10-K 1 cetv-1231201610k.htm CENTRAL EUROPEAN MEDIA ENTERPRISES LTD 10-K Wdesk | Document
 
 
 
 
 
 
 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x           ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
o           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 0-24796
cmelogowithouttexta02.jpg
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
(Exact name of registrant as specified in its charter)
BERMUDA
 
98-0438382
(State or other jurisdiction of incorporation and organization)
 
(I.R.S. Employer Identification No.)
 
 
 
O'Hara House, 3 Bermudiana Road, Hamilton, Bermuda
 
HM 08
(Address of principal executive offices)
 
(Zip Code)
Registrant's telephone number, including area code: (441) 296-1431
Title of each class
 
Name of each exchange on which registered
Securities registered pursuant to Section 12(b) of the Act:
CLASS A COMMON STOCK, $0.08 PAR VALUE
 
NASDAQ Global Select Market, Prague Stock Exchange
 
 
 
Securities registered pursuant to Section 12(g) of the Act:
UNIT WARRANTS TO PURCHASE SHARES OF CLASS A COMMON STOCK
 
None.
Indicate by check mark if the registrant is a well known seasoned issuer, as defined in Rule 405 of the securities Act.  Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for each shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ☒ No ☐




 
 
 
 
 
 
 
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of the registrants 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. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer”, “large accelerated filer” or “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act) Yes £ No T
The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2016 (based on the closing price of US$ 2.11 of the registrant's Class A Common Stock, as reported by the NASDAQ Global Select Market on June 30, 2016) was US$ 128.1 million.
Number of shares of Class A Common Stock outstanding as of February 6, 2017: 143,450,921
DOCUMENTS INCORPORATED BY REFERENCE
Document
 
Location in 10-K in Which Document is Incorporated
Registrant's Proxy Statement for the 2017 Annual General Meeting of Shareholders
 
Part III





CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
FORM 10-K
For the year ended December 31, 2016
TABLE OF CONTENTS
Page
 
 
PART I
 
 
 
 
 
 
 
 
 
 
 
PART II
 
 
 
 
 
 
 
 
 
 
 
 
 
PART III
 
 
 
 
 
 
 
 
 
 
PART IV
 
 
 
 
 
 
 
 
 
 
 
 
 
 




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I.    Forward-looking Statements
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 22E of the Securities Exchange Act of 1934 (the "Exchange Act"), including those relating to our capital needs, business strategy, expectations and intentions. Statements that use the terms “believe”, “anticipate”, “trend”, “expect”, “plan”, “estimate”, “forecast”, “should”,“intend” and similar expressions of a future or forward-looking nature identify forward-looking statements for purposes of the U.S. federal securities laws or otherwise. In particular, information appearing under the sections entitled "Business," "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" includes forward looking-statements. For these statements and all other forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy or are otherwise beyond our control and some of which might not even be anticipated. Forward-looking statements reflect our current views with respect to future events and because our business is subject to such risks and uncertainties, actual results, our strategic plan, our financial position, results of operations and cash flows could differ materially from those described in or contemplated by the forward-looking statements contained in this report.
Important factors that contribute to such risks include, but are not limited to, those factors set forth under "Risk Factors” as well as the following: the effect of global economic uncertainty and Eurozone instability in our markets and the extent, timing and duration of any recovery; levels of television advertising spending and the rate of development of the advertising markets in the countries in which we operate; the extent to which our liquidity constraints and debt service obligations restrict our business; our exposure to additional tax liabilities as well as liabilities resulting from regulatory or legal proceedings initiated against us; our ability to refinance our existing indebtedness; our success in continuing our initiatives to diversify and enhance our revenue streams; our ability to make cost-effective investments in our television businesses, including investments in programming; our ability to develop and acquire necessary programming and attract audiences; and changes in the political and regulatory environments where we operate and in the application of relevant laws and regulations. The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included in this report. All forward-looking statements speak only as of the date of this report. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments or otherwise, except as required by law.

1


Defined Terms
Unless the context otherwise requires, references in this report to the “Company”, “CME”, “we”, “us” or “our” refer to Central European Media Enterprises Ltd. (“CME Ltd.”) or CME Ltd. and its consolidated subsidiaries listed in Exhibit 21.01 hereto. Unless otherwise noted, all statistical and financial information presented in this report has been converted into U.S. dollars using period-end exchange rates. All references in this report to “US$” or “dollars” are to U.S. dollars, all references to “BGN” are to Bulgarian lev, all references to “HRK” are to Croatian kuna, all references to “CZK” are to Czech koruna, all references to “RON” are to the New Romanian lei and all references to “Euro” or “EUR” are to the European Union Euro. The exchange rates as at December 31, 2016 used in this report are US$/BGN 1.86; US$/HRK 7.22; US$/CZK 25.64; US$/RON 4.30; and US$/EUR 0.95.
The following defined terms are used in this Annual Report on Form 10-K:
the term “2015 Convertible Notes” refers to our 5.0% senior convertible notes due November 2015, redeemed in November 2015;
the term “2016 Fixed Rate Notes” refers to our 11.625% senior notes due 2016, redeemed in June 2014;
the term “2017 Fixed Rate Notes” refers to the 9.0% senior secured notes due 2017 issued by our wholly owned subsidiary, CET 21 spol. s r.o. (“CET 21”), redeemed in December 2014;
the term "2017 PIK Notes" refers to our 15.0% senior secured notes due 2017, redeemed in April 2016;
the term "2017 Term Loan" refers to our 15.0% term loan facility due 2017, repaid in April 2016;
the term "2018 Euro Term Loan" refers to our floating rate senior unsecured term credit facility due 2018 guaranteed by Time Warner, dated as of November 14, 2014 and amended on February 19, 2016;
the term "2019 Euro Term Loan" refers to our floating rate senior unsecured term credit facility due 2019 guaranteed by Time Warner, dated as of September 30, 2015 and amended on February 19, 2016;
the term "2021 Euro Term Loan" refers to our floating rate senior unsecured term credit facility due 2021 entered into by CME BV (as defined below), guaranteed by Time Warner and CME Ltd., dated as of February 19, 2016;
the term "Euro Term Loans" refers collectively to the 2018 Euro Term Loan, 2019 Euro Term Loan and 2021 Euro Term Loan;
the term "2021 Revolving Credit Facility" refers to our amended and restated revolving credit facility dated as of February 28, 2014, as amended and restated as of November 14, 2014 and further amended and restated on February 19, 2016;
the term "Guarantee Fees" refers to amounts accrued and payable to Time Warner as consideration for Time Warner's guarantees of the Euro Term Loans;
the term “Reimbursement Agreement" refers to an agreement with Time Warner which provides that we will reimburse Time Warner for any amounts paid by them under any guarantee or through any loan purchase right exercised by Time Warner, dated as of November 14, 2014 and amended and restated on February 19, 2016;
the term "CME BV" refers to CME Media Enterprises B.V., our 100% owned subsidiary;
the term "CME NV" refers to Central European Media Enterprises N.V., our 100% owned subsidiary;
the term "Time Warner" refers to Time Warner Inc.; and
the term “TW Investor” refers to Time Warner Media Holdings B.V.
PART I
ITEM 1.    BUSINESS
Central European Media Enterprises Ltd., a Bermuda company limited by shares, is a media and entertainment company operating in Central and Eastern Europe. Our assets are held through a series of Dutch and Curaçao holding companies. We manage our business on a geographical basis, with six operating segments, Bulgaria, Croatia, the Czech Republic, Romania, the Slovak Republic and Slovenia, which are also our reportable segments and our main operating countries. We own 94% of our Bulgaria operations and 100% of our broadcast operating and license companies in our remaining countries.
Our main operating countries are members of the European Union (the “EU”). However, as emerging economies, they have adopted Western-style democratic forms of government within the last twenty-five years and have economic structures, political and legal systems, systems of corporate governance and business practices that continue to evolve. As the economies of our operating countries converge with more developed nations and their economic and commercial infrastructures continue to develop, we believe the business risks of operating in these countries will continue to decline.
We operate market leading television networks in each of these six countries, broadcasting a total of 36 television channels to approximately 50 million people living in the region. Each segment also develops and produces content for their television channels. We generate advertising revenues in our country operations primarily through entering into agreements with advertisers, advertising agencies and sponsors to place advertising on the television channels that we operate. We generate additional revenues by collecting fees from cable, direct-to-home (“DTH”) and internet protocol television ("IPTV") operators for carriage of our channels.
Our strategy is to maintain or increase our audience leadership in each of our countries in order to pursue sales strategies designed to maximize our revenues. We have built our audience leadership in each of our markets by operating a multi-channel business model with a diversified portfolio of television channels which appeal to a broad audience.
Content that consistently generates high audience shares is crucial to maintaining the success of each of our country operations. While content acquired from the Hollywood studios remains popular, our audiences increasingly demand content that is produced in their local language and reflects their society, attitudes and culture. We believe developing and producing local content is key to being successful in prime time and supporting market-leading channels and that maintaining a regular stream of popular local content at the lowest possible cost is operationally important over the long term.
As the distribution platforms in our region develop and become more diversified, our television channels and content will increasingly reach viewers through new distribution offerings, such as internet TV and smart devices. We offer viewers the choice of watching premium television content through a series of portals, including through Voyo, our subscription video-on-demand service, and advertising supported catch-up services on our websites.

2


Sales
We generate advertising revenues primarily through entering into agreements with advertisers, advertising agencies and sponsors to place advertising on our television channels.
Our main unit of inventory is the commercial gross rating point (“GRP”), a measure of the number of people watching television when an advertisement is aired. We generally contract with a client to provide an agreed number of GRPs for an agreed price (“cost per point” or “CPP”). Much less frequently, and usually only for small niche channels, we may sell on a fixed spot basis where an advertisement is placed at an agreed time for a negotiated price that is independent of the number of viewers. The CPP varies depending on the season and time of day the advertisement is aired, the volume of GRPs purchased, requests for special positioning of the advertisement, the demographic group that the advertisement is targeting and other factors. Our larger advertising customers generally enter into annual contracts which set the pricing for a committed volume of GRPs.
We operate our television networks based on a business model of audience leadership, brand strength and strong local content. Our sales strategy is to maximize the monetization of our advertising time by leveraging our high brand power and applying an optimal mix of pricing and sell-out rate. The effectiveness of our sales strategy is measured by our share of the television advertising market, which represents the proportion of our television advertising revenues in the market compared to the total television advertising market. We also generate additional revenues by collecting carriage fees from cable, satellite and IPTV operators for broadcasting our channels.
The public broadcasters in the countries in which we operate are restricted in the amount of advertising that they may sell. See “Regulation of Television Broadcasting” below for additional information.
Programming
Our programming strategy in each country is tailored to match the expectations of key audience demographics by scheduling and marketing an optimal mix of programs in a cost effective manner. The programming that we provide drives our audience shares and ratings (see "Audience Share and Ratings" below) and consists of locally-produced news, current affairs, fiction, and reality and entertainment shows as well as acquired foreign movies, series and sports programming.
We focus our programming investments on securing leading audience share positions during prime time, where the majority of advertising revenues are delivered, and improving our cost efficiency through optimizing the programming mix and limiting the cost of programming scheduled off-prime time while maintaining all day audience shares.
Audience Share and Ratings
The following sets forth the channels operated by each of our segments. The tables below provide a comparison of all day and prime time audience shares for 2016 in the target demographic of each of our leading channels to the primary channels of our main competitors.
Audience share represents the viewers watching a channel in proportion to the total audience watching television. Ratings represent the number of people watching a channel in proportion to the total population. Audience share and ratings information are measured in each market by international measurement agencies using peoplemeters, which quantify audiences for different demographics and subgeographies of the population measured throughout the day. Our channels schedule programming intended to attract audiences within specific target demographics that we believe will be attractive to advertisers.
Bulgaria
We operate one general entertainment channel, BTV, and five other channels, BTV CINEMA, BTV COMEDY, RING, BTV ACTION and BTV LADY.
Target Demographic
 
Channel
 
Ownership
 
All day audience share
 
Prime time audience share
 
 
 
 
 
 
2016
 
2015
 
2016
 
2015
18-49
 
BTV
 
CME
 
30.5%
 
31.5%
 
33.6%
 
36.6%
 
 
NOVA TV
 
MTG
 
19.2%
 
19.4%
 
21.1%
 
21.8%
 
 
BNT 1
 
Public television
 
7.0%
 
5.8%
 
8.9%
 
7.0%
 
 
 
 
 
 
 
 
 
 
 
 
 
Source: GARB
The combined all day and prime time audience shares of our Bulgaria operations in 2016 were 39.6% and 42.6%, respectively.
Croatia
We operate one general entertainment channel, NOVA TV (Croatia) and three other channels, DOMA (Croatia), NOVA WORLD and MINI TV.
Target Demographic
 
Channel
 
Ownership
 
All day audience share
 
Prime time audience share
 
 
 
 
 
 
2016
 
2015
 
2016
 
2015
18-54
 
Nova TV (Croatia)
 
CME
 
20.9%
 
21.8%
 
27.0%
 
28.3%
 
 
RTL
 
RTL
 
14.9%
 
16.4%
 
17.5%
 
19.1%
 
 
HTV 1
 
Public television
 
11.5%
 
12.5%
 
10.1%
 
11.6%
 
 
 
 
 
 
 
 
 
 
 
 
 
Source: AGB Nielsen Media Research
The combined all day and prime time audience shares of our Croatia operations in 2016, excluding NOVA WORLD and MINI TV, were 27.2% and 34.0%, respectively.

