Central European Media Enterprises Ltd.
Unaudited Pro Forma Condensed Consolidated Financial Information
On April 7, 2010 Central European Media Enterprises Ltd. (“CME” or “the Company”) completed the sale of CME’s Studio 1+1 and Kino businesses (the “Studio 1+1 group”) in Ukraine (the “Ukraine Sale”) to Harley Trading Limited, a company beneficially owned by Mr. Igor Kolomoisky, a CME shareholder and a member of our Board of Directors, for cash consideration of $300.0 million plus the reimbursement of $8.0 million of cash expenses the Studio 1+1 group incurred between signing and closing of the transaction.
The following unaudited pro forma condensed consolidated financial information reflects the Ukraine Sale. The Unaudited Pro Forma Condensed Consolidated Balance Sheet gives effect to the disposal as if it had occurred on December 31, 2009. The Unaudited Pro Forma Condensed Consolidated Statements of Operations for the years ended December 31, 2009, 2008 and 2007 give effect to the disposal as if it had occurred on January 1, 2007.
The unaudited pro forma condensed consolidated financial information is based upon the historical consolidated financial statements and notes thereto of CME and should be read in conjunction with the audited historical financial statements of CME included within the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 which was filed with the Securities and Exchange Commission on February 24, 2010.
The pro forma adjustments are based upon currently available information and certain estimates and assumptions, and therefore the actual results may differ from the pro forma results. However, management believes that the assumptions provide a reasonable basis for presenting the significant effects of the transaction as contemplated, and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma condensed consolidated financial information.
The unaudited pro forma condensed consolidated financial information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the disposal had been completed at the dates indicated. The information does not necessarily indicate the future operating results or financial position of CME.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
Unaudited Pro Forma Condensed Consolidated Balance Sheet as at December 31, 2009
(US$ 000’s)
| | | Historical CME | | | Ukraine Sale | | | Pro Forma Combined | |
| ASSETS | | | | | | | | | |
| Current assets | | | | | | | | | |
| Cash and cash equivalents | | $ | 458,529 | | | $ | 295,425 | | | $ | 753,954 | |
| Accounts receivable, net | | | 186,978 | | | | (5,995 | ) | | | 180,983 | |
| Program rights, net | | | 82,007 | | | | (8,085 | ) | | | 73,922 | |
| Other current assets | | | 102,291 | | | | (8,038 | ) | | | 94,253 | |
| Total current assets | | | 829,805 | | | | 273,307 | | | | 1,103,112 | |
| | | | | | | | | | | | | |
| Non-current assets | | | | | | | | | | | | |
| Property, plant and equipment, net | | | 279,436 | | | | (4,726 | ) | | | 274,710 | |
| Program rights, net | | | 184,038 | | | | (1,437 | ) | | | 182,601 | |
| Goodwill | | | 1,136,273 | | | | - | | | | 1,136,273 | |
| Broadcast licenses and other intangible assets | | | 398,418 | | | | (45,175 | ) | | | 353,243 | |
| Other non-current assets | | | 44,817 | | | | (318 | ) | | | 44,499 | |
| Total non-current assets | | | 2,042,982 | | | | (51,656 | ) | | | 1,991,326 | |
| Total assets | | $ | 2,872,787 | | | $ | 221,651 | | | $ | 3,094,438 | |
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| LIABILITIES AND EQUITY | | | | | | | | | | | | |
| Current liabilities | | | | | | | | | | | | |
| Accounts payable and accrued liabilities | | $ | 213,699 | | | $ | (14,064 | ) | | $ | 199,635 | |
| Credit facilities and obligations under capital leases | | | 117,910 | | | | - | | | | 117,910 | |
| Other current liabilities | | | 18,114 | | | | (5,274 | ) | | | 12,840 | |
| Total current liabilities | | | 349,723 | | | | (19,338 | ) | | | 330,385 | |
| Non-current liabilities | | | | | | | | | | | | |
| Credit facilities and obligations under capital leases | | | 6,030 | | | | - | | | | 6,030 | |
| Senior Notes | | | 1,253,928 | | | | - | | | | 1,253,928 | |
| Other non-current liabilities | | | 91,266 | | | | (2,395 | ) | | | 88,871 | |
| Total non-current liabilities | | | 1,351,224 | | | | (2,395 | ) | | | 1,348,829 | |
| Commitments and contingencies | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| CME LTD. SHAREHOLDERS' EQUITY: | | | | | | | | | | | | |
| 56,046,176 shares of Class A Common Stock of $0.08 each | | | 4,484 | | | | - | | | | 4,484 | |
| 7,490,936 shares of Class B Common Stock of $0.08 each | | | 599 | | | | - | | | | 599 | |
