included
in Part II, Item 8 of this Report:
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 2000 and 1999
Consolidated Statements of Operations for the years ended December 31,
2000, 1999 and 1998
Consolidated Statements of Shareholders' Equity (Deficit) for the
years ended December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the years ended December 31,
2000, 1999 and 1998
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules (included at pages S-1 to S-3 of
this Form 10-K
(a)(3) The following exhibits are included in this report:
69
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.01* -- Memorandum of Association (incorporated by reference to Exhibit 3.01
to the Company's Registration Statement No. 33-80344 on Form S-1,
filed June 17, 1994).
3.02 -- Bye-Laws of Central European Media Enterprises Ltd., as amended, dated
as of May 25, 2000.
3.03* -- Memorandum of Increase of Share Capital (incorporated by reference to
Exhibit 3.03 to Amendment No. 1 to the Company's Registration
Statement No. 33-80344 on Form S-1, filed August 19, 1994).
3.04* -- Memorandum of Reduction of Share Capital (incorporated by reference to
Exhibit 3.04 to Amendment No. 2 to the Company's Registration
Statement No. 33-80344 on Form S-1, filed September 14, 1994).
3.05* -- Certificate of Deposit of Memorandum of Increase of Share Capital
executed by Registrar of Companies on May 20, 1997 (incorporated by
reference to Exhibit 3.1 to the Company's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1997).
4.01* -- Specimen Class A Common Stock Certificate (incorporated by reference
to Exhibit 4.01 to Amendment No. 1 to the Company's Registration
Statement No. 33-80344 on Form S-1, filed August 19, 1994).
4.02* -- Specimen Note for 9 3/8% Senior Notes Due 2004 (incorporated by
reference to Exhibit 4.1 to the Company's Amendment No. 3 to Form S-3
filed on August 14, 1997)
4.03* -- Specimen Note for 8 1/8% Senior Notes Due 2004 (incorporated by
reference to Exhibit 4.1 to the Company's Amendment No. 3 to Form S-3
filed on August 14, 1997)
4.04* -- Form of Indenture for 9 3/8% Senior Notes Due 2004 (incorporated by
reference to Exhibit 4.2 to the Company's Amendment No. 3 to Form S-3
filed on August 14, 1997)
4.05* -- Form of Indenture for 8 1/8% Senior Notes Due 2004 (incorporated by
reference to Exhibit 4.2 to the Company's Amendment No. 3 to Form S-3
filed on August 14, 1997)
10.01+*-- Central European Media Enterprises Ltd. 1995 Stock Option Plan, as
amended and restated to September 3, 1998 (incorporated by reference
to Exhibit 10.02 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998)
10.02* -- Memorandum of Association and Investment Agreement by and between CME
Czech Republic B.V. and CET 21 spol s.r.o dated May 4, 1993 and as
amended (incorporated by reference to Exhibit 10.02 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1998)
70
10.03* -- Credit Agreement between Ceska Sporitelna, a.s. and Ceska Nezavisla
Televizni Spolecnost, s.r.o. (incorporated by reference to Exhibit
10.16 to Amendment No. 1 to the Company's Registration Statement No.
33-80344 on Form S-1, filed August 19, 1994).
10.04* -- Partnership Agreement of Produkcija Plus d.o.o. Ljubljana, dated
February 10, 1995 among CME Media Enterprises B.V., Boutique MMTV
d.o.o. Ljubljana, and Tele 59 d.o.o. Maribor. (incorporated by
reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994).
10.05* -- Letter Agreement, dated March 23, 1995, among, Kanal A, Boutique MMTV
d.o.o. Ljubljana, Tele 59 d.o.o. Maribor, Euro 3 and Baring
Communications Equity as advisor to Baring Communications Equity
Limited, regarding Produkcija Plus d.o.o. (incorporated by reference
to Exhibit 10.21 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994).
10.06*-- Credit Agreement, dated as of November 14, 1994, between Ceska
Sportelma, a.s. and Ceska Nezavisla Televizni Spolecnost, s.r.o.
(incorporated by reference to Exhibit 10.22 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994).
10.07*-- Contract for Space Segment Service dated June 9, 1995, between British
Telecommunications plc ('BT') and CME Programming Services, Inc. for
the provision of programming transmission services by BT and the
payment thereon (incorporated by reference to Exhibit 10.25A to the
Company's Report on Form 10-Q for the quarterly period ended June 30,
1995).
10.07A*-- Guarantee by Central European Media Enterprises Ltd. in respect of
obligations due to British Telecommunications plc by CME Programming
Services, Inc. dated June 9, 1995 (incorporated by reference to
Exhibit 10.25B to the Company's Report on Form 10-Q for the quarterly
period ended June 30, 1995).