3


Czech Republic
We operate one general entertainment channel, TV NOVA (Czech Republic), and seven other channels, NOVA CINEMA, NOVA SPORT 1, NOVA SPORT 2, NOVA ACTION (formerly FANDA), NOVA 2 (formerly SMICHOV), NOVA GOLD (formerly TELKA) and NOVA INTERNATIONAL, a general entertainment channel broadcasting in the Slovak Republic.
Target Demographic
 
Channel
 
Ownership
 
All day audience share
 
Prime time audience share
 
 
 
 
 
 
2016
 
2015
 
2016
 
2015
15-54
 
TV NOVA (Czech Republic)
 
CME
 
23.7%
 
24.9%
 
28.2%
 
29.2%
 
 
Prima
 
MTG / GME
 
10.8%
 
10.9%
 
13.1%
 
12.2%
 
 
CT 1
 
Public television
 
12.3%
 
12.2%
 
14.7%
 
14.5%
 
 
 
 
 
 
 
 
 
 
 
 
 
Source: ATO - Nielsen Admosphere; Mediaresearch
The combined all day and prime time audience shares of our Czech Republic operations in 2016, excluding NOVA SPORT 1, NOVA SPORT 2 and NOVA INTERNATIONAL, were 34.1% and 37.7%, respectively.
Romania
We operate one general entertainment channel, PRO TV, and eight other channels, ACASA, ACASA GOLD, PRO CINEMA, SPORT.RO, MTV ROMANIA, PRO TV INTERNATIONAL, PRO TV CHISINAU, a general entertainment channel broadcasting in Moldova, and ACASA IN MOLDOVA.
Target Demographic
 
Channel
 
Ownership
 
All day audience share
 
Prime time audience share
 
 
 
 
 
 
2016
 
2015
 
2016
 
2015
18-49 Urban
 
PRO TV
 
CME
 
20.6%
 
18.9%
 
25.0%
 
23.9%
 
 
Antena 1
 
Intact group
 
15.7%
 
14.7%
 
15.9%
 
14.0%
 
 
TVR 1
 
Public television
 
1.3%
 
1.8%
 
1.5%
 
1.9%
 
 
 
 
 
 
 
 
 
 
 
 
 
Source: Kantar Media
The combined all day and prime time audience shares of our Romania operations in 2016, excluding PRO TV INTERNATIONAL, PRO TV CHISINAU and ACASA IN MOLDOVA, were 25.1% and 29.1%, respectively.
Slovak Republic
We operate one general entertainment channel, TV MARKIZA, and three other channels, DOMA (Slovak Republic), DAJTO and MARKIZA INTERNATIONAL, a general entertainment channel broadcasting in the Czech Republic.
Target Demographic
 
Channel
 
Ownership
 
All day audience share
 
Prime time audience share
 
 
 
 
 
 
2016
 
2015
 
2016
 
2015
12-54
 
TV MARKIZA
 
CME
 
22.3%
 
22.9%
 
23.3%
 
24.9%
 
 
TV JOJ
 
J&T Media Enterprises
 
15.4%
 
16.5%
 
18.8%
 
20.0%
 
 
Jednotka
 
Public Television
 
7.8%
 
7.5%
 
9.5%
 
8.8%
 
 
 
 
 
 
 
 
 
 
 
 
 
Source: PMT/ TNS SK
The combined all day and prime time audience shares of our Slovak Republic operations in 2016, excluding MARKIZA INTERNATIONAL, were 30.7% and 32.2%, respectively.

4


Slovenia
We operate two general entertainment channels, POP TV and KANAL A, and three other channels, KINO, BRIO and OTO.
Target Demographic
 
Channel
 
Ownership
 
All day audience share
 
Prime time audience share
 
 
 
 
 
 
2016
 
2015
 
2016
 
2015
18-54
 
POP TV
 
CME
 
21.3%
 
19.5%
 
31.6%
 
27.8%
 
 
Planet TV
 
Antenna Group / TSmedia
 
8.1%
 
8.6%
 
10.4%
 
11.7%
 
 
SLO 1
 
Public Television
 
9.0%
 
8.6%
 
9.6%
 
9.4%
 
 
 
 
 
 
 
 
 
 
 
 
 
Source: AGB Nielsen Media Research
The combined all day and prime time audience shares of our Slovenia operations in 2016 were 38.1% and 47.5%, respectively.
Seasonality
We experience seasonality, with advertising sales tending to be lowest during the third quarter of each calendar year due to the summer holiday period (typically July and August), and highest during the fourth quarter of each calendar year due to the holiday season.
Regulation of Television Broadcasting
Television broadcasting in each of the countries in which we operate is regulated by a governmental authority or agency. In this report, we refer to such agencies individually as a “Media Council” and collectively as “Media Councils”. Media Councils generally supervise broadcasters and their compliance with national broadcasting legislation, as well as control access to the available frequencies through licensing regimes.
Programming and Advertising Regulation
Our main operating countries are member states of the EU, and as such, our broadcast operations in such countries are subject to relevant EU legislation relating to media.
The EU Audiovisual Media Services Directive (the “AVMS Directive”) came into force in March 2010 and provides the legal framework for audiovisual media services generally in the EU. The AVMS Directive covers both linear (i.e., broadcasting) and non-linear (e.g., video-on-demand and catch-up) transmissions of audiovisual media services, with the latter subject to significantly less stringent regulation. Among other things, the AVMS Directive requires broadcasters to comply with rules related to, but not limited to, program content, advertising content and quotas, product placement, sponsorship, teleshopping, accessibility by persons with a visual or hearing disability, and minimum quotas with respect to “European works” (defined as originating from an EU member state or a signatory to the Council of Europe's Convention on Transfrontier Television as well as being written and produced mainly by residents of the EU or Council of Europe member states or pursuant to co-production agreements between such states and other countries). In addition, the AVMS Directive requires that at least 10% of either broadcast time or programming budget is dedicated to 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. In respect of advertising, the AVMS Directive provides that the proportion of television advertising spots and teleshopping spots within a given hour shall not exceed 20% (what is commonly referred to as the ‘12 minute per hour rule’). The AVMS Directive does not otherwise restrict when programming may be interrupted by advertising in linear broadcasting, except in the case of films and news programming (where programming may be interrupted once every thirty minutes or more) and children’s programming (where the same restriction applies providing that the program is greater than thirty minutes) and religious programming (where no advertising or teleshopping shall be inserted). Under the AVMS Directive, product placement is prohibited subject to certain exceptions (for example it is permitted in films and series, sports programs and light entertainment programs) and providing that the use of product placement is not ‘unduly’ prominent, is not promotional and is appropriately identified to viewers.
Legislation implementing the AVMS Directive has been adopted across our operating countries. On May 25, 2016, the European Commission adopted a proposal amending the AVMS Directive. As proposed the legislation liberalises many of the AVMS Directive requirements, including, for example, in respect of hourly advertising limits, product placement, teleshopping and sponsorship. The proposal is subject to consultation, review by the European Commission committees and voting in the European Parliament. Any amendments to the AVMS Directive would then need to be implemented by our countries of operation.
Please see below for more detailed information on programming and advertising regulations that impact our channels.
Bulgaria: In Bulgaria, privately owned broadcasters are permitted to broadcast advertising for up to 12 minutes per hour. The public broadcaster, BNT, which is financed through a compulsory television license fee and by the government, is restricted to broadcasting advertising for four minutes per hour and no more than 15 minutes per day, of which only five minutes may be in prime time. 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 apply to both publicly and privately owned broadcasters. Further restrictions relate to advertising content, including a ban on tobacco advertising and restrictions on alcohol advertising, regulations on medical products advertising and regulations on advertising targeted at children or during children's programming. In addition, members of the news department of our channels are prohibited from appearing in advertisements. Our channels in Bulgaria are required to comply with several restrictions on programming, including regulations on the origin of programming. These channels must ensure that 50% of a channel's total annual broadcast time consists of EU- or locally-produced programming and 12% of such broadcast time consists of programming produced by independent producers in the EU. News, sports, games and teleshopping programs, as well as advertising and teletext services, are excluded from these restrictions.
Croatia: In Croatia, privately owned broadcasters are permitted to broadcast advertising for up to 12 minutes per hour with no daily limit, and direct sales advertising has to last continuously for at least 15 minutes. Additional restrictions apply to children's programming and movies. The public broadcaster, HRT, which is financed through a compulsory television license fee, is restricted to broadcasting nine minutes of advertising per hour generally and four minutes per hour from 6 p.m. to 10 p.m. HRT is not permitted to broadcast spots for teleshopping. There are other restrictions that relate to advertising content, including a ban on tobacco and alcohol advertising. NOVA TV (Croatia) is required to comply with several restrictions on programming, including regulations on the origin of programming. These include the requirement that 20% of broadcast time consists of locally produced programming and 50% of such locally produced programming be shown during prime time (between 4:00 p.m. and 10:00 p.m.). These restrictions are not applicable to DOMA (Croatia).

5


Czech Republic: Privately owned broadcasters in the Czech Republic are permitted to broadcast advertising for up to 12 minutes per hour. In September 2011, legislation was implemented in the Czech Republic which restricts the amount of advertising that may be shown on channels of the public broadcaster, CT. Pursuant to the regulation, no advertising may be shown on the public channels CT 1 and CT 24, while the channels CT 2 and CT 4 may show a limited amount of advertising. Also included in the legislation is the requirement that national private broadcasters must contribute annually to a Czech cinematography fund in an amount equal to 2% of their net advertising revenues. We are entitled to apply for financing from the fund. In the Czech Republic, all broadcasters are restricted with respect to the frequency of advertising breaks during and between programs, as well as being subject to restrictions that relate to advertising content, including a ban on tobacco advertising and limitations on advertisements of alcoholic beverages, pharmaceuticals, firearms and munitions.
Romania: Privately owned broadcasters in Romania are permitted to broadcast advertising and direct sales advertising for up to 12 minutes per hour. There are also restrictions on the frequency of advertising breaks (for example, news and children's programs shorter than 30 minutes cannot be interrupted). Broadcasters are also required that from the total broadcasting time (except for the time allocated to news, sports events, games, advertising and teleshopping) (a) at least 50% must be European-origin audio-visual works and (b) at least 10% (or, alternatively, at least 10% of their programming budget) must be European audio-visual works produced by independent producers. The public broadcaster, TVR, is restricted to broadcasting advertising for eight minutes per hour and only between programs. Further restrictions relate to advertising content, including a ban on tobacco advertising and restrictions on alcohol advertising, and regulations on advertising targeted at children or during children's programming. In addition, news anchors of all channels are prohibited from appearing in advertisements and teleshopping programming.
Slovak Republic: Privately owned broadcasters in the Slovak Republic are permitted to broadcast advertising for up to 12 minutes per hour but not for more than 20% of their total daily broadcast time. Since January 2013, the public broadcaster RTVS, which is financed through a compulsory license fee, can broadcast advertising for up to 0.5% of its total broadcast time (up to 2.5% of total broadcast time including teleshopping programming), but between 7:00 p.m. and 10:00 p.m. may broadcast only eight minutes of advertising per hour. There are restrictions on the frequency of advertising breaks during and between programs. RTVS is not permitted to broadcast advertising breaks during programs. There are also restrictions that relate to advertising content, including a ban on tobacco, pharmaceuticals, firearms and munitions advertising and a ban on advertisements of alcoholic beverages (excluding beer and wine) between 6:00 a.m. and 10:00 p.m. Our operations in the Slovak Republic are also required to comply with several restrictions on programming, including regulations on the origin of programming. These include the requirement that 50% of the station's monthly broadcast time must be European-origin audio-visual works and at least 10% of a station's monthly broadcast time must be European audio-visual works produced by independent producers, at least 10% of which must be broadcast within five years of production.
Slovenia: Privately owned broadcasters in Slovenia are allowed to broadcast advertising for up to 12 minutes in any hour. The public broadcaster, SLO, which is financed through a compulsory television license fee and commercial activities, is allowed to broadcast advertising for up to 10 minutes per hour, but is only permitted up to seven minutes per hour between the hours of 6:00 p.m. and 11:00 p.m. There are also restrictions on the frequency of advertising breaks during programs and restrictions that relate to advertising content, including restrictions on food advertising during children's programming and a ban on tobacco advertising and a prohibition on the advertising of any alcoholic beverages from 7:00 a.m. to 9:30 p.m. and generally for alcoholic beverages with an alcoholic content of more than 15%. Our Slovenia operations are required to comply with several restrictions on programming, including regulations on the origin of programming. These include the requirement that 20% of a station's daily programming consist of locally produced programming, of which at least 60 minutes must be broadcast between 6:00 p.m. and 10:00 p.m. In addition, 50% of our niche channels' annual broadcast time must be European-origin audio-visual works and at least 10% of such stations' annual broadcast time must be European audio-visual works produced by independent producers.
Licensing Regulation
The license granting and renewal process in our operating countries varies by jurisdiction and by type of broadcast permitted by the license (i.e., terrestrial, cable, satellite). Depending on the country, terrestrial licenses may be valid for an unlimited time period, may be renewed automatically upon application or may require a more lengthy renewal procedure, such as a tender process. Generally cable and satellite licenses are granted or renewed upon application. We expect each of our licenses will continue to be renewed or new licenses to be granted as required to continue to operate our business. All of the countries in which we operate have transitioned from analog to digital terrestrial broadcasting and we have obtained digital licenses where requested. In January 2017, we ceased terrestrial distribution of our channels in the Slovak Republic and Slovenia, and channels in those countries are now available exclusively on cable, satellite and IPTV platforms. We will apply for additional digital licenses where such applications are prudent and permissible. Please see below for more detailed information on licenses for our channels.
Bulgaria: BTV operates pursuant to a national digital terrestrial license issued by the Council for Electronic Media, the Bulgarian Media Council, that expires in July 2024. BTV ACTION broadcasts pursuant to a national cable registration that is valid for an indefinite time period and also has a digital terrestrial license that expires in January 2025 which is not currently in use. BTV CINEMA, BTV COMEDY, RING and BTV LADY, as well as BTV, each broadcast pursuant to a national cable registration that is valid for an indefinite time period.
Croatia: NOVA TV (Croatia) broadcasts pursuant to a national terrestrial license granted by the Croatian Media Council, the Electronic Media Council, which expires in April 2025. DOMA (Croatia) broadcasts pursuant to a national terrestrial license that expires in January 2026. MINI TV broadcasts via satellite and cable pursuant to a license that expires in January 2022.
Czech Republic: Our channels in the Czech Republic operate under a variety of licenses granted by the Czech Republic Media Council, The Council for Radio and Television Broadcasting. TV NOVA (Czech Republic) broadcasts under a national terrestrial license that expires in January 2025. TV NOVA (Czech Republic) may also broadcast pursuant to a satellite license that expires in December 2020. NOVA CINEMA broadcasts pursuant to a national terrestrial digital license that expires in 2023. NOVA CINEMA also broadcasts via satellite pursuant to a license that is valid until November 2019. NOVA SPORT 1 broadcasts pursuant to a license that allows for both satellite and cable transmission that expires in October 2020. NOVA SPORT 2 broadcasts pursuant to a satellite license that expires in August 2027. In addition, NOVA SPORT 1 and NOVA SPORT 2 each have a license that permits internet transmission which expires in August 2027. NOVA ACTION (formerly known as FANDA) broadcasts pursuant to a satellite license that expires in July 2024 and a national terrestrial license that expires in September 2023. NOVA 2 (formerly known as SMICHOV) broadcasts pursuant to a national terrestrial license that expires in December 2024 and a satellite license that expires in February 2025. NOVA GOLD (formerly known as TELKA) broadcasts pursuant to a national terrestrial license and a satellite license that each expire in February 2025. NOVA INTERNATIONAL broadcasts pursuant to a license that permits internet transmission which expires in January 2028.
Romania: PRO TV broadcasts pursuant to a national satellite license granted by the Romanian Media Council, the National Audio-Visual Council. Our other Romanian channels (ACASA, ACASA GOLD, PRO CINEMA, SPORT.RO, MTV ROMANIA and PRO TV INTERNATIONAL) each has a national satellite license. PRO TV also broadcasts through the electronic communications networks pursuant to a series of local licenses and ACASA broadcasts in high-definition pursuant to a written consent from the Media Council. Licenses for our Romanian operations expire on dates ranging from April 2018 to January 2025. PRO TV CHISINAU broadcasts pursuant to a cable license granted by the Audio-Visual Coordinating Council of the Republic of Moldova that expires in November 2023 and ACASA IN MOLDOVA broadcasts pursuant to a cable license that expires in December 2017.

