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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-Q

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Commission file number: 000-52003

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CTC MEDIA, INC.
(Exact name of registrant as specified in its charter)

31A Leningradsky Prospekt
125284 Moscow, Russia
+7-495-785-6333
(Address Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)

2711 Centerville Road, Suite 400
Wilmington, DE 19808
302-636-5400
(Name, Address Including Zip Code and Telephone Number, Including
Area Code, of Agent for Service)

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        Indicate by check mark whether the 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 such 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 ý    No o

        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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o

        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 definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o    No ý

        As of November 1, 2015, there were outstanding 156,103,854 shares of the registrant's common stock, $0.01 par value per share.

   

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CTC MEDIA, INC.
INDEX

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SPECIAL NOTE REGARDING
THE RUSSIAN MASS MEDIA LAW
AND OUR PROPOSED CORPORATE TRANSACTIONS

Proposed Transaction with UTH

        On July 6, 2015, we announced the receipt of a formal, non-binding offer from UTH Russia, a privately held Russian commercial television broadcasting group, for the purchase of a 75% interest in our Russian and Kazakhstan business operations.

        On September 24, 2015, we entered into a Framework Agreement with UTV-Management LLC, an affiliate of UTH Russia (together, "UTH"). Pursuant to the agreement, UTH would acquire a 75% interest in CTC Investments, our wholly owned subsidiary that holds all of CTC Media's operating businesses, for approximately $200.5 million in cash, subject to agreed holdbacks and adjustments. The agreement was approved by all members of the Board of Directors of the Company (except for those members originally designated by Telcrest Investments Ltd. who recused themselves pursuant to the Company's Economic Sanctions Compliance Policy), taking into consideration the recommendation of the Special Committee of independent directors that was established to undertake a review of the proposed transaction with UTH and our strategic alternatives. The transaction is being undertaken to ensure compliance with the foreign ownership restrictions imposed by Russia's new Mass Media Law (described below), while maximizing the potential return to our stockholders. The ultimate purchase price will be net of any shortfall in cash flow from operating and investing activities during the second half of 2015 compared with an agreed target for this period, and is subject to adjustment in connection with certain defined indemnification obligations. In addition, prior to the closing, we will receive all existing cash in the operating businesses, in excess of $15 million to be retained for working capital after the closing of the transaction.

        In addition, in order to ensure that the ownership structure of the operating businesses fully meets the 80% ownership requirement of the Mass Media Law by the stated deadlines, we have agreed to approve the issuance to UTH or its affiliate of an additional participation interest in CTC Investments, which would result in UTH holding a 80% interest in CTC Investments following the closing of the transaction. Such additional participation interests would be issued to UTH or its affiliate by CTC Investments in consideration of a promissory note.

        The transaction is subject to customary closing conditions, including regulatory approvals and the approval of our stockholders by a simple majority of the outstanding shares of common stock at a special meeting. The shares of our common stock held by Telcrest, the holder of approximately 25% of our common stock, are currently blocked pursuant to U.S. economic sanctions and as such Telcrest would not be permitted to vote at the special meeting.

        Following the closing of the sale to UTH, the Board of Directors has proposed a subsequent transaction pursuant to which a new wholly owned subsidiary of our company would merge with and into our company. Upon the consummation of the merger, each holder of our common stock as of the effective time of the merger, other than shares of our common stock held by stockholders who have properly demanded appraisal rights under Delaware law with respect to such shares, if any, and shares of our common stock owned by Telcrest or by our company, becoming entitled to receive the merger consideration. The shares of common stock held by Telcrest would remain outstanding, and Telcrest would become our sole stockholder. Following the merger, we will cease to be a publicly-traded company. Such merger transaction is subject to the receipt of a license from the Office of Foreign Assets Control ("OFAC") of the U.S. Treasury Department. If the merger is completed, our current public stockholders will not own any shares of the capital stock of the surviving corporation. Assuming timely satisfaction of necessary closing conditions, including receipt of a license from OFAC, we anticipate that the merger will be completed in the first quarter of calendar year 2016.

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        On October 22, 2015, we filed with the SEC a preliminary proxy statement in connection with the proposed special meeting. We expect to file and mail to stockholders a final proxy statement in connection with the special meeting in November 2015, and to hold the special meeting in December 2015.

        If we are not able to close the proposed transaction with UTH, or if our stockholders do not approve such transaction, we may not be able to consummate an alternative sale transaction, or implement an alternative restructuring approach, before the end of 2015, and may therefore not achieve compliance with the foreign ownership and control restrictions of the Russian Mass Media Law by the stated deadline. Such failure would materially adversely affect our business and the market value of our common stock.

Additional Information and Where to Find It

        In connection with the proposed sale transaction, CTC Media will prepare a proxy statement for its stockholders to be filed with the SEC. The proxy statement will be mailed to our stockholders. CTC Media urges investors, stockholders and other interested persons to read, when available, the proxy statement, as well as other documents filed with the SEC, because these documents will contain important information.

        The definitive proxy statement will be mailed to stockholders of CTC Media as of a record date to be established for voting on the transactions described above. CTC Media's stockholders will also be able to obtain a copy of such documents, without charge, by directing a request to: ir@ctcmedia.ru. These documents, once available, can also be obtained, without charge, at the Securities and Exchange Commission's web site (http://www.sec.gov).

Participants in Solicitation

        Information regarding the persons who may, under the rules of the SEC, be deemed participants in the solicitation of the Company's stockholders in connection with the proposed transactions will be set forth in the proxy statement when it is filed with the SEC.

Non-Solicitation

        This Quarterly Report on Form 10-Q is not a proxy statement or solicitation of a proxy, consent or authorization with respect to any securities or in respect of the proposed transaction and shall not constitute an offer to sell or a solicitation of an offer to buy the securities of CTC Media.

Background to the Amended Mass Media Law

        As previously disclosed, the amended Mass Media Law will reduce the permitted level of foreign ownership in Russian mass media companies, including television broadcasters, from 50% direct ownership to 20% beneficial ownership or control, whether direct or indirect. The law generally does not provide for "grandfathering" of existing foreign ownership interests. The law will come into force on January 1, 2016. No amendments to or waivers from the Mass Media Law have been approved to date, and accordingly by such time each Russian mass media entity, including television broadcasters, must comply with the requirement that, among other things, non-Russian entities and individuals in the aggregate beneficially own no greater than 20% of the relevant mass media entity. Russian entities and individuals that beneficially own interests in Russian mass media businesses greater than 20% through off-shore holding structures will have an additional year in which to restructure such foreign holding structures.

        CTC Media is a Delaware corporation that directly and indirectly owns 100% of the shares of a series of Russian legal entities that operate the CTC business in Russia. CTC Media's Russian

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operations have historically contributed more than 96% of the group's revenues and net income. CTC Media's stockholders include MTG Russia AB, a Swedish company that is 100% indirectly owned by Modern Times Group MTG AB, a Swedish listed company, which holds approximately 38% of our outstanding common stock; Telcrest Investments Limited, a Cypriot limited company that we understand is indirectly beneficially owned by Russian entities and individuals, which holds approximately 25% of our outstanding common stock; and a number of public stockholders, which we understand include numerous U.S. and European investors, which together hold the remaining approximately 37% of our outstanding common stock. As a consequence, neither our Delaware parent company nor the current beneficial ownership structure of our group would currently comply with the requirements of the new law. In the event of non-compliance by the stated deadline, the Russian government would have the authority to revoke the mass media registration and broadcasting licenses of our business, and our parent company would be unable to exercise its voting rights in our Russian subsidiaries. The enactment of this law therefore creates significant uncertainty regarding our ownership, and has materially adversely affected, and may continue to materially adversely affect, the value of our common stock.

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SPECIAL NOTE REGARDING TELCREST

Telcrest's Investment in Our Company

        Telcrest Investments Limited, a Cyprus company, which we refer to as Telcrest, currently holds 39,548,896 shares of our common stock, representing approximately 25% of our outstanding common stock.

Telcrest's Status as a Sanctioned Party

        On March 14, 2014, OFAC designated Bank Rossiya as a Specially Designated National and Blocked Person, which we refer to as an SDN, for purposes of U.S. economic sanctions related to the situation in Ukraine. As of that date, Bank Rossiya directly or indirectly owned more than 50% of Telcrest, and accordingly Telcrest was also considered to be an SDN for purposes of U.S. sanctions at such time and, thereafter, the shares of our common stock held by Telcrest were identified by Computershare, the transfer agent for our common stock, as blocked property pursuant to applicable sanctions. Accordingly, the shares of our common stock, among other property, of Telcrest that were in the possession or control of our company or Computershare were reported to OFAC as blocked property pursuant to applicable sanctions requirements.

Notification of Change in Telcrest's Ownership, September 2015

        On September 25, 2015, Telcrest notified us that as a result of two transactions with third parties relating to its share capital that it is no longer 50% or more owned, directly or indirectly, in the aggregate by one or more SDNs, including Bank Rossiya. Telcrest also subsequently filed with the SEC an amendment to its Report on Schedule 13D relating to this change in ownership. Assuming this information is accurate, Telcrest would no longer be considered to be owned, directly or indirectly, 50 percent or more in the aggregate by one or more SDNs. Nonetheless, we currently believe that the shares or our common stock held by Telcrest remain blocked property, until such time as OFAC authorizes their unblocking or Bank Rossiya is removed from the SDN list.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This quarterly report contains forward-looking statements that involve substantial risks and uncertainties. In some cases you can identify these statements by forward-looking words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "should," "will," and "would," or similar words. You should read statements that contain these words carefully because they discuss future expectations, contain projections of future results of operations or of financial position or state other "forward-looking" information. The factors described in the "Risk Factors" section of this quarterly report on Form 10-Q, as well as any cautionary language elsewhere in this quarterly report, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations described in these forward-looking statements. Other unknown or unpredictable factors could have material adverse effects on our future results, performance or achievements. In light of these risks, uncertainties, assumptions and factors, the forward-looking events discussed herein may not occur and actual performance and results may vary from those anticipated or otherwise suggested by such statements. You are cautioned not to place undue reliance on these forward-looking statements. We do not undertake any obligation to publicly update or revise any forward-looking statements because of new information, future events or otherwise.

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PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements

        

CTC MEDIA, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands of U.S. dollars, except share and per share data)

   

The accompanying notes are an integral part of these financial statements.

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CTC MEDIA, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands of U.S. dollars, except share and per share data)

   

The accompanying notes are an integral part of these financial statements.

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CTC MEDIA, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands of U.S. dollars, except share and per share data)

   

The accompanying notes are an integral part of these financial statements.

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CTC MEDIA, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands of U.S. dollars)

   

The accompanying notes are an integral part of these financial statements.

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CTC MEDIA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, except share and per share data)

1. ORGANIZATION

        The accompanying consolidated financial statements include the accounts of CTC Media, Inc. and all consolidated subsidiaries (the "Company"). CTC Media, Inc., a Delaware corporation, operates the CTC, Domashny and Peretz television channels in Russia and Channel 31 in Kazakhstan. Effective November 2015, as a result of Company's strategic review of the positioning of the "Peretz" channel, the channel will be operated under a new brand—"Che". Each channel includes the operating results of its network, which is responsible for broadcasting operations, sales of network advertising, licensing and commissioning of programming, producing its programming schedule, and managing its relationships with its independent affiliates, and the respective stations that distribute the network's signal. For financial reporting purposes the Company's other less significant operating segments are included along with operations of corporate headquarters in the "All Other" category.

        The Company generates substantially all of its revenues from the sale of television advertising on both a national and regional basis.

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        The accompanying unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2015, should be read in conjunction with the consolidated financial statements contained in the Company's Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the "SEC") on March 5, 2015 (the "2014 Annual Report"). The Company's accounting policies are more fully described in the 2014 Annual Report. The preparation of the Company's unaudited condensed consolidated financial statements requires the Company to make judgments in selecting the appropriate assumptions for calculating financial estimates, which inherently contain some degree of uncertainty. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the reported amounts of revenues and expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The following discussion addresses the Company's most critical accounting policies, which require management's most difficult, subjective and complex judgments.

Basis of Presentation

        The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been recorded. Operating results for the three and nine months ended September 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.

        The condensed consolidated balance sheet as of December 31, 2014 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for the complete financial statements.

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CTC MEDIA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands of U.S. dollars, except share and per share data)

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

        As fully described in 2014 Annual Report on Form 10-K, an amendment to the Russian law "On Mass Media" adopted in October 2014 will reduce the permitted level of foreign ownership in Russian mass media companies, including television broadcasters, from 50% direct ownership to 20% beneficial ownership or control, whether direct or indirect, starting from January 1, 2016. No amendments to or waivers from the Mass Media Law have been approved to date and therefore all mass media, including CTC Media's Russian broadcasting businesses, will be required to comply with these ownership and control limitations by January 1, 2016 (subject to a one-year grace period for offshore intermediate holding structures ultimately owned and controlled by Russian individuals or companies). The adoption of the Mass Media Law creates significant uncertainty for CTC Media and its stockholders.

        The Company's Board of Directors, through its Special Committee of independent directors, and management team are continuing to work with external legal, financial and tax advisors to evaluate and implement an appropriate response that achieves compliance with the new law while safeguarding the interest of all of the Company's stockholders.

        In the context of these legal developments in Russia, on July 6, 2015, the Company announced the receipt of a formal, non-binding offer from UTH Russia, a privately held Russian commercial television broadcasting group, for the purchase of a 75% interest in the group's Russian and Kazakhstan business operations. On September 24, 2015, the Company entered into a Framework Agreement with UTV-Management LLC, an affiliate of UTH Russia (together, "UTH"). Pursuant to the agreement, UTH would acquire a 75% interest in CTC Media's operating businesses for approximately $200.5 million in cash. The Agreement was approved by all members of the Board of Directors of the Company (except for those members originally designated by Telcrest Investments Ltd. who recused themselves pursuant to the Company's Economic Sanctions Compliance Policy), taking into consideration the recommendation of the Special Committee of independent directors that was established to undertake a review of the proposed transaction with UTH and the Company's strategic alternatives. In addition, in order to ensure that the ownership structure of the operating business fully meets the 80% ownership requirement of the Mass Media Law by the stated deadlines, the Company has agreed to approve the issuance to UTH of an additional participation interest in "CTC Investments" and, as the result UTH would hold a 80% interest in CTC Media's business following the closing of the transaction.

        The transaction is subject to customary closing conditions, including regulatory approvals and the approval of the Company's stockholders by a simple majority of the outstanding shares of the Company's common stock at a special meeting. The shares of the Company's common stock held by Telcrest, the holder of approximately 25% of the shares of the Company's common stock, are currently blocked pursuant to U.S. economic sanctions and as such Telcrest would not be permitted to vote at the special meeting.

        As of September 30, 2015 and the date of these financial statements and until the proposed transaction is approved by stockholders, the Company continues to manage and operate its businesses in Russia and Kazakhstan as continuing operations applying the going concern assumption. While there may be changes in management's assumptions in the near term, the Company believes that the accompanying financial statements fairly reflect the performance of the Company based on current information that is available. Should facts and circumstances change—in particular, if a transaction

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CTC MEDIA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands of U.S. dollars, except share and per share data)

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

involving the sale of a material portion of the Company's Russian businesses is approved by the Company's stockholders, the Company will be required to report certain, if not all, of its principal operations as discontinued operations in the period in which such transaction is approved by both Board of Directors and stockholders.

Principles of Consolidation

        Wholly owned subsidiaries and majority owned ventures where the Company has operating and financial control, as well as variable interest entities where the Company has been deemed the primary beneficiary with power and ability to control, are consolidated. Those ventures where the Company exercises significant influence, but does not exercise operating and financial control, are accounted for under the equity method. The Company uses the purchase method of accounting for all business combinations. Results of subsidiaries acquired and accounted for under the purchase method are included in operations from the date of acquisition. Non-controlling interests represent a non- controlling shareholder's proportionate share of the equity in certain of the Company's consolidated entities. Intercompany accounts and transactions are eliminated upon consolidation. Disposals are reflected at the time risks and rewards of ownership have been transferred.

        The Company is the primary beneficiary of the Channel 31 Group, a variable interest entity consisting of a 20% participation interest in Teleradiokompaniya 31st Kanal LLP ("Channel 31"), and a 70% and 60% interest in Prim LLP and Advertising and Marketing LLP, respectively, which provide programming content and the advertising sales function to Channel 31 (together, the "Channel 31 Group"). These interests provide the Company with a right to 60% of the economic interest of the Channel 31 Group. The Company consolidates the Channel 31 Group. As of September 30, 2015, the Channel 31 Group had assets (excluding intercompany assets) totaling $14,078 and liabilities (excluding intercompany liabilities) totaling $2,441. These assets and liabilities primarily relate to broadcasting licenses, trade payables for programming rights, loans and related deferred tax assets and liabilities. The Company finances the Channel 31 Group's operations in the ordinary course of business. Channel 31 Group's net income attributable to CTC Media, Inc. stockholders excluding intercompany expenses totaled $115 and $67 for the three and nine months ended September 30, 2015, respectively.

Seasonality

        The Company experiences seasonal fluctuations in overall television viewership and advertising revenues. Overall television viewership is lower during the summer months and highest in the first and fourth quarters. Seasonal fluctuations in consumer patterns also affect television advertising expenditures. In 2014, approximately 30% of the Company's total advertising revenues in ruble terms were generated in the fourth quarter.

Use of Estimates

        The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

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CTC MEDIA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands of U.S. dollars, except share and per share data)

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Significant estimates in the financial statements include, among others, the estimate of fair values in business combinations, estimates of the fair value of the Company's common stock in determining stock-based compensation, the amortization method and periods for programming rights, useful lives of tangible and intangible assets, impairment of goodwill, valuation of intangible assets and long-lived assets, estimates of contingencies, estimates of income taxes in relation to the Company's interpretation of current tax laws, in particular, in the determination of foreign tax credits, determination of valuation allowances for deferred tax assets, and possible outcomes of current and future audits conducted by foreign and domestic tax authorities. While the Company believes it has made, and continues to make, reasonable judgments in determining its tax filing positions in each jurisdiction in which it is subject to tax, views may differ as to the determination of its tax obligations. These judgments may ultimately be subjected to examination by the tax authorities and further revisions may be required in the Company's estimates. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making changes in estimates from time to time, and evaluates the estimates on an ongoing basis. Actual results may differ from those estimates under different assumptions or conditions.

Revenue Recognition

        Revenue is recognized when there is persuasive evidence of an arrangement, services have been rendered, the price is fixed or determinable and collectability is reasonably assured. An allowance for doubtful accounts is maintained for estimated losses resulting from the customers' inability to make payments. The Company recognizes advertising revenues at the moment when the advertising is broadcast and net of value-added taxes ("VAT").

        The Company's own sales house serves as the exclusive advertising sales agent for substantially all national and regional advertising sales, with the exception of advertising sales to local clients of a number of the Company's owned-and-operated regional stations. The Company recognizes its Russian advertising revenues, excluding regional advertising revenues from local clients, based on the gross amounts billed to the advertisers and their agencies under direct sales arrangements.

        The Company's cooperation model with Video International provides for the licensing of specialized advertising software by Video International to the Company's sales house, together with the provision by Video International of related software maintenance and analytical support and consulting services. Compensation expenses payable to Video International for the use of advertising software, related maintenance and analytical support and consulting services are included in selling, general and administrative expenses in the Company's consolidated statement of income.

