SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) December 11, 1998
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CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
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(Exact Name of Registrant as Specified in Charter)
Bermuda 0-24796 Not Applicable
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(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
Clarendon House, Church Street, Hamilton HM CX Bermuda
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (441) 296-1431
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Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
Item 2. Disposition of Assets.
On December 11, 1998, Central European Media Enterprises Ltd. ("the Company")
sold (the "TVN Sale") its interests in the TVN television operations in Poland
to International Trading and Investments Holding S.A. ("ITI"), a company
publicly traded on the Luxembourg Stock Exchange and the Company's partner in
the TVN operations. The TVN Sale was effected pursuant to a Sale and Purchase
Agreement dated December 10, 1998. Prior to the TVN Sale, the Company and ITI
were partners in the TVN television operations such that certain indirect
wholly owned subsidiaries of the Company owned 33% of the outstanding shares of
TVN Sp. z o.o. ("TVN") and 50% of the outstanding shares of Federacja
Sp. z o.o. ("Federation"). In addition, certain indirect wholly owned
subsidiaries of the Company owned 49% of the outstanding shares of Neovision
Holding B.V. ("Neovision") and 10% of the outstanding shares of ITI Media.
Details of the TVN Sale are as follows: the Company caused its subsidiaries to
transfer to ITI and certain of its affiliates all of their above listed
interests in TVN, Federation, Neovision and ITI Media together with certain
outstanding receivables in exchange for $10 million in cash, a note (the "ITI
Note") in a principal amount of $40 million bearing interest at a rate of 5% per
annum and generally maturing on December 10, 2001 that is convertible into
equity securities of ITI and exchangeable into similar debt securities of ITI,
the release of a $10 million bank guarantee and the assumption by ITI of various
obligations of the Company and its subsidiaries in respect of programming and
satellites relating to the TVN operations. Pursuant to the terms of the Sale and
Purchase Agreement and the ITI Note, between September 10, 2001 and the maturity
date of the ITI Note, the Company will be able to convert, at its option, all or
any portion of the principal amount of the ITI Note plus all interest accrued
and unpaid thereon (the "Conversion Amount") into an amount of equity securities
of ITI (the "ITI Ordinary Shares") equal to the Conversion Amount divided by 80%
of the average of the daily closing price of one share of the publicly traded
ITI Ordinary Shares during the twelve month period immediately preceding the
time that the Company gives notice of its intention to convert on whichever of
the Warsaw Stock Exchange or the Luxembourg Stock Exchange has the largest
average daily trading volume. As a result of the TVN Sale, the Company will
record a write-down of approximately $25 million in its fourth quarter financial
results. Ronald S. Lauder, the non-executive Chairman of the Board of Directors
of the Company, owns a non-controlling indirect minority interest in ITI.
Item 7. Financial Statements and Exhibits.
The following are the pro forma financial statements of the Company taking into
account the TVN Sale:
Pro Forma Consolidated Balance Sheet as of September 30, 1998. 3
Pro Forma Consolidated Statements of Operations for the Year Ended
December 31, 1997. 5
Pro Forma Consolidated Statements of Operations for the Nine Months
Ended September 30, 1998. 6
Notes to Pro Forma Financial Statements (unaudited). 7
2
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD
PRO FORMA - Consolidated Balance Sheet as at
September 30, 1998
($000s)
(unaudited)
ACTUAL PRO-FORMA
CME Polish SUBTOTAL Adjustments September 30,
September 30, 1998 Entities 1998
(unaudited) (unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 31,240 (405) 30,835 10,000 a) 40,835
Restricted cash 274 - 274 - 274
Accounts receivable, net 34,023 (7,551) 26,472 - 26,472
Program rights costs 40,662 (10,255) 30,407 - 30,407
Advances to affiliates 15,403 (3,711) 11,692 (3,198) c) 8,494
Other short-term assets 19,435 (3,754) 15,681 - 15,681
Total current assets 141,037 (25,676) 115,361 6,802 122,163
Investments in unconsolidated affiliates 42,967 - 42,967 - 42,967
Federacja - - - - -
TVN 2,395 (2,395) - - -
Neovision 7,447 (7,447) - - -
Investments 13,008 - 13,008 - 13,008
ITI 10,000 (10,000) - - -