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Slovak Republic: TV MARKIZA, DOMA (Slovak Republic) and DAJTO each broadcast pursuant to a national license for digital broadcasting granted by the Council for Broadcasting and Retransmission, the Media Council of the Slovak Republic, which is valid for an indefinite period. MARKIZA INTERNATIONAL is broadcast pursuant to the license granted to TV MARKIZA.
Slovenia: Our Slovenian channels POP TV, KANAL A, KINO, BRIO and OTO each have licenses granted by the Post and Electronic Communications Agency of the Republic of Slovenia, the Slovenia Media Council, that allow for broadcasting on any platform, including digital, cable and satellite. These licenses are valid for an indefinite time period.
OTHER INFORMATION
Employees
As of December 31, 2016, we had a total of approximately 2,950 employees (including contractors).
Corporate Information
CME Ltd. was incorporated in 1994 under the laws of Bermuda. Our registered offices are located at O'Hara House, 3 Bermudiana Road, Hamilton HM 08, Bermuda, and our telephone number is +1-441-296-1431. Communications can also be sent c/o CME Media Services Ltd. at Krizeneckeho nam. 1078/5, 152 00 Praha 5, Czech Republic, telephone number +420-242-465-605. CME's Class A common stock is listed on the NASDAQ Global Select Market and the Prague Stock Exchange under the ticker symbol “CETV”.
Financial Information by Operating Segment and by Geographical Area
For financial information by operating segment and geographic area, see Part II, Item 8, Note 19, "Segment Data".
Available Information
We make available, free of charge, on our website at http://www.cme.net our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.

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ITEM 1A    RISK FACTORS
This report and the following discussion of risk factors contain forward-looking statements as discussed on page 2 of this report. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks and uncertainties described below and elsewhere in this report. These risks and uncertainties are not the only ones we may face. Additional risks and uncertainties of which we are not aware, or that we currently deem immaterial, may also become important factors that affect our financial condition, results of operations and cash flows.
Risks Relating to Our Financial Position
Global or regional economic conditions and the credit crisis have adversely affected our financial position and results of operations. We cannot predict if the recovery in our operating countries will continue or how long it may last. A failure to achieve lasting recoveries will continue to adversely affect our results of operations.
The results of our operations depend heavily on advertising revenue, and demand for advertising is affected by general economic conditions in the region and globally. The economic uncertainty following the onset of the global financial crisis at the beginning of 2009 and the sustained recessionary period that followed had a prolonged adverse impact on consumer and business spending, access to credit, liquidity, investment spending, asset values and employment rates. These adverse economic conditions had a material negative impact on advertising spending in our markets, which negatively impacted our advertising revenues in the periods that followed. Since 2014, our markets have experienced overall growth in real GDP (as adjusted for inflation) and advertising spending; however we cannot predict if the recovery that has begun will continue or how long it will last. Any significant deterioration of general economic conditions in our markets would have an adverse economic impact on our advertising revenues. In addition, although we believe the advertising spend per capita of the countries in which we operate and advertising intensity (the ratio of total ad spend per capita to nominal GDP per capita) will converge with the developed markets (as defined in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations), such convergence may not occur in the time frame we expect, or at all. Moreover, the occurrence of disasters, acts of terrorism, civil or military conflicts or general political instability and responses to it, such as the imposition of economic sanctions against Russia, may also cause a deterioration in general economic conditions that may reduce advertising spending. Any of these developments would have a significant negative effect on our financial position, results of operations and cash flows.
Concerns regarding the Eurozone and the impact on the region of the United Kingdom’s exit from the European Union (“EU”) may adversely affect our financial position and results of operations.
Continued economic softness in the Eurozone, including a slowdown in the growth of consumer prices, prompted the European Central Bank to embark upon quantitative easing in 2015. Economic events related to the sovereign debt crisis in several EU countries have also highlighted issues relating to the strength of the banking sector in Europe and the Euro. Although the EU has created external funding and stability mechanisms to provide liquidity and financial assistance to Eurozone member states and financial institutions, there can be no assurance that the market disruptions in Europe related to sovereign debt and the banking sector or otherwise, including the increased cost of funding for certain governments and financial institutions, will not continue and there can be no assurance that funding and stability packages utilized previously will be available or, if provided, will be sufficient to stabilize affected economies or institutions.
Economic conditions in the EU will be further impacted by the results of the referendum held in the United Kingdom on June 23, 2016 whereby the United Kingdom electorate voted in favor of the United Kingdom leaving the EU, commonly referred to as “Brexit”. While the overall economic impact of Brexit on the EU and the Euro is difficult to estimate at present, decisions to conserve cash and reduce spending by consumers and businesses in the United Kingdom would have a negative impact on economic growth rates in the United Kingdom and, to a lesser extent, in the EU, in particular those countries that are significant exporters to the United Kingdom. There is also significant uncertainty regarding the timing and terms on which the United Kingdom would leave the EU, and it is expected that a more protracted process to set those terms would have a more prolonged economic impact. In addition, there is concern that other countries may seek to leave the EU following the Brexit decision, increasing uncertainty in the region, which may have a further negative impact on investment and economic growth rates. Furthermore, the departure of the United Kingdom from the EU may affect the budgetary contributions and allocations among the EU member states in the medium term, including the countries in which we operate, which are net recipients of EU funding. Economic uncertainty caused by Brexit or other instability in the EU could cause significant volatility in EU markets and reduce economic growth rates in the countries in which we operate, which would negatively impact our business.
Our operating results will be adversely affected if we cannot generate strong advertising sales.
We generate the majority of our revenues from the sale of advertising airtime on our television channels. The reduction in advertising spending in our markets following the onset of the global financial crisis at the beginning of 2009 and the sustained recessionary period that followed had a negative effect on television advertising spending and prices. While we have attempted to combat this fall in prices by implementing new pricing strategies, the success of these strategies has varied from market to market and continues to be challenged by pressure from advertisers and discounting by competitors. In addition to advertising pricing, other factors that may affect our advertising sales include general economic conditions (described above), competition from other broadcasters and operators of other distribution platforms, changes in programming strategy, changes in distribution strategy, our channels’ technical reach, technological developments relating to media and broadcasting, seasonal trends in the advertising market, changing audience preferences and in how and when people view content and the accompanying advertising, increased competition for the leisure time of audiences and shifts in population and other demographics. Our advertising revenues also depend on our ability to maintain audience ratings and to generate GRPs. This requires us to have a distribution strategy that reaches a significant audience as well as to maintain investments in programming at a sufficient level to continue to attract audiences. Changes in the distribution of our channels, such as our decision to cease broadcasting on DTT in the Slovak Republic and Slovenia, may reduce the number of people who can view our channels, which may negatively impact our audience share and GRPs generated. Furthermore, significant or sustained reductions in investments in programming or other operating costs in response to reduced advertising revenues had and, if continued or repeated, may have an adverse impact on our television viewing levels. Reductions in advertising spending in our markets and resistance to price increases as well as competition for ratings from broadcasters seeking to attract similar audiences have had and may continue to have an adverse impact on our ability to maintain our advertising sales. A failure to maintain and increase advertising sales could have a material adverse effect on our financial position, results of operations and cash flows.


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Our liquidity constraints and debt service obligations may restrict our ability to fund our operations.
We have significant debt service obligations under the Euro Term Loans as well as the 2021 Revolving Credit Facility (when drawn). Furthermore, we are paying Guarantee Fees to Time Warner as consideration for its guarantees of the Euro Term Loans (collectively, the "TW Guarantees"). Although the entire Guarantee Fee in respect of the 2018 Euro Term Loan and the 2019 Euro Term Loan are, and a portion of the Guarantee Fee in respect of the 2021 Euro Term Loan can be, non-cash pay at our option, accruing such fees will further increase the amounts to be repaid at the maturity of these facilities. Accordingly, the payment of Guarantee Fees in kind will increase our already significant leverage. As a result of our debt service obligations and covenants contained in the related loan agreements, we are restricted under the Reimbursement Agreement and the 2021 Revolving Credit Facility (when drawn) in the manner in which our business is conducted, including but not limited to our ability to obtain additional debt financing to refinance existing indebtedness or to fund future working capital, capital expenditures, business opportunities or other corporate requirements. We may have a proportionally higher level of debt than our competitors, which may put us at a competitive disadvantage by limiting our flexibility in planning for, or reacting to, changes in our business, economic conditions or our industry. For additional information regarding the Reimbursement Agreement and the TW Guarantees, see Part II, Item 8, Note 4, "Long-term Debt and Other Financing Arrangements".
We may be unable to refinance our existing indebtedness and may not be able to obtain favorable refinancing terms.
We have a substantial amount of indebtedness. Under the Reimbursement Agreement and the 2021 Revolving Credit Facility (when drawn), we can incur only limited amounts of additional indebtedness, other than indebtedness incurred to refinance existing indebtedness. In addition, pursuant to the Reimbursement Agreement, the all-in rates on the 2021 Euro Term Loan and the 2018 Euro Term Loan increase to 13% and 11%, respectively, on the date that is 180 days following a change of control of CME Ltd. (as defined therein); and pursuant to the 2021 Revolving Credit Facility, all commitments terminate following a change of control (as defined therein) and the interest rate on amounts outstanding increases to 13% on the date that is 180 days following such change of control. We intend to repay the 2018 Euro Term Loan at maturity with cash flows from operations and the expected proceeds from warrant exercises. In the event the warrants are not exercised in full or cash flows from operations do not meet our forecasts, we would be required to refinance the 2018 Euro Term Loan in whole or in part. Pursuant to the Reimbursement Agreement, all commitments under the 2021 Revolving Credit Facility terminate on the refinancing of any Euro Term Loan. We face the risk that we will not be able to renew, repay or refinance our indebtedness when due, or that the terms of any renewal or refinancing will not be on better terms than those of such indebtedness being refinanced. In the event we are not able to refinance our indebtedness, we might be forced to dispose of assets on disadvantageous terms or reduce or suspend operations, any of which would materially and adversely affect our financial condition, results of operations and cash flows.
We may be subject to changes in tax rates and exposure to additional tax liabilities.
We are subject to taxes in a number of foreign jurisdictions, including in respect of our operations as well as capital transactions undertaken by us. We are subject to regular review and audit by tax authorities, and in the ordinary course of our business there are transactions and calculations where the ultimate tax determination is unknown. Significant judgment is required in determining our provision for taxes. The final determination of our tax liabilities resulting from tax audits, related proceedings or otherwise could be materially different from our tax provisions. Economic and political pressures to increase receipts in various jurisdictions may make taxation and tax rates subject to significant change and the satisfactory resolution of any tax disputes more difficult. The occurrence of any of these events could have a material adverse effect on our financial position, results of operations and cash flows.
A default by us in connection with our obligations under our outstanding indebtedness could result in our inability to continue to conduct our business.
Pursuant to the terms of the agreements governing the Reimbursement Agreement and the 2021 Revolving Credit Facility, we pledged all of the shares of CME NV and of CME BV, which together own substantially all of the interests in our operating subsidiaries, as security for this indebtedness. If we or these subsidiaries were to default under the terms of any of the relevant agreements, the secured parties under such agreements would have the ability to sell all or a portion of the assets pledged to them in order to pay amounts outstanding under such debt instruments. This could result in our inability to conduct our business.
Fluctuations in exchange rates may continue to adversely affect our results of operations.
Our reporting currency is the dollar and CME Ltd.'s functional currency is the Euro. Our consolidated revenues and costs are divided across a range of European currencies. The strengthening of the dollar had a negative impact on reported revenues in 2016 when translated from the functional currencies of our operations. Continued strengthening of the dollar would have a negative impact on our reported revenues. Furthermore, fluctuations in exchange rates may negatively impact programming costs. While local programming is generally purchased in local currencies, a significant portion of our content costs relates to foreign programming purchased pursuant to dollar-denominated agreements. If the dollar appreciates against the functional currencies of our operating segments, the cost of acquiring such content would be adversely affected, which could have a material adverse effect on our results of operations and cash flows.
Our strategies to enhance our carriage fees and diversify our revenues may not be successful.
We are focused on creating additional revenue streams from our broadcast operations as well as increasing revenues generated from broadcast advertising, which is how we generate most of our revenues. Our main efforts with respect to this strategy are on increasing carriage fees from cable, satellite and IPTV operators for carriage of our channels as well as continuing to seek improvements in advertising pricing. Agreements with operators generally have a term of one or more years, at which time agreements must be renewed. There can be no assurance that we will be successful in renewing carriage fee agreements on similar or better terms. During negotiations to implement our carriage fees strategy in prior years, some cable and satellite operators suspended the broadcast of our channels, which negatively affected the reach and audience shares of those operations and, as a result, advertising revenues. There is a risk that operators may refuse to carry our channels while carriage fee negotiations are ongoing, which would temporarily reduce the reach of those channels and may result in clients withdrawing advertising from our channels. The occurrence of any of these events may have an adverse impact on our financial position, results of operations and cash flows. If we are ineffective in negotiations with carriers or in achieving further carriage fee increases, our profitability will continue to be dependent primarily on television advertising revenues, which increases the importance placed on our ability to improve advertising pricing and generate advertising revenues. In addition to carriage fees, we are also working to build-out our offerings of advertising video-on-demand products and other opportunities for advertising online. There can be no assurances that our revenue diversification initiatives will ultimately be successful, and if unsuccessful, this may have an adverse impact on our financial position, results of operations and cash flows.