        In addition, a number of the Company's owned-and-operated regional stations and Channel 31 have agency agreements with local subsidiaries of Video International with respect to advertising sales to local clients, which is recognized net of agency commissions.

        Sublicensing revenues primarily represent revenues the Company earns from sublicensing its rights to programming and from the licensing of internally- produced programming. Sublicensing revenue is recognized at such time as there is persuasive evidence that a sale or arrangement with a customer exists, the underlying programming is complete and has been transferred to the customer, the licensing

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CTC MEDIA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands of U.S. dollars, except share and per share data)

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

period has commenced and the customer can begin use, the arrangement fee is fixed or determinable, and collection of the arrangement fee is reasonably assured. Given the recent uncertainties in Ukraine, in 2014, the Company commenced the use of the installment method for sublicensing arrangements with Ukrainian counterparties.

        Payments received in advance for advertising and other revenue are recorded as deferred revenue until earned.

Programming Rights

        Programming rights are stated at the lower of their unamortized cost or net realizable value. The Company reports an asset and liability for the rights acquired and obligations incurred at the commencement of the licensing period when the cost of the programming is known or reasonably determinable, the program material has been accepted and the programming is available for airing.

        Purchased program rights are classified as current or non-current assets based on anticipated usage and the licensing period. Internally produced programming and purchased programming with unlimited rights are classified as non-current.

        The Company amortizes programming based on expected revenue generation patterns, based on the proportion that current estimated revenues bear to the estimated remaining total lifetime revenues. If the initial airing of content allowed by a license is expected to provide more value than subsequent airings, the Company applies an accelerated method of amortization. These accelerated methods of amortization depend on the estimated number of runs the content is expected to receive, and are determined based on a study of historical results for similar programming. For content that is expected to be aired only once, the entire cost is recognized as an expense on the first run. To the extent that the revenues the Company expects to earn from broadcasting a program are lower than the book value, the programming rights are written down to their net realizable value by way of recording an additional amortization charge. Such write-downs establish a new cost basis for programming rights.

Amortizable Long-Lived Assets

        Amortizable assets are stated at cost less accumulated amortization. Definite- lived intangible assets primarily represent broadcast licenses and cable network connections that are amortized on a straight-line basis through the end of their estimated period of future economic benefit ranging from 2018 to 2022.

        The estimated useful lives of broadcasting licenses is subject to the availability of further information about the transition to digital broadcasting which could require the Company to revise its amortization expense on a prospective basis. Amortizable assets, including property and equipment and definite-lived intangibles, are reviewed periodically to determine whether an event or change in circumstances indicates that the carrying amount of the asset may not be recoverable. For long-lived assets to be held and used, the Company bases its evaluation on such impairment indicators as the nature of the assets, the future economic benefit of the assets and any historical or future profitability measurements, as well as other external market conditions or factors that may be present. If such impairment indicators are present or other factors exist that indicate that the carrying amount of the

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CTC MEDIA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands of U.S. dollars, except share and per share data)

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

asset may not be recoverable, the Company determines whether impairment has occurred through the use of an undiscounted cash flows analysis of assets at the lowest level for which identifiable cash flows exist. If the carrying value of the asset or group of assets exceeds the undiscounted cash flows, impairment is deemed to have occurred, and the Company recognizes an impairment loss for the difference between the carrying amount and the estimated fair value of the asset. The fair value of the asset is estimated using a discounted cash flow analysis or other valuation techniques.

Fair Value Measurements

        Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction (that is, not forced liquidations or distress sales) between market participants on the measurement date.

        The fair value hierarchy contains three levels as follows:

        Level 1—Unadjusted quoted prices that are available in active markets for the identical assets or liabilities at the measurement date.

        Level 2—Other observable inputs available at the measurement date, other than quoted prices included in Level 1, either directly or indirectly, including: (1) quoted prices for similar assets or liabilities in active markets; (2) quoted prices for identical or similar assets in non-active markets; (3) inputs other than quoted prices that are observable for the asset or liability; and (4) inputs that are derived principally from or corroborated by other observable market data.

        Level 3—Unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management's estimates of market participant assumptions.

        There were no transfers between categories during the periods presented.

        The carrying amounts of the Company's financial instruments, which include cash and cash equivalents, short-term investments, accounts receivable and accounts payable approximate their fair value as of December 31, 2014 and September 30, 2015, respectively.

Goodwill and Long-Lived Intangible Assets Impairment Tests

        The Company assesses the carrying value of its goodwill on an annual basis, or more frequently if events or changes in circumstances indicate that such carrying value may not be recoverable. Other than its annual review, factors the Company considers important which could trigger an impairment review include under-performance of reporting units or changes in projected results, changes in the manner of utilization of the asset, a severe and sustained decline in the price of the Company's shares and negative market conditions or economic trends. For a discussion of the methodology and major assumptions employed in the Company's impairment testing, refer to the Company's Annual Report on Form 10-K filed with the SEC on March 5, 2015.

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CTC MEDIA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands of U.S. dollars, except share and per share data)

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Impairment reviews as of December 31, 2014

        In the annual impairment review performed as of December 31, 2014, the Company recorded non-cash impairment losses totaling $29.4 million related to Peretz goodwill. The decline in fair value of Peretz goodwill was due to revised estimates of future cash flows during the fourth quarter of 2014, primarily reflecting the revised expectations of the total TV advertising market, following reduced advertising demand and increased uncertainty in the medium-term, including uncertainties regarding the ultimate outcome of the Ukraine crisis and its impact on the Russian economy. The Company concluded that the estimated fair value of the CTC reporting unit was significantly in excess of its carrying amount as of December 31, 2014. Due to the revision of estimates of future cash flows in the impairment review as of December 31, 2014, the excess of fair value over the carrying amount of the Domashny reporting unit decreased to 15%.

Impairment reviews as of September 30, 2015

        Overall, the market trading price of our common stock was down from $4.87 per share as of December 31, 2014 to $1.75 per share at September 30, 2015. In the nine months ended September 30, 2015, our capitalization dramatically decreased by 64%. As a result, as of September 30, 2015, our market capitalization amounted to $273,182, while our consolidated net book value (or shareholders' equity) amounted to $388,615. One of the most significant underlying reasons for the substantial decline in the market trading price of our common stock was likely the amendment to the Russian law "On Mass Media" and the perceived increase in the risk that we may not successfully achieve compliance with such requirements by the stated deadline.

        Due to the significant decline in the market trading price of the Company's common stock and market capitalization during the nine months of 2015, the Company updated an interim analysis for impairment as of September 30, 2015. As described above (see—Fair value measurements), in accordance with ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distress sale) between market participants at the measurement date under current market conditions. In determination of fair value of the Company's reporting units, the Company applied multiple valuation techniques by weighting indications of fair value resulting from the application of the going-concern-based present value technique and the market approach. All inputs used for fair value measurements were categorized within Level 3.

        The most significant changes in assumptions used in the valuation of goodwill as of September 30, 2015 as compared to December 31, 2014 were as follows:

        Cost of capital—The cost of capital reflects the return a hypothetical market participant would require for a long-term investment in an asset and can be viewed as a proxy for the risk of that asset. The Company calculates the cost of capital according to the Capital Asset Pricing Model using a number of assumptions, the most significant of which is a Country Risk Premium ("CRP"). The CRP reflects the excess risk to an investor of investing in markets other than the United States and generally fluctuates with expectations of changes in a country's macroeconomic environment. Additionally, changes in the financial markets, such as an increase in interest rates or an increase in the expected

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2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

required return on equity by market participants within the industry, could increase the discount rate, thus decreasing the fair value of the assets. The cost of capital used by the Company in its analysis in 2014 ranged from 15.7% to 18.6% in 2014, and was 18.1% as of September 30, 2015.

        Forecasted programming costs—The level of cash flow generated by each operation is ultimately governed by the extent to which the Company manages the relationship between revenues and costs. The Company forecasts the level of programming costs by reference to (a) the historical absolute and relative levels of costs the Company has incurred in generating revenue in each reporting unit and regional station, (b) the operating strategy of each business, (c) specific forecasted programming costs to be incurred and (d) expectations as to what these costs would be for an average market participant. The Company's estimates of forecasted programming costs are developed from a number of external sources, in combination with a process of on-going consultation with operational management. The forecasted programming costs for 2015 increased by approximately 11% compared with the estimates made at the time of the annual impairment review performed as of December 31, 2014.

        As a result of the impairment review performed as of September 30, 2015, the Company concluded that the fair values of the CTC, Domashny and Peretz reporting units exceeded their carrying values. The excess of fair value over the carrying amount of the Peretz and Domashny reporting units amounted to 1% and 6%, respectively. The estimated fair values for CTC remained significantly in excess of their respective carrying amounts.

        As of September 30, 2015, the carrying values of goodwill related to CTC, Domashny and Peretz totaled $25 million, $13 million and $4 million, respectively. In addition, as of September 30, 2015, the Company had significant balances of amortizable broadcasting licenses totaling $20 million, including CTC licenses—$3 million; Domashny licenses—$4 million, and Peretz licenses—$11 million.

        In order to evaluate the sensitivity of the fair value calculations in our impairment analysis, we hypothetically applied 10 and 15 percentage points' decreases in the fair value of each reporting unit and broadcasting licenses.

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        The Company considers all current information in determining the need for or calculating the amount of any impairment charges; however, future changes in events or circumstances could result in decreases in the fair values of its intangible assets and goodwill.

Stock-based Compensation Expense

        The Company estimates the fair value of equity awards at the date of grant using the Black-Scholes option pricing model. The Black-Scholes pricing model was originally developed for use in estimating the fair value of traded options, which have different characteristics than the Company's employee equity awards. The model is also sensitive to changes in subjective assumptions, which can materially affect the fair value estimate. These subjective assumptions include expected volatility, the expected life of the awards, future employee turnover rates, and future employee award exercise behavior. The Company determines the fair value of its common stock by using closing prices as quoted on the NASDAQ Global Select Market. Performance-based unvested share awards require management to make assumptions regarding the likelihood of achieving the set goals.

        Once the Company has estimated the fair value of the equity instruments, it recognizes this estimated cost as stock-based compensation expense over the service period. Equity-based incentive awards that meet liability accounting criteria are remeasured at each reporting date at their fair value until settlement. The fair value of such unsettled equity-based incentive awards is recognized in liabilities.

Tax Provisions and Valuation Allowance for Deferred Tax Assets

        Deferred income taxes result from temporary differences between the tax bases of assets and liabilities and the bases as reported in the consolidated financial statements, as well as the tax benefits of net operating loss carry-forwards which are expected to be realized. The Company records valuation allowances related to the tax effects of deductible temporary differences and loss carry- forwards when, in the opinion of management, it is more likely than not that the respective tax assets will not be realized. Changes in the Company's assessment of the probability of realization of deferred tax assets may affect the Company's effective income tax rate.

        The Company records temporary differences related to investments in its Russian subsidiaries. These temporary differences consist primarily of undistributed earnings that the Company does not plan to permanently reinvest in operations outside the U.S. The Company estimates its tax positions based on its best judgment given the facts, circumstances, and information available at the reporting date. Change in facts and circumstances are recognized in the period in which the change occurs. As described in Note 8, as of September 30, 2015, the Company's income tax position was significantly affected by the one-off recognition of $40.2 million of deferred tax benefit resulting from the remeasurement of the Company's deferred tax liability in respect of unremitted earnings of its Russian subsidiaries. This remeasurement was triggered by a change in the Company's expectations for the US tax position due to expected sale transaction outlined in the Framework Agreement with UTH concluded in September 2015 (see Note 2).

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        The level of sophistication and expertise with respect to complex tax laws is continually evolving both on the part of tax professionals and the taxing authorities. The Company is a U.S. legal entity with substantially all of its operations outside the U.S., primarily in Russia. As a result, the Company's tax filing positions in the U.S. are substantially impacted by the Company's interpretation of tax law and how the Company applies it in determining U.S. taxes payable and deferred tax liabilities. While the Company believes it has made, and continues to make, reasonable judgments in determining its tax filing positions in each jurisdiction in which the Company is subject to tax, views may differ as to the determination of its tax obligations. These judgments may ultimately be subjected to examination by the tax authorities and further revisions may be required in the Company's estimates.

New and Recently Adopted Accounting Pronouncements

        There have been no developments to recently issued accounting standards, including the expected dates of adoption and estimated effects on the Company's consolidated financial statements, from those disclosed in the Company's 2014 Annual Report on Form 10-K, except for the noted below.

        In February 2015, the FASB issued Accounting Standards Update 2015-02, Consolidation (Topic 820): Amendments to the Consolidation Analysis ("ASU 2015-02"). ASU 2015-02 provides a revised consolidation model for all reporting entities to use in evaluating whether they should consolidate certain legal entities. The amendments, among other things, (1) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities ("VIEs") or voting interest entities, (2) eliminate the presumption that a general partner should consolidate a limited partnership and (3) affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related-party relationships. These amendments are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. The Company is currently assessing the potential impact that these amendments will have on its consolidated financial statements.

        In April 2015, the FASB issued Accounting Standards Update 2015-05, Intangibles—Goodwill and Other—Internal-Use Software ("ASU 2015-05"). ASU 2015-05 provides guidance to Subtopic 350-40, which will help entities to evaluate the accounting for fees paid by a customer in a cloud computing arrangement. Examples of cloud computing arrangements include software as a service, platform as a service, infrastructure as a service, and other similar hosting arrangements. These amendments are effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. The Company is currently assessing the potential impact that these amendments will have on its consolidated financial statements.

        In May 2015, the FASB issued Accounting Standards Update 2015-08, Business Combination (Topic 805) ("ASU 2015-08"). ASU 2015-08 amends various SEC paragraphs pursuant to the issuance of Staff Accounting Bulletin No. 115. The adoption of this guidance is not expected to have a material effect on the Company's condensed consolidated balance sheet or results of operations.

        In June 2015, the FASB issued Accounting Standards Update 2015-10, Technical Corrections and Improvements ("ASU 2015-10"). The amendments represent changes to clarify the Codification, correct

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unintended application of guidance, or make minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The adoption of this guidance, which is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015, is not expected to have a material effect on the Company's condensed consolidated balance sheet or results of operations.

        In August 2015, the FASB issued Accounting Standards Update 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date ("ASU 2015-14"). The amendments defer the effective date of ASU 2014-09, Revenue from Contracts with Customers (Topic 606), to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period for public entities. The Company plans to apply ASU 2014-09 beginning January 1, 2018 either retrospectively to each period presented or as a cumulative effect adjustment as of the date of adoption. The Company is currently evaluating the impact of adopting ASU 2014-09 on its consolidated financial statements.

3. NET INCOME PER SHARE

        Basic net income per share is computed on the basis of the weighted average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares are calculated using the "treasury stock" method and consist of shares underlying outstanding equity awards. The number of shares excluded from the diluted net income per common share computation because their effect was antidilutive was 2,096,112 and 644,945 for the three months ended September 30, 2014 and 2015, respectively, and 2,131,611 and 361,805 for the nine months ended September 30, 2014 and 2015, respectively.

        The components of basic and diluted net income per share were as follows:

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3. NET INCOME PER SHARE (Continued)

        The numerator used to calculate diluted net income per common share for the three and nine months ended September 30, 2014 and 2015 was net income attributable to CTC Media, Inc. stockholders.

4. CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS; OTHER NON-CURRENT ASSETS

        The Company's cash and cash equivalents and short-term investments comprise bank accounts and term deposits. Deposits with an original maturity ranging from 91 to 365 days are classified as short-term investments. Below are breakdowns of cash and cash equivalents and short-term investments:

 

        Other non-current assets—On March 20, 2014, the United States imposed sanctions on Bank Rossiya, a Russian open joint stock company, and Bank Rossiya was placed on the Specially Designated Nationals ("SDN") and Blocked Persons List of the U.S. Department of the Treasury, Office of Foreign Assets Control ("OFAC"). On April 28, 2014, LLC IC Abros, a holding company related to Bank Rossiya, was also designated an SDN. At that time, more than 50% of the voting capital of Telcrest Investments Limited ("Telcrest"), one of the Company's principal stockholders, was beneficially owned, directly or indirectly, by Bank Rossiya and LLC IC Abros, and therefore the shares of the Company's common stock held by Telcrest were identified as "blocked property" pursuant to OFAC requirement. Although Telcrest notified the Company on September 25, 2015 that it is no longer 50% or more owned, directly or indirectly, in the aggregate by one or more SDNs, including Bank Rossiya, the Company believes that because its shares held by it have been reported as blocked property, such shares remain blocked until affirmatively unblocked by OFAC.

        In 2014 and the first quarter of 2015, dividends totaling $34,605 otherwise payable to Telcrest were blocked pursuant to the U.S. sanctions described above and paid into a separate interest-bearing bank account for the benefit of Telcrest (and amount of interest accrued as of September 30, 2015:

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4. CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS; OTHER NON-CURRENT ASSETS (Continued)

$0.6 million), but to which Telcrest will not have access while the shares of the Company's common stock held by Telcrest remain blocked property pursuant to OFAC requirements.

        In addition, as of September 30, 2015, other non-current assets included advance payments to RTRS towards the construction of the digital infrastructure in the 50– coverage regions of approximately $6.7 million. See Note 9, Commitments and Contingencies "—Purchase Commitments".

5. PROGRAMMING RIGHTS, NET

        Programming rights as of December 31, 2014 and September 30, 2015 comprise the following:

        The Company expects to amortize approximately $1,584 of internally produced TV programming for its completed and released programs and completed but not yet released programs during the twelve months ending September 30, 2016. In addition, the Company expects to amortize all of its unamortized internally produced programming rights within the three years following September 30, 2015.

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6. STOCKHOLDERS' EQUITY

        As of December 31, 2014 and September 30, 2015, the Company's issued and outstanding share capital was as follows:

Stock Repurchase Program

        On March 4, 2013, the Board of Directors approved an open market stock repurchase program, pursuant to which the Company was authorized to repurchase up to 2.5 million shares of common stock in the market for use under the Company's 2013 Equity Incentive Plan (the "Plan"). During the period ended December 31, 2013, the Company repurchased 2,500,000 shares of its common stock at an average price of $11.89 per share for a total of $29,727. Treasury stock is accounted for under the cost method. In 2014 and in the first nine months of 2015, the Company issued 51,447 and 341,688 shares of common stock from treasury upon the exercise of restricted share units, or RSUs, under the 2013 and 2014 sub-tranche of the 2013 Equity Incentive Plan, respectively.

        The Company's certificate of incorporation authorizes the Company to issue 175,772,173 shares of common stock. Each holder of common stock is entitled to one vote for each share of common stock held of record on all matters on which stockholders generally are entitled to vote.

Dividends

        In 2015, the following dividends were declared and paid:

        Dividends declared to Telcrest in 2015 of $6,921 were blocked due to the status of the common stock of the Company held by Telcrest as blocked property pursuant to OFAC requirements, as described above in Note 4.

