BERMUDA |
98-0438382 | |
(State
or other jurisdiction of incorporation and organization) |
(IRS
Employer Identification No.) | |
Clarendon
House, Church Street, Hamilton |
HM
CX Bermuda | |
(Address
of principal executive offices) |
(Zip
Code) |
I. |
Executive
Summary |
II. |
General
Market Information |
III. |
Analysis
of Segment Results |
IV. |
Analysis
of the Results of Consolidated Operations |
V. |
Liquidity
and Capital Resources |
VI. |
Critical
Accounting Policies and Estimates |
VII. |
Related
Party Matters |
· |
On
February 2, 2004, Michael N. Garin was appointed Chief Executive Officer,
succeeding Fred T. Klinkhammer who will retire as Vice-Chairman on March
22, 2005. |
· |
On
November 22, 2004, Marina Williams was appointed as Executive
Vice-President responsible for overseeing existing broadcast assets, the
development of new regional business opportunities, and the integration of
acquired properties into our operating
structure. |
For
the year ended December 31, (US$000's) |
|||||||||||||||||||
2004 |
|
2003 |
|
Movement |
|
2003 |
|
2002 |
|
Movement |
|||||||||
Net
Revenues |
182,339 |
124,978 |
57,361 |
124,978 |
99,143 |
25,835 |
|||||||||||||
Operating
income/(loss) |
18,740 |
(4,410 |
) |
23,150 |
(4,410 |
) |
1,466 |
(5,876 |
) | ||||||||||
Net
income/(loss) from continuing operations |
16,007 |
(24,201 |
) |
40,208 |
(24,201 |
) |
(25,106 |
) |
905 |
||||||||||
Net
income/(loss) |
18,531 |
346,012 |
(327,481 |
) |
346,012 |
(14,184 |
) |
360,196 |
|||||||||||
· |
In
the twelve months ended December 31, 2004, our total Segment EBITDA margin
(defined as the ratio of Segment EBITDA to Segment Net Revenues) reached
30% as compared to 26% for the twelve months ended December 31, 2003
(Segment EBITDA is defined and reconciled to
our consolidated US GAAP results in Part II, Item 8, Note 20, "Segment
Data"). |
· |
On
February 9, 2004 we entered into an agreement with the Dutch tax
authorities to settle our tax liabilities in the Netherlands, including
for the award we received in the arbitration against the Czech Republic,
through 2003 for a payment of US$ 9 million (see Part II, Item 8, Note 14,
"Commitments and Contingencies"). |
· |
On
March 29, 2004, we increased our holding in our Romanian operations to
80.0% for a total consideration of US$ 20.3
million. |
· |
On
April 19, 2004 our Romanian operations launched with minimal additional
investment our second cable channel PRO CINEMA, which broadcasts series,
films and documentaries. |
· |
On
July
1, 2004, the
Supreme Court of Ukraine rejected an appeal lodged by AITI, a Ukrainian
broadcasting company, which had sought to challenge the validity of the
grant of the 15-hour per day broadcasting license awarded to Studio 1+1 in
1996. |
· |
On
July 16, 2004, we
acquired 100% of Nova
TV (Croatia)
and
OK in Croatia for Euro 20.3 million (approximately US$ 24.7 million at the
time of acquisition) (for further information, see Part
II, Item 8, Note 9, "Acquisitions and Disposals"). |
· |
On
July 21, 2004 the Ukrainian Media Council awarded
Studio 1+1, our Ukrainian operation, the license to broadcast for the
remaining nine hours per day (for
further information, see Part
II, Item 8, Note 1, "Organization and
Business"). |
· |
On
October 14, 2004 we celebrated the 10th
anniversary of our listing on the NASDAQ
exchange. |
· |
On
December 13, 2004 we
entered into an agreement to acquire from PPF an 85% ownership interest in
the TV Nova (Czech Republic) Group, which operates TV NOVA (Czech
Republic), the most-watched television channel in Central and Eastern
Europe in terms of audience share (the "TV Nova (Czech Republic)
Acquisition"). The principal operating companies of the TV Nova (Czech
Republic) group are CP 2000, a.s., Mag Media 99 a.s., and CET 21 s.r.o.
(“CET 21”). In addition, on February 24, 2005, we entered into an
agreement with Peter Krsak to acquire his entire ownership interest in CET
21, the company holding the broadcasting license for TV NOVA (Czech
Republic) (the “Krsak Agreement”) (for
further information, see Part
I, Item 1, "Operations by Country, Expected
Acquisitions"). |
· |
Our
Board, after extensive discussions with both management and outside
advisors in 2003, agreed on a strategic plan to expand our business. It
was decided that our geographic focus would remain in Central and Eastern
Europe, and that our core business would remain television. We identified
three categories of development: |
· |
Acquisition
of additional ownership in our present operations, which is regarded as
the strategy with the least
risk due to our knowledge of these
operations; |
· |
Acquisition
of one or more established businesses in the Balkans, particularly in the
states of the former Yugoslavia, which would allow us to capitalize on our
success in Slovenia;
and |
· |
Acquisition
of a broadcaster in one of the substantially larger markets of Central or
Eastern Europe, which would likely give rise to a significant increase in
the scale of our business. |
· |
We
achieved success in all three categories during the course of
2004. |
· |
In
March 2004, we increased our interest in our Romanian operations from 66%
to 80%; |
· |
In
July 2004, we acquired Nova TV (Croatia);
and |
· |
On
December 13, 2004, we entered into a definitive agreement with the PPF
Group to acquire a controlling interest in TV NOVA (Czech
Republic).