| Additional paid-in capital | | | 1,410,587 | | | | - | | | | 1,410,587 | |
| Accumulated deficit | | | (333,993 | ) | | | 217,159 | | | | (116,834 | ) |
| Accumulated other comprehensive income | | | 95,912 | | | | 26,225 | | | | 122,137 | |
| Total CME Ltd. shareholders’ equity | | | 1,177,589 | | | | 243,384 | | | | 1,420,973 | |
| Noncontrolling interests | | | (5,749 | ) | | | - | | | | (5,749 | ) |
| Total equity | | | 1,171,840 | | | | 243,384 | | | | 1,415,224 | |
| Total liabilities and equity | | $ | 2,872,787 | | | $ | 221,651 | | | $ | 3,094,438 | |
The accompanying notes are an integral part of the Unaudited Pro Forma Condensed Consolidated Financial Information.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the year ended December 31, 2009
(US$ 000’s, except per share amounts)
| | | Historical CME | | | Ukraine Sale | | | Pro Forma Combined | |
| Net revenues | | $ | 713,978 | | | $ | (32,033 | ) | | $ | 681,945 | |
| Cost of revenues | | | (599,243 | ) | | | 69,957 | | | | (529,286 | ) |
| Selling, general and administrative expenses | | | (116,072 | ) | | | 6,285 | | | | (109,787 | ) |
| Impairment charge | | | (81,843 | ) | | | - | | | | (81,843 | ) |
| Operating loss | | | (83,180 | ) | | | 44,209 | | | | (38,971 | ) |
| Interest income | | | 2,916 | | | | (40 | ) | | | 2,876 | |
| Interest expense | | | (115,771 | ) | | | - | | | | (115,771 | ) |
| Foreign currency exchange gain, net | | | 82,461 | | | | 459 | | | | 82,920 | |
| Change in fair value of derivatives | | | 1,315 | | | | - | | | | 1,315 | |
| Other income | | | 1,521 | | | | (136 | ) | | | 1,385 | |
| Loss from continuing operations before tax | | | (110,738 | ) | | | 44,492 | | | | (66,246 | ) |
| Credit / (Provision) for income taxes | | | 3,193 | | | | (7,930 | ) | | | (4,737 | ) |
| Loss from continuing operations | | | (107,545 | ) | | | 36,562 | | | | (70,983 | ) |
| Loss from continuing operations attributable to noncontrolling interests | | | 10,650 | | | | - | | | | 10,650 | |
| Loss from continuing operations attributable to CME | | $ | (96,895 | ) | | $ | 36,562 | | | $ | (60,333 | ) |
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| PER SHARE DATA: | | | | | | | | | | | | |
| Loss from continuing operations per common share attributable to CME: | | | | | | | | | | | | |
| Basic | | $ | (1.78 | ) | | | | | | $ | (1.11 | ) |
| Diluted | | $ | (1.78 | ) | | | | | | $ | (1.11 | ) |
| | | | | | | | | | | | | |
| Weighted average common shares used in computing per share amounts: | | | | | | | | | | | | |
| Basic | | | 54,344 | | | | | | | | 54,344 | |
| Diluted | | | 54,344 | | | | | | | | 54,344 | |
The accompanying notes are an integral part of the Unaudited Pro Forma Condensed Consolidated Financial Information.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the year ended December 31, 2008
(US$ 000’s, except per share amounts)
| | | Historical CME | | | Ukraine Sale | | | Pro Forma Combined | |
| Net revenues | | $ | 1,019,934 | | | $ | (99,458 | ) | | $ | 920,476 | |
| Cost of revenues | | | (670,462 | ) | | | 118,860 | | | | (551,602 | ) |
| Selling, general and administrative expenses | | | (140,517 | ) | | | 20,000 | | | | (120,517 | ) |
| Impairment charge | | | (336,752 | ) | | | 271,861 | | | | (64,891 | ) |
| Operating (loss) / income | | | (127,797 | ) | | | 311,263 | | | | 183,466 | |
| Interest income | | | 10,006 | | | | (356 | ) | | | 9,650 | |
| Interest expense | | | (82,481 | ) | | | 94 | | | | (82,387 | ) |
| Foreign currency exchange loss, net | | | (37,877 | ) | | | 2,307 | | | | (35,570 | ) |
| Change in fair value of derivatives | | | 6,360 | | | | - | | | | 6,360 | |
| Other income | | | 2,620 | | | | 11 | | | | 2,631 | |
| (Loss) / Income from continuing operations before tax | | | (229,169 | ) | | | 313,319 | | | | 84,150 | |
| Provision for income taxes | | | (34,525 | ) | | | (7,683 | ) | | | (42,208 | ) |
| (Loss) / Income from continuing operations | | | (263,694 | ) | | | 305,636 | | | | 41,942 | |
| Income from continuing operations attributable to noncontrolling interests | | | (2,067 | ) | | | - | | | | (2,067 | ) |
| (Loss) / Income from continuing operations attributable to CME | | $ | (265,761 | ) | | $ | 305,636 | | | $ | 39,875 | |
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| PER SHARE DATA: | | | | | | | | | | | | |
| (Loss) / Income from continuing operations per common share attributable to CME: | | | | | | | | | | | | |
| Basic | | $ | (6.28 | ) | | | | | | $ | 0.94 | |
| Diluted | | $ | (6.28 | ) | | | | | | $ | 0.93 | |
| Weighted average common shares used in computing per share amounts: | | | | | | | | | | | | |
| Basic | | | 42,328 | | | | | | | | 42,328 | |