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6. STOCKHOLDERS' EQUITY (Continued)

        The following table summarizes the changes in stockholders' equity during the nine months ended September 30, 2014 and 2015:

 

7. STOCK-BASED COMPENSATION

        The Company has several stock-based compensation programs. See the 2014 Annual Report on Form 10-K filed with the SEC on March 5, 2015—"Item 8. Financial Statements and Supplementary Data—Note 15, Stock-based compensation" for a discussion of these programs.

        In 2013 and 2014, the Company's Board of Directors approved performance criteria for the 2013 and 2014 sub-tranches under the 2013 Equity Incentive Plan in respect of 637,800 and 783,584 RSUs, respectively, with a weighted average per unit grant date fair value of $10.53 and $8.36, respectively. The Company recognized $0.1 and $1.0 million of expense attributable to RSUs in the three and nine months ended September 30, 2015, respectively. The Company's Board of Directors has not determined performance criteria for the 2015 sub-tranche under the 2013 Equity Incentive Plan. In April 2015, the Company's Board of Directors adopted the 2015 Management Incentive Plan, which provides for the payment of cash bonuses to specified employees in connection with a change in control, defined as (i) any consolidation or merger of the Company with or into any other company or other entity or

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7. STOCK-BASED COMPENSATION (Continued)

person, or any corporate reorganization or share exchange or sale transaction, in which the stockholders of the Company immediately prior to such consolidation, merger, reorganization or share exchange transaction own, directly or indirectly, less than 50% of the voting power of the Company or the surviving entity in such transaction immediately after such consolidation, merger, reorganization or share exchange transaction; or any transaction or series of related transactions to which the Company is a party in which in excess of 50% of the Company's voting power is transferred; (ii) a sale by the Company of its assets representing more than 50% of its Russian operating businesses; (iii) a resolution of the Company's Board to liquidate and wind up the Company; or (iv) a termination of the listing of the Company's common stock on the Nasdaq Global Select Market or Nasdaq Global Market. The total bonus pool under this plan is $10 million, of which $6 million will be payable by the Company in connection with the closing of a change in control event, and $4 million will be payable by the Company's operating companies based on continued employment with the CTC group for a defined period following such event. Each participant is eligible to receive a portion of this pool, provided that such participant remains employed by the Company on the date such change in control event occurs. Any RSUs held by such participants, whether then vested or exercisable, terminate immediately prior to payment under the plan.

        In addition, in April 2015 the Board of Directors amended the terms of RSUs held by persons not covered by the 2015 Management Incentive Plan to provide that awards that are vested at the time of a change in control transaction will become fully exercisable in connection with such change in control transaction.

8. INCOME TAX

        The Company is subject to U.S. (domestic), Russian and Kazakh income taxes, based on U.S. legislation, Russian tax legislation, Kazakh legislation and the Double Tax Treaty of 1992 between the United States and Russia ("Treaty"). U.S. taxable income or losses recorded are reported on CTC Media, Inc.'s U.S. income tax return. CTC Media, Inc.'s taxable revenues consist predominantly of dividends paid by its owned-and-operated affiliate stations and networks and interest on deposits. In 2015, dividends distributed to CTC Media, Inc. are subject to a Russian withholding tax of 5% under the Treaty. Dividends distributed within Russia are subject to a withholding tax of 0% for Russian companies holding (1) more than 50% in a Russian distributing subsidiary or (2) less than 50% in a Russian distributing subsidiary for more than 365 days; otherwise withholding tax amounts to 13%. The statutory income tax rate in Russia and Kazakhstan in 2014 and for the nine months ended September 30, 2015 was 20%.

        As of September 30, 2015, the Company's income tax position was significantly affected by the one-off recognition of $40.2 million of deferred tax benefit resulting from the remeasurement of the Company's deferred tax liability in respect of unremitted earnings of its Russian and Kazakh subsidiaries. This remeasurement was triggered by a change in the Company's expectations for the US tax position due to expected sale transaction outlined in the Framework Agreement with UTH concluded in September 2015 (see Note 2). Based on the terms of the Framework Agreement, the Company plans to distribute substantially all of outstanding cash of its subsidiaries to CTC Media, Inc; this distribution is expected to be tax free in the US due to significant amount of foreign tax credits available to offset US income tax. Further, it is estimated that the potential sale of a 75% interest in

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8. INCOME TAX (Continued)

the group's Russian and Kazakh business and subsequent merger transaction would not result in US income tax to the Company, based on the sale price outlined in the Framework Agreement and available foreign tax credits. Accordingly, the Company has adjusted its income tax expense in the third quarter of 2015 for the respective amount of deferred taxes.

        Net of the effect of the one-off tax benefit described above, our effective income tax rate was 31% and 40% in the three months ended September 30, 2014 and 2015, respectively, and 31% and 18% in the nine-month periods ended September 30, 2014 and 2015, respectively . The decrease in our effective income tax rate (as adjusted for the one-off tax benefit described above) in the nine-month periods under review was primarily due to a refund of income tax confirmed and reclaimed from the Russian tax authorities based on our interpretation of certain positions taken in our historical income tax filings in the first quarter of 2015. Excluding this effect, the Company's effective tax rate would have been 43% and 33% for the three- and nine- months ended September 30, 2015, the increase in the effective tax rates compared with the same periods in 2014 primarily reflects the increase in the forecast amount of non-deductible stock-based compensation expense as a percentage of pre-tax income for full year 2015.

        The tax years ended December 31, 2012, 2013 and 2014 remain subject to examination by the Russian and U.S. tax authorities. The tax years ended December 31, 2011 through 2014 remain subject to examination by the Kazakh tax authorities.

9. COMMITMENTS AND CONTINGENCIES

Amendment to Mass Media law

        As previously disclosed, the amended Mass Media Law will reduce the permitted level of foreign ownership in Russian mass media companies, including television broadcasters, from 50% direct ownership to 20% beneficial ownership or control, whether direct or indirect. The law does not provide for "grandfathering" of existing foreign ownership interests. The law will come into force on January 1, 2016. No amendments to or waivers from the Mass Media Law have been approved to date, and accordingly each Russian mass media entity, including television broadcasters, must comply with the requirement that non-Russian entities and individuals in the aggregate beneficially own no greater than 20% of the relevant mass media entity by such time. Russian entities and individuals that beneficially own interests in Russian mass media businesses greater than 20% through off-shore holding structures will have an additional year in which to restructure such foreign holding structures.

        CTC Media is a Delaware corporation that directly and indirectly owns 100% of the shares of a series of Russian legal entities that operate the CTC business in Russia. CTC Media's Russian operations have historically contributed more than 90% of the group's revenues and net income. CTC Media's stockholders include MTG Russia AB, a Swedish company that is 100% indirectly owned by Modern Times Group MTG AB, a Swedish listed company, which holds approximately 38% of the Company's outstanding common stock; Telcrest Investments Limited, a Cypriot limited company that the Company understands is indirectly beneficially owned by Russian entities and individuals, which holds approximately 25% of the Company's outstanding common stock; and a number of public stockholders, which include numerous U.S. and European investors, which together hold the remaining approximately 37% of the Company's outstanding common stock. As a consequence, neither the

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9. COMMITMENTS AND CONTINGENCIES (Continued)

Delaware parent company nor the current beneficial ownership structure of the Company's group would currently comply with the requirements of the new law. In the event of non-compliance by the stated deadline, the Russian government would have the authority to revoke the mass media registration and broadcasting licenses of the Company's business, and the Company's parent company would be unable to exercise its voting rights in its Russian subsidiaries. The enactment of this law therefore creates significant uncertainty regarding the Company's ownership, and has materially adversely affected, and may continue to materially adversely affect, the value of the Company's common stock.

        The Board of Directors, Special Committee and the Company's management team are continuing to work with external legal, financial and tax advisors to evaluate and implement an appropriate response that achieves compliance with the requirements of the new law while safeguarding the interest of all of the Company's stockholders.

        On July 6, 2015, the Company announced the receipt of a formal, non-binding offer from UTH Russia (together, "UTH"), a privately held Russian commercial television broadcasting group, for the purchase of a 75% interest in CTC Investments LLC, the Company's wholly owned subsidiary that directly and indirectly owns all of the Company's Russian and Kazakhstan business operations. On September 24, 2015, the Company entered into a Framework Agreement with UTV-Management LLC, an affiliate of UTH (together, "UTH"). Pursuant to the agreement, UTH would acquire a 75% interest in CTC Media's operating businesses for approximately $200.5 million in cash, subject to adjustment. The Agreement was approved by all members of the Board of Directors of the Company (except for those members originally designated by Telcrest Investments Ltd. who recused themselves pursuant to the Company's Economic Sanctions Compliance Policy), taking into consideration the recommendation of the Special Committee of independent directors that was established to undertake a review of the Company's strategic alternatives.

        In addition, in order to ensure that the ownership structure of the operating business fully meets the 80% ownership requirement of the Mass Media Law by the stated deadlines, the Company has agreed to approve the issuance to UTH of an additional participation interest in "CTC Investments" and, as the result UTH shall hold a 80% interest in CTC Media's business following the closing of the transaction.

        The transaction is subject to customary closing conditions, including regulatory approvals and the approval of the Company's stockholders by a simple majority of the outstanding shares of the Company's common stock at a special meeting. The shares of the Company's common stock held by Telcrest, the holder of approximately 25% of the shares of the Company's common stock, are currently blocked pursuant to U.S. economic sanctions and as such Telcrest would not be permitted to vote at the special meeting.

        If our Board of Directors is not able to conclude and close proposed transaction with UTH, or if our stockholders do not approve such transaction, the Company may not be able to consummate an alternative sale transaction, or implement an alternative restructuring approach, before the end of 2015, and may therefore not achieve compliance with the foreign ownership and control restrictions of the Russian Mass Media Law by the stated deadline. Such failure would materially adversely affect our business and the market value of its common stock.

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9. COMMITMENTS AND CONTINGENCIES (Continued)

Operating environment

        Economic environment—Significant uncertainty exists surrounding the current geopolitical situation in Ukraine. The United States, the European Union and other countries have imposed economic sanctions on certain Russian government officials, other individuals and certain Russian companies in connection with recent developments in Ukraine and Crimea. Neither the Company, nor any of its Russian subsidiaries or other operations or assets, are a target of current sanctions and the Company does not appear on the United States and European Union lists of sanctioned parties. However, there is significant uncertainty regarding the extent or timing of any potential further economic or trade sanctions, or the ultimate outcome of the Ukrainian crisis. The current situation in Ukraine has negatively affected the Company's sublicensing sales of certain programming in that country and has also had a broader impact on the macroeconomic environment of the region. These factors in conjunction with global macroeconomic weakness have adversely affected and may further adversely affect the Company's business.

        In 2014 and the first nine months of 2015, Russia has experienced significant economic instability, characterized by substantial depreciation of its currency, sharp fluctuations of interest rates and a steep decline in the value of shares traded on its stock exchanges. In the first nine months of 2015, the overall Russian television advertising market decreased by 19%. Any continuing economic and political instability, potentially including continued or additional international economic sanctions, could have negative impact on television advertising spending in future periods. If overall spending by the largest multinational advertisers in the Russian television advertising market falls substantially, the Company's advertising revenues may be significantly reduced, materially adversely affecting its results of operations.

        Exchange Rate—Although the Company's reporting currency is the U.S. dollar, it generates almost all of its revenues through the sale of advertising, which in Russia is sold primarily in rubles. The ruble is also the functional currency of the Company's principal operating subsidiaries. As a result, the Company's reported revenues and results of operations are impacted by fluctuations in the exchange rate between the U.S. dollar and the Russian ruble. In the three months ended September 30, 2015, the Russian ruble depreciated against the U.S. dollar by 16%, and was on average 43% lower than the average value of the Russian ruble compared to the U.S. dollar during the three months ended September 30, 2014. In the nine months ended September 30, 2015, the Russian ruble depreciated against the U.S. dollar by 15% , but was on average 40% lower than the average value of the Russian ruble compared to the U.S. dollar during the nine months ended September 30, 2014.

        Additionally, given that substantially all of the Company's revenues are generated in Russian rubles, the Company faces exchange rate risk relating to payments that the Company must make in currencies other than the Russian ruble. The Company generally pays for non-Russian produced programming in U.S. dollars. As of September 30, 2015, the Company had U.S. dollar denominated contractual commitments for the acquisition of approximately $9.5 million of programming rights for the remainder of 2015. In addition, the Company expects to spend approximately $6.2 million for programming rights denominated in U.S. Dollar which is not committed as of September 30, 2015, and $7 million for other U.S. denominated expenses, mostly related to our costs in US level. Also, according to the 2015 Management Incentive Plan approved by the Company's BOD, the Company would be required for the payment of $10 million in cash bonuses to specified employees in connection

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CTC MEDIA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands of U.S. dollars, except share and per share data)

9. COMMITMENTS AND CONTINGENCIES (Continued)

with a change in control (as described in Note 7, Stock-Based Compensation). As of September 30, 2015, U.S. dollar-denominated cash and cash deposits comprised approximately $84.3 million. In addition, in September, 2015, the Company has entered into foreign exchange forward agreement arrangement to purchase $20 million at exchange rate of RUR 66.96 rate to $1 in November, 2015 to reduce the foreign exchange risk with respect to the remaining future U.S. dollar-denominated payments.

        Also, as of September 30, 2015, the Company had U.S. dollar denominated contractual commitments for the acquisition of approximately $31.7 million in 2016 and $3.3 million in 2017.

        The prevailing exchange rate as of September 30, 2015 was RUR 66.2 to $1.00. If the exchange rate between the ruble and the U.S. dollar were further to depreciate, the revenues and operating results of the Company, as reported in U.S. dollars, would be adversely affected.

Purchase Commitments

        The table below summarizes information with respect to the Company's commitments as of September 30, 2015:

        In addition, in connection with the planned digitalization in Russia and Kazakhstan, the Company will incur additional costs. In March 2013, the Company entered into 10-year transmission agreements with the Russian Television and Radio Network ("RTRS"). Under the terms of these agreements, RTRS will provide to CTC and Domashny all services required for the channels to broadcast their signals in digital format throughout Russia to approximately 140 million viewers once the rollout of digital broadcasting is complete throughout the territory of the Russian Federation. In July 2014 and August 2015, the Company amended the agreements to specify service fees for 2014 to 2017 and cash payments for the period from 2014 to 2018. The Company's digital transmission expense related to broadcasting in the cities with populations more than 50,000 ("50+ coverage") will be approximately $3.2 million in 2015 and $4.0 million in 2016 for CTC and Domashny channels in the aggregate (2014: $3.0 million); the expense for 2017 and beyond will be calculated on an annual basis according to rates that RTRS will set by October 1st of the prior year. In addition, RTRS will construct the digital broadcasting infrastructure in smaller cities with populations less than 50,000 ("50– coverage") until 2018. It is indicated that this infrastructure will be put into operation in 2019. Starting in 2014, in addition to the transmission services in the 50+ coverage cities described above, the Company made

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CTC MEDIA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands of U.S. dollars, except share and per share data)

9. COMMITMENTS AND CONTINGENCIES (Continued)

advance payments of 444 million rubles or $6.7 million towards the construction of the digital infrastructure in the 50– coverage regions for CTC and Domashny channels as of September 30, 2015. In the aggregate, in accordance with our agreement with RTRS, the Company is required to advance approximately 311 million rubles in 2015, 145 million rubles in 2016, and 289 million rubles in 2017 and 2018, resulting in total advances of approximately 1,424 million rubles or $21.5 million by the end of 2018 (at an exchange rate of RUR 66.2 to $1.00 as of September 30, 2015). Under the amended terms, these advances will be offset against service payments otherwise required for digital transmission services subsequent to 2018.

        In addition, the Company expects to continue incurring analog transmission costs during the analog-to-digital transition period. In 2014, the Company incurred approximately $24 million of such expenses for all channels.

Compliance with Licenses Terms

        All broadcast television stations in Russia are required to have broadcasting and other operating licenses. Only a limited number of such licenses are available in each locality. These licenses currently have a standard term of 10 years. In addition, the Company holds universal licenses, permitting each of its channels to broadcast through free-to-air, cable and satellite broadcasting, in either digital or analog format.

        A broadcaster must conform its programming to the programming concept outlined in the broadcasting license. In particular, the broadcaster is obliged to ensure the compliance of its programming with the declared genres of the channel and to sustain the volume-genre ratio of broadcasted materials prescribed in the license.

        The broadcasting license of Channel 31 in Kazakhstan contains various restrictions and obligations. Kazakh law currently requires that broadcasters broadcast at least 50% of their programming in the Kazakh language during every six-hour slot.

        The Company may not always be in full compliance with these requirements. Also, the Company's independent affiliates have not always been in full compliance with all of the requirements of their licenses or obtained all the licenses necessary for broadcasting. If the terms of a license are not complied with, or if a television station otherwise violates applicable Russian legislation or regulations, the license, after a warning notice from the regulator, may be suspended or terminated, (which decision may be appealed in court). If an independent affiliate were to broadcast without all the necessary licenses, broadcasting may be terminated and fines could be imposed. Management believes that the probability of initiation of action against any material owned-and-operated station or independent affiliate is remote.

Legal and Tax Proceedings

        In the ordinary course of business, the Company may be party to various legal and tax proceedings, including tax audits, and subject to claims, certain of which relate to the developing markets and evolving fiscal and regulatory environments in which the Company operates. In the opinion of management, the Company's liability, if any, in all pending litigation, other legal proceedings

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CTC MEDIA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands of U.S. dollars, except share and per share data)

9. COMMITMENTS AND CONTINGENCIES (Continued)

or other matters, will not have a material effect upon the financial condition, results of operations or liquidity of the Company.

10. SEGMENT INFORMATION

        The Company's three Russia-based television channels (CTC, Domashny and Peretz) and Channel 31 in Kazakhstan represent the Company's reportable segments. Each channel includes operating results of its network, which is responsible for broadcasting operations, including sales of its network's advertising, licensing and commissioning of programming, producing its programming schedule and managing its relationships with independent affiliates; and the respective owned-and-operated stations that distribute the network's signal.

        The Company's other less significant operating segments are included along with the operations of the Company's corporate headquarters in the "All Other" category for financial reporting purposes. The Company evaluates performance based on the operating results of each segment, among other performance measures.

 

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CTC MEDIA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands of U.S. dollars, except share and per share data)

10. SEGMENT INFORMATION (Continued)

 

11. SUBSEQUENT EVENTS

        On October 21, 2015, the Company filed with the SEC a preliminary proxy statement in connection with a proposed special meeting of stockholders to approve the transaction with UTH and related matters, as well as a preliminary Schedule 13E-3.

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Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

        The following discussion and analysis relates to our financial condition and results of operations for the three and nine months ended September 30, 2014 and 2015. This discussion should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC on March 5, 2015 (the "2014 Annual Report") and our Unaudited Condensed Consolidated Financial Statements and the notes thereto appearing elsewhere in this quarterly report.

Executive Summary

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        The functional currency of our Russian-domiciled segments is the Russian ruble, and the functional currency of our Kazakhstan-domiciled segment is the Kazakh tenge, while our reporting currency is the U.S. dollar. As a result, we translate our results of operations into U.S. dollars using the current exchange rate method. As such, assets and liabilities are translated at the rates of exchange prevailing at the balance sheet dates and revenue and expenses are generally translated at monthly average rates of exchange.