|
· |
In
2005, we will be focused on enhancing the performance of our Croatian
operations and on the completion of the TV Nova (Czech Republic)
Acquisition and the integration of the TV Nova (Czech Republic) Group into
our operations. |
· |
We
are planning on further investment in our Croatian operations. We expect
to increase our audience share by acquiring higher quality programming and
making additional strategic investments in local productions as well as by
making limited capital investment in order to extend our technical reach.
We expect total investment to be in excess of US$ 15
million. |
· |
In
the Czech Republic we anticipate that we will complete the TV Nova (Czech
Republic) Acquisition in the second quarter of 2005. A successful
implementation of the Krsak Agreement in connection with the TV Nova
(Czech Republic) Acquisition will allow us to terminate most of the
litigation surrounding the TV Nova (Czech Republic) Group and simplify the
ownership and operating structure of the TV Nova (Czech Republic) Group,
which will facilitate the integration of the TV Nova (Czech Republic)
Group into our operations. The TV Nova (Czech Republic) Group reported
total net revenues of US$ 207.8 million, operating profit of US$ 92.7
million and net income of US$ 55.0 million. For the twelve months ended
December 31, 2004, the TV Nova (Czech Republic) Group reported a
depreciation charge of US$ 6.7 million and a net debt position of US$ 67
million as at December 31, 2004. (All of these figures are determined in
accordance with US GAAP. The accounting policies used in compiling the
combined accounts for the TV Nova (Czech Republic) Group may differ
from
those used by us, and the basis of combination of the entities included in
the TV Nova (Czech Republic) Group may differ from the basis of
consolidation that we apply to the inclusion of those entities in our
accounts following completion.) |
· |
With
the addition of the TV Nova (Czech
Republic) Group
to our operations, we would be operating a business with estimated net
revenues nearly two times our current levels and we would expect to
generate significant positive net income and cash-flow from our
operations. We will also have a large amount of debt on our balance sheet
as a result of the TV Nova (Czech
Republic) Acquisition
(including indebtedness of the TV Nova (Czech Republic) Group) and the
related financing. However, we believe that the results of operations and
our cash flows will be sufficient to meet our debt service
obligations. |
Country |
|
|
1999 |
|
|
2000 |
|
|
2001 |
|
|
2002 |
|
|
2003 |
|
|
2004 |
|
Croatia |
|
|
|
|
|
|
90
- 100 |
||||||||||||
Romania |
|
|
65
- 75 |
|
|
65
- 75 |
|
|
60
- 70 |
|
|
65
- 75 |
|
|
85
- 95 |
|
|
110
- 120 |
|
Slovak
Republic |
|
|
35
- 45 |
|
|
35
- 45 |
|
|
35
-45 |
|
|
40
- 50 |
|
|
60
- 70 |
|
|
75
- 85 |
|
Slovenia |
|
|
40
- 50 |
|
|
40
- 50 |
|
|
45
- 55 |
|
|
45
- 55 |
|
|
45
- 55 |
|
|
50
- 60 |
|
Ukraine |
|
|
25
- 35 |
|
|
40
- 55 |
|
|
70
- 85 |
|
|
85
- 100 |
|
|
100
- 115 |
|
|
130
- 140 |
· |
expenses
presented as corporate expenses in our consolidated statements of
operations (i.e., corporate operating costs, stock based compensation and
amortization of intangibles); |
· |
changes
in the fair value of derivatives; |
· |
foreign
currency exchange gains and losses; and |
· |
certain
unusual or infrequent items (e.g., extraordinary gains and losses,
impairments on assets or investments). |
SEGMENT
FINANCIAL INFORMATION |
|||||||||||||||||||
For
the Years Ended December 31, (US $000's) |
|||||||||||||||||||
2004 |
(1) |
2003 |
(1) |
2002 |
(1) |
||||||||||||||
Segment
Net Revenue |
|||||||||||||||||||
Croatia
(NOVA TV) |
$ |
9,757 |
4 |
% |
$ |
- |
- |
% |
$ |
- |
- |
% | |||||||
Romania
(2) |
76,463 |
31 |
% |
51,177 |
29 |
% |
33,547 |
24 |
% | ||||||||||
Slovak
Republic (MARKIZA TV) |
61,576 |
25 |
% |
50,814 |
29 |
% |
38,397 |
28 |
% | ||||||||||
Slovenia
(POP TV and KANAL A) |
45,388 |
18 |