| Diluted | | | 42,328 | | | | | | | | 42,683 | |
The accompanying notes are an integral part of the Unaudited Pro Forma Condensed Consolidated Financial Information.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the year ended December 31, 2007
(US$ 000’s, except per share amounts)
| | | Historical CME | | | Ukraine Sale | | | Pro Forma Combined | |
| Net revenues | | $ | 838,856 | | | $ | (126,838 | ) | | $ | 712,018 | |
| Cost of revenues | | | (501,712 | ) | | | 97,543 | | | | (404,169 | ) |
| Selling, general and administrative expenses | | | (126,688 | ) | | | 9,069 | | | | (117,619 | ) |
| Operating income | | | 210,456 | | | | (20,226 | ) | | | 190,230 | |
| Interest income | | | 5,728 | | | | (327 | ) | | | 5,401 | |
| Interest expense | | | (54,936 | ) | | | 86 | | | | (54,850 | ) |
| Foreign currency exchange loss, net | | | (34,409 | ) | | | (2 | ) | | | (34,411 | ) |
| Change in fair value of derivatives | | | (3,703 | ) | | | - | | | | (3,703 | ) |
| Other income | | | 7,891 | | | | 1,896 | | | | 9,787 | |
| Income from continuing operations before tax | | | 131,027 | | | | (18,573 | ) | | | 112,454 | |
| Provision for income taxes | | | (20,822 | ) | | | 4,481 | | | | (16,341 | ) |
| Income from continuing operations | | | 110,205 | | | | (14,092 | ) | | | 96,113 | |
| Income from continuing operations attributable to noncontrolling interests | | | (17,107 | ) | | | - | | | | (17,107 | ) |
| Income from continuing operations attributable to CME | | $ | 93,098 | | | $ | (14,092 | ) | | $ | 79,006 | |
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| PER SHARE DATA: | | | | | | | | | | | | |
| Income from continuing operations per common share attributable to CME: | | | | | | | | | | | | |
| Basic | | $ | 2.25 | | | | | | | $ | 1.91 | |
| Diluted | | $ | 2.23 | | | | | | | $ | 1.89 | |
| Weighted average common shares used in computing per share amounts: | | | | | | | | | | | | |
| Basic | | | 41,384 | | | | | | | | 41,384 | |
| Diluted | | | 41,833 | | | | | | | | 41,833 | |
The accompanying notes are an integral part of the Unaudited Pro Forma Condensed Consolidated Financial Information.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
Notes to Unaudited Pro Forma Condensed Consolidated Financial Information
(US$ 000’s, except per share amounts)
1. Basis of Pro Forma Presentation
The Unaudited Pro Forma Condensed Consolidated Financial Information reflects the Ukraine Sale, to be accounted for as a discontinued operation in accordance with Accounting Standard Codification ("ASC") Topic 360. The Unaudited Pro Forma Condensed Consolidated Balance Sheet gives effect to the disposition as if it had occurred on December 31, 2009. The Unaudited Pro Forma Condensed Consolidated Statements of Operations for the years ended December 31, 2009, 2008 and 2007 give effect to the disposal as if it had occurred on January 1, 2007.
The Unaudited Pro Forma Condensed Consolidated Financial Information is for information purposes only and is not necessarily indicative of the results of future operations or the actual results that would have been achieved had the sale been consummated during the periods indicated. The pro forma adjustments are based on the best information available to date, which may change as additional information is obtained.
The results of the Ukraine operations have been removed from the Unaudited Pro Forma Condensed Consolidated Statements of Operations. The non-recurring gain on sale of US$ 217.2 million has been reflected in the Unaudited Pro Forma Condensed Consolidated Balance Sheet, but is not reflected in the Unaudited Pro Forma Condensed Consolidated Statements of Operations.
The estimated gain on the disposal, calculated as if the disposal had occurred as at December 31, 2009, was determined as follows:
| Cash Proceeds: | | $ | 308,000 | |
| Estimated transaction costs | | | (460 | ) |
| Net Proceeds | | | 307,540 | |
| Net assets sold | | | (64,156 | ) |
| Foreign currency gains previously recognized in equity | | | (26,225 | ) |
| Estimated net gain | | $ | 217,159 | |
The estimated gain is preliminary as it includes estimates of costs associated with the transaction, which are assumed to have been paid at closing. No taxes are expected to arise on this disposal.
2. Other
Included in the December 31, 2009, selling, general and administrative expenses are $1.4 million of transaction costs directly associated with the Ukraine Sale.
The 2008 historical income statement of our former Ukraine operations included an impairment charge of $271.9 million, of which $262.7 million related to goodwill.
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