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A downgrading of our ratings may adversely affect our ability to raise additional financing.
Moody’s Investors Service rates our corporate credit as B2 with a stable outlook. Standard & Poor’s rates our corporate credit B+ with a stable outlook. Our ratings show each agency's opinion of our financial strength, operating performance and ability to meet our debt obligations as they become due. These ratings take into account the particular emphasis the ratings agencies place on metrics such as leverage ratio and cash flow, which they use as measurements of a company's liquidity and financial strength. They also reflect an emphasis placed by the ratings agencies on a track record of strong financial support from Time Warner. We may be subject to downgrades if our operating performance deteriorates or we fail to maintain adequate levels of liquidity. In addition, our ratings may be downgraded if the agencies form a view that material support from Time Warner is not as strong, or the strategic importance of CME to Time Warner is not as significant as it has been in the past. In the event our corporate credit ratings are lowered by the rating agencies, it will be more difficult for us to refinance our existing indebtedness or raise new indebtedness that may be permitted under the Reimbursement Agreement and the 2021 Revolving Credit Facility (when drawn), and we will have to pay higher interest rates, which would have an adverse effect on our financial position, results of operations and cash flows.
If our goodwill, other intangible assets and long-lived assets become impaired, we may be required to record significant charges to earnings.
We review our long-lived assets for impairment when events or changes in circumstances indicate the carrying amount may not be recoverable. Goodwill and indefinite-lived intangible assets are required to be assessed for impairment at least annually. Factors that may be considered a change in circumstances indicating that the carrying amount of our goodwill, indefinite-lived intangible assets or long-lived assets may not be recoverable include slower growth rates in our markets, reduced expected future cash flows, increased country risk premium as a result of political uncertainty and a decline in stock price and market capitalization. We consider available current information when calculating our impairment charge. If there are indicators of impairment, our long-term cash flow forecasts for our operations deteriorate or discount rates increase, we may be required to recognize additional impairment charges in later periods. See Part II, Item 8, Note 3, "Goodwill and Intangible Assets" for the carrying amounts of goodwill in each of our reporting units.
Risks Relating to Our Operations
Content may become more expensive to produce or acquire or we may not be able to develop or acquire content that is attractive to our audiences.
Television programming is one of the most significant components of our operating costs. The ability of our programming to generate advertising revenues depends substantially on our ability to develop, produce or acquire programming that matches audience tastes and attracts high audience shares, which is difficult to predict. The commercial success of a program depends on several tangible and intangible factors, including the impact of competing programs, the availability of alternate forms of entertainment and leisure time activities, our ability to anticipate and adapt to changes in consumer tastes and behavior, and general economic conditions. While we have been successful in reducing content costs compared to prior periods, the cost of acquiring content attractive to our viewers, such as feature films and popular television series and formats, may increase in the future. Our expenditures in respect of locally produced programming may also increase due to competition for talent and other resources, changes in audience tastes in our markets or from the implementation of any new laws and regulations mandating the broadcast of a greater number of locally produced programs. In addition, we typically acquire syndicated programming rights under multi-year commitments before knowing how such programming will perform in our markets. In the event any such programming does not attract adequate audience share, it may be necessary to increase our expenditures by investing in additional programming, subject to the availability of adequate financial resources, as well as to write down the value of any underperforming programming. Any material increase in content costs could have a material adverse effect on our financial condition, results of operations or cash flows.
Our operations are vulnerable to significant changes in viewing habits and technology that could adversely affect us.
The television broadcasting industry is affected by rapid innovations in technology. The implementation of these new technologies and the introduction of non-traditional content distribution systems have increased competition for audiences and advertisers. Platforms such as direct-to-home cable and satellite distribution systems, the Internet, subscription and advertising video-on-demand, user-generated content sites and the availability of content on portable digital devices have changed consumer behavior by increasing the number of entertainment choices available to audiences and the methods for the distribution, storage and consumption of content. This development has fragmented television audiences in more developed markets and could adversely affect our ability to retain audience share and attract advertisers as such technologies penetrate our markets. As we adapt to changing viewing patterns, it may be necessary to expend substantial financial and managerial resources to ensure necessary access to new technologies or distribution systems. Such initiatives may not develop into profitable business models. Furthermore, technologies that enable viewers to choose when, how, where and what content to watch, as well as to fast-forward or skip advertisements, may cause changes in consumer behavior that could have a negative impact on our advertising revenues. In addition, compression techniques and other technological developments allow for an increase in the number of channels that may be broadcast in our markets and expanded programming offerings that may be offered to highly targeted audiences. Reductions in the cost of launching new channels could lower entry barriers and encourage the development of increasingly targeted niche programming on various distribution platforms. This could increase the competitive demand for popular programming, resulting in an increase in content costs as we compete for audiences and advertising revenues. A failure to successfully adapt to changes in our industry as a result of technological advances may have an adverse effect on our financial position, results of operations and cash flows.
Our operating results are dependent on the importance of television as an advertising medium.
We generate most of our revenues from the sale of our advertising airtime on television channels in our markets. Television competes with various other media, such as print, radio, the internet and outdoor advertising, for advertising spending. In all of the countries in which we operate, television constitutes the single largest component of all advertising spending. There can be no assurances that the television advertising market will maintain its current position among advertising media in our markets. Furthermore, there can be no assurances that changes in the regulatory environment or improvements in technology will not favor other advertising media or other television broadcasters. Increases in competition among advertising media arising from the development of new forms of advertising media and distribution could result in a decline in the appeal of television as an advertising medium generally or of our channels specifically. A decline in television advertising spending as a component of total advertising spending in any period or in specific markets would have an adverse effect on our financial position, results of operations and cash flows.

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We are subject to legal compliance risks and the risk of legal or regulatory proceedings being initiated against us.
We are required to comply with a wide variety of laws and other regulatory obligations in the jurisdictions in which we operate and compliance by our businesses is subject to scrutiny by regulators and other government authorities in these jurisdictions. Compliance with foreign as well as applicable U.S. laws and regulations related to our businesses, such as broadcasting content and advertising regulations, competition regulations, tax laws, employment laws, data protection requirements, and anti-corruption laws, increases the costs and risks of doing business in these jurisdictions. We believe we have implemented appropriate risk management and compliance policies and procedures that are designed to ensure our employees, contractors and agents comply with these laws and regulations; however, a violation of such laws and regulations or the Company’s policies and procedures could occur. A failure or alleged failure to comply with applicable laws and regulations, whether inadvertent or otherwise, may result in legal or regulatory proceedings being initiated against us.
We have become aware of provisions in the tax regulations of one of our markets that shift the liability for taxes on gains resulting from certain capital transactions from the seller to the buyer. This provision may have been applicable to an acquisition made by us, although we do not believe we have any liability connected to this transaction. In addition, the prosecuting authorities in Romania have requested information in respect of an investigation into certain transactions entered into by Pro TV in 2014 primarily with certain related parties. We believe that the transactions under review are fully supported and are cooperating with the authorities in responding to the information request. In Slovenia, the competition authorities have launched an investigation into whether our Slovenian subsidiary is dominant and abused its dominant position when concluding carriage fee agreements with platform operators. The investigation is in an early stage and there has been no determination that a breach of competition law has occurred; notwithstanding that, the competition authorities may seek to apply interim measures prior to any formal determination. If these or other contingencies result in legal or regulatory proceedings being initiated against us, or if developments occur in respect of our compliance with existing laws or regulations, or there are changes in the interpretation or application of such laws or regulations, we may incur substantial costs, be required to change our business practices, our reputation may be damaged or we may be exposed to unanticipated civil or criminal liability, including fines and other penalties that may be substantial. This could have a material adverse effect on our business, financial position, results of operations and cash flows.
Piracy of our content may decrease revenues we can earn from our content and adversely impact our business and profitability.
Piracy of our content poses significant challenges in our markets. Technological developments, including digital copying, file compressing, the use of international proxies and the growing penetration of high bandwidth internet connections, have made it easier to create, transmit and distribute high quality unauthorized copies of content in unprotected digital formats. Furthermore, there are a growing number of video streaming sites, increasing the risk of online transmission of our content without consent. The proliferation of such sites broadcasting content pirated from us could result in a reduction of revenues that we receive from the legitimate distribution of our content, including through video-on-demand and other services. Protection of our intellectual property is in large part dependent on the manner in which applicable intellectual property laws in the countries in which we operate are construed and enforced. We seek to limit the threat of content piracy. However, detecting and policing the unauthorized use of our intellectual property is often difficult and remedies may be limited under applicable law. Steps we take may not prevent the infringement by third parties. There can be no assurance that our efforts to enforce our rights and protect our intellectual property will be successful in preventing piracy, which limits our ability to generate revenues from our content.
Our operations are in developing markets where there are additional risks related to political and economic uncertainty, biased treatment and compliance with evolving legal and regulatory systems.
Our revenue-generating operations are located in Central and Eastern Europe and we may be significantly affected by risks that may be different to those posed by investments in more developed markets. These risks include, but are not limited to, social and political instability, inconsistent regulatory or judicial practice, and increased taxes and other costs. The economic and political systems, legal and tax regimes, regulatory practices, standards of corporate governance and business practices of countries in this region continue to develop. Policies and practices may be subject to significant adjustments, including following changes in political leadership. This may result in social or political instability or disruptions and the potential for political influence on the media as well as inconsistent application of tax and legal regulations, arbitrary treatment before regulatory or judicial authorities and other general business risks. Other potential risks inherent in markets with evolving economic and political environments include exchange controls, higher taxes, tariffs and other levies as well as longer payment cycles. The relative level of development of our markets and the influence of local politics also present a potential for biased treatment of us before regulators or courts in the event of disputes. If such a dispute occurs, those regulators or courts might favor local interests over our interests. Ultimately, this could have a material adverse impact on our business, financial position, results of operations and cash flows.
We rely on network and information systems and other technology that may be subject to disruption or misuse, which could harm our business or our reputation.
We make extensive use of network and information systems and other technologies, including those related to our internal network management as well as our broadcasting operations. These systems are central to many of our business activities. Network and information systems-related events, such as computer hackings, computer viruses, worms or other destructive or disruptive software, process breakdowns, malicious activities or other security breaches could result in a disruption or degradation of our services, the loss of information or the improper disclosure of personal data. The occurrence of any of these events could negatively impact our business by requiring us to expend resources to remedy such a security breach or by harming our reputation. In addition, improper disclosure of personal data could subject us to liability under laws that protect personal data in the countries in which we operate. The development and maintenance of systems to prevent these events from occurring requires ongoing monitoring and updating as efforts to overcome security measures become more sophisticated. As technologies evolve, we will need to expend additional resources to protect our technology and information systems, which could have an adverse impact on our results of operations.
Our broadcasting licenses may not be renewed and may be subject to revocation.
We require broadcasting and, in some cases, other operating licenses as well as other authorizations from national regulatory authorities in our markets in order to conduct our broadcasting business. While our broadcasting licenses for our operations in Slovenia and the Slovak Republic are valid for indefinite time periods, our other broadcasting licenses expire at various times through 2028. While we expect that our material licenses and authorizations will be renewed or extended as required to continue to operate our business, we cannot guarantee that this will occur or that they will not be subject to revocation, particularly in markets where there is relatively greater political risk as a result of less developed political and legal institutions. The failure to comply in all material respects with the terms of broadcasting licenses or other authorizations or with applications filed in respect thereto may result in such licenses or other authorizations not being renewed or otherwise being terminated. Furthermore, no assurances can be given that renewals or extensions of existing licenses will be issued on the same terms as existing licenses or that further restrictions or conditions will not be imposed in the future. Any non-renewal or termination of any other broadcasting or operating licenses or other authorizations or material modification of the terms of any renewed licenses may have a material adverse effect on our financial position, results of operations and cash flows.