% |
37,168 |
21 |
% |
33,864 |
25 |
% | ||||||||||
Ukraine
(STUDIO 1+1) |
53,351 |
22 |
% |
36,633 |
21 |
% |
31,732 |
23 |
% | ||||||||||
Total
Segment Net Revenue |
$ |
246,535 |
100 |
% |
$ |
175,792 |
100 |
% |
$ |
137,540 |
100 |
% | |||||||
Segment
EBITDA |
|||||||||||||||||||
Croatia
(NOVA TV) |
$ |
(3,756 |
) |
(5 |
)% |
$ |
- |
- |
% |
$ |
- |
- |
% | ||||||
Romania
(2) |
25,198 |
34 |
% |
12,206 |
27 |
% |
6,347 |
20 |
% | ||||||||||
Slovak
Republic (MARKIZA TV) |
18,975 |
25 |
% |
11,657 |
26 |
% |
7,132 |
23 |
% | ||||||||||
Slovenia
(POP TV and KANAL A) |
19,077 |
26 |
% |
13,173 |
29 |
% |
11,052 |
35 |
% | ||||||||||
Ukraine
(STUDIO 1+1) |
14,729 |
20 |
% |
7,999 |
18 |
% |
6,890 |
22 |
% | ||||||||||
Total
Segment EBITDA |
$ |
74,223 |
100 |
% |
$ |
45,035 |
100 |
% |
$ |
31,421 |
100 |
% | |||||||
Segment
EBITDA Margin |
30 |
% |
26 |
% |
23 |
% |
|||||||||||||
(1)
Percentage of Total Segment Net Revenue / Total Segment
EBITDA | |||||||||||||||||||
(2)
Romanian channels are PRO TV, PRO CINEMA, ACASA, PRO TV INTERNATIONAL, PRO
FM and INFOPRO. | |||||||||||||||||||
(3)
We defined Segment EBITDA margin as the ratio of Segment EBITDA to Segment
Net Revenue. |
SEGMENT
FINANCIAL INFORMATION | |
For
the Year Ended December 31, (US $000's) (1) | |
2004 | |
Croatian
Net Revenues |
$
9,757 |
Croatian
EBITDA |
$
(3,756) |
Croatian
EBITDA Margin |
(38)% |
(1)
The results shown are for the period since acquisition of the Croatian
operations in July 2004 |
· |
Net
Revenues for
2004 consisted in part of barter revenue, principally generated from
contracts already in existence at the date of acquisition. Most such
contracts expired at the end of 2004. New management appointed in
September 2004 continues to focus on converting revenues derived from
barter to cash. |
· |
Croatian
Segment EBITDA for
2004 was a loss of US$ 3.8 million which is substantially attributable to
a lack of investment in quality programming during the first half of 2004
as well as the impact of advertising agreements entered into on
unfavorable terms that were assumed at the completion of our acquisition
of the Croatian operations. |
SEGMENT
FINANCIAL INFORMATION |
|||||||||||||||||||
For
the Years Ended December 31, (US $000's) |
|||||||||||||||||||
2004 |
|
2003 |
|
Movement |
|
2003 |
|
2002 |
|
Movement |
|||||||||
Romanian
Net Revenues |
76,463 |
51,177 |
25,286 |
51,177 |
33,547 |
17,630 |
|||||||||||||
Romanian
EBITDA |
25,198 |
12,206 |
12,992 |
12,206 |
6,347 |
5,859 |
|||||||||||||
Romanian
EBITDA Margin |
33 |
% |
24 |
% |
9 |
% |
24 |
% |
19 |
% |
5 |
% |
· |
Net
Revenues for
2004 increased
by 49% over 2003 due to several factors. The increase in revenues was
primarily due to the growth in the television advertising market, which
contributed approximately US$ 14.0 million. The balance of the increase in
net revenues, approximately US$ 11.3 million, was due to an increase in
prices charged for advertising, additional inventory for advertising spots
created by the launch of PRO CINEMA and greater sales of inventory across
all of our channels. |
· |
Romanian
Segment EBITDA for
2004 increased by 106% over 2003, delivering an EBITDA margin of 33%,
which represents a significant increase over the 24% margin delivered in
the prior year. |
SEGMENT
FINANCIAL INFORMATION |
|||||||||||||||||||
For
the Years Ended December 31, (US $000's) |
|||||||||||||||||||
2004 |
|
2003 |
|
Movement |
|
2003 |
|
2002 |
|
Movement |
|||||||||
Slovak
Republic Net Revenues |
61,576 |
50,814 |
10,762 |
50,814 |
38,397 |
12,417 |
|||||||||||||
Slovak
Republic EBITDA |
18,975 |
11,657 |
7,318 |
11,657 |
7,132 |
4,525 |
|||||||||||||
Slovak
Republic EBITDA Margin |
31 |
% |
23 |
% |
8 |
% |
23 |
% |
19 |
% |
4 |
% |
· |
Net
Revenues increased
by 21% in 2004 compared to 2003. Revenue growth in local currency terms in
2004 was 7%. This was attributable to an expansion of the television
advertising market and an increase in our prices early in 2004.