Loans to affiliates 33,939 - 33,939 (20,930) c) 13,009
Note receivable - - 19,836 b) 19,836
Property, plant and equipment, net 70,547 (10,043) 60,504 - 60,504
Program rights costs 21,063 (1,139) 19,924 - 19,924
Licence costs and other intangibles, net 6,274 - 6,274 - 6,274
Goodwill and organization costs, net 53,383 - 53,383 - 53,383
Deferred income taxes 1,653 - 1,653 - 1,653
Other assets 28,669 (21,148) 7,521 - 7,521
Total assets 432,382 (77,848) 354,534 5,708 360,242
3
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities 71,065 (15,340) 55,725 4,000 d) 59,725
Duties and other taxes payable 13,283 (2,874) 10,409 - 10,409
Income taxes payable 608 - 608 - 608
Current portion of credit facilities and 9,672 - 9,672 - 9,672
obligations under capital leases
Dividends payable - - - - -
Investments payable 9,133 - 9,133 - 9,133
Advances from affiliates 34,676 (47,678) (13,002) 14,809 c) 1,807
Total current liabilities 138,437 (65,892) 72,545 18.809 91,354
Deferred income taxes 1,780 - 1,780 - 1,780
Long-term portion of credit facilities and 25,785 (12,647) 13,138 12,647 c) 25,785
obligations under capital leases
Investments payable 2,563 - 2,563 - 2,563
$100,000,000 9 3/8 % Senior Notes 99,870 - 99,870 - 99,870
DM 140,000,000 8 1/8 % Senior Notes 83,611 - 83,611 - 83,611
Other Liabilities 762 - 762 - 762
Minority interest in consolidated - - - - -
subsidiaries
Commitments and contingencies -
SHAREHOLDERS' EQUITY:
Class A Common Stock, $0.01 par value: authorized:
100,000,000 shares at September 30, 1998 and
100,000,000 shares at December 31, 1997
issued and outstanding: 181 - 181 - 181
18,070,789 at September 30, 1998
and 16,934,894 at December 31, 1997;
Class B Common Stock, $0.01 par value: authorized:
15,000,000 shares at September 30, 1998
and December 31, 1997 ;
issued and outstanding: 6,062,329 at 61 - 61 - 61
September 30, 1998 and 7,064,475 at
December 31, 1997
Additional paid-in capital 333,895 - 333,895 - 333,895
Accumulated deficit (251,793) 747 e) (251,046) (25,748) e) (276,794)
Cumulative currency translation (2,770) (56) (2,826) - (2,826)
adjustment
Total shareholders' equity 79,574 691 80,265 (25,748) 54,517
Total liabilities and shareholders' equity 432,382 (77,848) 354,534 5,708 360,242
4
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
PRO FORMA - Consolidated Statements of Operations
($000s, except per share data)
(unaudited)
ACTUAL PRO-FORMA
Year ended Operations of Year ended
December 31, Polish December 31,
1997 Entities 1997
(unaudited)
GROSS REVENUES: 199,502 (5,129) 194,373
Discounts and agency commissions (44,108) - (44,108)
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Net revenues 155,394 (5,129) 150,265
STATION EXPENSES:
Other operating costs and expenses 80,171 (19,474) 60,697
Amortization of programming rights 32,464 (9,694) 22,770
Depreciation of station fixed assets and 15,654 (470) 15,184
other intangibles
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Total station operating costs and expenses 128,289 (29,638) 98,651
Selling, general and administrative expenses 27,372 (4,419) 22,953
CORPORATE EXPENSES:
Corporate operating costs and development 25,467 - 25,467
expenses
Amortization of goodwill and allowance for 14,845 - 14,845
development costs
Capital registration tax - - -
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40,312 - 40,312
Operating (loss) / profit (40,579) 28,928 (11,651)
Equity in loss of unconsolidated affiliates (12,394) 2,054 (10,340)
Loss on impairment of investments in unconsolidated (20,707) - (20,707)
affiliates
Interest and other income 10,142 (29) 10,113
Interest expense (16,128) 6 (16,122)
Foreign currency exchange (loss) / gain (6,818) 961 (5,857)
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Net loss / (income) before provision for income (86,484) 31,920 (54,564)
taxes
Provision for income taxes (14,608) - (14,608)
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Net Loss before minority interest (101,092) 31,920 (69,172)
Minority interest in loss / (income) of 16,000 (14,934) 1,066
consolidated subsidiaries
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Net loss (85,092) 16,986 (68,106)
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PER SHARE DATA Net loss per share
Basic (3.56) (2.85)
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Diluted (3.56) (2.85)
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Common shares used in computing per share amounts:
Basic 23,911 23,911
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Diluted 23,911 23,911
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5
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
PRO FORMA - Consolidated Statements of Operations