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Our success depends on attracting and retaining key personnel.
Our success depends partly upon the efforts and abilities of our key personnel and our ability to attract and retain key personnel. Our management teams have significant experience in the media industry and have made important contributions to our growth and success. Although we have been successful in attracting and retaining such people in the past, competition for highly skilled individuals is intense. There can be no assurance that we will continue to be successful in attracting and retaining such individuals in the future. The loss of the services of any of these individuals could have an adverse effect on our businesses, results of operations and cash flows.
Risks Relating to Enforcement Rights
We are a Bermuda company and enforcement of civil liabilities and judgments may be difficult.
We are a Bermuda company. Substantially all of our assets and all of our operations are located, and all of our revenues are derived, outside the United States. In addition, several of our directors and officers are non-residents of the United States, and all or a substantial portion of the assets of such persons are or may be located outside the United States. As a result, investors may be unable to effect service of process within the United States upon such persons, or to enforce against them judgments obtained in the United States courts, including judgments predicated upon the civil liability provisions of the United States federal and state securities laws. There is uncertainty as to whether the courts of Bermuda and the countries in which we operate would enforce (a) judgments of United States courts obtained against us or such persons predicated upon the civil liability provisions of the United States federal and state securities laws or (b) in original actions brought in such countries, liabilities against us or such persons predicated upon the United States federal and state securities laws.
Our Bye-laws restrict shareholders from bringing legal action against our officers and directors.
Our Bye-laws contain a broad waiver by our shareholders of any claim or right of action in Bermuda, both individually and on our behalf, against any of our officers or directors. The waiver applies to any action taken or concurred in by an officer or director, or the failure of an officer or director to take any action, in the performance of his or her duties, except with respect to any matter involving any fraud or dishonesty on the part of the officer or director. This waiver limits the right of shareholders to assert claims against our officers and directors unless the act or failure to act involves fraud or dishonesty.
Risks Relating to our Common Stock
Our share price may be adversely affected by sales of unregistered shares or future issuances of our shares.
Time Warner is the largest holder of shares of our Class A common stock, holding 61,407,775 unregistered shares of Class A common stock, one share of Series A preferred stock, 200,000 shares of Series B preferred stock and warrants to acquire 100,926,996 shares of our Class A common stock (the "TW Warrants"). The share of Series A preferred stock is convertible into 11,211,449 shares of Class A common stock and the shares of Series B preferred stock are convertible into shares of Class A common stock at the option of Time Warner (subject to certain exceptions). As of December 31, 2016, the 200,000 shares of Series B preferred stock were convertible into approximately 105.2 million shares of Class A common stock. The TW Warrants are exercisable for shares of Class A common stock until May 2, 2018 at an exercise price of US$ 1.00 per share. Time Warner has registration rights with respect to all its shares of Class A common stock now held or hereafter acquired. Furthermore, there are additional unregistered shares of our Class A common stock outstanding that we may be obligated to register and shares of Class A common stock underlying other warrants that may enter into trading. For additional information on the Series A preferred stock, Series B preferred stock and TW Warrants, see Part II, Item 8, Note 11, "Convertible Redeemable Preferred Shares" and Note 12, "Equity". In October 2016, Time Warner announced it has entered into a definitive merger agreement with AT&T Inc. under which AT&T Inc. will acquire Time Warner.  The merger is subject to approval by Time Warner shareholders and approval by a number of regulatory authorities, including the U.S. Department of Justice. Following a successful completion of such merger, AT&T Inc. will become the beneficial owner of equity securities currently beneficially owned by Time Warner and the successor to rights related to such securities granted to Time Warner.  
We cannot predict what effect, if any, the entry into trading of previously issued unregistered shares of Class A common stock will have on the market price of our shares. We may also issue additional shares of Class A common stock or securities convertible into our equity in the future. If more shares of our Class A common stock (or securities convertible into or exchangeable for shares of our Class A common stock) are issued to Time Warner, the economic interests of current shareholders may be diluted and the price of our shares may be adversely affected.
The interests of Time Warner may conflict with the interests of other investors.
Time Warner is able to exercise voting power in us with respect to 47.0% of our outstanding shares of Class A common stock. As such, Time Warner is in a position to exercise significant influence over the outcome of corporate actions requiring shareholder approval, such as the election of directors or certain transactions. Following the issuance of the TW Warrants, the aggregate economic interest of Time Warner in us is approximately 76.0% (without giving effect to the accretion of the Series B preferred stock after December 31, 2016). Furthermore, Time Warner has the right to appoint one less than the number required to constitute a majority of our board of directors, provided that Time Warner continues to own not less than 40% of the voting power of the Company.
We are also party to an amended investor rights agreement with Time Warner and the other parties thereto under which, among other things, Time Warner was granted a contractual preemptive right (subject to certain exclusions) with respect to issuances of the Company’s equity securities, which permits it to maintain its pro rata economic interest as well as a right to top any offer that would result in a change of control of the Company. Under Bermuda law, there is no takeover code or similar legislation requiring an acquirer of a certain percentage of our Class A common stock to tender for the remaining publically held shares. In addition to being our largest shareholder, Time Warner is our largest secured creditor, as it guarantees 100% of our outstanding senior indebtedness and is the lender under the 2021 Revolving Credit Facility. The 2021 Revolving Credit Facility and the Reimbursement Agreement contain maintenance covenants in respect of interest cover, cash flow cover and total leverage ratios and includes covenants in respect of the incurrence of indebtedness (including refinancing indebtedness), the provision of guarantees, acquisitions and disposal and granting security. As such, Time Warner may be in a position to determine whether to permit transactions, waive defaults or accelerate such indebtedness or take other steps in its capacity as a secured creditor in a manner that might not be consistent with the interests of the holders of our Class A common stock. Furthermore, in certain circumstances, the interests of Time Warner as our largest shareholder could be in conflict with the interests of minority shareholders.

12


The price of our Class A common stock is likely to remain volatile.
The market price of shares of our Class A common stock may be influenced by many factors, some of which are beyond our control, including but not limited to those described above under “Risks Relating to Our Operations” as well as the following: general economic and business trends, variations in quarterly operating results, license renewals, regulatory developments in our operating countries and the European Union, the condition of the media industry in our operating countries, the volume of trading in shares of our Class A common stock, future issuances of shares of our Class A common stock and investors’ and securities analysts’ perception of us and other companies that investors or securities analysts deem comparable in the television broadcasting industry. In addition, stock markets in general have experienced extreme price and volume fluctuations that have often been unrelated to and disproportionate to the operating performance of broadcasting companies. These broad market and industry factors may materially reduce the market price of shares of our Class A common stock, regardless of our operating performance.
Our business could be negatively impacted as a result of shareholder activism.
On January 17, 2017, TCS Capital Management, LLC ("TCS Capital"), a beneficial owner of more than 12% of our shares, filed an amendment to its Schedule 13D disclosing its opinion that the Company should hire an investment bank to run a process to sell the Company as well as replace current members of the Company's Board of Directors with new directors recommended by TCS Capital. In recent years, shareholder activists, such as TCS Capital, have become involved in numerous public companies. Shareholder activists frequently propose to involve themselves in the governance, strategic direction and operations of the Company. Such proposals may disrupt our business and divert the attention of our management and employees, and any perceived uncertainties as to our future direction resulting from such a situation could result in the loss of potential business opportunities, be exploited by our competitors, cause concern to our current or potential customers, and make it more difficult to attract and retain qualified personnel and business partners, all of which could adversely affect our business. In addition, actions of activist shareholders may cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.
ITEM 1B.    UNRESOLVED STAFF COMMENTS
None.
ITEM 2.    PROPERTIES
We own and lease properties in the countries in which we operate. These facilities are fully utilized for current operations, are in good condition and are adequately equipped for purposes of conducting broadcasting, content production or such other operations as we require. We believe that suitable additional space is available on acceptable terms in the event of an expansion of our businesses. The table below provides a brief description of our significant properties.
Location
 
Property
 
Use
Hamilton, Bermuda
 
Leased office
 
Registered office, Corporate
Amsterdam, The Netherlands
 
Leased office
 
Corporate office, Corporate
Sofia, Bulgaria
 
Leased buildings
 
Office and studio space (Bulgaria segment)
Zagreb, Croatia
 
Owned and leased buildings
 
Office and studio space (Croatia segment)
Prague, Czech Republic
 
Owned and leased buildings
 
Administrative center, Corporate;
Office and studio space (Czech Republic segment)
Bucharest, Romania
 
Owned and leased buildings
 
Office and studio space (Romania segment)
Bratislava, Slovak Republic
 
Owned buildings
 
Office and studio space (Slovak Republic segment)
Ljubljana, Slovenia
 
Owned and leased buildings
 
Office and studio space (Slovenia segment)
For further information on the cash resources that fund these facility-related costs, see Part II, Item 7, III, "Liquidity and Capital Resources."
ITEM 3.    LEGAL PROCEEDINGS
General
We are from time to time party to legal proceedings, arbitrations and regulatory proceedings arising in the normal course of our business operations, including the proceeding described below. We evaluate, on a quarterly basis, developments in such matters and provide accruals for such matters, as appropriate. In making such decisions, we consider the degree of probability of an unfavorable outcome and our ability to make a reasonable estimate of the amount of a loss. An unfavorable outcome in any such proceedings, if material, could have an adverse effect on our business or consolidated financial statements.
In late November and December 2016, CME’s Slovak subsidiary MARKIZA-SLOVAKIA, spol. s.r.o. (“Markiza”) was notified of claims that were filed in June 2016 in a court of first instance in Bratislava, the Slovak Republic to collect amounts allegedly owing under four promissory notes. These four promissory notes were purportedly issued in June 2000 by Pavol Rusko in his personal capacity and were purportedly guaranteed by Markiza under the signature of Mr. Rusko, who was an executive director of Markiza at that time as well as one of its shareholders. The notes purport to be issued in favour of Marian Kocner, a controversial Slovak businessman, and to a former associate of Mr. Kocner, and were supposedly assigned several times, ultimately to Sprava a inkaso zmeniek, s.r.o., a company owned by Mr. Kocner that is the plaintiff in these proceedings. The four notes purport to be in the aggregate amount of approximately EUR 69 million. A court of first instance in Bratislava has suspended proceedings in respect of one of the promissory notes (in the amount of approximately EUR 26 million) because the plaintiff failed to pay court fees. Two of the remaining notes allegedly matured in 2015 and the third in 2016. Despite a random case assignment system at the Bratislava court, the three cases dealing with the other notes have all been assigned to the same judge. We do not believe that any of the promissory notes are authentic and are vigorously defending the claims.
ITEM 4.    MINE SAFETY DISCLOSURES
Not applicable.

13


PART II
ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Shares of Class A common stock of Central European Media Enterprises Ltd. began trading on the NASDAQ National Market (since renamed the NASDAQ Global Select Market) on October 13, 1994 and began trading on the Prague Stock Exchange on June 27, 2005. On each market, the shares are traded under the ticker symbol "CETV".
On February 6, 2017, the last reported sales price for shares of our Class A common stock was US$ 2.70.
The following table sets forth the high and low prices for shares of our Class A common stock for each quarterly period during the last two fiscal years as reported by NASDAQ.
 
2016
 
2015
 
High
(US$ / Share)
 
Low
(US$ / Share)
 
High
(US$ / Share)
 
Low
(US$ / Share)
Fourth Quarter
$
2.88

 
$
2.15

 
$
2.80

 
$
1.92

Third Quarter
2.48

 
2.05

 
2.50

 
1.84

Second Quarter
2.96

 
2.03

 
2.83

 
1.97

First Quarter
2.71

 
2.17

 
3.22

 
2.55

At February 6, 2017, there were approximately 57 holders of record (including brokerage firms and other nominees) of shares of Class A common stock.
Under our 2015 Stock Incentive Plan (the "2015 Plan"), 6,000,000 shares of Class A are authorized for issuance in respect of equity awards. In addition, any shares available under our Amended and Restated Stock Incentive Plan (which expired on June 1, 2015), including in respect of any awards that expire, terminate or are forfeited, will be available for awards under the 2015 Plan (see Item 8, Note 16, "Stock-based Compensation"). See Part III, Item 12, "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" for further information.
DIVIDEND POLICY
We have not declared or paid and have no present intention to declare or pay in the foreseeable future any cash dividends in respect to any class of our shares of common stock.
PURCHASE OF OWN STOCK
We did not purchase any of our own stock in 2016.

14


PERFORMANCE GRAPH
The following performance graph is a line graph comparing the change in the cumulative total shareholder return of the Class A common stock against the cumulative total return of the NASDAQ Composite Index and the Dow Jones Europe Stock Index between December 31, 2011 and December 31, 2016. The graph below assumes the investment of US$ 100 on December 31, 2011 in our Class A common stock, the NASDAQ Composite and the Dow Jones Europe Stock Index, assuming dividends, if any, are reinvested.
cetvstockperformance2015a01.jpg
Value of US$ 100 invested at December 31, 2011 as of December 31, 2016:
Central European Media Enterprises Ltd.
$
39.11

NASDAQ Composite Index
$
206.63

Dow Jones Europe Stock Index
$
122.29

ITEM 6.    SELECTED FINANCIAL DATA
Our selected consolidated financial data should be read together with our consolidated financial statements and related notes included in Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.
The following tables set forth the selected consolidated financial data for each of the years in the five-year period ended December 31, 2016. The selected consolidated financial data is qualified in its entirety and should be read in conjunction with Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” and Item 8, “Financial Statements and Supplementary Data”. We have derived the consolidated statements of operations and comprehensive income / loss data for the years ended December 31, 2016, 2015 and 2014 and the consolidated balance sheet data as of December 31, 2016 and 2015 from the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The consolidated statements of operations and comprehensive income / loss data for the years ended December 31, 2013 and 2012 and the balance sheet data as of December 31, 2014, 2013 and 2012 were derived from consolidated financial statements that are not included in this Annual Report on Form 10-K.
The consolidated balance sheet data as of December 31, 2015, 2014, 2013 and 2012 has been retrospectively adjusted in connection with our adoption of FASB Accounting Standards Update No. 2015-03 which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction of the carrying amount of that liability. As a result of adopting this guidance our current and non-current assets decreased with a corresponding decrease in our current and non-current liabilities.