|
· |
Slovak
Republic Segment EBITDA increased
63% in 2004 compared to 2003 and the EBITDA margin increased to 31% in
2004 from 23% in 2003. Local currency EBITDA growth was 43% in 2004
compared to 2003. Costs charged in arriving at EBITDA in 2003 include a
US$ 1.1 million provision for a disagreement over distributions to
partners. This expense was reversed in 2004 following a resolution of the
disagreement. Significant programming amortization savings were also made
in 2004. |
SEGMENT
FINANCIAL INFORMATION |
|||||||||||||||||||
For
the Years Ended December 31, (US $000's) |
|||||||||||||||||||
2004 |
|
2003 |
|
Movement |
|
2003 |
|
2002 |
|
Movement |
|||||||||
Slovenian
Net Revenues |
45,388 |
37,168 |
8,220 |
37,168 |
33,864 |
3,304 |
|||||||||||||
Slovenian
EBITDA |
19,077 |
13,173 |
5,904 |
13,173 |
11,052 |
2,121 |
|||||||||||||
Slovenian
EBITDA Margin |
42 |
% |
35 |
% |
7 |
% |
35 |
% |
33 |
% |
2 |
% |
· |
Net
Revenues increased
by 22% in 2004 over 2003, due in part to the weaker US dollar compared to
the Euro. In local currency terms, revenues increased by 14% in 2004
compared to 2003. The increase in advertising revenues is a result of
higher average spot prices and increased advertising spending by major
advertisers (including Danone, Benckiser Adriatic, Unilever and mobile
phone operator Planet). Approximately US$ 3.0 million (7.4%) was due to
higher spot prices and approximately US$ 1.6 million ( 4%) was due to
higher sales volumes. |
· |
Slovenian
Segment EBITDA increased
by 45% in 2004 over 2003, resulting in an EBITDA margin of 42% in 2004
compared to 35% in 2003. This reflects an increase in revenues as well as
reductions in operating costs resulting from local management's cost
control measures. |
SEGMENT
FINANCIAL INFORMATION |
|||||||||||||||||||
For
the Years Ended December 31, (US $000's) |
|||||||||||||||||||
2004 |
|
2003 |
|
Movement |
|
2003 |
|
2002 |
|
Movement |
|||||||||
Ukrainian
Net Revenues |
53,351 |
36,633 |
16,718 |
36,633 |
31,732 |
4,901 |
|||||||||||||
Ukrainian
EBITDA |
14,729 |
7,999 |
6,730 |
7,999 |
6,890 |
1,109 |
|||||||||||||
Ukrainian
EBITDA Margin |
28 |
% |
22 |
% |
6 |
% |
22 |
% |
22 |
% |
- |
% |
· |
Net
Revenues increased
by 46% in 2004 over 2003 due to an increase in prime time audience share
from 25.8% to 27.2% and an exceptionally strong growth rate in the
television advertising market. |
· |
Ukrainian
Segment EBITDA for
2004 increased by 84% over 2003 to US$ 14.7 million, resulting in an
EBITDA margin of 28% for 2004, 6% above
2003. |
For
the Years Ended December 31,
(US$
000’s) |
||||||||||
2004 |
|
|
2003
(1) |
|
|
2002
(1) |
| |||
Production
expenses |
$ |
29,458 |
$ |
20,657 |
$ |
17,137 |
||||
Program
amortization |
42,335 |
30,090 |
20,423 |
|||||||
Cost
of Programming |
$ |
71,793 |
$ |
50,747 |
$ |
37,560 |
||||
(1)
Restated to reflect the adoption of FIN 46 (R). |
For
the Years Ended December 31,
(US$
000's) |
||||||||||
2004 |
|
2003
(1) |
|
2002
(1) |
||||||
Program
amortization: |
||||||||||
Croatia
(NOVA TV) |
$ |
3,695 |
$ |
- |
$ |
- |
||||
Romania
(PRO TV, ACASA and PRO TV INTERNATIONAL) |
18,215 |
12,413 |
7,830 |
|||||||
Slovenia
(POP TV and KANAL A) |
5,117 |
5,326 |
5,212 |
|||||||
Ukraine
(STUDIO 1+1) |
15,308 |
12,351 |
7,381 |
|||||||
42,335 |
30,090 |
20,423 |
||||||||
Slovak
Republic (MARKIZA TV) |
9,038 |
9,392 |
8,429 |
|||||||
$ |
51,373 |
$ |
39,482 |
$ |
28,852 |
|||||
Cash
paid for programming: |
||||||||||
Croatia
(NOVA TV) |
$ |
3,076 |
$ |
- |
$ |
- |
||||
Romania
(PRO TV, ACASA and PRO TV INTERNATIONAL) |
22,164 |
14,876 |
9,570 |
|||||||
Slovenia
(POP TV and KANAL A) |
5,177 |
5,587 |
4,380 |
|||||||
Ukraine
(STUDIO 1+1) |
21,022 |
11,534 |
9,343 |
|||||||
51,439 |
31,997 |
23,293 |
||||||||
Slovak
Republic (MARKIZA TV) |
8,120 |
9,088 |
7,787 |
|||||||
$ |
59,559 |
$ |
41,085 |
$ |
31,080 |
|||||
(1)
Restated to reflect the adoption of FIN 46 (R). |
Consolidated
Net Revenues |
|||||||||||||||||||
For
the Years Ended December 31, (US $000's) |
|||||||||||||||||||
2004 |
|
2003 |
|
Movement |
|
2003 |
|
2002 |
|
Movement |
|||||||||
Croatia |
$ |
9,757 |
$ |
- |
$ |
9,757 |
$ |
- |
$ |
- |
$ |
- |
|||||||
Romania |
73,843 |
51,177 |
22,666 |
51,177 |
33,547 |
17,630 |
|||||||||||||