        In the nine months ended September 30, 2015, our results of operations were significantly impacted by the depreciation in the value of the Russian ruble and the value of the Kazakh tenge, as compared to the U.S. dollar. In the three and nine months ended September 30, 2015, the Russian ruble depreciated against the US dollar by 16% and 15%, respectively, and was on average 43% and 40% lower than the average value of the Russian ruble compared to the US dollar during the three and nine months ended September 30, 2014, respectively. In the three and nine months ended September 30, 2015 the value of the Kazakh tenge depreciated against the U.S. dollar by 31% and 33%, respectively, and was on average 16% and 9% lower than the average value of the Kazakh tenge as compared to the three and nine months ended September 30, 2014.

        Should the Russian ruble or the Kazakh tenge further depreciate against the U.S. dollar in future periods, our revenues and operating results for future periods, as reported in U.S. dollars, will be adversely affected. See "Item 1A. Risk Factors—Depreciation of the Russian ruble against the U.S. dollar resulting from the current economic and political instability in Russia have negatively impacted our reported revenues and operating results. If the exchange rate between the ruble and the U.S. dollar

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remains at its current level or if the ruble depreciates further, our revenues and our operating results, both as reported in U.S. dollars, may continue to be negatively affected".

Revenues

        Our total operating revenues decreased by 51% in US dollar terms and 15% in ruble terms when comparing the three-month periods under review and decreased by 53% in US dollar terms and 22% in ruble terms when comparing the nine-month periods under review. In ruble terms, the decrease in revenues primarily reflects the estimated decrease in the Russian television advertising market of 13% and lower year-on-year target audience share of CTC channel in two periods under review, partially offset by our ability to command favorable advertising prices for our target audiences, higher target audience share of Domashny channel in the first nine months of 2015, as well as increased revenues from our other businesses.

        The estimated decreases in the Russian television advertising market by 13% and 19% in the three-and nine-month periods under review was primarily due to significant economic instability in Russia, including depreciation of the Russian ruble. The decrease in the Russian television advertising market may not be indicative of the market dynamic that can be expected for 2015 as a whole.

        We are cautious about the potential further negative impact that continuing economic and political instability, potentially including continued or additional international economic sanctions, could have on television advertising spending in the remainder of 2015 and future periods. If overall spending by the largest multinational advertisers, or large domestic advertisers, in the Russian television advertising market falls substantially, our advertising revenues may be further significantly reduced, materially adversely affecting our results of operations for 2015 and in medium term. See "Item 1A. Risk Factors—We derive almost all of our revenues from the sale of advertising, which is sensitive to broader economic conditions. Our revenues may substantially decrease if the economic environment deteriorates in Russia or other CIS countries in which we operate."

        The table below provides certain key statistics about the CTC, Domashny, Peretz and Channel 31 television channels:

Audience shares:

        Our Russian channels' target audience shares were affected by overall audience fragmentation and increased competition during the periods under review. All larger national free-to-air TV channels in Russia were negatively impacted by increased competition from smaller non-free-to-air and niche TV channel viewership in the "All 4+" category, which increased from 17.2% in 2013 to 18.4% in 2014 and 21.0% in the nine months ended September 30, 2015.

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        CTC channel's average target audience share among 10 to 45 year-old viewers decreased year-on-year in the third quarter of 2015 from 10.3% to 8.7% and from 10.4% to 8.1% when comparing the nine-month periods under review, primarily reflecting the increased competition from other channels and the effect of audience fragmentation (discussed above) and the deferred launches of the channel's premiers.

        Domashny channel's target audience share among 25-59 year-old female viewers was 3.7% and 3.6% in the third quarter of 2014 and 2015, respectively, and increased from 3.4% to 3.6% when comparing the nine-month periods under review, reflecting the qualitative structural changes in the programming grid following the channel's restyling, and the success of content in daytime slots and weekend, partially offset by the effect of audience fragmentation and increased competition from other channels during the third quarter of 2015. Domashny channel is continuing to grow its core female audience segment and enhance the commercial attractiveness of its demographic profile.

        Peretz channel's target audience share among 25 to 49 year-old viewers was 2.1% and 2.0% in the three- and nine months ended September 30, 2014 and 2015. The must-carry provisions of new legislation governing cable and satellite operators re-broadcasting of the first and the second multiplex channels contributed to the quarter-on-quarter decline of Peretz's target audience share. Effective November 2015, as a result of the Company's strategic review of the channel's positioning towards target audience and advertisers, the company will launch "Che", a brand new channel, that will use the frequency band currently used by Peretz. The rebranding will be accompanied by changes in the programming lineup, including launches of new formats.

        Channel 31's target audience share among 6 to 54 year-old viewers decreased year-on-year in the third quarter of 2015 from 14.9% to 12.4% and decreased from 13.4% to 13.3% when comparing the nine-month periods under review reflecting increased competition from Kazakh channels that broadcast mainly in the Kazakh language and increased audience fragmentation.

Expenses

        Our total operating expenses decreased by 37% year-on-year in US dollar terms and increased by 10% in ruble terms when comparing the three-month periods under review, and decreased by 42% year-on-year in US dollar terms and 3% in ruble terms when comparing the nine-month periods under review, of which increases of 4 percentage points ("pp") related to programming expenses and selling general and administrative expenses in the three-month periods under review, and a decrease of 3pp in programming expenses in the nine-month period under review (discussed below).

        Direct operating expenses decreased by 24% year-on-year in US dollar and increased by 32% in ruble terms when comparing the three-month periods under review, and decreased by 30% year-on-year in US dollar and increased by 16% in ruble terms when comparing the nine-month periods under review, largely as a result of 24 pp and 12 pp increases in ruble terms in transmission costs for the three- and nine-month periods under review, respectively, reflecting increased digital transmission expenses in connection with the roll-out plan of the second multiplex (see—Transition to digital broadcasting below), transmission costs for our new channel CTC Love launched in the second half of 2014 and annual raises in analog transmission costs, and 7 pp and 4 pp increases in ruble terms in salaries and benefits costs in the three- and nine-month periods under review, respectively, mainly reflecting increased payroll taxes starting from 2015 as the result of changes in Russian tax legislation.

        Selling, general and administrative expenses decreased by 35% year-on-year in US dollar terms and increased by 15% in ruble terms when comparing the three-month periods under review, largely as a result of a 14 pp increase in legal and consulting expenses in response to the amendment to the Russian Mass Media Law, and joint effect of 5pp decrease in compensation payable to Video International due to declined revenues and increases in other costs due to annual raises; and decreased by 41% year-on-year in US dollar terms and 2% in ruble terms when comparing the nine-month

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periods under review, primarily due to a 13 pp decrease in compensation payable to Video International (discussed above), partially offset by a 7 pp increase in legal and consulting expenses in response to the amendment to the Russian Mass Media Law and other increases due to annual raises.

        Programming expenses decreased by 38% year-on-year in US dollar terms and increased by 7% in ruble terms when comparing the three-month periods under review, reflecting more expensive programming mix at CTC channel in response to increased competition from other channels connected with early start of new fall season, partially offset by lower spending at Peretz Channel, and decreased by 43% year-on-year in US dollar terms and 6% in ruble terms when comparing the nine-month periods under review, reflecting a more efficient programming grid at our Russian channels to address current market conditions. We expect our programming expenses in ruble terms will be lower for the full year as compared to the prior year.

        Stock-based compensation expenses increased by approximately $ 0.6 million when comparing the nine-month periods under review, primarily due to the recognition of stock-based compensation benefit in the first quarter of 2014, reflecting remeasuring the equity-based cash incentive awards granted to employees under our 2009 Stock Incentive Plan at their fair value as of the reporting date, partially offset by employees departures. When comparing the three-month periods under review, stock-based compensation decreased by $0.6 million due to employees departures. See also "—The 2013 Equity Incentive Plan" below.

        In addition, in April 2015, our Board of Directors adopted our 2015 Management Incentive Plan, which provides for the payment of cash bonuses to specified senior executives in connection with a change in control. See also "—The 2015 Management Incentive Plan" below.

        Due to the reasons discussed above our operating income decreased by 89% in US dollar terms and 79% in ruble terms from $44.3 million to $4.8 million when comparing the three months ended September 30, 2014 and 2015 and decreased by 88% in US dollar terms and 79% in ruble terms from $131.0 million to $16.1 million when comparing the nine months ended September 30, 2014 and 2015.

        Foreign currency gains of $ 1.4 and $ 1.8 million for the three- and nine- months ended September 30, 2015, respectively, represent gains from our dollar-denominated deposits.

        Net interest income decreased by 59% year-on-year in US dollar terms and 31% in ruble terms for the three-month periods under review and decreased by 50% year-on-year in US dollar terms and 18% in ruble terms for the nine-month periods under review, primarily reflecting decrease in average deposit balances in the periods under review.

        Income tax expense. In the three-and nine months ended September 30, 2015, our income tax position was significantly affected by the one-off recognition of $40.2 million of deferred tax benefit resulting from the remeasurement of our deferred tax liability in respect of unremitted earnings of our Russian and Kazakh subsidiaries. This remeasurement was triggered by a change in our expectations for the US tax position due to expected sale transaction outlined in the Framework Agreement with UTH concluded in September 2015. Based on the terms of the Framework Agreement, we plan to distribute substantially all of the outstanding cash of our subsidiaries to CTC Media, Inc; this distribution is expected to be tax free in the US due to significant amount of foreign tax credits available to offset US income tax. Further, it is estimated that the potential sale of a 75% interest in the group's Russian and Kazakh business and subsequent merger transaction would not result in US income tax to us, based on the sale price outlined in the Framework Agreement and available foreign tax credits. Accordingly, we have reflected change in our tax position in the third quarter of 2015.

        Net of the effect of the one-off tax benefit described above, our effective income tax rate was 31% and 40% in the three months ended September 30, 2014 and 2015, respectively, and 31% and 18% in the nine-month periods ended September 30, 2014 and 2015, respectively. The decrease in our effective income tax rate (as adjusted for the one-off tax benefit described above) in the nine-month periods

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under review was primarily due to a refund of income tax confirmed and reclaimed from the Russian tax authorities based on our interpretation of certain positions taken in our historical income tax filings in the first quarter of 2015. Excluding this effect, our effective tax rate would have been 43% and 33% for the three- and nine- months ended September 30, 2015, which, compared with the same periods in 2014 primarily reflects the increase in the forecast amount of non-deductible stock-based compensation expense as a percentage of pre-tax income for full year 2015.

Key Factors Affecting Our Results of Operations

        Update on the Mass Media Law and Our Proposed Corporate Transactions—As previously announced, an amendment to the Russian Mass Media Law adopted in October 2014 will generally limit the aggregate foreign (non-Russian) beneficial ownership or control, direct or indirect, of Russian mass media, including television broadcasters, to no more than 20%. No amendments to or waivers from the Mass Media Law have been approved to date and therefore all mass media, including CTC Media's Russian broadcasting businesses, will be required to comply with these ownership and control limitations by January 1, 2016 (subject to a one-year grace period for offshore intermediate holding structures ultimately owned and controlled by Russian individuals or companies). The adoption of the Mass Media Law creates significant uncertainty for us and our stockholders. The Board of Directors, its Special Committee and our management team are continuing to work with external legal, financial and tax advisors to evaluate and implement an appropriate response that achieves compliance with the new law while safeguarding the interest of all stockholders.

        In the context of these legal developments in Russia, on September 24, 2015, we entered into a Framework Agreement with UTV-Management LLC, an affiliate of UTH Russia (together, "UTH"). Pursuant to the agreement, UTH would acquire a 75% interest in CTC Investments, our wholly owned subsidiary that holds all of CTC Media's operating businesses, for approximately $200.5 million in cash, subject to agreed holdbacks and adjustments. For further information, see "Special Note Regarding the Russian Mass Media Law and Our Proposed Corporate Transactions."

        If we are not able to close the proposed sale to UTH, or if the our stockholders do not approve such transaction, we may not be able to consummate another sale transaction, or implement an alternative transaction, before the end of 2015, and may therefore not achieve compliance with the foreign ownership and control restrictions of the amended Russian Mass Media Law by the stated deadline. Such failure would materially adversely affect the our business and the market value of our common stock. See "Special Note Regarding the Russian Mass Media Law and Our Proposed Corporate Transactions" and also "Item 1A. Risk Factors—"If we fail to complete the proposed sale to UTH prior to January 1, 2016, amendments to the Russian law "On Mass Media" will likely materially adversely affect our operations and/or our stockholders and the value of our common stock."

        Economic environment—Our results of operations are affected primarily by the overall demand for and consequent pricing of television advertising, the limited supply of television advertising time, our ability to deliver a large share of viewers with desirable demographics, and the availability and cost of quality programming. In 2014 and the nine months ended September 30, 2015, Russia has experienced economic instability that has been characterized by substantial depreciation of its currency, sharp fluctuations of interest rates and a steep decline in the value of shares traded on its stock exchanges. Additionally, because Russia produces and exports large amounts of oil, its economy is particularly vulnerable to the price of oil on the world market and recent substantial decreases in international oil prices have adversely affected and may continue to adversely affect its economy.

        In December 2014, in response to the weakening ruble, Russia's Central Bank increased its main lending rate from 10.5% to 17%. The rate was reduced by 6% in 2015 and equals to 11.0% as of September 30, 2015. In the beginning of 2014, the lending rate was 5.5%. On January 26, 2015, the global credit ratings agency Standard & Poor's (S&P) downgraded Russia's sovereign debt to "junk"

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status. S&P lowered its long- and short-term foreign currency sovereign credit ratings on the Russian Federation to non-investment grade BB+ from investment grade BBB–. The outlook for long-term ratings is considered negative. In April 2015, S&P affirmed its 'BB+/B' long- and short-term foreign currency sovereign credit ratings and its 'BBB–/A-3' long- and short-term local currency sovereign credit ratings on Russia. The outlook remained negative. On February 20, 2015, Moody's Investors Service downgraded Russia's sovereign debt rating to Ba1/Not Prime from Baa3/Prime-3 (P-3). The rating outlook is negative. In July 2015, Fitch Ratings affirmed its investment-grade rating for Russia, while maintaining its negative outlook for the nation. Fitch maintained the triple-B-minus rating, on the brink of junk status. That rating has been in place since a one-notch downgrade in January. Further falls in the oil price or deterioration of the geopolitical situation may lead to further depreciation of the ruble and may lead to the Russian sovereign credit rating being downgraded by other credit agencies.

        As a result of the current economic instability and any potential further deterioration in the Russian economy, total television advertising spending in Russia was adversely affected in the first nine months of 2015 and may be adversely affected in 2015 and medium term, which, in turn, would materially adversely affect our operating results. Third party reports have estimated that total Russian TV advertising spending may decline by roughly 17% for the full year 2015. See also "Item 1A. Risk Factors—Geopolitical and macroeconomic events have adversely affected and created uncertainty and instability in the Russian economy" and "—We derive almost all of our revenues from the sale of advertising, which is sensitive to broader economic conditions. Our revenues may substantially decrease if the economic environment deteriorates in Russia or other CIS countries in which we operate".

        Also, both the United States and the European Union, as well as other countries, have imposed economic sanctions on certain Russian government officials, other individuals and certain Russian companies in connection with recent developments in Ukraine and Crimea, as well as "sectoral" sanctions affecting specified types of transactions with named participants in certain industries, including named Russian financial institutions, and sanctions that prohibit most commercial activities by U.S. and E.U. persons in Crimea. Neither we, nor any of our Russian subsidiaries or other operations or assets, are a target of current sanctions and we do not appear on the United States and European Union lists of sanctioned parties. However, there is significant uncertainty regarding the extent or timing of any potential further economic or trade sanctions, or the ultimate outcome of the Ukraine crisis. The current situation in Ukraine has negatively affected our sublicensing sales of certain programming in that country and has also had a broader impact on the macroeconomic environment of the region. These factors, in conjunction with overall macroeconomic weakness, may adversely affect our business. See "Item 1A. Risk Factors—The current geopolitical situation regarding Ukraine and Crimea and related international economic sanctions may adversely affect our business, financial conditions and results of operations, and will require us to employ significant time and resources to ongoing compliance efforts".

        The supply of television advertising time is limited by Russian legislation (as discussed below). As a result of this limited supply of advertising time, we are only able to increase our revenues by delivering larger audience shares and by increasing the price of advertising. Current Russian law limits the amount of time that a broadcaster may devote to advertising to no more than 15% of any broadcasting hour. In Kazakhstan, the maximum airtime available for advertising is limited to no more than 20% of total broadcasting time each day. The continued success of our advertising sales depends largely on our ability to attract a large share of the key target audiences, especially during primetime. Our ability to attract our key target audiences in turn depends in large part on our ability to broadcast quality programming. We face strong competition from other television broadcasters for programming content, and we must continue to strive to air programming that addresses evolving audience tastes and trends in television broadcasting.

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        Television Advertising Sales—We generate substantially all of our revenues from the sale of television advertising on both a national and regional basis. Our own advertising sales house, EvereST-S, serves as the exclusive advertising sales agent for substantially all advertising broadcast on all of our channels in Russia, and all advertising is placed with advertisers and their agencies under direct sales arrangements with them. The sales house is primarily responsible for all national and regional advertising sales, with the exception of advertising sales to local clients of a number of our owned- and-operated regional stations, which are made through Video International, an external sales house. Our cooperation model with Video International also provides for the licensing of specialized advertising software by Video International to our internal sales house, as well as the provision by Video International of related software maintenance, analytical support and consulting services.

        The level of advertising revenues that we receive is directly tied to our audience shares and ratings. Audience share represents the audience attracted by a channel as a proportion of the total audience watching television. Ratings represent the number of people watching a channel (expressed as a proportion of the total population measured). Because advertisers often seek to reach particular demographic groups, including particular ages and genders, they will often base their advertising placement decisions on ratings among such groups, rather than among the overall population. We place CTC's advertising on the basis of our ratings in CTC's target audience, the 10-45 year-old demographic; Domashny's advertising on the basis of our ratings in Domashny's target audience, 25-59 year-old female viewers; and Peretz's advertising on the basis of our ratings in Peretz's target audience, 25-49 year-old viewers. (and Che will be targeting the All 25-49 audience with a principal focus on 30-40) While we undertake all necessary steps to maximize the audience numbers and desirable demographics that we deliver to advertisers, there is currently strong competition among the Russian channels for audience and ratings. See "Item 1A. Risk Factors—A reduction in our audience shares and ratings would likely result in a reduction in our advertising revenues".

        Generally, our ability to grow our revenues depends primarily on increases in the price of our advertising, demand for advertising and our ability to increase our advertising inventory by increasing our audience shares, as well as overall television viewership. Because of the current economic instability and international economic sanctions, our prices and sellout rates may decrease, which in turn would negatively impact our revenues. See "—Economic environment" above. Our ability to increase our advertising inventory at the national level depends upon our success in increasing our audience share, which in turn increases the number of gross ratings points (GRPs) we have available to sell. See also "Item 1A. Risk Factors—A reduction in our audience shares and ratings would likely result in a reduction in our advertising revenues".

        Television advertising sales vary over the course of the year. Overall television viewership is lower during the summer months and highest in the first and fourth quarters. Seasonal fluctuations in consumer patterns also affect television advertising expenditures. In 2014, approximately 30% of our total advertising revenues in ruble terms were generated in the fourth quarter.