10.08*-- Cooperation Agreement among CME Media Enterprises B.V., Ion Tiriac and
Adrian Sarbu (incorporated by reference to Exhibit 10.27 to the
Company's Registration Statement No.33- 96900 on Form S-1 filed
September 13, 1995).
10.09*-- Preliminary Agreement, dated June 12, 1995, between CME Media
Enterprises B.V. and Markiza-Slovakia s.r.o. (incorporated by
reference to Exhibit 10.28 to the Company's Registration Statement No.
33-96900 on Form S-1, filed September 13, 1995).
10.09A*-- Memorandum of Association between CME Media Enterprises, B.V. and
Markiza-Slovakia s.r.o. (incorporated by reference to Exhibit 10.28A
to Amendment No. 1 to the Company's Registration Statement No.
33-96900 on Form S-1, filed October 18, 1995).
10.09B*-- Articles of Association of Slovenska Televizna Spolocnost, s.r.o.
founded by CME Media Enterprises, B.V. and Markiza-Slovakia s.r.o.
(incorporated by
71
reference to Exhibit 10.28B to Amendment No. 1 to the Company's
Registration Statement No. 33-96900 on Form S-1, filed October 18,
1995).
10.10*-- Contract of Sale, dated July 7, 1995 between In Razvoj in Svetovanje
d.o.o. Ljubljana and Produkcija Plus d.o.o. Ljubljana and Central
European Media Enterprises Group (incorporated by reference to Exhibit
10.29 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995).
10.11*-- Loan Agreement, dated December 4, 1995, between CME Media Enterprises,
B.V., and Inter Media S.R.L. (incorporated by reference to Exhibit
10.30 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995).
10.12*-- Transfer Agreement between Ceska Sporitelna and CME BV (incorporated
by reference to Exhibit 10.03 to the Company's Report on Form 10-Q for
the quarterly period ended June 30, 1996).
10.12A*-- Annex to Transfer Agreement between Ceska Sporitelna and CME BV
(incorporated by reference to Exhibit 10.04 to the Company's Report on
Form 10-Q for the quarterly period ended June 30, 1996).
10.13*-- Loan Agreement between Ceska Sporitelna and CME BV (incorporated by
reference to Exhibit 10.05 to the Company's Report on Form 10-Q for
the quarterly period ended June 30, 1996).
10.14*-- Agreement on a Future Agreement between Ceska Sporitelna and CME BV
(incorporated by reference to Exhibit 10.06 to the Company's Report on
Form 10-Q for the quarterly period ended June 30, 1996).
10.15*-- Loan Agreement between Vladimir Zelezny and CME dated August 1, 1996
(incorporated by reference to Exhibit 10.01 to the Company's Report on
Form 10-Q for the quarterly period ended September 30, 1996).
10.15A*-- Amendment to the Loan Agreement of August 1, 1996 and agreements
referred to as Security Documents between Vladimir Zelezny and CME,
dated as of March 11, 1997 (incorporated by reference to Exhibit
10.38A to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996).
10.16*-- Ronald S. Lauder Warrant for the Purchase of Shares, dated October 2,
1996 (incorporated by reference to Exhibit 10.03 to the Company's
Report on Form 10-Q for the quarterly period ended September 30,
1996).
10.17*-- Agreement between CME, Boris Fuchsmann, Alexander Rodniansky and
Innova Film GmbH in English, dated October 25, 1996 (incorporated by
reference to Exhibit 10.10 to the Company's Report on Form 10-Q for
the quarterly period ended September 30, 1996).
10.18*-- Agreement between CME, Boris Fuchsmann, Alexander Rodniansky and
Innova Film GmbH in German, dated October 25, 1996 (incorporated by
reference to Exhibit 10.11 to the Company's Report on Form 10-Q for
the quarterly period ended September 30, 1996).
72
10.19*-- Poland Street Lease Agreement, dated April 2, 1996 (incorporated by
reference to Exhibit 10.18 to the Company's Report on Form 10-Q for
the quarterly period ended September 30, 1996).
10.20*-- Share Purchase Agreement between Ceska Sporitelna a.s. and CME Media
Enterprises B.V., dated December 12, 1996 (incorporated by reference
to Exhibit 10.58 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996).
10.21*-- Agreement on Assignment of Claim between Ceska Sporitelna, a.s. and
CME Media Enterprises B.V., dated December 12, 1996 (incorporated by
reference to Exhibit 10.59 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996).
10.22*-- Assignment of Shares Agreement between Balaclava B.V., Adrian Sarbu
(as shareholders of PRO TV Ltd.), CME Media Enterprises B.V.,
Grigoruta Roxana Dorina and Petrovici Liana, dated December 6, 1996
(incorporated by reference to Exhibit 10.60 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996).