Slovenia |
45,388 |
37,168 |
8,220 |
37,168 |
33,864 |
3,304 |
|||||||||||||
Ukraine |
53,351 |
36,633 |
16,718 |
36,633 |
31,732 |
4,901 |
|||||||||||||
Total
Consolidated Net Revenues |
$ |
182,339 |
$ |
124,978 |
$ |
57,361 |
$ |
124,978 |
$ |
99,143 |
$ |
25,835 |
· |
US$
9.8 million of net revenues from our Croatian operations following the
acquisition in July 2004 as described above in "Analysis of Segment
Results"; |
· |
A
44% increase in the net revenues of our Romanian operations as described
above in "Analysis of Segment Results"; |
· |
A
22% increase in the net revenues of Slovenian operations as described
above in “Analysis of Segment Results"; and |
· |
A
46% increase in the net revenues of our Ukrainian operations as described
above in “Analysis of Segment Results". |
· |
53%
increase in the net revenues of our Romanian operations as described above
in "Analysis of Segment Results"; |
· |
10%
increase in the net revenues of Slovenian operations as described above in
“Analysis of Segment Results"; and |
· |
15%
increase in the net revenues of our Ukrainian operations as described
above in "Analysis of Segment Results". |
Consolidated
Station Operating Costs and Expenses |
|||||||||||||||||||
For
the Years Ended December 31, (US $000's) |
|||||||||||||||||||
2004 |
|
2003 |
|
Movement |
|
2003 |
|
2002 |
|
Movement |
|||||||||
Croatia |
$ |
10,163 |
$ |
- |
$ |
10,163 |
$ |
- |
$ |
- |
$ |
- |
|||||||
Romania |
45,244 |
36,329 |
8,915 |
36,329 |
27,001 |
9,328 |
|||||||||||||
Slovenia |
23,388 |
21,862 |
1,526 |
21,862 |
20,926 |
936 |
|||||||||||||
Ukraine |
33,276 |
24,440 |
8,836 |
24,440 |
19,680 |
4,760 |
|||||||||||||
Total
Consolidated Station Operating Costs and Expenses |
$ |
112,071 |
$ |
82,631 |
$ |
29,440 |
$ |
82,631 |
$ |
67,607 |
$ |
15,024 |
· |
US$
10.2 million of station operating costs and expenses relating to our
Croatian operations, acquired on July 16,
2004; |
· |
A
25% increase in the station operating costs and expenses of our Romanian
operations. Programming amortization increased by US$ 5.8 million due to
increases in the price of acquired programming, scheduling for extra hours
of programming following the launch of PRO CINEMA, and a US$ 3.2 million
increase in production expenses; and |
· |
A
36% increase in the station operating costs and expenses of our Ukrainian
operations. Programming amortization increased by US$ 3.0 million and
production expenses increased by US$ 2.7 million due to a combination of
extra hours in the programming schedule from September 2004 and increases
in the prices of Russian programming. Salaries and benefits increased by
US$ 1.6 million, a large portion of which were staff bonuses. Transmission
costs and business taxes increased by US$ 1.4 million and US$ 0.9 million
respectively. |
· |
35%
increase in the station operating costs and expenses of our Romanian
operations, including an increase in programming amortization by US$ 4.6
million due to increased investment in programming, including sports
programming that was previously acquired pursuant to a related party
barter agreement, and a US$ 5.5 million increase in salaries costs due to:
(i) a change in domestic legislation effective in January 2003 which
increased employers’ liability for social security charges; (ii) salary
increases that had been deferred for two years; and (iii) bonus incentive
payments reflecting outstanding performance;
and |
· |
24%
increase in the station operating costs and expenses of our Ukrainian
operations, including an increase in programming amortization by US$ 5.2
million primarily as a result of investment in additional Russian
programming, the price of which increased by approximately 40% year on
year. |
Consolidated
Station Selling, General and Administrative
Expenses |
|||||||||||||||||||
For
the Years Ended December 31, (US $000's) |
|||||||||||||||||||
2004 |
|
2003 |
|
Movement |
|
2003 |
|
2002 |
|
Movement |
|||||||||
Croatia |
$ |
4,524 |
$ |
- |
$ |
4,524 |
$ |
- |
$ |
- |
$ |
- |
|||||||
Romania |
6,442 |
5,503 |
939 |
5,503 |
5,125 |
378 |
|||||||||||||
Slovenia |
4,577 |
3,518 |
1,059 |
3,518 |
2,939 |
579 |
|||||||||||||
Ukraine |
6,569 |
5,224 |
1,345 |
5,224 |
6,192 |
(968 |
) | ||||||||||||
Total