        Transition to digital broadcasting—The Russian government has launched a federal program to introduce digital broadcasting throughout Russia. The government's plan called for digital broadcasting to be introduced in stages, with several packages of digital signals, or "multiplexes", to be launched over time. Our CTC and Domashny channels were selected for inclusion in the second digital multiplex. Given the terms and fees associated with participation in the second multiplex, we expect to encounter certain risks and uncertainties in the execution of CTC and Domashny channels' business models. On an ongoing basis, we meet with key participants of the media industry and governmental representatives for discussion and analysis of the transition to digital broadcasting, as well as the development of business and industry initiatives.

        In March 2013, we entered into 10-year transmission agreements with RTRS. Under the terms of these agreements, RTRS will ultimately provide to CTC and Domashny, as well as other broadcasters

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in the second multiplex, all services required for the channels to broadcast their signals in digital format throughout Russia to more than approximately 140 million viewers, once the rollout of digital broadcasting is complete throughout the territory of the Russian Federation. In July 2014 and August 2015, we amended these agreements with RTRS to better reflect the planned rollout schedule and to amend the financial terms of participation in the second multiplex in light of RTRS's current implementation timeframes, the funds needed to provide services in regions as they become operational, and the financial support required for the build-out of the infrastructure for a comprehensive digital platform throughout the Russian Federation by 2018. RTRS is initially launching digital broadcast services in the second multiplex in cities with populations of more than 50,000 people ("50+ coverage"). Our digital transmission expense for 2015 related to broadcasting in the 50+ coverage cities will be approximately $3.2 million in 2015 and $4.0 million in 2016 for our CTC and Domashny channels in aggregate (2014: $3.0 million); the expense for 2017 and beyond will be calculated on an annual basis according to rates that RTRS will set by October 1st of the prior year.

        In addition, RTRS will construct the digital broadcasting infrastructure in smaller cities with populations less than 50,000 ("50– coverage") until 2018. It is expected that this infrastructure will be put into operation in 2019. Starting from 2014, in addition to the transmission services in the 50+ coverage cities described above, we made advance payments of 444 million rubles or $6.7 million towards the construction of the digital infrastructure in the 50– coverage regions for CTC and Domashny channels as of September 30, 2015. In aggregate we expect to advance approximately 311 million rubles in 2015, 145 million rubles in 2016, and 289 million rubles in 2017 and 2018, resulting in total advances of approximately 1,424 million rubles or $21.5 million by the end of 2018 (at an exchange rate of RUR 66.2 to $1.00 as of September 30, 2015). Under the amended terms, these advances will be offset against service payments otherwise required for digital transmission services subsequent to 2018.

        In addition, we expect to continue incurring analog transmission costs during the analog-to-digital transition period. In 2014, we incurred approximately $24 million of such expenses for all of our channels in aggregate. Increased revenues from higher anticipated geographical penetration from digital broadcasting may not sufficiently compensate for the increased costs associated with transmission and broadcast equipment upgrades.

        We cannot guarantee that our Peretz channel (starting from November 2015—"Che") will be able to compete effectively if it is not included in the third multiplex. With respect to the third multiplex, it is unclear what requirements the channels will be required to meet in order to be included in that multiplex.

        It is difficult to predict accurately how the digitalization of broadcasting may affect the market. While digital broadcasting would increase our overall technical penetration, the necessary investments for digital migration may not be fully monetized. See also "Item 1A. Risk Factors—We face additional expenditures in connection with the planned transition from analog to digital broadcasting in Russia and Kazakhstan, and the necessary investments for digital migration may not be fully monetized".

        The 2013 Equity Incentive Plan—In 2013, our Board of Directors adopted our 2013 Equity Incentive Plan, which was approved by the stockholders on April 30, 2013, at the 2013 Annual Meeting. The Board approved an initial round of awards to employees of approximately 2.0 million shares of common stock in the form of restricted share units ("RSUs") that will entitle the grantees to receive shares of common stock, at no cost, upon the satisfaction of 2013, 2014 and 2015 performance-based vesting conditions, exercisable on a staggered basis over a period of four years from grant. In addition, our Board approved an open market stock repurchase program, pursuant to which we repurchased 2.5 million shares of our common stock in the market at an average price of $11.89 per share for a total of $29.7 million for use under our 2013 Equity Incentive Plan. In 2014, our Board of Directors approved the grant of additional equity awards over approximately 0.9 million shares of common stock

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in the form of restricted share units to our employees, at no cost, upon the satisfaction of 2014, 2015 and 2016 performance-based vesting conditions, exercisable on a staggered basis over a period of four years from grant. In 2014 and in the first half of 2015, we issued 51,447 and 341,688 shares of common stock from treasury upon the exercise of RSUs under the 2013 and 2014 sub-tranche of the 2013 Equity Incentive Plan, respectively.

        The 2015 Management Incentive Plan—In April 2015, our Board of Directors adopted our 2015 Management Incentive Plan, which provides for the payment of cash bonuses to specified senior executives in connection with a change in control, defined as (i) any consolidation or merger of our company with or into any other company or other entity or person, or any corporate reorganization or share exchange or sale transaction, in which the stockholders of our company immediately prior to such consolidation, merger, reorganization or share exchange transaction own, directly or indirectly, less than 50% of the voting power of our company or the surviving entity in such transaction immediately after such consolidation, merger, reorganization or share exchange transaction; or any transaction or series of related transactions to which our company is a party in which in excess of 50% of our company's voting power is transferred; (ii) a sale by our company of assets representing more than fifty percent (50%) of its Russian operating businesses; (iii) a resolution of our Board to liquidate and wind up our company; or (iv) a termination of the listing of our company's common stock on the Nasdaq Global Select Market or Nasdaq Global Market. According to the 2015 Management Incentive Plan, approved by the Company's BOD, the Company would be required for the payment of $10 million, of which $6 million will be payable by the Company in connection with the closing of change in control event, and $4 million will be payable by the Company's operating companies based on continued employment with the CTC group. Each participant is eligible to receive a portion of this pool, provided that such participant remains employed by our group on the date such change in control event occurs. Any RSUs held by such participants, whether then vested or exercisable, terminate immediately prior to payment under the plan.

        In addition, in April 2015 our Board of Directors amended the terms of RSUs held by persons not covered by the 2015 Management Incentive Plan to provide that awards that are vested at the time of a change in control transaction will become fully exercisable in connection with such change in control transaction.

        Segment overview—Our management and Board of Directors evaluate and manage the performance of the Group and make operational decisions based primarily on our three Russia-based television channels (CTC, Domashny and Peretz) and Channel 31 in Kazakhstan. Each channel's performance takes into account the operating results of its network, which is responsible for broadcasting operations, including sales of the network's advertising, licensing and commissioning of programming, production of its programming schedule, management of its relationships with its independent affiliates, and management of the respective stations that distribute the network's signal. Our other less significant operating segments are included along with headquarters' operations in the "All Other" category for financial reporting purposes.

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CTC channel.  CTC channel's principal target audience is 10-45 year-old viewers. CTC's technical penetration is 96.1%. CTC channel manages 65 owned-and-operated stations and repeater transmitters that provide 63.5% technical penetration (or 66.1% of the channel's total penetration of 96.1%) and has arrangements with independent affiliate stations that provide 32.6% technical penetration (or 33.9% of the channel's total penetration of 96.1%).



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Domashny channel.  Domashny channel's principal target audience is 25-59 year-old female viewers. Domashny's technical penetration is 91.4%. Domashny channel manages 51 owned-and-operated stations and repeater transmitters that provide 49.2% technical penetration for the Domashny channel (or 53.9% of its total penetration of 91.4%) and has arrangements

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with independent affiliate stations that provide 42.2% technical penetration (or 46.1% of its total penetration of 91.4%).

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Peretz channel.  Peretz channel's principal target audience is 25-49 year-old viewers. Peretz's technical penetration is 87.6%. Peretz channel manages 62 owned-and-operated stations and repeater transmitters that provide 54.3% technical penetration (or 62.0% of its total penetration of 87.6%) and has arrangements with independent affiliate stations that provide 33.3% technical penetration (or 38.0% of its total penetration of 87.6%). In November, we launch the new Che Channel, which will use the frequency band currently used by Peretz. Che will be targeting the All 25-49 audience with a principal focus on 30-40. Channel programming will include projects focused on men's interests and hobbies, manly occupations, sports broadcasts, as well as popular science shows, quality feature films and Russian and international TV series.



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Channel 31.  Channel 31 is a Kazakh television broadcaster with principal targeted audience of 6-54 year-old viewers. Channel 31's technical penetration is 87.6% in Kazakhstan. Channel 31 broadcasts its signal by 11 repeater transmitters and has arrangements with 13 independent affiliates and 76 local cable operators.



•

All Other.  All Other includes operating results of our less significant operating segments including CTC-International, digital media businesses, corporate headquarters and CTC Love.

        We launched our fourth Russian television channel CTC Love in April 2014, targeting the 11-34 year-old audience with penetration of approximately 61.6% through cable and satellite in cities with populations of more than 100,000. In September 2014, TNS Russia started measuring the audience of CTC Love, and its target audience share reached 1.2% and 1.0% during the three and nine months ended September 30, 2015, respectively.

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Comparison of Consolidated Results of Operations for the three- and nine-month periods ending September 30, 2014 and 2015

        The following table presents our revenues and operating income for three- and nine-month periods ending September 30, 2014 and 2015 by segments:

 

 

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        All Other.    All other revenues primarily represent revenues from the CTC-International, digital media businesses and our new channel CTC Love; all other operating loss primarily represents expenses of our corporate headquarters, operating results of CTC-International, digital media businesses and CTC Love.

CTC Channel

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Revenues

        Advertising revenues of CTC channel decreased by 19% and 29% in ruble terms when comparing the three- and nine-month periods under review, respectively, largely reflecting 16% and 22% decreases in the channel's target audience share, respectively, and the estimated decrease in the overall Russian television advertising market of 13% and 19% in two periods under review, respectively, partially offset by our ability to command favorable advertising prices for our target audience and by increase in sponsorship revenues due to higher volume of locally produced content attractive for sponsorship projects. The decrease in target audience share over the periods under review was primarily due to the increased competition from other channels and the effect of audience fragmentation (discussed above).

        All larger national free-to-air TV channels in Russia were negatively impacted by increased competition from smaller non-free-to-air and local TV channels viewership among 10 to 45 year-olds, which increased from 18.6% in 2013 to 20.0% in 2014 and 23.4% in the nine months ended September 30, 2015. See "Item 1A. Risk Factors—A reduction in our audience shares and ratings would likely result in a reduction in our advertising revenues".

Expenses

        Total operating expenses of CTC channel increased by 8% in ruble terms when comparing the three-month periods under review, of which increases of 7 pp related to programming expenses (discussed below), and 2 pp related to direct operating expenses (discussed below), and decreased by 7% in ruble terms when comparing the nine-month periods under review, of which decreases of 4 pp related to programming expenses (discussed below) and 4 pp related to selling, general and administrative expenses (discussed below),

        Direct operating expenses of CTC channel as a percentage of this segment's total operating revenues remained approximately flat at 4% and 6% in the three- and nine-month periods under review. In ruble terms, direct operating expenses increased by 34% and 13%, when comparing the three- and nine-month periods under review, of which 26 pp and 9 pp related to our digital transmission expenses in connection with the roll-out plan of the second multiplex, and 9 pp and 5 pp related to salaries and benefit costs reflecting increased payroll taxes starting from 2015 as the result of changes in Russian tax legislation.

        Selling, general and administrative expenses of the CTC channel as a percentage of this segment's total operating revenues increased from 20% to 24% when comparing the three- and nine-month

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periods under review, primarily due to decreased channel revenues. In ruble terms, selling general and administrative expenses decreased by 1% and 15% in the three- and nine-month periods under review, respectively, of which 7 pp and 18 pp, respectively, related to decreases in compensation payable to Video International, reflecting decreased channel national advertising revenues. In addition, when comparing the three-month periods under review, decrease of selling general and administrative expenses was partially offset by a 6pp increase in advertising and promotions expenses, reflecting the timing of advertising campaigns at CTC channel.

        Programming expenses of the CTC channel as a percentage of this segment's total operating revenues increased from 40% to 55% and from 44% to 58% when comparing the three- and nine-month periods under review, respectively, primarily due to decreased channel revenues. In ruble terms, programming expenses increased by 11% in the three-month periods under review, primarily due to increases in volume of locally-produced premium Russian series and Russian shows, slightly offset by airing less foreign content. In addition, programming expenses were down by 6% in the nine-month periods under review, primarily due to a more efficient programming grid in daytime slots to address revenue decrease.

        Depreciation and amortization expenses of CTC channel as a percentage of this segment's total operating revenues remains at 2%, when comparing the both periods under review. In ruble terms, depreciation and amortization expenses decreased by 9% when comparing the three-month periods under review, primarily due to full amortization of fixed assets, and decreased by 19% when comparing the nine-month periods under review, primarily reflecting decrease in amortization of analog broadcasting licenses and cable network connections as the result of change in our estimate of their remaining economic lives in the second quarter of 2014. The estimated useful lives of our analog broadcasting licenses is subject to availability of further information about the transition to digital broadcasting, which could require us to revise amortization expense on a prospective basis.

Domashny Channel

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Revenues

        Advertising revenues of the Domashny channel decreased by 20% and 16% in ruble terms when comparing the three- and nine-month periods under review, respectively, largely reflecting the estimated decrease in the overall Russian television advertising market of 13% and 19% in ruble terms in two periods under review, respectively, and 4% decrease in target audience share in the three-month period under review, primarily due to the effect of audience fragmentation and increased competition from other channels in connection with early start of new fall season. When comparing the nine-month periods under review the target audience share increased by 6%, reflecting the changes in the programming schedule and the success of the programming in daytime and primetime slot in the first half of 2015. Domashny channel is continuing to work to strengthen its demographic profile and to grow its core female audience segment.

Expenses

        Total operating expenses of Domashny channel increased by 6% in ruble terms, when comparing the three-month period under review, largely due to the increase of 5pp in direct operating expenses (discussed below), and decreased by 3% in ruble terms, when comparing the nine-month period under review, mainly due to 2pp decrease related to programming expenses (discussed below).

        Direct operating expenses of Domashny channel as a percentage of this segment's total operating revenues increased from 8% to 15% and 10% to 14% when comparing the three- and nine-month periods under review, respectively. In ruble terms, direct operating expenses increased by 45% and 12% in the three- and nine-month period under review, respectively, of which 51pp and 16 pp related to the increase in digital transmission costs in connection with the roll-out plan of the second multiplex (see "—Transition to digital broadcasting" above), partially offset by 5pp and 3pp decrease related to other direct expenses due to decreased amount of royalty costs in line with decreased revenues in the three- and nine-month period under review, respectively.

        Selling, general and administrative expenses of Domashny channel as a percentage of this segment's total operating revenues increased from 17% to 21% and from 18% to 20% when comparing the three- and nine-month periods under review. In ruble terms, selling, general and administrative expenses increased by 1% in the three-month periods under review, reflecting a joint effect of a 8pp increase related to timing in advertising and promotion expenses, and a 5pp decreases in compensation fees payable to Video International, reflecting decreased channel national advertising revenues. In addition, selling, general and administrative expenses decreased by 6% in ruble terms in the nine-month periods

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under review, of which 10pp decrease in compensation payable to Video International (discussed above) and 3pp increases related to timing in advertising and promotion expenses.

        Programming expenses of the Domashny channel as a percentage of this segment's total operating revenues increased from 40% to 50% and from 42% to 48% when comparing the three- and nine-month periods under review, respectively, primarily due to decreased channel revenues. In ruble terms, programming expenses increased by 1% when comparing the three-month periods under review, reflecting decreased volume of foreign content, partially offset by increased volume of Russian series and Russian movies to support Domashny's target audience share, and decreased by 4% in ruble terms in the nine-month periods under review, reflecting a more efficient programming grid in daytime slots to address revenue decrease.

Peretz Channel

 

Revenues

        Advertising revenues of the Peretz channel decreased by 17% and 22% in ruble terms when comparing the three- and nine-month periods under review, respectively, largely reflecting the

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estimated decrease in the overall Russian television advertising market of 13% and 19% in ruble terms in two periods under review, respectively, and the decrease in a target audience share by 3% and 4%, respectively, reflecting the must-carry provisions of new legislation governing cable and satellite operators re-broadcasting of the first and the second multiplex channels.

Expenses

        Total operating expenses of the Peretz channel decreased by 17% and 26% in ruble terms when comparing the three- and nine-month periods under review, respectively, reflecting decreases of 11pp and 15pp in programming expenses (discussed below), decreases of 6pp and 7pp in depreciation and amortization expenses (discussed below), respectively, and decreases of 5 pp in selling, general and administrative expenses, when comparing the nine-month periods under review (discussed below).

        Direct operating expenses of Peretz channel as a percentage of this segment's total operating revenues increased from 16% to 20% and from 15% to 19% when comparing the three- and nine-month periods under review, respectively. In ruble terms, direct operating expenses increased by 5% and 4% in the three-and nine-month periods under review, respectively, primarily due to 3pp and 4pp increases in transmission and maintenance expenses as the result of annual raises in transmission costs.

        Selling, general and administrative expenses of Peretz channel as a percentage of this segment's total operating revenues increased from 20% to 23%, when comparing the three-month periods under review, and decreased by 1% in ruble terms, of which decreases of 5pp, related to decreases in compensation payable to Video International, reflecting decreased channel national advertising revenues, partially offset by increase of 2pp in salaries and benefits costs, reflecting increased payroll taxes starting from 2015 as the result of changes in Russian tax legislation, and 2 pp increases in research and consulting expenses due to brand loyalty research for the new brand—«Che». When comparing the nine-month periods under review, selling, general and administrative expenses increased as a percentage of this segment's total operating revenues from 22% to 23% and decreased in ruble terms by 20%, reflecting the joint effect of a 8pp decrease in advertising and promotion expenses due to the timing of advertising campaigns which were planned for the fourth quarter of 2015 following the launch of the channel's restyling in November 2015, and decrease of 13pp in compensation fee payable to Video International (discussed above).

        Programming expenses of the Peretz channel as a percentage of this segment's total operating revenues decreased from 49% to 45% and from 44% to 39%, when comparing the three- and nine-month periods under review, respectively. In ruble terms, programming expenses decreased by 23% and 32% when comparing the three- and nine-month periods under review, respectively, primarily due to airing of less expensive Russian content to address revenue decrease.

        Depreciation and amortization expenses of Peretz channel as a percentage of this segment's total operating revenues decreased from 14% to 9%, when comparing the both periods under review. In ruble terms, depreciation and amortization expenses decreased by 43% and 48% when comparing the three- and nine-month periods under review, respectively, primarily reflecting decrease in amortization of analog broadcasting licenses as the result of change in our estimate of their remaining economic lives in the second half of 2014. The estimated useful lives of our analog broadcasting licenses is subject to availability of further information about the transition to digital broadcasting, which could require us to revise amortization expense on a prospective basis.

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Channel 31

 

        The functional currency of Channel 31 is the Kazakh tenge, and our reporting currency is the U.S. dollar. As a result, we translate our results of operations into U.S. dollars using the current rate method. As such, assets and liabilities are translated at the rates of exchange prevailing at the balance sheet dates and revenue and expenses are translated at monthly average rates of exchange. In the nine months ended September 30, 2015, the value of the Kazakh tenge depreciated by 33% against the U.S. dollar and was on average 9% lower than the average value of the Kazakh tenge as compared to the nine months ended September 30, 2014.