15


 
For The Year Ended December 31,
 
(US$ 000's, except per share data)
 
2016

 
2015

 
2014

 
2013

 
2012

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME / LOSS DATA:
 
 
 
 
 
 
 
 
 
Net revenues
$
638,013

 
$
605,841

 
$
680,793

 
$
633,134

 
$
705,999

Operating income / (loss)
111,589

 
94,583

 
38,280

 
(180,017
)
 
(479,789
)
Loss from continuing operations
(180,597
)
 
(102,285
)
 
(151,465
)
 
(276,434
)
 
(535,708
)
Loss from discontinued operations, net of tax

 
(13,287
)
 
(80,431
)
 
(5,099
)
 
(10,685
)
Net loss attributable to CME Ltd.
$
(180,291
)
 
$
(114,901
)
 
$
(227,428
)
 
$
(277,651
)
 
$
(535,680
)
 
 
 
 
 
 
 
 
 
 
PER SHARE DATA:
 
 
 
 
 
 
 
 
 
Net loss per common share from:
 
 
 
 
 
 
 
 
 
Continuing operations attributable to CME Ltd. - Basic and diluted
$
(1.28
)
 
$
(0.81
)
 
$
(1.11
)
 
$
(2.23
)
 
$
(6.83
)
Discontinued operations attributable to CME Ltd. - Basic and diluted

 
(0.09
)
 
(0.55
)
 
(0.04
)
 
(0.13
)
Net loss attributable to CME Ltd. - Basic and diluted
(1.28
)
 
(0.90
)
 
(1.66
)
 
(2.27
)
 
(6.96
)
 
 
 
 
 
 
 
 
 
 
Weighted average common shares used in computing per share amounts (000’s):
 
 
 
 
 
 
 
 
 
Basic and diluted
151,017
 
146,866
 
146,509

 
125,723

 
76,919

 
 
 
 
 
 
 
 
 
 
 
As at December 31,
 
(US$ 000's)
 
2016

 
2015

 
2014

 
2013

 
2012

 
 
 
As adjusted

 
As adjusted

 
As adjusted

 
As adjusted

CONSOLIDATED BALANCE SHEET DATA:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
43,459

 
$
61,679

 
$
34,298

 
$
102,322

 
$
136,543

Other current assets
296,961

 
296,605

 
340,330

 
421,208

 
455,415

Non-current assets
1,050,297

 
1,082,133

 
1,230,200

 
1,425,321

 
1,561,129

Total assets
$
1,390,717

 
$
1,440,417

 
$
1,604,828

 
$
1,948,851

 
$
2,153,087

 
 
 
 
 
 
 
 
 
 
Current liabilities
$
171,564

 
$
146,308

 
$
450,286

 
$
318,931

 
$
293,306

Non-current liabilities
1,070,786

 
974,270

 
653,434

 
981,029

 
1,228,514

Temporary equity
254,899

 
241,198

 
223,926

 
207,890

 

CME Ltd. shareholders' (deficit) / equity
(107,804
)
 
77,260

 
279,794

 
440,108

 
626,061

Noncontrolling interests
1,272

 
1,381

 
(2,612
)
 
893

 
5,206

Total liabilities and equity
$
1,390,717

 
$
1,440,417

 
$
1,604,828

 
$
1,948,851

 
$
2,153,087



16


ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Please refer to page 2 of this Annual Report on Form 10-K for a list of defined terms used herein.
The exchange rates used in this report are as at December 31, 2016, unless otherwise indicated.
I.    Overview
CME Strategy
Our operations comprise a unique collection of television networks across Central and Eastern Europe, each of which enjoys a strong competitive position due to audience share leadership, brand strength, strong local content, and the depth and experience of country management. The reach and affinity we provide advertisers supports our model of pricing inventory at a premium to our competition. We believe these competitive advantages position the company to benefit if forecast economic growth leads to continued growth of the television advertising markets in the countries in which we operate.
We are focused on enhancing the performance of our television networks in each country, which we expect will continue improving operating margins and cash generation over the short- and medium-term. The main elements of our strategy are as follows:
leveraging popular content to maintain or increase our audience share leadership and advertising market shares in all of our operating countries;
driving growth in advertising revenues through our pricing strategies;
increasing carriage fees and subscription revenues to reduce reliance on advertising revenues;
optimizing content costs while safeguarding our brands and competitive strengths; and
maintaining a strict cost discipline by controlling other expenses.
As market leaders with experienced management teams in each country, we believe we are well positioned to identify new challenges in a timely manner and adjust our strategy as new opportunities or threats arise.
We manage our business on a geographical basis with six operating segments: Bulgaria, Croatia, the Czech Republic, Romania, the Slovak Republic and Slovenia. These operating segments, which are also our reportable segments, reflect how our operating performance is evaluated by our chief operating decision makers, who we have identified as our co-Chief Executive Officers ("co-CEOs"); how our operations are managed by segment managers; and the structure of our internal financial reporting.
Non-GAAP Financial Measures
In this report we refer to several non-GAAP financial measures, including OIBDA, OIBDA margin, free cash flow and unlevered free cash flow. We believe that each of these metrics is useful to investors for the reasons outlined below. Non-GAAP financial measures may not be comparable to similar measures reported by other companies. Non-GAAP financial measures should be evaluated in conjunction with, and are not a substitute for, US GAAP financial measures.
We evaluate our consolidated results and the performance of our segments based on net revenues and OIBDA. We believe OIBDA is useful to investors because it provides a meaningful representation of our performance, as it excludes certain items that do not impact either our cash flows or the operating results of our operations. OIBDA and unlevered free cash flow are also used as components in determining management bonuses.
OIBDA includes amortization and impairment of program rights and is calculated as operating income / loss before depreciation, amortization of intangible assets and impairments of assets and certain unusual or infrequent items that are not considered by our co-CEOs when evaluating our performance. Stock-based compensation and certain other items are not allocated to our segments for purposes of evaluating their performance and therefore are not included in their respective OIBDA. Our key performance measure of the efficiency of our consolidated operations and our segments is OIBDA margin. We define OIBDA margin as the ratio of OIBDA to net revenues.
We have previously used free cash flow as a measure of the ability of our operations to generate cash. We define free cash flow as net cash generated from continuing operating activities less purchases of property, plant and equipment, net of disposals of property, plant and equipment and excluding the cash impact of certain unusual or infrequent items that are not included in costs charged in arriving at OIBDA because they are not considered by our co-CEOs when evaluating performance. Following the refinancing transaction completed in April 2016, the amount of interest and related Guarantee Fees on our outstanding indebtedness that is paid in cash has increased. In addition to this obligation to pay more interest and related Guarantee Fees in cash, we expect to use cash generated by the business to pay Guarantee Fees that are payable in kind, including accrued Guarantee Fees. These cash payments are all reflected in free cash flow; accordingly we believe unlevered free cash flow, defined as free cash flow before cash payments for interest and Guarantee Fees, better illustrates the cash generated by our operations when comparing periods.
For additional information regarding our business segments, including a reconciliation of OIBDA to US GAAP financial measures, see Item 8, Note 19, "Segment Data". For a reconciliation of free cash flow and unlevered free cash flow to a US GAAP financial measure, see "Free Cash Flow and Unlevered Free Cash Flow" below.
While our reporting currency is the dollar, our consolidated revenues and costs are divided across a range of European currencies and CME Ltd.’s function currency is the Euro. Given the significant movement of the currencies in the markets in which we operate against the dollar, we believe that it is useful to provide percentage movements based on actual (“% Act”) percentage movements, which includes the effect of foreign exchange, as well as like-for-like percentage movements (“% Lfl”). The like-for-like percentage movement references reflect the impact of applying the current period average exchange rates to the prior period revenues and costs. Since the difference between like-for-like and actual percentage movements is solely the impact of movements in foreign exchange rates, our discussion in the following analysis is focused on constant currency percentage movements in order to highlight those factors influencing operational performance. The incremental impact of foreign exchange rates is presented in the tables preceding such analysis.


17


Executive Summary
Our operational and financial results in 2016 reflect significant progress in executing our strategy and position the company for continued growth in 2017 and beyond. We maintained our audience share leadership and television advertising market shares by leveraging our competitive advantages and making targeted investments in local programming in certain markets amid heavy competition. Building on our momentum from recent years, overall growth in our television advertising markets and our efforts to increase non-advertising based revenues, combined with our success in keeping overall costs broadly flat, contributed to a further improvement in profitability. As a result, our net leverage ratio (as defined in the Reimbursement Agreement) at the end of 2016 was less than seven times, which is down from eleven times at the start of 2015. We expect the net leverage ratio to decrease further due to sustained improvements in OIBDA, as well as a lower level of net debt from cash generated by the business, which will be used, together with expected proceeds from warrant exercises, to substantially repay our nearest debt maturity. Following the refinancing transaction completed in April 2016, further specified decreases in our net leverage ratio will automatically lower the cost of borrowing on approximately half of our debt, and in turn support further improvement in our free cash flow through lower Guarantee Fee obligations.
The following tables provide a summary of our consolidated results for the years ended December 31, 2016, 2015 and 2014:
 
For The Year Ended December 31, (US$ 000's)
 
 
 
 
 
Movement
 
 
 
 
 
Movement
 
2016

 
2015

 
% Act

 
% Lfl

 
2015

 
2014

 
% Act

 
% Lfl

Net revenues
$
638,013

 
$
605,841

 
5.3
%
 
5.4
%
 
$
605,841

 
$
680,793

 
(11.0
)%
 
5.9
%
Operating income
111,589

 
94,583

 
18.0
%
 
17.3
%
 
94,583

 
38,280

 
147.1
 %
 
198.2
%
Operating margin
17.5
%
 
15.6
%
 
1.9 p.p.
 
1.8 p.p.
 
15.6
%
 
5.6
%
 
10.0 p.p.
 
10.1 p.p.
OIBDA
$
150,049

 
$
122,815

 
22.2
%
 
21.4
%
 
$
122,815

 
$
95,446

 
28.7
 %
 
52.9
%
OIBDA margin
23.5
%
 
20.3
%
 
3.2 p.p.
 
3.1 p.p.
 
20.3
%
 
14.0
%
 
6.3 p.p.
 
6.2 p.p.
Our consolidated net revenues increased 5% at actual and constant exchange rates in 2016 compared to 2015 due to an increase in both television advertising revenues and carriage fee and subscription revenues. Television advertising spending in the markets of the countries in which we operate grew an estimated 6% at constant rates in 2016 compared to 2015. Our consolidated television advertising revenues grew 5% at actual and constant rates driven primarily by improvement in four out of six countries in which we operate, including our three largest markets, the Czech Republic, Romania and the Slovak Republic. Carriage fees and subscription revenues increased 8% at actual rates and 9% at constant rates due primarily to growth in the number of subscribers reported by cable, satellite and Internet protocol television ("IPTV") operators as well as high definition channels and new channels available exclusively on these platforms.
On an actual and constant currency basis, costs charged in arriving at OIBDA increased 1% in 2016 compared to 2015. We controlled costs overall, while spending more on popular local content, by offsetting this investment with savings in foreign fiction as well as reducing other operating and overhead costs.
Our focus on controlling costs while improving revenues led to another year of OIBDA margin expansion, which increased to 24% in 2016 from 20% in 2015. We expect the trend of revenues growing at a faster pace than costs will continue for the next several years, leading to further margin expansion.
The improvement in operating income in 2016 compared to 2015 primarily reflects the year-on-year increase in OIBDA, excluding the US$ 12.0 million benefit in operating income from the reversal of charges in 2015 related to tax audits in Romania, which were accrued in the fourth quarter of 2014 and in the first quarter of 2015 and fully released in the third quarter of 2015. Since these charges were not included in OIBDA in 2014, our reversal of these charges during 2015 was similarly excluded from OIBDA.
We remained audience share leaders during 2016 in all of the countries in which we operate and improved our relative position in all day audience share in four countries. These audience shares give us a strong offering for advertisers, and we believe we continue to provide the most efficient medium to reach consumers.
The progress made during 2016 and the continued improvement expected in the coming years positions the company for even higher profitability of our operations. Looking ahead to 2017 and beyond:
Analysts estimate that GDP growth in the countries in which we operate will continue to outpace that of the developed markets (as defined below), and projections from the International Monetary Fund forecast Romania to have the highest GDP growth rate in the European Union again in 2017. We anticipate the television advertising market in each of our countries will grow in 2017.
The increase in demand we have seen for television advertising in 2016 is leading to higher list prices in our sales policies for 2017. This is particularly true in Romania and the Slovak Republic, as both our operations and the respective markets were largely sold-out in 2016. Average realized prices for the year will ultimately depend on a number of factors, including the timing of commitments made for spending in 2017, the portion of those commitments that is prepaid, the volume of those commitments relative to 2016, and the seasonality of advertisements actually placed in 2017.
We expect non-advertising based carriage fees and subscription revenues to increase further. From January 2017, our channels in both the Slovak Republic and Slovenia have been available exclusively on cable, satellite and IPTV platforms. This may initially result in lower audience shares in these countries, which could negatively impact our television advertising revenues in 2017. However, we expect an increase in carriage fees and subscription revenues in 2017, as well as a significant decrease in transmission costs, which we believe will more than offset any negative impact on television advertising revenues and improve margins in each country. We also expect increases across our markets in the number of subscribers to cable, satellite and IPTV platforms to continue, which would benefit profitability in all countries.
Local content continues to attract larger audiences and competition for audience share remains significant. As a result, we continually refine our program grids and intend to maintain targeted investments in local content in a cost effective manner. As part of this strategy, we recently rebranded our niche channels in the Czech Republic to bring them under the umbrella of our flagship brand, NOVA. We intend to expand our offering of local content on some of these smaller channels, which historically have broadcast more foreign content, to make them more attractive to viewers. Although these investments will cause our content costs to increase in 2017, we expect much of this to be offset by other cost savings.