Consolidated Station Selling, General and Administrative
Expenses |
$ |
22,112 |
$ |
14,245 |
$ |
7,867 |
$ |
14,245 |
$ |
14,256 |
$ |
(11 |
) |
· |
US$
4.5 million of station selling, general and administrative expenses from
our newly acquired Croatian operations; |
· |
A
17% increase in the station selling, general and administrative expenses
of our Romanian operations. This increase is primarily due to a lower
release of bad debt provision compared to 2003 and an increase in
marketing and research expenses; |
· |
A
30% increase in the station selling, general and administrative expenses
of our Slovenian operations due to increased marketing and research
expenses; and |
· |
A
26% increase in the station selling, general and administrative expenses
of our Ukrainian operations due to an increase in operational taxes and
additional market research to support our successful tender for the
license to broadcast an additional nine hours per
day. |
· |
7%
increase in the station selling, general and administrative expenses of
our Romanian operations. This increase is primarily due to an increase in
consulting services off-set by a decrease in our bad debt provision;
and |
· |
20%
increase in the station selling, general and administrative expenses of
our Slovenian operations due to the weakening of the US dollar. In local
currency terms, costs increased by 3%; |
· |
16%
decrease in the station selling, general and administrative expenses of
our Ukrainian operations. This decrease is primarily due to a charge in
2002 for withholding tax and a reclassification to production
costs. |
For
the Years Ended December 31, (US $000's) |
|||||||||||||||||||
2004 |
|
2003 |
|
Movement |
|
2003 |
|
2002 |
|
Movement |
|||||||||
Corporate
operating costs (including non-cash stock based
compensation) |
29,185 |
32,512 |
(3,327 |
) |
32,512 |
15,814 |
16,698 |
||||||||||||
Amortization
of intangibles |
231 |
- |
231 |
- |
- |
- |
|||||||||||||
Interest
income |
4,318 |
5,507 |
(1,189 |
) |
5,507 |
1,841 |
3,666 |
||||||||||||
Interest
expense |
(1,203 |
) |
(12,010 |
) |
10,807 |
(12,010 |
) |
(17,453 |
) |
5,443 |
|||||||||
Foreign
currency exchange gain/(loss), net |
(574 |
) |
(10,023 |
) |
9,449 |
(10,023 |
) |
(10,247 |
) |
224 |
|||||||||
Other
income/(expense) |
(698 |
) |
(2,458 |
) |
1,760 |
(2,458 |
) |
1,738 |
(4,196 |
) | |||||||||
Change
in fair value of derivative |
- |
- |
- |
- |
1,108 |
(1,108 |
) | ||||||||||||
Loss
on write down of investment |
- |
- |
- |
- |
(2,685 |
) |
2,685 |
||||||||||||
Provision
for income taxes |
(11,089 |
) |
(3,760 |
) |
(7,329 |
) |
(3,760 |
) |
(3,746 |
) |
(14 |
) | |||||||
Minority
interest in (income)/loss of consolidated subsidiaries |
(4,106 |
) |
(676 |
) |
(3,430 |
) |
(676 |
) |
(576 |
) |
(100 |
) | |||||||
Equity
in income/(loss) of unconsolidated affiliates |
10,619 |
3,629 |
6,990 |
3,629 |
3,448 |
181 |
|||||||||||||
Discontinued
operations |
2,524 |
370,213 |
(367,689 |
) |
370,213 |
10,922 |
359,291 |
For
the Years Ended December 31, (US $000's) |
|||||||||||||||||||
2004 |
|
2003 |
|
Movement |
|
2003 |
|
2002 |
|
Movement |
|||||||||
Corporate
operating costs(excluding non-cash stock based compensation and satellite
costs) |
$ |
19,083 |
$ |
16,006 |
3,077 |
$ |
16,006 |
$ |
11,937 |
$ |
4,069 |
||||||||
Satellite
costs |
- |
3,297 |
(3,297 |
) |
3,297 |
123 |
3,174 |
||||||||||||
Corporate
operating costs (excluding non-cash stock based
compensation) |
$ |
19,083 |
$ |
19,303 |
(220 |
) |
$ |
19,303 |
$ |
12,060 |
$ |
7,243 |
|||||||
Non-cash
stock based compensation |
10,102 |
13,209 |
(3,107 |
) |
13,209 |
3,754 |
9,455 |
||||||||||||
Corporate
operating costs (including non-cash stock based
compensation) |
$ |
29,185 |
$ |
32,512 |
(3,327 |
) |
$ |
32,512 |
$ |
15,814 |
$ |
16,698 |
· |
The
increase in corporate costs (excluding non-cash based stock based
compensation) in 2004 compared to 2003 was influenced by a 10%
strengthening of the British pound (the currency in which most of our
corporate expenses are denominated) against the US dollar. We estimate
this added approximately US$ 1.0 million to corporate operating costs in
the period. The main operating cost changes
were: |
· |
an
increase in staff related costs caused in part by an increase in corporate