($000s, except per share data)
(unaudited)
ACTUAL PRO-FORMA
Nine months Operations of Nine months
ended Polish ended
September 30, 1998 Entities September 30, 1998
(unaudited) (unaudited)
GROSS REVENUES: 175,283 (20,837) 154,446
Discounts and agency commissions (37,923) 2,272 (35,651)
Net revenues 137,360 (18,565) 118,795
STATION EXPENSES:
Other operating costs and expenses 76,031 (22,926) 53,105
Amortization of programming rights 57,809 (18,719) 39,090
Depreciation of station fixed assets and 14,658 (2,549) 12,109
other intangibles
Total station operating costs and expenses 148,498 (44,194) 104,304
Selling, general and administrative 25,556 (4,746) 20,810
expenses
CORPORATE EXPENSES:
Corporate operating costs and development 18,403 (464) 17,939
expenses
Amortization of goodwill and allowance 13,318 - 13,318
for development costs
Restructuring charge 2,552 - 2,552
34,273 (464) 33,809
Operating (loss) / profit (70,967) 30,839 (40,128)
Equity in loss of unconsolidated affiliates (3,498) 2,914 (584)
Loss on impairment of investments in - - -
unconsolidated affiliates
Interest and other income 2,531 551 3,082
Interest expense (16,002) 54 (15,948)
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Interest and other income (13,471) 605 (12,866)
Foreign currency exchange (loss) / gain (8,953) 609 (8,344)
Net (loss) / income before provision for income (96,889) 34,967 (61,922)
taxes
Provision for income taxes (8,426) - (8,426)
Net Loss before minority interest (105,315) 34,967 (70,348)
Minority interest in loss / (income) of 16,618 (16,026) 592
consolidated subsidiaries
Net loss $ (88,697) 18,941 (69,756)
PER SHARE DATA Net loss per share (Note 2)
Basic $ (3.69) $ (2.90)
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Diluted $ (3.69) $ (2.90)
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Common shares used in computing per share amounts:
Basic 24,063 24,063
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Diluted 24,063 24,063
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6
Notes to Pro Forma Financial Statements (Unaudited)
1. Basis of Presentation
Reference is made to Item 2. of this filing for a description of the TVN Sale
(as defined in Item 2) for which the following pro forma financial statements
are provided.
The unaudited pro forma balance sheet eliminates the assets and liabilities of
the Polish operations as of September 30, 1998 and further includes the TVN
Sale transaction, assuming the disposition had been completed as of the
respective balance sheet date. The pro forma statements of operations are the
statement of operations of Central European Media Enterprises Ltd. for the year
ended December 31, 1997 and for the nine months ended September 30, 1998,
assuming that the TVN Sale occurred at the beginning of the periods presented.
The historical balance sheet used in the preparation of the pro forma financial
statements has been derived from Central European Media Enterprises Ltd's
unaudited financial statements as of September 30, 1998. The historical
statement of operations for the year ended December 31, 1997 has been derived
from the audited statements of operations for such period. The historical
statement of operations for the nine months ended September 30, 1998 has been
derived from the Company's unaudited financial statements for such period.
2. Unaudited Pro Forma Adjustments
A description of the adjustments included in the auaudited pro forma financial
statements are as follows:
a) Reflects the receipt of $10 million in cash from the acquiror of the
Company's interest in Poland
b) Reflects the present value of the note received from the acquiror of the
Company's interest in Poland, which bears a below-fair-market-value
interest rate
c) Reflects the write-off of amounts due to and from the Company from
and to the acquiror of the Company's interests in Poland
d) Reflects the estimated costs and expenses associated with the TVN Sale
e) Reflects the estimated loss on the TVN Sale
f) The adjustments are based on available information and upon certain
assumptions Central European Media Enterprises Ltd. believes are
reasonable under the circumstances.
7
Exhibits
2.1. Sale and Purchase Agreement, dated December 10, 1998, between Central
European Media Enterprise Ltd. and International Trading and
Investments Holding S.A.
99.1 Press Release of Central European Media Enterprises Ltd., dated
December 10, 1998.
8
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Central European Media Enterprises Ltd.
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(Registrant)
December 28, 1998 By /s/ John A. Schwallie
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Date John A. Schwallie
Chief Financial Officer