18


Management remains focused on long-term value creation and in the near term we should continue to benefit from specified decreases in our net leverage ratio from less than seven times at the end of 2016, which automatically reduces our cost of borrowing as well as our sensitivity to external shocks, and adds to our increasing cash flow generation. We anticipate using cash generated by the business, together with expected proceeds from warrant exercises and savings from lower debt service obligations, to substantially repay our nearest debt maturity in November 2018. We intend to commence repayment of such maturity beginning November 2017. To that end, we expect to pay all Guarantee Fees related to the 2018 Euro Term Loan in cash as they come due. We anticipate paying Guarantee Fees related to the 2019 Euro Term Loan and 2021 Euro Term Loan in kind, where we have the option.
In recent years, our liabilities for income taxes have not been significant. However, as the operating companies in each jurisdiction return to generating profits and previous net operating losses are utilized, the amount of cash paid for income taxes is expected to increase.
Competition from subscription video on demand ("SVOD") platforms may increase as Amazon Prime has recently joined Netflix in providing a primarily English language version of their service to viewers in our countries. We believe this will benefit each market in terms of conditioning consumers to pay for content they watch online. However, similar to television viewing trends in our countries, we expect local content to have better success in attracting SVOD audiences. Therefore, Voyo, our SVOD product launched in 2011, is better positioned to capitalize on any changes in viewing habits since the local productions that have made our television channels market leaders are also available in local language to Voyo subscribers. We will continue to monitor developments in the SVOD market for profitable investment strategies, including opportunities to offer Voyo with our linear channels for cable, satellite and IPTV operators, as well as build-out our offering of advertising video on demand products and other offerings for advertising online, supported by our investments in local content.
While some analysts forecast spending for online advertising to overtake television advertising in the United States during 2017, we don't expect to see a similar dynamic in our markets in the short- to medium-term due to various factors, including lower rates of broadband penetration, the type of products advertised and the broad reach that television provides in the desired target audiences.
Foreign exchange rates may again have a significant impact on our results when reported in dollars. Due to inflation in the Czech Republic hitting 2% in December 2016 and increasing inflation expectations for 2017, the Czech National Bank is expected to begin withdrawing its floor related to the EUR/CZK exchange rate during 2017, subject to fiscal policies of developed countries and monetary policies of other central banks. On its own, this is expected to cause the Czech Koruna to strengthen relative to the dollar and therefore improve the results of our largest operation in dollar terms. Fluctuations in exchange rates for our currencies will otherwise not have a significant impact on either our day-to-day operations because revenues and operating expenses are generally denominated in local currencies or on our net leverage ratio. Following completion of the refinancing transactions in April 2016, the principal amount of our outstanding senior debt is denominated in Euros.
Free Cash Flow and Unlevered Free Cash Flow
 
For The Year Ended December 31, (US$ 000's)
 
2016

 
2015

 
Movement

 
2015

 
2014

 
Movement

Net cash generated from / (used in) operating activities
$
33,917

 
$
85,877

 
(60.5
)%
 
$
85,877

 
$
(65,242
)
 
NM (1)

Capital expenditures, net
(29,356
)
 
(30,426
)
 
3.5
 %
 
(30,426
)
 
(28,548
)
 
(6.6
)%
Free cash flow
4,561

 
55,451

 
(91.8
)%
 
55,451

 
(93,790
)
 
159.1
 %
Cash paid for interest (including mandatory cash-pay Guarantee Fees)
53,982

 
18,457

 
192.5
 %
 
18,457

 
76,154

 
(75.8
)%
Cash paid for Guarantee Fees that may be paid in kind
37,440

 

 
NM (1)

 

 

 
 %
Unlevered free cash flow
$
95,983

 
$
73,908

 
29.9
 %
 
$
73,908

 
$
(17,636
)
 
NM (1)

(1) Number is not meaningful.
 
December 31, 2016

 
December 31, 2015

 
Movement

Cash and cash equivalents
$
43,459

 
$
61,679

 
(29.5
)%
Our unlevered free cash flow increased 30% to US$ 96.0 million in 2016 from US$ 73.9 million in 2015, due primarily to the increase in OIBDA. Free cash flow in 2016 decreased 92% compared to 2015 because we paid more interest in cash and elected to pay a total of US$ 37.4 million of Guarantee Fees in cash, including US$ 27.5 million of Guarantee Fees previously paid in kind. We ended the year with cash of US$ 43.5 million and access to another US$ 115.0 million of liquidity provided by the 2021 Revolving Credit Facility, which remains undrawn.
Capital Structure and Allocation
The refinancing transaction completed in April 2016 significantly reduced the company's cost of borrowing and improved the maturity profile of our debt. We anticipate using increased cash generated by the business, along with expected proceeds from warrant exercises and savings from lower debt service obligations to substantially repay our nearest debt maturity in November 2018. We intend to commence repayment of such maturity beginning November 2017.
As part of the transaction completed on April 8, 2016:
The new EUR 468.8 million 2021 Euro Term Loan was used, together with corporate cash, to repay the US$ 502.5 million aggregate principal amount of the 2017 PIK Notes and repay the US$ 38.2 million 2017 Term Loan, as well as accrued and unpaid interest.
The maturity date of the existing EUR 250.8 million term loan was extended by one year so the Company’s nearest debt maturity is November 2018.
The maturity date of our existing US$ 115.0 million revolving credit facility was extended from 2017 to 2021, with access to US$ 50.0 million of liquidity from 2018.

19


Following the transaction:
All outstanding long-term debt is denominated in Euros.
The all-in rate applicable to the 2021 Euro Term Loan and associated guarantee by Time Warner currently stands at 9.0%, an improvement of 600 basis points on the debt it replaced, and can go as low as 7.0% depending on our net leverage ratio, automatically decreasing the cost of borrowing as the Company’s net leverage ratio improves.
The cost of the 2021 Revolving Credit Facility, which is currently undrawn, similarly ranges from approximately 9.0% to 7.0%, depending on our net leverage ratio.
We recorded a non-cash loss on extinguishment of debt amounting to US$ 150.2 million in the second quarter of 2016.
With the flexibility afforded to us from this and previous financing transactions, we continue to look at ways to improve our capital structure. We expect our net leverage ratio, which was less than seven times at the end of 2016, to decrease in the coming years.
Market Information
After adjusting for inflation, we estimate that overall real GDP in the countries in which we operate grew on average more than 3% in 2016, almost double the growth rate of the developed markets, which grew at less than 2%. In this respect, "developed markets" refers to a combined group of 11 countries from within the European Union, predominantly from Western Europe, and the United States. The economies of the countries in which we operate continue to depend on exports as a driver of economic growth. However, domestic demand is becoming an increasingly large component of GDP, especially in our largest markets, thereby slightly reducing their sensitivity to external shocks and contributing to higher levels of macro-economic growth in recent years. It has been reported that growth in real private consumption has been driven by higher retail sales, which have been supported by various factors in different countries. These range from fiscal stimulus due to lower VAT rates in Romania to wage growth in the Czech Republic resulting in part from a historically low rate of unemployment in the country that is among the lowest in the European Union.
In 2017, analysts estimate that GDP growth in the countries in which we operate will continue to outpace that of the developed markets, with projections from the International Monetary Fund forecasting Romania to have the highest growth rate in Europe for a second year in a row. Retail sales and consumer confidence are expected to continue as a driver of growth in real private consumption, and in particular for Romania where lower income tax rates in 2017 should result in higher disposable income. We anticipate the macro-economic backdrop will support television advertising market growth in each of our countries in 2017.
Over the long-term, we believe that the convergence of GDP per capita in our markets with that of the developed markets will continue as economic conditions improve and sustained periods of higher growth return. The higher rates of economic growth compared to the developed markets should result in even higher rates of growth in advertising spending, which is driven by a number of factors:
Per capita nominal GDP at purchasing power parity in our markets remains approximately half that of the developed markets;
Total advertising spend per capita remains less than 10% of levels in the developed markets;
The ratio of total advertising spend per capita to nominal GDP per capita, also known as advertising intensity, was approximately a third that of the developed markets in 2016; and
In the markets in which we operate, basic products such as food, beverages and household cleaning supplies comprise the main source of advertising revenues, whereas in the developed markets, the marketing of premium products, including finance, automotive, entertainment and travel products, makes up the majority of current television advertising spending.
Since television was commercialized in our markets at the same time as other forms of media, television advertising generally accounts for a higher proportion of total advertising spend than in the developed markets, where newspapers, magazines and radio were established as advertising media well before the advent of television. And contrary to trends in developed markets, television advertising spend as a percentage of total advertising spend has grown in our markets during recent years, and was estimated to be 54% in 2016 compared to 40% in the developed markets.
We believe that television advertising will continue to hold its share of total advertising spend in our markets because of its greater reach and effective measurement capabilities, which makes this medium more appealing to advertisers compared to print, radio and outdoor advertising. Television is especially attractive to advertisers because it delivers high reach at low cost compared to other forms of media. More recently, internet advertising has grown at the expense of print and outdoor advertising, and we offer additional advertising opportunities when clients seek to complement their television campaigns with campaigns online. While spending for digital advertising is expected to overtake spending on television in the near-term in the developed markets, we believe the strength of television as an advertising medium in our markets will continue for the forseeable future due to the reach it provides as well as lower rates of broadband penetration in the countries in which we operate.

20


The following table sets out our estimates of television advertising spending net of discounts by country (in US$ millions) for the years set forth below:
Country
2016

 
2015

 
2014

Bulgaria
$
87

 
$
87

 
$
90

Croatia
91

 
89

 
86

Czech Republic
286

 
275

 
265

Romania*
216

 
191

 
177

Slovak Republic
134

 
124

 
107

Slovenia
64

 
60

 
57

Total CME Markets
$
878

 
$
826

 
$
782

Growth rate
6
%
 
6
%
 
3
%
* Romania market excludes Moldova.
Source: CME estimates, using the 2016 average exchange rate for all periods presented above.
On a constant currency basis, we estimate television advertising spending in our markets increased by 6% in 2016 compared to the previous year. In Bulgaria the market was flat as heavy competition for market share continued to negatively impact average market prices, offsetting an increase in the volume of gross ratings points ("GRPs") sold. The market growth of 2% in Croatia was due to an increase in both average market prices and GRPs sold. In the Czech Republic sell-out rates increased in 2016 as advertisers placed more advertising than in 2015, but average prices were lower due to significant discounting by the competition to sell their incremental inventory so the market increased an estimated 4%. In Romania, the market maintained significant growth in the last nine months of the year and was largely sold-out during that period, so the combination of an increase in GRPs sold and higher average prices resulted in 13% growth in 2016. In the Slovak Republic, estimated market growth of 8% was driven by higher prices. Demand in the Slovak Republic in the first half of the year was also influenced by an increase in spending on informational and political campaigns, but this spending declined year-on-year in the third quarter and fourth quarters so fewer GRPs were sold in 2016 since this spending started in late 2015. In Slovenia, a more positive macro-economic environment has encouraged advertisers to increase investments resulting in an estimated 7% market growth driven by higher prices.
Segment Performance
 
NET REVENUES
 
For The Year Ended December 31, (US$ 000's)
 
 
 
 
 
Movement
 
 
 
 
 
Movement
 
2016

 
2015

 
% Act

 
% Lfl

 
2015

 
2014

 
% Act

 
% Lfl

Bulgaria
$
72,651

 
$
73,090

 
(0.6
)%
 
(0.3
)%
 
$
73,090

 
$
87,078

 
(16.1
)%
 
0.2
%
Croatia
55,607

 
55,912

 
(0.5
)%
 
(1.6
)%
 
55,912

 
62,026

 
(9.9
)%
 
7.8
%
Czech Republic
190,372

 
182,636

 
4.2
 %
 
3.5
 %
 
182,636

 
202,779

 
(9.9
)%
 
6.3
%
Romania
172,951

 
157,578

 
9.8
 %
 
11.3
 %
 
157,578

 
178,614

 
(11.8
)%
 
5.4
%
Slovak Republic
90,549

 
84,434

 
7.2
 %
 
7.5
 %
 
84,434

 
90,556

 
(6.8
)%
 
11.0
%
Slovenia
56,912

 
54,233

 
4.9
 %
 
5.2
 %
 
54,233

 
61,370

 
(11.6
)%
 
5.5
%
Intersegment revenues
(1,029
)
 
(2,042
)
 
NM (1)

 
NM (1)

 
(2,042
)
 
(1,630
)
 
NM (1)

 
NM (1)

Total Net Revenues
$
638,013

 
$
605,841

 
5.3
 %
 
5.4
 %
 
$
605,841

 
$
680,793

 
(11.0
)%
 
5.9
%
(1) Number is not meaningful.

21


 
OIBDA
 
For The Year Ended December 31, (US$ 000's)
 
 
 
 
 
Movement
 
 
 
 
 
Movement
 
2016

 
2015

 
% Act

 
% Lfl

 
2015

 
2014

 
% Act

 
% Lfl

Bulgaria
$
12,242

 
$
15,479

 
(20.9
)%
 
(20.7
)%
 
$
15,479

 
$
9,367

 
65.3
%
 
96.1
 %
Croatia
8,578

 
7,880

 
8.9
 %
 
5.6
 %
 
7,880

 
7,835

 
0.6
%
 
21.9
 %
Czech Republic
77,018

 
71,697

 
7.4
 %
 
6.2
 %
 
71,697

 
61,964

 
15.7
%
 
35.1
 %
Romania
62,016

 
41,176

 
50.6
 %
 
51.7
 %
 
41,176

 
37,259

 
10.5
%
 
31.9
 %
Slovak Republic
15,947

 
10,585

 
50.7
 %
 
47.8
 %
 
10,585

 
4,586

 
130.8
%
 
164.5
 %
Slovenia
4,801

 
6,057

 
(20.7
)%
 
(20.6
)%
 
6,057

 
5,331

 
13.6
%
 
33.6
 %
Eliminations
2

 
(229
)
 
NM (1)

 
NM (1)

 
(229
)
 
(16
)
 
NM (1)

 
NM (1)

Total operating segments
180,604

 
152,645


18.3
 %

17.7
 %

152,645


126,326


20.8
%

42.5
 %
Corporate
(30,555
)
 
(29,830
)
 
(2.4
)%
 
(2.4
)%
 
(29,830
)
 
(30,880
)
 
3.4
%
 
(11.4
)%
Total OIBDA
$
150,049

 
$
122,815

 
22.2
 %
 
21.4
 %
 
$
122,815

 
$
95,446

 
28.7
%
 
52.9
 %
(1) Number is not meaningful.

Bulgaria
 
For the Year Ended December 31, (US$ 000's)
 
 
 
 
 
Movement
 
 
 
 
 
Movement
 
2016

 
2015

 
% Act

 
% Lfl

 
2015

 
2014

 
% Act

 
% Lfl

Television advertising
$
49,111

 
$
50,717

 
(3.2
)%
 
(3.0
)%
 
$
50,717

 
$
61,464

 
(17.5
)%
 
(1.6
)%
Carriage fees and subscriptions
18,703

 
17,853

 
4.8
 %
 
5.3
 %
 
17,853

 
19,808

 
(9.9
)%
 
7.8
 %
Other
4,837

 
4,520

 
7.0
 %
 
7.3
 %
 
4,520

 
5,806

 
(22.1
)%
 
(6.9
)%
Net revenues
72,651

 
73,090

 
(0.6
)%
 
(0.3
)%
 
73,090

 
87,078

 
(16.1
)%
 
0.2
 %
Costs charged in arriving at OIBDA
60,409

 
57,611

 
4.9
 %
 
5.2
 %
 
57,611

 
77,711

 
(25.9
)%
 
(11.4
)%
OIBDA
$
12,242

 
$
15,479

 
(20.9
)%
 
(20.7
)%
 
$
15,479

 
$
9,367

 
65.3
 %
 
96.1
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OIBDA margin
16.9
%
 
21.2
%
 
(4.3) p.p.

 
(4.3) p.p.

 
21.2
%
 
10.8
%
 
10.4 p.p.