staff from 20 to 27 (including three staff primarily focused on internal
audit work related to Sarbanes-Oxley requirements);
|
· |
an
increase in travel expenses as a result of implementation of
Sarbanes-Oxley certification requirements in respect of internal controls
and travel related to business development and station visits;
|
· |
an
increase in press and public relations expenses due to the acquisition of
our Croatian operations and the TV Nova (Czech Republic) Acquisition in
the Czech Republic as well as costs associated with our celebration of the
10th
anniversary of our listing on NASDAQ; and |
· |
increased
business development expenses incurred in researching potential
acquisition targets; |
· |
decreases
in legal fees following the successful resolution of our arbitration in
the Czech Republic and by a reduction in insurance
costs. |
· |
The
increase in 2003 compared to 2002 is primarily due to the costs set out
below and was further influenced by an 8% strengthening of the British
pound (the currency in which most of our corporate expenses are
denominated) against the US dollar. We estimate this added approximately
US$ 0.7 million to corporate operating costs in the period. The main cost
changes were: |
· |
an
increase in staff-related costs due to an increase in the number of
corporate staff from 18 to 20; |
· |
an
increase in travel expenses as a result of station visits and business
development related travel; and |
· |
an
increase in legal and professional fees of US$ 2.5 million arising
primarily from the implementation of Sarbanes-Oxley requirements,
including additional audit, audit related and legal costs in respect of
compliance, and recruitment costs, including CEO and CFO
recruitment. |
For
the Years Ended December 31, (US $000's) |
|||||||||||||||||||
2004 |
|
2003 |
|
Movement |
|
2003 |
|
2002 |
|
Movement |
|||||||||
Slovak
Republic operations |
$ |
10,382 |
$ |
4,521 |
$ |
5,861 |
$ |
4,521 |
$ |
4,169 |
$ |
352 |
|||||||
Romanian
operations |
237 |
(215 |
) |
452 |
(215 |
) |
(1,611 |
) |
1,396 |
||||||||||
Slovenian
operations |
- |
(677 |
) |
677 |
(677 |
) |
890 |
(1,567 |
) | ||||||||||
Equity
in income of unconsolidated affiliates |
$ |
10,619 |
$ |
3,629 |
$ |
6,990 |
$ |
3,629 |
$ |
3,448 |
$ |
181 |
For
the Years Ended December 31, (US $000's) |
|||||||||||||||||||
2004 |
|
2003 |
|
Movement |
|
2003 |
|
2002 |
|
Movement |
|||||||||
Czech
Republic |
|||||||||||||||||||
Gain/(loss)
on disposal of discontinued operations |
$ |
146 |
$ |
384,213 |
(384,067 |
) |
$ |
384,213 |
$ |
11,922 |
$ |
372,291 |
|||||||
Tax
on disposal of discontinued operations |
2,378 |
(14,000 |
) |
16,378 |
(14,000 |
) |
(1,000 |
) |
(13,000 |
) | |||||||||
Discontinued
operations |
$ |
2,524 |
$ |
370,213 |
(367,689 |
) |
$ |
370,213 |
$ |
10,922 |
$ |
359,291 |
· |
US$
20.3 million payments in connection with the acquisition of an additional
14% interest in our Romanian operations (for further information, see Part
II, Item 8, Note 9, "Acquisitions and
Disposals"); |
· |
US$
19.0 million payments in connection with the first payment for our
acquisition of Nova TV (Croatia) and a further US$ 10.3 million
reclassified to restricted cash, representing money held in escrow as the
maximum amount payable in respect of the remaining 25% of the acquisition
price of Nova TV (Croatia) (for further information, see Part II, Item 8,
Note 9, "Acquisitions and Disposals"); and |
· |
US$
11.0 million payments to the Dutch tax authorities (see Part II, Item 8,
Note 14, "Commitments and Contingencies"); |
· |
A
US$ 20.3 million receipt on July 14, 2004 pursuant to our sale of CNTS in
October 2003 (for further information, see Part II, Item 8, Note 7, "Other
Receivable"). |
Contractual
Obligations |
Payments
due by period (US$ 000’s) |
|||||||||||||||
Total |
Less
than 1 year |
1-3
years |
3-5
years |
More
than 5 years |
||||||||||||
Long-Term
Debt |
$ |
21,018 |
$ |
2,921 |
$ |
13,662 |
$ |
4,114 |
$ |
321 |
||||||
Capital
Lease Obligations |
1,316 |
464 |
428 |
272 |
152 |
|||||||||||
Operating
Leases |
6,829 |
1,783 |
3,011 |
1,641 |
394 |
|||||||||||
Unconditional
Purchase Obligations |
19,423 |
18,865 |
425 |
106 |
27 |
|||||||||||