Revenues

        Advertising revenues of Channel 31 decreased by 18% and 5% in Kazakh tenge terms when comparing the three- and nine-month periods under review, principally due to a 17% and 1% decrease in target audience share as a result of increased competition from smaller niche and non-free-to-air channels as the result of strengthening of the Kazakh law on local-language programming in two periods under review, respectively, and due to 11% and 4% decrease in the estimated overall television advertising market in Kazakhstan in three- and nine month periods under review, which was partially

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offset by our ability to command favorable advertising prices for our target audience in three-months period under review.

Expenses

        Total operating expenses of Channel 31 increased by 1% in Kazakh tenge terms in the three-month periods under review, reflecting a joint effect of 9pp increase in depreciation and amortization expenses (discussed below), 4pp decrease in selling, general and administrative expenses (discussed below) and 3pp decrease in programming expenses, and increased by 7% in Kazakh tenge terms in the nine-month periods under review, of which 6pp related to increase in depreciation and amortization expenses (discussed below) and 2pp related to increased programming expenses (discussed below).

        Direct operating expenses of Channel 31 as a percentage of this segment's total operating revenues remained approximately flat at 8% when comparing the three- and nine-month periods under review. In Kazakh tenge terms, direct operating expenses decreased by 9% in the three-month periods under review, primarily reflecting a 4pp savings in transmission costs related to internet broadcasting and 6pp decrease in other direct operating expenses, primarily due to decreased royalty as a result of decline in advertising revenue, and increased by 1% in the nine-month periods under review, of which a 4pp increase related to salaries and benefits costs, reflecting annual raises, offset by a 4pp decrease in other direct operating costs (discussed above).

        Selling, general and administrative expenses of Channel 31, as a percentage of this segment's total operating revenues, remained flat at 16% and 18% when comparing the three- and nine-month periods under review. In Kazakh tenge terms, selling, general and administrative expenses decreased by 18% and 2% when comparing the three- and nine-month periods under review, of which a 12pp and 2pp decrease related to salaries and benefits costs, in two periods under review, respectively, and a 4pp decrease in advertising and promotion expenses as the result of the timing of advertising campaigns when comparing the nine-month periods under review.

        Programming expenses of Channel 31 as a percentage of this segment's total operating revenues increased from 42% to 50% when comparing the three-month periods under review and from 49% to 52% when comparing the nine-month periods under review. In Kazakh tenge terms, programming expenses decreased by 5% when comparing the three-month periods under review, primarily due to broadcasting of less expensive foreign content, and increased by 3% when comparing the nine-month periods under review, primarily due to increased volume of Russian series and more expensive locally produced content, partially offset by decreased costs of foreign series.

        Depreciation and amortization expenses of Channel 31 as a percentage of this segment's total operating revenues increased from 12% to 23% and from 14% to 20% when comparing the three- and nine-month periods under review, respectively. In Kazakh tenge terms, depreciation and amortization expenses increased by 57% and 40% when comparing the three- and nine-month periods under review, respectively, primarily reflecting increase in amortization of analog broadcasting licenses as the result of change in our estimate of their remaining economic lives.

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All Other

 

        Operating revenues in the All Other segment primarily represent revenues earned by our CTC-International, digital media businesses and new channel CTC Love (see "—Segment overview" above). When comparing the three-month periods ended September 30, 2014 and 2015, operating revenues from CTC-International amounted to $1.1 and $1.5 million, respectively, and operating revenues from our digital media business amounted to $1.6 and $1.1 million, respectively. When comparing the nine-month periods ended September 30, 2014 and 2015, operating revenues from CTC-International amounted to $3.0 and $4.1 million, respectively, and operating revenues from our digital media business amounted to $4.3 and $3.1 million, respectively. In addition, operating revenues from our new channel CTC Love amounted to $1.6 and $4.1 million for the three and nine months ended September 30, 2015, respectively.

        Selling, general and administrative expenses consist principally of the general and administrative expenses of our corporate headquarters, CTC-International, digital media business and new channel CTC Love (see "—Segment overview" above). In ruble terms, selling, general and administrative expenses increased by 119% when comparing the three-month periods under review, of which a 111pp increase related to our corporate headquarters, reflecting increased legal and consulting expenses in response to the amendment to the Russian Mass Media Law, a 7pp increase related to CTC Love for compensation payable to Video International, a 5pp increase in salaries and benefits costs related to our corporate headquarters and digital media business, partially offset by 9pp decrease in advertising and promotion expense due to the timing of advertising campaigns in CTC Love channel. When comparing the nine-month periods under review selling, general and administrative expenses increased by 90% in ruble terms, of which a 63 pp increase related to our corporate headquarters, reflecting increased legal and consulting expenses (discussed above), a 5pp and 6pp increase related to salaries

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and benefits costs in our digital media business and our corporate headquarters, respectively, a 6 pp increase related to compensation payable to Video International for CTC Love channel, and a 10pp increase related to Board expense as a result of RUR depreciation against USD in the nine-month period.

        Stock-based compensation expenses increased by approximately $0.6 million when comparing the nine-month periods under review, primarily due to the recognition of stock-based compensation benefit in the first quarter of 2014, reflecting remeasuring the equity-based cash incentive awards granted to employees under our 2009 Stock Incentive Plan at their fair value as of the reporting date, partially offset by employees departure. When comparing the three-month periods under review, stock-based compensation decreased by $0.6 million due to employee departures.

        In April 2015, our Board of Directors adopted our 2015 Management Incentive Plan, which provides for the payment of cash bonuses in total amount of $10 million to specified senior executives in connection with a change in control. See also "—The 2015 Management Incentive Plan" above.

        Other expenses consist principally of direct operating, programming and depreciation and amortization expenses. Other expenses increased by 48% and 57% in ruble terms when comparing the three- and nine-month periods under review, respectively, reflecting increases in transmission and maintenance expenses, depreciation and amortization expenses and programming expenses, primarily as the result of launch of our channel CTC Love in the second half of 2014.

Consolidated Financial Position—Significant Changes in our Consolidated Balance Sheets as of September 30, 2015 Compared to December 31, 2014

Short-term and long-term programming rights

        The decrease in programming rights from December 31, 2014 to September 30, 2015 of $18.5 million was primarily due to the effect of depreciation of the Russian ruble against the U.S. dollar. In ruble terms, programming rights increased by 6%, primarily due to an increase in Russian content to secure programming grid of our channels for a longer period.

Intangible assets and Goodwill

        Intangible assets and Goodwill decreased from December 31, 2014 to September 30, 2015 by $12.6 million and $8.1 million, respectively, primarily due to amortization of our broadcasting licenses and cable connections, and the effect of the depreciation of the Russian ruble against the US dollar.

Other non-current assets

        As of September 30, 2015, other non-current assets reflect dividends of $34.6 million otherwise payable to one of our principal stockholders, Telcrest, that were blocked pursuant to the U.S. sanctions and paid into a separate interest-bearing bank account for the benefit of Telcrest (and amount of interest accrued as of September 30, 2015: $0.6 million), but to which Telcrest will not have access while either Bank Rossiya or LLC IC Abros remain an SDN. See also "Item 1A. Risk Factors—The current geopolitical situation regarding Ukraine and Crimea and related international economic sanctions may adversely affect our business, financial conditions and results of operations, and will require us to employ significant time and resources to ongoing compliance efforts." In addition, as of September 30, 2015, other non-current assets included advance payments to RTRS towards the construction of the digital infrastructure in the 50– coverage regions of approximately $6.7 million.

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Taxes payable

        Our taxes payable decreased by $12.2 million from December 31, 2014 to September 30, 2015, primarily due to a decrease in income tax payable as the result of seasonally higher revenues in the fourth quarter of 2014 compared with the third quarter of 2015.

Deferred tax liabilities

        Our deferred tax liability decreased from $65.7 million to $10.1 million from December 31, 2014 to September 30, 2015, primarily due to one-off recognition of $40.2 million of deferred tax benefit resulting from the remeasurement of the Company's deferred tax liability in respect of unremitted earnings of its Russian and Kazakh subsidiaries, which was triggered by a change in our expectations for the US tax position due to expected sale transaction outlined in the Framework Agreement with UTH. See also "—Executive Summary—Income tax expense".

Liquidity and Capital Resources

        Our sources of capital consist primarily of cash flows from operations. We believe that our operating cash flow, cash on hand, and available short-term and long-term capital resources are sufficient to fund our working capital requirements, capital expenditures and programming commitments and income tax obligations. We cannot assure you, however, that the assumed levels of revenues and expenses underlying this projection will prove to be accurate. We continually assess the counterparties and instruments we use to hold our cash and cash equivalents, with a focus on preservation of capital and liquidity. Based on information currently available, we do not believe that we are at risk of default by our counterparties.

        As of September 30, 2015, we had $84.0 million in cash and cash equivalents, of which approximately 80% was held in U.S. dollar-denominated accounts. In addition, as of September 30, 2015, we had $17.2 million in deposits with maturities ranging from three to twelve months, which held in U.S. dollar-denominated accounts. In September 2015, we renewed a Ruble-denominated overdraft agreement with Alfa Bank bearing annual interest at the variable Mosprime Overnight rate +3.0% with a credit limit of approximately RUR 600 million or approximately $9 million (at closing exchange rate of RUR 66.2 to $1.00). As of December 31, 2014 and September 30, 2015, we did not have outstanding overdrafts.

Cash flows

        Below is a summary of our cash flows during the periods indicated:

        Cash flows from operating activities decreased by $ 54.0 million, primarily reflecting the lower cash receipts from advertising sales, and, to a lesser extent, the effect of the depreciation of the Russian ruble against the US dollar, partially offset by lower spending on the acquisition of programming and income tax when comparing the nine-month periods under review.

        Cash used in or provided by investing activities includes cash used for the acquisition of property, equipment and intangible assets, purchases of new broadcasting stations, and investments in or receipts from cash deposits. In the nine-month period ended September 30, 2015, our cash provided by

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investing activities primarily represented net receipts from cash deposits of $85.6 million and cash paid for capital expenditures of $3.4 million. In the nine-month period ended September 30, 2014, our cash provided by investing activities primarily represented net receipts from deposits of $36.9 million and cash paid for capital expenditures of $3.8 million.

        Cash used in financing activities includes net proceeds from or settlement of our loan, and payments of dividends. In the nine-month period ended September 30, 2015, our cash used in financing activities includes payment of dividends in the amount of $20.4 million to our stockholders, $1.9 million in dividends paid to minority shareholders of our subsidiaries, $1.2 million of repayment of part of the loan by Channel 31 and $6.9 million increase in other non-current assets which represents dividends to one of our stockholders that were blocked pursuant to U.S. sanctions imposed on Bank Rossiya. In the nine-month period ended September 30, 2014, our cash used in financing activities includes payment of dividends in the amount of $61.0 million to our stockholders, $4.6 million in dividends paid to minority shareholders of our subsidiaries and $20.8 million increase in other non-current assets which represents dividends to one of our stockholders that were blocked pursuant to US sanctions (discussed above).

Contractual obligations

        The table below summarizes information with respect to our contractual obligations as of September 30, 2015:

        Our contractual obligations for acquisition of programming rights include U.S. dollar-denominated commitments of approximately $9.5 million in 2015, $31.7 million in 2016 and $3.3 million in 2017. Ruble denominated contractual obligations are translated at an exchange rate of RUR 66.2 to $1.00 as of September 30, 2015.

        See also "Item 1A. Risk Factors—Depreciation of the Russian ruble against the U.S. dollar resulting from the current economic and political instability in Russia have negatively impacted our reported revenues and operating results. If the exchange rate between the ruble and the U.S. dollar remains at its current level or if the ruble depreciates further, our revenues and our operating results, both as reported in U.S. dollars, may continue to be negatively affected".

        In addition, in connection with the planned digitalization in Russia and Kazakhstan, we may incur additional costs:

        Agreement with RTRS—In July 2014 and August 2015, we amended our agreements with RTRS to specify digital broadcasting services fees for 2014 and cash payments for the period from 2014 to 2018, for CTC and Domashny channels. Our digital transmission expense for 2015 related to broadcasting in the 50+ coverage cities will be approximately $3.2 million and $4.0 million in 2016 for our CTC and

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Domashny channels in aggregate; the expense for 2017 and beyond will be calculated on an annual basis according to rates that RTRS will set by October 1st of the prior year. In addition, starting in 2014, we made advance payments of 444 million rubles or $6.7 million towards the construction of the digital infrastructure in the 50– coverage regions as of September 30, 2015. In aggregate we expect to advance approximately 311 million rubles in 2015, 145 million rubles in 2016, and 289 million rubles in 2017 and 2018, resulting in total advances of approximately 1,424 million rubles or $21.5 million by the end of 2018 (at an exchange rate of RUR 66.2 to $1.00 as of September 30, 2015). Under the amended terms, these advances will be offset against service payments otherwise required for digital transmission services subsequent to 2018.

        See "—Key Factors Affecting Our Results of Operations—Transition to digital broadcasting" above and "Item 1A. Risk Factors—We face additional expenditures in connection with the planned transition from analog to digital broadcasting in Russia and Kazakhstan, and the necessary investments for digital migration may not be fully monetized".

Critical Accounting Policies, Estimates and Assumptions

        The preparation of financial statements in conformity with the accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Critical accounting estimates include, among others, the estimate of fair values in business combinations, estimates of the fair value of the company's common stock in determining stock-based compensation, the amortization method and periods for programming rights and sublicensing rights, useful lives of tangible and intangible assets, impairment of goodwill, valuation of intangible assets and long-lived assets, fair value of derivative instruments, estimates of contingencies, and the determination of valuation allowances for deferred tax assets. We have discussed the estimates that we believe are critical and require the use of complex judgment in our 2014 Annual Report on Form 10-K. Since that date, there have been no material changes to our critical accounting policies or the methodologies or assumptions we apply under them.

        Goodwill and Intangible assets—We assess the carrying value of goodwill on an annual basis, or more frequently if events or changes in circumstances indicate that such carrying value may not be recoverable. Other than our annual review, factors we consider important which could trigger an impairment review include: under-performance of reporting units or changes in projected results, changes in the manner of utilization of the asset, a severe and sustained decline in the price of our shares and negative market conditions or economic trends. Therefore, our judgment as to the future prospects of each business has a significant impact on our results and financial condition. We believe that our assumptions are appropriate.

        As of December 31, 2014, we recorded non-cash impairment losses totaling $29.4 million related to Peretz goodwill. The decline in fair value of these assets was due to revised estimates of future cash flows during the fourth quarter of 2014, primarily reflecting the revised expectations of the total TV advertising market, following reduced advertising demand and increased uncertainty in the medium-term, including uncertainties regarding the ultimate outcome of the Ukraine crisis and its impact on the Russian economy. For a discussion of the methodology and major assumptions regarding our impairment test refer to the 2014 Annual Report on Form 10-K filed with the SEC on March 5, 2015.

        Overall, the market trading price of our common stock was down from $4.87 per share as of December 31, 2014 to $1.75 per share at September 30, 2015. In the nine months ended September 30, 2015, our capitalization dramatically decreased by 64%. As a result, as of September 30, 2015, our market capitalization amounted to $273,182, while our consolidated net book value (or shareholders'

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equity) amounted to $388,615. One of the most significant underlying reasons for the substantial decline in the market trading price of our common stock was likely the amendment to the Russian law "On Mass Media" and the perceived increase in the risk that we may not successfully achieve compliance with such requirements by the stated deadline.

        Due to the significant decline in our stock price and market capitalization during the second quarter of 2015, we performed an interim analysis for impairment as of September 30, 2015. As of September 30, 2015, the carrying values of goodwill related to CTC, Domashny and Peretz totaled $25.5 million, $12.9 million and $3.5 million, respectively. In addition, as of September 30, 2015, we had significant balances of amortizable broadcasting licenses totaling $19.9 million, including CTC licenses—$3.0 million; Domashny licenses—$4.0 million, and Peretz licenses—$10.7 million.

        As described above (see—Fair value measurements), in accordance with ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distress sale) between market participants at the measurement date under current market conditions. In our impairment analysis, in determination of fair value of the Company's reporting units, we applied multiple valuation techniques by weighting indications of fair value resulting from application of going-concern based present value technique and market approach. All inputs used for fair value measurements are categorized within Level 3.

        As a result of the impairment review performed as of September 30, 2015, we concluded that the fair values of the CTC, Domashny and Peretz reporting units exceeded their carrying values. An excess of fair value over the carrying amount of the Peretz and Domashny reporting units amounted to 1% and 6%, respectively. The estimated fair values of CTC remained significantly in excess of their respective carrying amounts.

        In order to evaluate the sensitivity of the fair value calculations in our impairment analysis, we hypothetically applied 10 and 15 percentage points' decreases in the fair value of each reporting unit and broadcasting licenses.

        Intangible assets primarily represent our broadcasting licenses and cable network connections. We amortized the remaining balances of our broadcasting licenses and cable network connections on a straight-line basis over their estimated remaining useful life, ranging between 2018 and 2022. The estimated useful lives of our broadcasting licenses is subject to availability of further information about the transition to digital broadcasting, which could require us to revise amortization expense on a prospective basis.

        Tax provisions—We record temporary differences related to investments in our Russian subsidiaries. These temporary differences consist primarily of undistributed earnings that we do not plan to

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permanently reinvest in operations outside the U.S. The level of sophistication and expertise with respect to complex tax laws is continually evolving both on the part of tax professionals and the taxing authorities. We are a U.S. legal entity with substantially all of our operations outside the U.S., primarily in Russia. As a result, our tax filing positions in the U.S. are substantially impacted by our interpretation of tax law and how we apply it in determining U.S. taxes payable and deferred tax liabilities. While we believe we have, and continue, to make reasonable judgments in determining our tax filing positions in each jurisdiction in which we are subject to tax, views may differ as to the determination of our tax obligations. These judgments may ultimately be subjected to examination by the tax authorities and further revisions may be required in our estimates.

        Our Board of Directors and stockholders may pursue a restructuring of our group or its ownership in order to comply with the restrictions on non-Russian ownership and control of mass media entities under the amended Russian Mass Media Law, which may result in the group being required to pay significant taxes, including in the U.S. See also "Item 1A. Risk Factors—If we fail to complete the proposed sale to UTH prior to January 1, 2016, amendments to the Russian law "On Mass Media" will likely materially adversely affect our operations and/or our stockholders and the value of our common stock".

Recently Issued Accounting Pronouncements

        We have considered all recently issued accounting pronouncements and disclosed the ones that could be material to our financial statements in the notes to our consolidated financial statements. See "Item 1. Financial Statements—Note 2, Basis of Presentation and Summary of Significant Accounting Policies."