10.23*-- Net Reimbursement Agreement by and among International Teleservices
Limited, International Media Services, Limited and Limited Liability
Company 'Prioritet', dated February 13, 1997 (incorporated by
reference to Exhibit 10.64 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996).
10.24*-- Agreement by and between International Media Services Ltd and Innova
Film GmbH, dated January 23, 1997 (incorporated by reference to
Exhibit 10.65 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996).
10.25*-- Amended and Restated Charter of the Enterprise 'Inter-Media', dated
January 23, 1997 (incorporated by reference to Exhibit 10.66 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996).
10.26*-- Amended and Restated Charter of the Broadcasting Company 'Studio 1+1',
dated January 23, 1997 (incorporated by reference to Exhibit 10.67 to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996).
10.27*-- Amended and Restated Foundation Agreement on the Establishment and
Operation of the Broadcasting Company 'Studio 1+1,' dated January 23,
1997 (incorporated by reference to Exhibit 10.68 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1996).
10.28*-- Protocol of the Participants' Assembly of the Broadcasting Company
'Studio 1+1,' dated January 23, 1997 (incorporated by reference to
Exhibit 10.69 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996).
10.29*-- Marketing, Advertising and Sales Agreement by and between
International Media Services Ltd and Innova Film GmbH, dated January
23, 1997
73
(incorporated by reference to Exhibit 10.70 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996).
10.29A*-- Amendment Agreement to Marketing, Advertising and Sales Agreement
between Innova Film GmbH and International Media Services Limited,
dated May 7, 1997 (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1997).
10.30*-- Marketing and Sales Agreement by and between International Media
Services Ltd. and Prioritet, dated January 23, 1997 (incorporated by
reference to Exhibit 10.71 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996).
10.30A*-- Termination Agreement between International Media Services Ltd. and
Prioritet, dated May 7, 1997 (incorporated by reference to Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1997).
10.31*-- IMS Advertising Service Agreement between International Media Services
Ltd. and Limited Liability Company --Prioritet--, dated May 7, 1997
(incorporated by reference to Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 1997).
10.32*-- Advertising Consultancy Agreement between Intermedia and Limited
Liability Company --Prioritet--, dated May 7, 1997 (incorporated by
reference to Exhibit 10.4 to the Company's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1997).
10.33*-- Contract on Purchase of Real Estate between Central European
Development Corporation Praha, spol s.r.o. and Ceska Nezavisla
Televizni Spolecnost, spol. s.r.o., dated May 21, 1997 (incorporated
by reference to Exhibit 10.4 to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1997).
10.34+*-- Employment Agreement between CME Development Corporation and Fred
Klinkhammer, dated as of January 1, 1998 (incorporated by reference to
Exhibit 10.72 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997).
10.34A+*--Amendment No. 1 to Employment Agreement between CME Development
Corporation and Fred Klinkhammer, dated as of March 23, 1999
(incorporated by reference to Exhibit 10.02 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998).
10.35+*-- Employment Agreement between Central European Media Enterprises Ltd.
and Fred Klinkhammer, dated as of January 1, 1998 (incorporated by
reference to Exhibit 10.72 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997).
10.35A+*--Amendment No. 1 to Employment Agreement between Central European Media
Enterprises Ltd. and Fred Klinkhammer, dated as of March 23, 1999
(incorporated by reference to Exhibit 10.02 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998).
74
10.36*-- Sale and Purchase Agreement, dated December 10, 1998, between Central
European Media Enterprise Ltd. and International Trading and
Investments Holding S.A. (incorporated by reference to Exhibit 2.1 to
Form 8-K filed on December 28, 1998)
10.37+*-- Central European Media Enterprises Ltd. Stock Appreciation Rights
Plan, effective as of September 3, 1998 (incorporated by reference to
Exhibit 10.02 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998).
10.38+*-- Central European Media Enterprises Ltd. Director, Officer and Senior
Executive Co-Investment Plan, effective as of June 5, 1998
(incorporated by reference to Exhibit 10.02 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998).
10.39*-- Contract on cooperation in ensuring service for television
broadcasting between Ceska Nezavisla Televizni Spolecnost, spol.
s.r.o. and CET 21, spol. s.r.o. dated May 21, 1997 and Supplement
dated May 21, 1997 (incorporated by reference to Exhibit 10.02 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998).