Other
Long-Term Obligations |
9,296 |
2,083 |
4,165 |
3,048 |
- |
|||||||||||
Total
Contractual Obligations |
$ |
57,882 |
$ |
26,116 |
$ |
21,691 |
$ |
9,181 |
$ |
894 |
(1) |
A
facility of up to Euro 8.0 million (approximately US$ 10.8 million)
pursuant to a loan agreement among Pro Plus, Bank Austria Creditanstalt
d.d. (“BACA”) and Nova Ljubljanska banka d.d. which matures in February
2009. As at December 31, 2004 Euro 6.5 million (approximately US$ 8.8
million) (December 31, 2003: Euro 8.0 million, approximately US$ 10.1
million) was drawn by our Slovenian operating company under these
agreements. This secured loan bears a variable interest rate of the
European Inter-Banking Official Rate (“EURIBOR”) 6 month rate plus 3.0%
(EURIBOR - 6 month as at December 31, 2004 was 2.1%). As at December 31,
2004 a rate of 5.1% applied to this loan. This loan facility is secured by
the real property, fixed assets and receivables of Pro Plus, which as at
December 31, 2004 have a carrying amount of approximately US$ 25.4
million. Principal
payments of Euro 1.5 million (approximately US$ 2.0 million)
were made on these loans in 2004. |
(2) |
A
loan of Sk187 million (approximately US$ 6.6 million) (December
31, 2003: Sk187 million, approximately US$ 5.7 million) from
our non-consolidated affiliate, STS. This
loan bears a variable interest rate of the Bratislava Inter Bank Official
Rate (“BRIBOR”) 3 month rate plus 2.2% (BRIBOR - 3 month as at December
31, 2004 was 4.3%). The loan is due to be repaid in full on December 1,
2005. No principal payments were made on this loan in
2004. |
(3) |
A
total of Euro 1.0 million (approximately
US$ 1.3 million) was drawn down on three loan agreements our Croatian
operations have with Hypo Alpe-Adria-Bank d.d. These
loans bear a variable interest rate of the EURIBOR 3 month rate plus 2.5%.
As at December 31, 2004 a rate of 4.65% applied to these
loans.
These loan facilities are secured by the real property and fixed assets of
OK, which as at December 31, 2004 have a carrying amount of approximately
US$ 1.8 million. Principal payments of Euro 0.1 million (approximately US$
0.1 million)
were made on these loans in 2004. |
(4) |
An
amount of Euro 0.03 million (approximately US$ 0.03 million) was drawn
down on a fourth loan agreement our Croatian operations have with Hypo
Alpe-Adria-Bank d.d. This
loan bears a fixed interest rate of 7.25%. |
(5) |
Euro
0.2 million (approximately US$ 0.3 million) was drawn down by our Croatian
operations under a loan agreement with BKS Bank fur Karnten and Steiermark
AG.
This loan bears a variable interest rate of the EURIBOR 3 month rate plus
3.0%. As at December 31, 2004 a rate of 5.15% applied to this
loan.
Principal payments of Euro 0.1 million (approximately US$ 0.1
million)
were made on these loans in 2004. |
(1) |
On
July 24, 2002 STS, a 49% owned affiliate, obtained from Vseobecna uverova
banka, a.s. ("VUB") a mid-term facility of SKK 100 million (US$ 3.5
million). This facility matures in December 2005, and bears a variable
interest rate of the BRIBOR 3 month rate plus 1.7% (BRIBOR - 3 month as at
December 31, 2004 was 4.3%) and is secured by a pledge of certain fixed
and current assets. The nominal value of receivables under pledge
according to the contract is US$ 2.5
million. |
Country |
|
As
at December 31, (US $ 000’s) |
|||||||||||
2004 |
2003 |
||||||||||||
Croatia |
$ |
11,087 |
$ |
- |
|||||||||
Romania |
|
|
(1) |
|
37,109 |
37,756 |
|||||||
Slovak
Republic |
- |
350 |
|||||||||||
Slovenia |
1,590 |
77 |
|||||||||||
Ukraine |
13,459 |
16,243 |
|||||||||||
Total |
$ |
63,245 |
$ |
54,426 |
As
at December 31, (US$ 000’s) |
|||||||
2004 |
2003 |
||||||
Consolidated
Balance Sheet Items - Current Assets |
|||||||
Loans
to related parties |
|||||||
Boris
Fuchsmann |
$ |
300 |
$ |
1,200 |
|||
Inter
Media |
- |
1,302 |
|||||
Media
Pro Pictures |
- |
1,347 |
|||||
$ |
300 |
$ |
3,849 |
||||
Consolidated
Balance Sheet Items - Non-Current Assets |
|||||||
Loans
to related parties |
|||||||
Boris
Fuchsmann |
$ |
2,525 |
$ |
1,883 |
|||
|
Central
European Media Enterprises Ltd. |
|
By:
/s/ Wallace Macmillan
Wallace
Macmillan
Vice
President - Finance
(Principal
Financial Officer and Accounting Officer) |
April
1, 2005 |