 
10.4 p.p.

The television advertising market in Bulgaria was estimated to be the same size at constant rates in 2016 as it was in 2015.
Television advertising revenues declined slightly in 2016 compared to 2015 as significant competition for market share has flooded the market with inexpensive inventory, which continues to negatively impact our average prices and this has more than offset an increase in the volume of our GRPs sold. Carriage fees and subscription revenues increased because the number of cable, satellite and IPTV subscribers has grown during the course of the year and a distribution agreement was renewed at higher prices during the third quarter.
Television advertising revenues decreased at constant rates in 2015 compared to 2014 primarily due to spending on election campaigns in 2014, and also reflected some reduction in budgets from certain advertisers in 2015. The lack of spending on election campaigns in 2015 impacted the market more than it did our results, therefore excluding spending on election campaigns, our television advertising revenues increased almost 1% year-on-year due to an increase in GRPs sold, which more than offset lower average prices. The decrease in television advertising revenues during 2015 was offset by an increase in carriage fees and subscription revenues on a constant currency basis primarily due to growth in the number of cable, satellite and IPTV subscribers.
Costs charged in arriving at OIBDA increased at constant rates in 2016 compared to 2015 due primarily to a US$ 3.4 million bad debt charge related to our decision to cease cooperation with one agency during the fourth quarter of 2016 and instead started working directly with the clients that agency represented. We replaced the segment manager in December 2016 and continue to seek to recover the uncollected receivables. Content costs decreased less than 4% at constant rates, which was driven by savings in foreign acquired programming that more than offset a slight increase in sports rights.
On a constant currency basis, costs decreased significantly in 2015 compared to 2014 primarily due to lower bad debt expense, restructuring charges incurred during 2014 that were not repeated in 2015, and lower transmission costs, as two of our niche channels were available exclusively on cable and satellite platforms starting in 2015.



22


Croatia
 
For the Year Ended December 31, (US$ 000's)
 
 
 
 
 
Movement
 
 
 
 
 
Movement
 
2016

 
2015

 
% Act

 
% Lfl

 
2015

 
2014

 
% Act

 
% Lfl

Television advertising
$
49,096

 
$
49,616

 
(1.0
)%
 
(2.2
)%
 
$
49,616

 
$
56,260

 
(11.8
)%
 
5.5
%
Carriage fees and subscriptions
2,561

 
2,331

 
9.9
 %
 
9.2
 %
 
2,331

 
1,993

 
17.0
 %
 
39.8
%
Other
3,950

 
3,965

 
(0.4
)%
 
(0.9
)%
 
3,965

 
3,773

 
5.1
 %
 
25.7
%
Net revenues
55,607

 
55,912

 
(0.5
)%
 
(1.6
)%
 
55,912

 
62,026

 
(9.9
)%
 
7.8
%
Costs charged in arriving at OIBDA
47,029

 
48,032

 
(2.1
)%
 
(2.8
)%
 
48,032

 
54,191

 
(11.4
)%
 
5.8
%
OIBDA
$
8,578

 
$
7,880

 
8.9
 %
 
5.6
 %
 
$
7,880

 
$
7,835

 
0.6
 %
 
21.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OIBDA margin
15.4
%
 
14.1
%
 
1.3 p.p.

 
1.0 p.p.

 
14.1
%
 
12.6
%
 
1.5 p.p.

 
1.6 p.p.

The television advertising market in Croatia increased an estimated 2% at constant rates in 2016 compared to 2015.
Our television advertising revenues decreased at constant rates in 2016 as we sold a lower volume of GRPs compared to 2015, albeit at a higher average price. There was also a decrease in sponsorship revenues.
The increase in television advertising revenues at constant rates in 2015 compared to 2014 was driven primarily by an increase in average prices due to advertisers spending more since the country exited recession in the second quarter of 2015.
Costs charged in arriving at OIBDA in 2016 decreased on a constant currency basis compared to 2015 due to a 1% decrease in content costs, as savings in the costs related to foreign acquired content more than offset additional local entertainment in the schedule compared to 2015. There was also a decrease in non-programming costs related to the reversal of a tax provision in 2016, which is not expected to repeat in future periods.
On a constant currency basis, costs increased in 2015 compared to 2014 due to an increase in content costs resulting from additional entertainment formats in the fall schedule and other targeted investments made to address an increase in competition for audience share.


23


Czech Republic
 
For the Year Ended December 31, (US$ 000's)
 
 
 
 
 
Movement
 
 
 
 
 
Movement
 
2016

 
2015

 
% Act

 
% Lfl

 
2015

 
2014

 
% Act

 
% Lfl

Television advertising
$
172,392

 
$
166,158

 
3.8
 %
 
3.0
 %
 
$
166,158

 
$
184,369

 
(9.9
)%
 
6.3
 %
Carriage fees and subscriptions
10,325

 
7,176

 
43.9
 %
 
43.0
 %
 
7,176

 
7,679

 
(6.6
)%
 
11.1
 %
Other
7,655

 
9,302

 
(17.7
)%
 
(18.1
)%
 
9,302

 
10,731

 
(13.3
)%
 
2.9
 %
Net revenues
190,372

 
182,636

 
4.2
 %
 
3.5
 %
 
182,636

 
202,779

 
(9.9
)%
 
6.3
 %
Costs charged in arriving at OIBDA
113,354

 
110,939

 
2.2
 %
 
1.7
 %
 
110,939

 
140,815

 
(21.2
)%
 
(6.6
)%
OIBDA
$
77,018

 
$
71,697

 
7.4
 %
 
6.2
 %
 
$
71,697

 
$
61,964

 
15.7
 %
 
35.1
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OIBDA margin
40.5
%
 
39.3
%
 
1.2 p.p.

 
1.1 p.p.

 
39.3
%
 
30.6
%
 
8.7 p.p.

 
8.4 p.p.

(1) Number is not meaningful.
The television advertising market in the Czech Republic increased an estimated 4% at constant rates in 2016 compared to 2015.
Advertisers bought more GRPs in 2016 resulting in higher television advertising revenues compared to 2015, however our average price for advertising was lower due to significant discounting by the competition to sell incremental inventory provided by channels they launched late in 2015, which partially offset the additional volumes sold. Carriage fees and subscription revenues increased due to high definition versions of our channels that were available exclusively on cable and satellite platforms for the entire year, as well as the contribution of NOVA SPORT 2, launched in September 2015, and the launch of NOVA INTERNATIONAL during the first quarter of 2016.
Television advertising revenues increased on a constant currency basis in 2015 compared to 2014 due primarily to an increase in GRPs sold. Our relative pricing also strengthened. Carriage fees and subscription revenues also increased on a constant currency basis during 2015, as high definition versions of our channels were included in most cable and satellite platforms during the course of the year and also due to the launch of NOVA SPORT 2.
Costs charged in arriving at OIBDA in 2016 increased slightly on a constant currency basis compared to 2015 due to an increase in content costs. Additional spending to introduce several entertainment formats in the program grid during 2016, including Your Face Sounds Familiar, was mostly offset by savings in local fiction, foreign acquired programming, and other non-programming costs.
We recently rebranded our niche channels in the Czech Republic to bring them under the umbrella of our flagship brand, NOVA, and will expand our offering of local content on some of these smaller channels, which historically have broadcast more foreign content, to make them more attractive to viewers. Although these investments will cause our content costs to increase in 2017, we expect much of this to be offset by other overall cost savings.
On a constant currency basis, costs decreased in 2015 compared to 2014 as a result of a 9% decrease in content costs due to more efficient own production, better use of the program library, and broadcasting more cost effective formats. There were also restructuring charges incurred in 2014 that were not repeated in 2015, which also decreased personnel costs in 2015. These savings more than offset some additional investments in local productions.


24


Romania
 
For the Year Ended December 31, (US$ 000's)
 
 
 
 
 
Movement
 
 
 
 
 
Movement
 
2016

 
2015

 
% Act

 
% Lfl

 
2015

 
2014

 
% Act

 
% Lfl

Television advertising
$
128,814

 
$
113,460

 
13.5
 %
 
14.9
 %
 
$
113,460

 
$
125,736

 
(9.8
)%
 
7.7
 %
Carriage fees and subscriptions
40,202

 
40,292

 
(0.2
)%
 
1.5
 %
 
40,292

 
45,851

 
(12.1
)%
 
5.3
 %
Other
3,935

 
3,826

 
2.8
 %
 
4.2
 %
 
3,826

 
7,027

 
(45.6
)%
 
(34.9
)%
Net revenues
172,951

 
157,578

 
9.8
 %
 
11.3
 %
 
157,578

 
178,614

 
(11.8
)%
 
5.4
 %
Costs charged in arriving at OIBDA
110,935

 
116,402

 
(4.7
)%
 
(3.2
)%
 
116,402

 
141,355

 
(17.7
)%
 
(1.6
)%
OIBDA
$
62,016

 
$
41,176

 
50.6
 %
 
51.7
 %
 
$
41,176

 
$
37,259

 
10.5
 %
 
31.9
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OIBDA margin
35.9
%
 
26.1
%
 
9.8 p.p.

 
9.6 p.p.

 
26.1
%
 
20.9
%
 
5.2 p.p.

 
5.2 p.p.


The television advertising market in Romania increased an estimated 13% at constant rates in 2016 compared to 2015.
A fiscal stimulus is believed to have fueled improved consumer confidence and spending, which helped increase demand for advertising on television during the course of 2016. We fully monetized additional inventory generated by our main channel compared to the prior year, which led to a higher sell-out rate in 2016. Contributing to this was the broadcasting of UEFA European Championship matches in the second and third quarters. Since we sold more GRPs at significantly higher prices, our television advertising revenues increased during the year. Carriage fees and subscription revenues grew slightly on a constant currency basis due to an increase in the number of cable and satellite subscribers.
Our television advertising revenues increased on a constant currency basis in 2015 compared to 2014 due to an increase in GRPs sold. Net revenues during 2015 also benefited from an increase in carriage fees and subscription revenues due to an increase in the number of subscribers and improved prices from certain contracts that only took effect during the first quarter of 2014.
Costs charged in arriving at OIBDA in 2016 decreased at constant rates compared to 2015. Non-programming costs decreased, primarily as a result of lower bad debts and professional fees, savings from restructuring efforts, and lower transmission costs. This more than offset an increase in content costs as we invested more in the schedule to generate additional inventory, which included the costs associated with broadcasting UEFA European Championship matches.
On a constant currency basis, costs decreased in 2015 compared to 2014 due to a decrease in content costs from fewer hours of foreign programming in the schedule and a reduction in the cost of abandoned development projects, which more than offset an increase in the number of hours of local programming during 2015 compared to 2014. There were also fewer restructuring charges in 2015 than in 2014.



25


Slovak Republic
 
For the Year Ended December 31, (US$ 000's)
 
 
 
 
 
Movement
 
 
 
 
 
Movement
 
2016

 
2015

 
% Act

 
% Lfl

 
2015

 
2014

 
% Act

 
% Lfl

Television advertising
$
84,779

 
$
79,135

 
7.1
 %
 
7.4
 %
 
$
79,135

 
$
85,355

 
(7.3
)%
 
10.3
%
Carriage fees and subscriptions
2,101

 
1,324

 
58.7
 %
 
59.0
 %
 
1,324

 
980

 
35.1
 %
 
61.9
%
Other
3,669

 
3,975

 
(7.7
)%
 
(7.5
)%
 
3,975

 
4,221

 
(5.8
)%
 
13.0
%
Net revenues
90,549

 
84,434

 
7.2
 %
 
7.5
 %
 
84,434

 
90,556

 
(6.8
)%
 
11.0
%
Costs charged in arriving at OIBDA
74,602

 
73,849

 
1.0
 %
 
1.6
 %
 
73,849

 
85,970

 
(14.1
)%
 
2.5
%
OIBDA
$
15,947

 
$
10,585

 
50.7
 %
 
47.8
 %
 
$
10,585

 
$
4,586

 
130.8
 %
 
164.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OIBDA margin
17.6
%
 
12.5
%
 
5.1 p.p.

 
4.8 p.p.

 
12.5
%
 
5.1
%
 
7.4 p.p.

 
7.2 p.p.

The television advertising market in the Slovak Republic increased an estimated 8% at constant rates in 2016 compared to 2015.
Our television advertising revenues grew in 2016 compared to 2015 due primarily to higher prices, reflecting strong demand for advertising on television while the market remained largely sold-out. Spending on informational and political campaigns during the first half of 2016 began to decline in the third quarter and due to the level of this spending that began in the second half of 2015, fewer GRPs were sold in 2016 compared to 2015, which reduced the benefit of the increase in prices. Carriage fees and subscription revenues increased in 2016 as we entered into new agreements with a number of carriers and launched MARKIZA INTERNATIONAL during the first quarter of 2016.
Television advertising revenues grew on a constant currency basis in 2015 compared to 2014 due to higher prices and an increase in GRPs sold. The second half of 2015 also included an increase in spending on informational campaigns by the public sector.
From January 1, 2017 our channels in the Slovak Republic have been exclusively available on cable, satellite and IPTV platforms following our decision not to renew our contract for the terrestrial distribution of our channels there. This may initially result in lower audience shares, which could negatively impact our television advertising revenues in 2017 given our elevated sell-out rate. However, we expect a significant increase in carriage fees and subscription revenues in 2017, as well as a significant decrease in transmission costs, which we believe will more than offset any negative impact on television advertising revenues and contribute to higher margins for the segment.
Costs charged in arriving at OIBDA in 2016 increased slightly compared to 2015 due to increases in various non-programming costs. Content costs were flat year-on-year as investments in local content were offset by savings from foreign acquired programming.
On a constant currency basis, costs increased in 2015 compared to 2014 due to an increase in the quality and number of hours of own production following increased competition for audience share which was only partially offset by savings from lower transmission and marketing costs.


26


Slovenia
 
For the Year Ended December 31, (US$ 000's)
 
 
 
 
 
Movement
 
 
 
 
 
Movement
 
2016

 
2015

 
% Act

 
% Lfl

 
2015

 
2014

 
% Act

 
% Lfl

Television advertising
$
48,408

 
$
46,412

 
4.3
 %
 
4.5
 %
 
$
46,412