Item 3.    Quantitative and Qualitative Disclosures about Market Risk

Foreign currency exchange risk

        Because our reporting currency is the U.S. dollar and the functional currency of our principal operating subsidiaries is the Russian ruble and Kazakh tenge, our reported results of operations are impacted by fluctuations in the exchange rate between the U.S. dollar, the Russian ruble and Kazakh tenge. For the three and nine months ended September 30, 2015, the Russian ruble depreciated against the US dollar by 16% and 15%, respectively, but was on average 43% and 40% lower than the average value of the Russian ruble as compared to the US dollar in the three and nine months ended September 30, 2014, respectively. In the three and nine months ended September 30, 2015 the value of the Kazakh tenge depreciated against the U.S. dollar by 31% and 33%, respectively, and was on average 16% and 9% lower than the average value of the Kazakh tenge as compared to the three and nine months ended September 30, 2014.

        Additionally, given that substantially all of our revenues are generated in rubles, we face exchange rate risk relating to operating expenses that we incur in currencies other than the Russian ruble, primarily U.S. dollar payments for non-Russian produced programming. As of September 30, 2015, the Company had U.S. dollar denominated contractual commitments for the acquisition of approximately $9.5 million of programming rights the remainder of 2015. In addition, the Company expects to spend approximately $6.2 million for programming rights denominated in U.S. Dollar which is not committed as of September 30, 2015, and $7 million for other U.S. denominated expenses, mostly related to our costs in US level. Also, according to the 2015 Management Incentive Plan approved by the Company's BOD, the Company would be required for the payment of $10 million in cash bonuses to specified employees in connection with a change in control (as described in Note 7, Stock-Based Compensation). As of September 30, 2015, U.S. dollar-denominated cash and cash deposits comprised approximately $84.3 million. In addition, in September, 2015, the Company has entered into foreign exchange forward agreement arrangement to purchase $20 million at exchange rate of RUR 66.96 rate to $1 in

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November, 2015 to reduce the foreign exchange risk with respect to the remaining future U.S. dollar-denominated payments.

        The prevailing exchange rate as of November 1, 2015 was RUR 64.4 to $1.00 and Kazakh tenge 279.2 to $1.00.

        For the nine months ended September 30, 2015, if the value of the Ruble and Kazakh tenge compared to the U.S. dollar had been, on average, 10% lower than it actually was, we would have reported decreases in total operating revenues and total operating expenses of approximately $22.2 million and $15.4 million, respectively. The total operating expenses we reported would have decreased in this hypothetical scenario because most of our operating expenses are ruble- denominated even though our reporting currency is the U.S. dollar.

        See also "Item 1A. Risk Factors—Depreciation of the Russian ruble against the U.S. dollar resulting from the current economic and political instability in Russia have negatively impacted our reported revenues and operating results. If the exchange rate between the ruble and the U.S. dollar remains at its current level or if the ruble depreciates further, our revenues and our operating results, both as reported in U.S. dollars, may continue to be negatively affected".

Item 4.    Controls and Procedures

Evaluation of disclosure controls and procedures

        Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 (Exchange Act) Rules 13a-15(e) or 15d-15(e)) as of September 30, 2015. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2015, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective.

Changes in internal control over financial reporting

        During the three months ended September 30, 2015, there were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1.    Legal Proceedings

        We are not currently party to any legal proceedings, the outcome of which would reasonably be expected to have a material adverse effect on our financial results or operations.

Item 1A.    Risk Factors

        Investing in our common stock involves a substantial degree of risk, particularly in the current regulatory circumstances we face. You should carefully consider the following risk factors and all other information contained in this Quarterly Report on Form 10-Q before purchasing our common stock. The risks and uncertainties described below are not the only ones that we face. Additional risks and uncertainties of which we are unaware, or that we currently deem immaterial, may also become important factors that affect us. There may be risks that a particular investor views differently from us, and our analysis of the risks we face might be wrong. If any of the risks that we face actually occur, our business, financial condition and operating results could be materially adversely affected and could differ materially from any possible results suggested by any forward-looking statements that we have made or might make. In such case, the trading price of our common stock could decline, and you could lose some or all of your investment. See also "Special Note Regarding the Russian Mass Media Law and Our Proposed Corporate Transactions".

Risks related to the Amended Russian Mass Media Law and our Proposed Corporate Transactions

If we fail to complete the proposed sale to UTH prior to January 1, 2016, amendments to the Russian law "On Mass Media" will likely materially adversely affect our operations and/or our stockholders and the value of our common stock.

        Amendments to the Russian Mass Media Law will reduce the permitted level of foreign ownership in Russian mass media companies, including television broadcasters, from 50% direct ownership to 20% beneficial ownership or control, whether direct or indirect. No amendments to or waivers from the Mass Media Law have been approved to date, and therefore the core provision of this amended law will become effective on January 1, 2016. Neither our Company nor the current beneficial ownership structure of our Company would currently comply with the requirements of the new law. In the event of non-compliance by the stated deadline, the Russian government would have the authority to revoke the mass media registration and broadcasting licenses of our businesses, and we would be unable to exercise our voting rights in our Russian subsidiaries. Any such revocation would result in the diminution of substantially all of the value of our businesses.

        In response to the amended Mass Media Law, we announced on July 6, 2015 the receipt of a formal, non-binding offer from UTH Russia, a privately held Russian commercial television broadcasting group, for the purchase of a 75% interest in our Russian (and Kazakhstan) business operations. On September 24, 2015, we entered into a Framework Agreement with UTV-Management LLC, a company organized and existing under the law of the Russian Federation (the "Purchaser"), and an affiliate of UTH Russia Limited (together, "UTH"), a private commercial television broadcaster in Russia, for the acquisition by the Purchaser of 75% of the outstanding participation interests in the Company's wholly owned subsidiary, CTC Investments, a Russian intermediate holding company that directly or indirectly owns all of our business in Russia and Kazakhstan. The transaction is being undertaken to ensure compliance with the foreign ownership restrictions imposed by Russia's new Mass Media Law, while maximizing the potential return to the Company's stockholders. See "Special Note Regarding the Russian Mass Media Law and Our Proposed Corporate Transactions."

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        If we are not able to close the proposed transaction with UTH, or if our stockholders do not approve such transaction, we may not be able to consummate an alternative sale transaction, or implement an alternative restructuring approach, before the end of 2015, and may therefore not achieve compliance with the foreign ownership and control restrictions of the Russian Mass Media Law by the stated deadline. Such failure would materially adversely affect our business and the market value of our common stock, and you may lose all or a significant portion of your investment.

        In addition, our response to the amended Mass Media Law and our proposed corporate transactions require significant Board and management time and attention, which will continue to distract from the normal operations of our business.

Failure to complete the proposed transactions could negatively impact the future business and financial results of the Company.

        We cannot assure you that we will be able to satisfy all of the conditions to the sale transaction with UTH or the proposed merger to be consumated following such sale,or succeed in any litigation brought in connection with the proposed transactions. If the proposed transactions are not completed, our business, financial condition, results of operations and cash flows may be adversely affected and we will be subject to several risks, including but not limited to:

•

the market price of our common stock may decline substantially;



•

we may be required to pay to UTH a termination fee of $5 million (or a "no vote" fee of $2.6 million), and reimbursement of expenses, under certain circumstances provided in the sale agreement;



•

we will be required to pay the costs relating to the sale and the merger, such as legal, accounting, financial advisor and printing fees, whether or not the proposed transactions are completed; and



•

the continued focus of our board and management on the proposed transactions instead of on pursuing other opportunities that could have been beneficial to our Company.

        If the proposed transactions are not completed, we cannot assure you that these risks will not materialize and will not materially and adversely affect our business, financial condition, results of operations and cash flows. Further, if the sale and the merger are not completed and our board seeks another business combination or similar transaction, our stockholders cannot be certain that we will be able to find a party willing to pay a price equivalent to or better than the price to be paid in the proposed sale, or that any alternative transaction could be completed by the stated deadline under the Mass Media Law.

We are subject to business uncertainties and contractual restrictions while the proposed transactions are pending, which could adversely affect our business and operations.

        In connection with the pendency of the proposed transactions described above, it is possible that some customers, suppliers and other persons with whom we have a business relationship may delay or defer certain business decisions or might decide to seek to terminate, change or renegotiate their relationships with us as a result of the proposed transactions, which could negatively affect our revenues, earnings and cash flows, as well as the market price of our common stock, regardless of whether the proposed transactions are completed.

        Under the terms of the sale agreement with UTH, we are subject to certain restrictions on the conduct of our business prior to completing the sale, which may adversely affect our ability to execute certain of our business strategies, including the ability in certain cases to enter into or amend contracts,

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acquire or dispose of assets, incur indebtedness or incur capital expenditures. Such limitations could adversely affect our businesses and operations prior to the completion of the sale.

        Each of the risks described above may be exacerbated by delays or other adverse developments with respect to the completion of the proposed transactions.

The proposed merger is subject to the receipt of a license from OFAC, and an adverse determination by OFAC could prevent the consummation of the merger.

        The United States has imposed economic sanctions that affect transactions with designated foreign countries, nationals and others, which are administered by OFAC. In particular, the United States prohibits U.S. persons from engaging with individuals and entities identified as SDNs, including financial transactions with, or relating to, the SDN, and require the blocking of assets in which the SDN has an interest. Blocked assets (e.g., property or bank deposits) cannot be paid out, withdrawn, set off or transferred in any manner without a license from OFAC.

        Since Telcrest was, on March 20, 2014, deemed an SDN by virtue of the fact that it was majority owned by Bank Rossiya, an SDN, our transfer agent, Computershare, has identified the shares of common stock held by Telcrest as blocked property under the sanctions regime and filed a blocking report with OFAC with respect to such shares. Although Telcrest notified us on September 25, 2015 that it is no longer 50% or more owned, directly or indirectly, in the aggregate by one or more SDNs, including Bank Rossiya, we believe that because our shares held by it have been reported as blocked property, such shares remain blocked until affirmatively unblocked by OFAC.

        In August 2015, we approached OFAC for confirmation that the proposed transactions did not require a license or, in the alternative, that OFAC issue a license permitting us to engage in the proposed transactions. It is our view that the sale does not require an OFAC license and, consistent with that view, OFAC has indicated informally that it does not intend to exercise jurisdiction over the sale. However, OFAC's informal guidance is not binding on OFAC, and if OFAC were ultimately to determine that a license is required to complete the sale but not issue such a license, we would be unable to complete the sale. Furthermore, if OFAC were to determine after closing that a license would have been required, we could potentially be subject to substantial fines or penalties. While we do not believe that either of these outcomes is likely, there can be no assurance that OFAC will not take a different view, particularly given the broad discretion granted to OFAC under the sanctions regime.

        Even if the sale is consummated, we do not intend to consummate the merger until such time as we receive a license from OFAC expressly permitting us to do so. There can be no assurance that OFAC will issue such a license within any given timeframe or at all. In the event of any delay in obtaining, or inability to obtain, a sufficient OFAC license, we will continue to investigate alternatives for returning the proceeds of the sale to our stockholders. However, our ability to do so may be substantially delayed, may need to be substantially restructured or altered, including in terms of the amount of such proceeds returned to our stockholders, or may not be possible for the foreseeable future.

Even if the merger is not consummated, we may decide to delist and deregister our common stock, which could result in risks for our stockholders

        Following the sale, as one element of an attractive exit for all of our stockholders, we may elect to delist and deregister our common stock by filing a Form 15 to deregister our common stock under the Exchange Act. As a result, our stockholders would be subject to the risks of an investment in a private rather than a public company, because the duty to file periodic reports (i.e., annual, quarterly and current reports) with the SEC would be suspended. As such public information regarding our company would not be readily available.

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        As a deregistered company, our shares would not be listed on a national securities exchange, and there may not be a sufficient number of shares outstanding and publicly traded shares following deregistration to ensure a continued or viable trading market. Our stockholders also could be adversely affected by the minimal or lack of a "public float," that is, the number of shares owned by outside shareholders and available for trading. The suspension of our reporting obligations under the Exchange Act may reduce or eliminate any trading market for our shares and may result in further declines in the price of our shares and reduced liquidity in any trading market for our shares in the future. We may also have less access to capital markets as a non-reporting company.

Litigation filed against our company or UTV-Management could prevent or delay the consummation of the proposed transactions or result in the payment of damages following completion of the proposed transactions.

        In connection with the proposed transactions, our company and UTV-Management could be subject to litigation. Any such litigation could seek to enjoin the proposed transactions and other relief. The outcome of any such litigation is uncertain. If a dismissal is not granted or a settlement is not reached, litigation could prevent or delay completion of the proposed transactions and result in substantial costs to our company, including any costs associated with indemnification. The defense or settlement of any lawsuit or claim may adversely affect our business, financial condition, results of operations and cash flows.

Our executive officers and directors have certain interests in the sale and merger that may be different from other stockholders that may have influenced them to approve the sale.

        Our directors and executive officers have interests in the proposed transactions that may be different from, and in addition to, the interests of our stockholders generally, including with respect to employment, indemnification, retention bonuses and other arrangements, which may present a potential conflict of interest. Our board of directors was aware of these interests and considered that these interests may be different from, and in addition to, the interests of our stockholders generally in approving the sale and the merger, and in determining to recommend that our stockholders vote for the approval of the sale and the adoption of the merger agreement.

Following completion of the transactions, the Company will no longer exist as an independent public company and the Company's stockholders will forego any increase in the value of our operating business.

        If the sale and merger are completed, we will no longer be a publicly held corporation, and our stockholders will forego any increase in the value of our common stock that might otherwise result from our possible growth.

Risks relating to the environment in which we operate

Geopolitical and macroeconomic events have adversely affected and created uncertainty and instability in the Russian economy.

        In 2014 and the first nine months of 2015, Russia has experienced economic instability that has been characterized by substantial depreciation of its currency, sharp interest rate fluctuations and a steep decline in the value of shares traded on its stock exchanges (discussed below). Additionally, because Russia produces and exports large amounts of oil, its economy is particularly vulnerable to the price of oil on the world market and recent substantial decreases in international oil prices have adversely affected and may continue to adversely affect its economy.

        The Russian ruble depreciated against the U.S. dollar by 42% in 2014 and by 15% in the nine-months ended September 30, 2015. On December 11, 2014, the Central Bank of Russia raised its main lending rate to 10.5%, followed by a further increase on December 15, 2014 to 17%. The rate was 11.0% as of September 30, 2015, compared with 5.5% at the beginning of 2014. Depreciation of the

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ruble, increasing inflation and interest rate volatility are indicative of the general downturn in the Russian economy, which has been reflected in a significant decrease in advertising revenues. If the exchange rate between the Russian ruble and the U.S. dollar remains at its current level or if the Russian ruble depreciates further, our revenues and operating results for 2015, and perhaps future periods, as reported in U.S. dollars, will be materially adversely affected. Further volatility of interest rates may also adversely affect our ability to borrow funds if and when necessary or desirable.

        On January 26, 2015, the global credit ratings agency Standard & Poor's (S&P) downgraded Russia's sovereign debt to "junk" status. S&P lowered its long- and short-term foreign currency sovereign credit ratings on the Russian Federation to non-investment grade BB+ from investment grade BBB–. The outlook for long-term ratings is considered negative. On February 20, 2015 Moody's Investors Service downgraded Russia's sovereign debt rating to Ba1/Not Prime from Baa3/Prime-3 (P-3). The rating outlook is negative. Further falls in the oil price or deterioration of the situation may lead to further depreciation of the ruble and may lead to the Russian sovereign credit rating being downgraded by other credit agencies.

        As a result of the current global economic instability and any further potential deterioration in the Russian economy, total television advertising spending in Russia has been adversely affected which, in turn, has materially adversely affected our operating results for the first nine months of 2015 and is likely to do so for the full year.

        See also "—Depreciation of the Russian ruble against the U.S. dollar resulting from the current economic and political instability in Russia has negatively impacted our reported revenues and operating results. If the exchange rate between the ruble and the U.S. dollar remains at its current level or if the ruble depreciates further, our revenues and our operating results, both as reported in U.S. dollars, may continue to be negatively affected"; and "—We derive almost all of our revenues from the sale of advertising, which is sensitive to broader economic conditions. Our revenues may substantially decrease if the economic environment deteriorates in Russia or other CIS countries in which we operate."

Depreciation of the Russian ruble against the U.S. dollar resulting from the current economic and political instability in Russia has negatively impacted our reported revenues and operating results. If the exchange rate between the ruble and the U.S. dollar remains at its current level or if the ruble depreciates further, our revenues and our operating results, both as reported in U.S. dollars, may continue to be negatively affected.

        Although our reporting currency is the U.S. dollar, we generate almost all of our revenues through the sale of advertising, which in Russia is sold primarily in rubles. The ruble is also the functional currency of our principal operating subsidiaries. As a result, our reported revenues and results of operations are impacted by fluctuations in the exchange rate between the U.S. dollar and the Russian ruble.

        In the three and nine months ended September 30, 2015, the Russian ruble depreciated against the U.S. dollar by 16% and 15%, respectively, and was on average 43% and 40% lower than the average value of the Russian ruble compared to the U.S. dollar during the three and nine months ended September 30, 2014, respectively. The prevailing exchange rate as of September 30, 2015 was RUR 66.2 to $1.00. Additionally, we face exchange rate risk relating to payments that we must make in currencies other than the ruble. We generally pay for non-Russian produced programming in U.S. dollars. As of September 30, 2015, we had U.S.-dollar denominated contractual commitments for the acquisition of approximately $9.5 million in programming rights in 2015, $31.7 million in 2016 and $3.3 million in 2017. As of September 30, 2015, our U.S. dollar-denominated cash and cash deposits comprised approximately $84.3 million. In addition, on September 2015, we have entered into foreign exchange forward agreement arrangement to purchase $20 million at exchange rate of RUR 66.96 rate to $1 in November 2015 to reduce the foreign exchange risk with respect to the remaining future U.S. dollar-

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denominated payments.See also "Item 3. Quantitative and Qualitative Disclosures about Market Risk—Foreign currency exchange risk".

        In addition, in the three and nine months ended September 30, 2015, the Kazakh tenge depreciated against the U.S. dollar by 31% and 33%, respectively, and was on average 16% and 9% lower than the average value of the Kazakh tenge compared to the U.S. dollar during the three and nine months ended September 30, 2014, respectively. The prevailing exchange rate as of September 30, 2015 and November 1, 2015 was KZT 270.4 to $1.00 and KZT 279.2 to $1.00, respectively. If the Kazakh tenge depreciates further, our revenues and our operating results, both as reported in U.S. dollars, may continue to be negatively affected.

The current geopolitical situation regarding Ukraine and Crimea and related international economic sanctions may adversely affect our business, financial conditions and results of operations, and will require us to employ significant time and resources to ongoing compliance efforts.

        Significant uncertainty exists surrounding the current geopolitical situation over Ukraine and Crimea. Both the United States and the European Union, as well as other countries, have imposed economic sanctions on certain Russian government officials, other individuals and certain Russian companies in connection with recent developments in Ukraine and Crimea, as well as "sectoral" sanctions affecting specified types of transactions with named participants in certain industries, including named Russian financial institutions, and sanctions that prohibit most commercial activities by U.S. and E.U. persons in Crimea. On March 3, 2015, the White House announced a one-year extension of the Executive Order dated March 6, 2014, which introduced the initial round of Ukraine-related sanctions. On June 22, 2015, the European Union decided to extend sanctions against Russia until January 31, 2016. There is significant uncertainty regarding the extent or timing of any potential further economic or trade sanctions, or the ultimate outcome of the Ukraine crisis.

