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Central European Media Enterprises Ltd. Reports Operating Results (10-K)

February 22, 2012 | About:

Central European Media Enterprises Ltd. (NASDAQ:CETV) filed Annual Report for the period ended 2011-12-31.

Centl Eur Media has a market cap of $549.9 million; its shares were traded at around $8.5 with and P/S ratio of 0.8.

Highlight of Business Operations:

On March 18, 2009, Video International Company Group, CGSC (“VI”), a Russian legal entity, filed a claim in the London Court of International Arbitration (“LCIA”) against our wholly-owned subsidiary CME BV, which was, at the time the claim was filed, the principal holding company of our former Ukrainian operations. The claim relates to the termination of an agreement between VI and CME BV dated November 30, 2006 (the “parent agreement”). The parent agreement was one of four related contracts by which VI subsidiaries, including LLC Video International-Prioritet (“Prioritet”), supplied advertising and marketing services to Studio 1+1 LLC (“Studio 1+1”) in Ukraine and International Media Services Ltd., an offshore affiliate of Studio 1+1 (“IMS”). Among these four contracts were the advertising services agreement and the marketing services agreements both between Prioritet and Studio 1+1. On December 24, 2008, each of CME BV, Studio 1+1 and IMS provided notices of termination to their respective contract counterparties, following which each of the four contracts terminated on March 24, 2009. In connection with these terminations, Studio 1+1 was required under the advertising and marketing services agreements to pay a termination penalty equal to (i) 12% of the average monthly advertising revenues, and (ii) 6% of the average monthly sponsorship revenues, in each case for advertising and sponsorship sold by Prioritet for the six months prior to the termination date, multiplied by six. On June 1, 2009, Studio 1+1 paid UAH 13.5 million (approximately US$ 1.7 million) to Prioritet and set off UAH 7.4 million (approximately US$ 0.9 million) against amounts owing to Studio 1+1 under the advertising and marketing services agreements. In its LCIA claim, VI sought payment of a separate indemnity from CME BV under the parent agreement equal to the aggregate amount of Studio 1+1 s advertising revenues for the six months ended December 31, 2008. The total amount of relief sought was US$ 58.5 million. On September 30, 2010, a partial award was issued in the arbitration proceedings, pursuant to which VI s claim for relief in the amount of US$ 58.5 million was dismissed and CME BV was awarded reimbursement of its legal fees and other costs in respect of the arbitration proceedings, which were received on October 27, 2010. The partial award does permit VI to bring a subsequent claim against CME BV as parent guarantor in the event that VI establishes that it is entitled to certain additional compensation under the advertising and marketing services agreements with Studio 1+1 and that such compensation is not satisfied by Studio 1+1. On July 13, 2011, Prioritet filed claims against Studio 1+1 in the Commercial Court of Kiev. The claims relate to alleged violations of the advertising services agreement and marketing services agreement and the total amount of relief sought is approximately UAH 201.0 million (approximately US$ 25.4 million). On September 23, 2011, the Commercial Court of Kiev dismissed Prioritet's claims. On November 7, 2011, the Commercial Court of Appeal of Kiev dismissed an appeal of the lower court's decision. On December 13, 2011, the Superior Commercial Court of Ukraine dismissed an appeal of Prioritet following the decision of the appellate court. Prioritet has indicated it intends to seek leave to appeal to the Supreme Court of Ukraine. We do not believe that it is likely that we will be required to make any further payment.

The Media Pro Entertainment segment reported an increase in net revenues for 2011 of 33%. On a constant currency basis, net revenues increased by 26% in 2011 compared to 2010. We generated approximately US$ 75.2 million (40% of total MPE segment revenues) of our revenues from third parties during 2011, compared to US$ 35.8 million (25% of total MPE segment revenues) during 2010. The increase in our revenues and the increase in the proportion of our third party revenues primarily reflects our recent acquisition of Bontonfilm in the second quarter of 2011.

Our New Media segment reported an increase in net revenues for 2011 of 41% compared to 2010, or 33% on a constant currency basis. We reported an improvement in OIBDA for 2011 of US$ 4.0 million compared to the same period in 2010, primarily due to the launch of Voyo in all our territories.

Our net revenues increased by US$ 127.6 million, or 17%, during 2011 compared to 2010 following the improved performance of our Broadcast operations, most notably in Croatia, the Slovak Republic and Slovenia, and the acquisition of the bTV group in Bulgaria in April 2010; the increased third party revenue growth in Media Pro Entertainment primarily due to the acquisition of Bontonfilm in June 2011; and improved results in our New Media operations following the launch of Voyo across all our territories during the year. On a constant currency basis, our net revenues increased by 10% during 2011 compared to 2010.

Operating income for 2011 decreased by US$ 16.1 million compared to 2010, While revenues increased by US$ 127.6 million compared to 2010, cost of revenues increased by US$ 75.6 million and selling, general and administrative expense declined slightly. The positive difference was more than offset by impairment charges of US$ 68.7 million, resulting in the decrease in operating income.

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