10.40*-- Employment Agreement between Central European Media Enterprises Ltd.
and John Schwallie dated August 1, 1999 (incorporated by reference to
Exhibit 10.02 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999)
10.41*-- Employment Agreement between CME Development Corporation and John
Schwallie dated August 1, 1999 (incorporated by reference to Exhibit
10.02 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999)
10.42*-- Share Purchase Agreement between SBS Magyarorszagi Befektetesi Kft and
CME Hungary B.V. dated February 21, 2000 (incorporated by reference to
Exhibit 10.02 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999)
10.43*-- Quota Purchase Agreement between SBS Magyarorszagi Befektetesi Kft and
CME Hungary B.V. dated February 21, 2000 (incorporated by reference to
Exhibit 10.02 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999)
10.44* -- Option Agreement between SBS Broadcasting S.A. and Central European
Media Enterprises Ltd. dated February 21, 2000 (incorporated by
reference to Exhibit 10.02 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1999)
10.45+-- Employment Agreement between Central European Media Enterprises Ltd.
and Mark J. L. Wyllie dated July 26, 2000
75
10.46 -- Aldwych House Lease Agreement, dated September 29, 2000
10.47x-- Advertising Sales Agency Agreement between Studio 1+1 and Servland
Continental S.A. dated March 14, 2001
21.01 -- List of subsidiaries.
23.01 -- Consent of Arthur Andersen
24.01 -- Power of Attorney, dated as of March 9, 2001, authorizing Fred T.
Klinkhammer and Mark J. L. Wyllie as attorney for Ronald S. Lauder,
Fred T. Klinkhammer, Jacob Z. Schuster, Marie-Monique Steckel, Nicolas
G. Trollope, Alfred W. Langer and Mark J. L. Wyllie.
* -- Previously filed exhibits
+ -- Exhibit is a management contract or compensatory plan
x -- Confidential Treatment has been requested with respect to
certain information contained in this Exhibit
(b)-- Current Reports on Form 8-K: None
(c)-- Exhibits: See (a)(3) above for a listing of the exhibits
included as part of this report.
(d)-- Report of Independent Public Accountants on Schedule II
-- Schedule of Valuation Allowances. (See pages S-1 to
S-3 of this Form 10-K)
76
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.
By: /s/ Mark J. L. Wyllie
---------------------------------
Mark J. L. Wyllie
Vice President - Finance
March 15, 2001
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
Signature Title Date
--------- ----- ----
*
- ----------------------------
Ronald S. Lauder Chairman of the Board of Directors March 15, 2001
/s/ Frederic T. Klinkhammer
- ----------------------------
Frederic T. Klinkhammer President, Chief Executive Officer and March 15, 2001
Director (Principal Executive Officer)
/s/ Mark J. L. Wyllie
- ----------------------------
Mark J. L. Wyllie Vice President - Finance March 15, 2001
(Principal Financial Officer
and Principal Accounting Officer)
*
- ----------------------------
Nicolas G. Trollope Vice President, Secretary and Director March 15, 2001
*
- ----------------------------
Jacob Z. Schuster Director March 15, 2001
*
- ----------------------------
Marie-Monique Steckel Director March 15, 2001
*
- ----------------------------
Alfred W. Langer Director March 15, 2001
* By: /s/ Mark J. L. Wyllie
----------------------------
Mark J. L. Wyllie
Attorney-in-fact
INDEX TO SCHEDULES
Report of Independent Public Accountants on Schedule:.....................S-2
Schedule II: Schedule of Valuation Allowances............................S-3
S-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To: Central European Media Enterprises Ltd.:
We have audited, in accordance with auditing standards generally
accepted in the United States, the financial statements of Central European
Media Enterprises Ltd. included in this filing and have issued our report
thereon dated March 15, 2001. Our audit was made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The schedule listed
in the accompanying index is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
Arthur Andersen
Hamilton, Bermuda
March 15, 2001
S-2
SCHEDULE II
SCHEDULE OF VALUATION ALLOWANCES
$000S
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
JANUARY 1, COSTS AND OTHER DECEMBER
2000 EXPENSES ACCOUNTS DEDUCTIONS 31, 2000
----------- ------------ ----------- ------------- -------------
Bad debt provision (1)............ 3,221 419 (47) (53) 3,540
Development costs................. 3,754 -- -- -- 3,754
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
JANUARY 1, COSTS AND OTHER DECEMBER
1999 EXPENSES ACCOUNTS DEDUCTIONS 31, 1999
----------- ------------ ----------- ------------- -------------
Bad debt provision................ 3,193 367 (33) (930) 2,597
Development costs................. 3,487 267 -- -- 3,754
Restructuring costs............... 510 -- -- (510) --
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
JANUARY 1, COSTS AND OTHER DECEMBER
1998 EXPENSES ACCOUNTS DEDUCTIONS 31, 1998
----------- ------------ ----------- ------------- -------------
Bad debt provision................ 3,494 (194) (500) 393 3,193
Development costs................. 3,213 274 -- -- 3,487
Restructuring costs............... -- 2,552 -- (2,042) 510
(1) This includes $624 of bad debt provision that was recorded on Kanal A's
books on the acquisition date of October 11, 2000.
S-3