        Neither we, nor any of our Russian subsidiaries or other operations or assets, are a target of current sanctions and we do not appear on the United States, European Union or other lists of sanctioned parties. Under the applicable sanctions, however, we (1) may not engage in any financial or commercial transaction with an SDN; (2) must block any "property interest" of an SDN over which we have possession or control; (3) may not facilitate or approve the action of any other party that would violate the sanctions; or (4) may not otherwise evade the sanctions. The European Union and many other countries have imposed similar sanctions. See also "Special Note Regarding Telcrest."

        As a result of the sanctions programs, we must engage in additional due diligence of prospective customers, suppliers or other third parties, which may delay or prohibit us from entering into agreements with these third parties. Any negative perception by our international customers or suppliers of our direct and indirect relationship to sanctioned parties, or regarding the overall geopolitical situation, may make it more difficult to do business with these customers or suppliers and may negatively impact our revenue and profitability. In particular, there have been press reports speculating that Video International, the advertising sales house on which we rely for the software used by our internal sales house and for material consulting services and analysis of the advertising market, may be controlled by parties subject to sanctions. In light of such reports, our management and the Compliance Committee of our Board regularly review our due diligence in respect of Video International. Based on our due diligence to date, the Compliance Committee of our Board has concluded that the evidence does not suggest that Video International is majority owned or otherwise controlled by sanctioned parties. Nevertheless, negative perceptions resulting from our relationship with Video International may result in harm to our reputation or to our relationships with other counterparties. In addition, although we seek to take all reasonable efforts to confirm that Video International and our other counterparties are not majority owned or controlled by sanctioned parties, there remains the possibility that we could be found not to be in compliance with applicable legal requirements in respect of sanctions, which could materially adversely harm our business.

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        Our compliance with international sanctions could impede our ability to effectively manage our legal entities and operations globally. For example, in February 2015, the Russian Prosecutor General's office issued a statement announcing that local prosecutors, the State Labor Inspectorate and the Federal Antimonopoly Service had initiated investigations of Russian companies whose U.S. parent company had adopted group-wide compliance policies that required that all employees comply with applicable international sanctions. The statement claimed that such policies contradict the law of the Russian Federation, and therefore may give rise to violations of Russian law, including labor and anti-monopoly laws. If similar allegations were to be brought against our Russian subsidiaries, and the Russian authorities were successful in claiming that our international sanctions compliance policies violate Russian law, we could be impeded in ensuring the compliance of our group with applicable U.S., E.U. and other legal requirements and could potentially face liability in Russia. In addition, we may be required to seek guidance or licenses from OFAC regarding compliance or in order to proceed to do certain business, and we are subject to OFAC blocking and reporting obligations.

        Telcrest's position as a principal minority shareholder of our company and its original designation of three of the nine current members of our Board of Directors present significant compliance challenges for us. We have in place policies and procedures designed to ensure compliance with the applicable requirements. Such compliance efforts may take substantial time and attention of our management and Board of Directors, including our Compliance Committee, which would otherwise have been focused on other aspects of our business. We may also experience delays in business and corporate governance processes as a result of the requirements of these policies, including the recusal of Telcrest-designated directors from decisions or deliberations on all transactions by our Board. See also "Special Note Regarding Telcrest".

        Applicable sanctions may also adversely affect our relationships with international banks, advisors and commercial counterparties. We have to date encountered several international banks that have declined to transact business with us, including providing advisory services and processing routine payments from us to third parties, as a result of internal compliance policies that are significantly more restrictive than what is required by applicable law. Although these actions have not to date materially adversely affected our operations, if international banks or other international counterparties decline to do business with us because of real or perceived compliance concerns, this could have a material adverse effect on our operations, results of operations and financial position.

        We are committed to complying with all applicable laws, including Ukraine-related sanctions. However, if we fail to comply with sanctions requirements, our company and/or our directors and senior management could face administrative, civil and criminal penalties.

        See also "—Geopolitical and macroeconomic events have adversely affected and created uncertainty and instability in the Russian economy."

Risks related to our business and industry

We derive almost all of our revenues from the sale of advertising, which is sensitive to broader economic conditions. Our revenues may substantially decrease if the economic environment deteriorates in Russia or other CIS countries in which we operate.

        We generate substantially all of our revenues from advertising. In general, expenditures by advertisers tend to be cyclical, reflecting overall economic conditions and buying patterns. Since the introduction of commercial television advertising in Russia following the fall of the Soviet Union, advertising spending has fluctuated substantially, generally increasing during periods of economic growth and decreasing during downturns. Although overall Russian television advertising spending grew at a compound annual growth rate of 12% in the period from 2009 to 2013, Russia has experienced significant economic instability in 2014 and the first half of 2015, characterized by depreciation of its

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currency, interest rate volatility, and a steep decline in the value of shares traded on its stock exchanges. In the fourth quarter of 2014, some large advertisers reduced their initially planned advertising expenditures. As result, in 2014, overall Russian television advertising market increased by only approximately 2% in ruble terms when compared to 2013. Third party reports have estimated that total Russian TV advertising spending may decline by roughly 17% for the full year 2015. Additionally, recent decreases in international oil prices may continue to adversely affect the Russian economy. As a result of the current global economic instability and any further potential deterioration in the Russian economy, total television advertising spending in Russia may be adversely affected which, in turn, would materially adversely affect our operating results for 2015 and in the medium-term.

        As discussed above, significant uncertainty exists surrounding the current geopolitical situation over Ukraine and Crimea. Both the United States and the European Union, as well as other countries, have imposed economic sanctions on certain Russian government officials, other individuals and certain Russian companies in connection with recent developments over Ukraine and Crimea. There is significant uncertainty regarding the extent or timing of any potential further economic or trade sanctions, or the ultimate outcome of the Ukraine crisis. The current situation in Ukraine has negatively affected our sublicensing sales of certain programming in that country and has also had a broader impact on the macroeconomic environment of the region. These factors, in conjunction with global macroeconomic weakness, may adversely affect our business. See also "—The current geopolitical situation regarding Ukraine and Crimea and related international economic sanctions may adversely affect our business, financial conditions and results of operations, and will require us to employ significant time and resources to ongoing compliance efforts."

A reduction in our audience shares and ratings would likely result in a reduction in our advertising revenues.

        The level of advertising revenues that we receive is directly tied to our audience shares and ratings. If our audience shares or ratings were to fall as a result, for example, of competitive pressures, underperformance of key programs, audience fragmentation, failure to renew licenses, or a change in the method of measuring television audiences, this would likely result in a decrease in our advertising revenues, which could be material. In 2014, the target audience shares of our CTC, Domashny and Peretz channels were below their audience shares for 2013, reflecting the increased competition from other channels, including the channels licensed to broadcast the 2014 Olympic Games in Sochi in the first quarter of 2014 and political news on the Ukraine crisis, the effect of audience fragmentation and the relative underperformance of certain programming at CTC and Peretz channels. In addition, in the nine-month period of 2015, the target audience shares of CTC channel were significantly below the audience share for 2014, reflecting the increased competition from other channels, as well as the effect of audience fragmentation. In November, in response to audience demand, we launch the new Che Channel, which will use the frequency band currently used by Peretz. Che will be targeting the All 25-49 audience with a principal focus on 30-40. Channel programming will include projects focused on men's interests and hobbies, manly occupations, sports broadcasts, as well as popular science shows, quality feature films and Russian and international TV series.

        Our ability to attract and retain viewers depends primarily on our success in offering programming that appeals to our target audiences. Russian viewer preferences have been changing in recent years, with increasing demand for programming produced in Russia. There is currently a relatively limited supply of Russian-produced programming and strong competition among Russian networks and channels for such programming and Russian production talent, as well as for popular foreign programming.

        From time to time we air one or two series during primetime that contribute disproportionately to our overall audience share, resulting in an overall audience share that we may not be able to sustain once that series is discontinued or loses popularity. Moreover, because we continue to rely on third-party production companies for a large portion of our programming, and our programming library is

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not as extensive as those of some of our competitors, we may be unable to quickly substitute new programming for underperforming programming. If we are unable to produce or secure a steady supply of high-quality programming, particularly in key timeslots, or if we fail to anticipate, identify or react appropriately to changes in Russian viewer tastes or legislation, or to increased competition, by providing appropriate programming, our overall audience shares could be negatively affected, which would adversely affect our advertising revenues. Moreover, if any of the programming we produce, commission or license does not achieve the audience share levels we anticipate, we may be required to write-off all or a portion of the carrying cost of such programming, and we could be forced to broadcast more expensive programming to maintain audience share, either of which could have a material adverse impact on our results of operations.

We may not be able to compete successfully against other free-to-air channels and networks that may have broader coverage, greater name recognition, larger market share, wider programming content or access to more funding than we do, or with niche channels or non-free-to-air channels offering competitive programming formats.

        The Russian television broadcasting business is highly competitive. Approximately 20 free-to-air television channels account for approximately 98% of the television advertising market. The market also includes multiple non-free-to-air television channels. The free-to-air channels include five larger national channels, namely Channel One, Rossiya 1, NTV, TNT and CTC, and a number of smaller niche channels, including Domashny and Peretz. Our networks compete for audience share with other national television networks and channels and with local stations, as well as with niche broadcasters. We compete on the basis of both the actual and anticipated size of our audiences for specific time slots, as well as the demographic characteristics of our viewers.

        On a national level, CTC channel competes directly with other larger broadcast networks and channels, including Channel One, as well as with the smaller networks, TNT and NTV. Domashny competes for advertising revenues primarily with Rossiya 1 and TVC, and Peretz competes primarily with NTV and REN-TV, although they both also compete with the larger broadcast networks and channels for viewers within their target demographic groups. On a local level, our owned-and-operated stations compete with other stations for local advertising. In November, we launch the new Che Channel, which will use the frequency band currently used by Peretz. Che will be targeting the All 25-49 audience with a principal focus on 30-40. Channel programming will include projects focused on men's interests and hobbies, manly occupations, sports broadcasts, as well as popular science shows, quality feature films and Russian and international TV series.

        Channel One and Rossiya 1 were established as state television channels during the Soviet period and they remain under Russian state control. As a result, we understand that these channels receive state benefits not generally available to private companies, including free signal transmission (in the case of Channel One), direct state budget subsidies (in the case of Rossiya 1) and preferences in licensing. The provision of benefits and preferences to state controlled entities may impede our ability, as a private media company, to effectively operate and compete in the broadcasting market given the trend towards market consolidation by state controlled entities. For example, Gazprom, the state-controlled energy company, expanded its Russian media holding further in November 2013 by the acquisition of Profmedia which operates TV and radio stations as well as other media assets.

        Moreover, nearly every viewing household in Russia can receive the broadcast signals of Channel One and Rossiya 1, while only a more limited viewing audience can currently receive our network signals. The much broader coverage and name recognition of Channel One and Rossiya 1, coupled with programming geared toward a broader demographic group, help them attract large audience shares. NTV, which is indirectly controlled by the state through Gazprom, also has broader coverage than our networks, and we believe also benefits from free signal transmission. In the nine months 2015, Channel One had an average audience share among 10 to 45 year-old viewers of 11.4%, while Rossiya 1's was

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7.6% and NTV's was 6.6%. CTC's average target audience share in the nine months 2015 was 8.1%. We believe that the strong audience shares of Channel One, Rossiya 1 and NTV may give these broadcasters added leverage in negotiations with advertisers, advertising agencies and sales houses. Moreover, as we focus on entertainment programming, we are unable to compete with other broadcasters for audiences for news and sporting programs, some of which have among the highest audience shares and ratings in their time slots. In addition, Channel One, Rossiya 1 and NTV may enjoy certain preferences that commercial channels do not. For example, they are included in the list of free-access federal channels that benefit from a must-carry option throughout Russia, as opposed to commercial channels including ours, which have to pay for transmission services.

        We understand that the beneficial owners of one of our principal minority stockholders, Telcrest, including Bank Rossiya (which is not affiliated with Rossiya television channel), have investments in Russian media businesses, including through ownership interests in Channel One, REN-TV and Channel 5. Telcrest and Bank Rossiya may have interests different from, or in addition to, the interests of other stockholders of CTC Media. See also "—Our principal stockholders may have interests that are different from, or in addition to, the interests of other stockholders of CTC Media."

        Non-free-to-air channels typically provide services to subscribers for a regular subscription fee, and typically do not generate a significant portion of their revenues from advertising. As a percentage of the overall television market, the non-free-to-air market in Russia is currently smaller than in the United States and Western European countries. Audience share for these channels, however, is increasing. In other countries, such as the United States, growth in non-free-to-air television services has often resulted in fragmentation of the market and a corresponding decrease in the audience share of large national networks and channels. All larger national free-to-air TV channels in Russia have in recent periods been negatively impacted by increased competition from non-free-to-air and smaller niche TV channel viewership in the "All 4+" category, which increased from 12.6% in 2010 to 14.5% in 2011, 15.5% in 2012, 17.2% in 2013, 18.4% in 2014 and 22.0% in the third quarter of 2015. If smaller niche and non-free-to-air channels continue to grow their customer base in Russia, our audience shares and ratings, especially the audience share of CTC channel, could be negatively affected, which would adversely affect our advertising revenues. See also "—If free-to-air television does not continue to constitute a significant advertising forum in Russia, our revenues could be materially reduced."

        Also, the introduction of digital broadcasting may affect competition within the television marketplace, which may negatively impact the audience shares of our channels. See also "—We face additional expenditures in connection with the planned transition from analog to digital broadcasting in Russia and Kazakhstan and the necessary investments for digital migration may not be fully monetized."

We face additional expenditures in connection with the planned transition from analog to digital broadcasting in Russia and Kazakhstan, and the necessary investments for digital migration may not be fully monetized.

        The Russian government has announced a federal program to introduce digital broadcasting throughout Russia by 2019. The government's plan called for digital broadcasting to be introduced in stages, with several packages of digital signals, or "multiplexes", to be launched over time. The government initially announced the channels that would be included in the first multiplex (Channel One, Rossiya 1, Rossiya 2, Rossiya 24, Rossiya K, Channel 5, NTV, Karousel, TVC and Public TV of Russia (OTR)), determined milestones for the transition to this multiplex, and indicated that the infrastructure for this first multiplex will be funded by the government.

        In December 2012, the Russian Federal Service for Supervision in the Sphere of Telecommunications, Information Technologies and Mass Communications (Roskomnadzor) announced the 10 channels selected following a tender for inclusion in a second multiplex including our CTC and Domashny channels. It is expected that the second multiplex will ultimately be available to

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approximately 98% of the Russian population. The success of the transition to digital broadcasting may be limited if Russian television viewers do not purchase new digital televisions or set-top boxes, particularly in light of the current challenging economic environment.

        In March 2013, we entered into 10-year transmission agreements with the Russian Television and Radio Network, or RTRS. Under the terms of these agreements, RTRS will ultimately provide to CTC and Domashny channels, as well as other broadcasters in the second multiplex, all services required for the channels to broadcast their signals in digital format throughout Russia to more than approximately 140 million viewers once the rollout of digital broadcasting is complete throughout the territory of the Russian Federation. In July 2014 and August 2015, we amended these agreements with RTRS to better reflect the currently planned rollout schedule and to amend the financial terms of participation in the second multiplex in light of RTRS's current implementation timeframes, the funds needed to provide services in regions as they become operational, and the financial support required for the build-out of the infrastructure for a comprehensive digital platform throughout the Russian Federation by 2018. RTRS is initially launching digital broadcast services in the second multiplex in cities with populations of more than 50,000 people ("50+ coverage"). In addition, RTRS will construct the digital broadcasting infrastructure in smaller cities with populations less than 50,000 ("50– coverage") until 2018. It is indicated that this infrastructure will be put into operation in 2019. In July 2015, a law amending the Mass Media Law and Communications Law came into force granting to all participants of the second multiplex 'must carry' rights along with the participants of the first multiplex. According to these amendments, transmission operators must transmit signals of channels included in the first and the second multiplexes at no costs to channels and viewers. See also "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations—Key Factors Affecting Our Results of Operations—Transition to digital broadcasting".

        Following the introduction of digital broadcasting, we expect to encounter certain risks and uncertainties in the execution of each of our channels' business models. Currently, we believe the most significant of these are the following:

•

The anticipated transition to digital broadcasting may affect the relative position of broadcasters within the television marketplace, which may negatively impact the audience shares of our channels.



•

Viewers may not acquire televisions or converters that will allow them to receive the digital signal prior to the time analog broadcasting ends.



•

We cannot guarantee that our Peretz channel (starting from November 2015—"Che") will be able to compete effectively if it is not included in the third multiplex, for which the requirements for inclusion have not yet been announced.



•

Viewers may switch to cable television. In the absence of 'must-carry' obligations for cable operators, this could lead to a decline in the overall number of households viewing free-to-air television and, as a result, our viewer ratings.

Pursuant to recent amendments to the Mass Media Law and Communications Law, operators must transmit signals of our CTC and Domashny channels, which are included in the second multiplex, free of charge. With respect to our Peretz channel, which is not included in multiplex, there can be no assurance that we will be able to negotiate mutually acceptable transmission agreements in the future relating to the carriage of our signals with cable providers, besides, due to recent changes in broadcasting regulations, some broadcasters moved Peretz's position in the list of channels to a new place, this may result in losing the channel for some time by our viewers, thus the share of the channel can sufficiently decrease, which will have negative impact on our business.

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•

We expect to continue to incur analog transmission costs during the analog-to-digital transition period. In 2014, we incurred an aggregate of $24 million of such expenses for all of our channels. According to our agreements with RTRS, our digital transmission expense for 2014 related to broadcasting in cities with populations more than 50,000 ("50+ coverage") amounted to $3.0 million and will be approximately $3.2 million in 2015 for our CTC and Domashny channels in the aggregate.

In addition, starting in 2014, we made advance payments of 444 million rubles, or $6.7 million, towards the construction of the digital infrastructure in smaller cities with populations less than 50,000 ("50– coverage"). In aggregate in accordance with our agreement with RTRS, we are required to advance approximately 311 million rubles in 2015, 145 million rubles in 2016, and 289 million rubles in 2017 and 2018, resulting in total advances of approximately 1,424 million rubles or $21.5 million by the end of 2018 (at an exchange rate of RUR 66.2 to $1.00 as of September 30, 2015). Under the amended terms, these advances will be offset against service payments otherwise required for digital transmission services subsequent to 2018. The increased revenues from higher than anticipated geographical penetration from digital broadcasting may not sufficiently compensate for increased costs associated with transmission and broadcast equipment upgrades.

        There may also be other unanticipated risks and expenses that we encounter during the transition and subsequently that could be material to our future financial position and results of operations.

        While our channels will continue to broadcast in the analog format under existing analog licenses, there is currently uncertainty regarding the effect of the implementation of digital broadcasting on our business models, and the digitalization of broadcasting may adversely affect our market position and financial condition.

Several recently adopted Russian and Kazakh laws regarding advertising and programming content may impact the programming and advertisements we are permitted to broadcast, which could result in a reduction in our audience share and advertising revenues.

        In July 2014, the Russian Parliament adopted three laws amending the Advertising Law.

•

An amendment came into force on July 22, 2014 that eliminated the existing restriction that prohibits an advertising sales house having a greater than 35% share of the TV advertising market. In 2011, when this restriction first came into force, we formed our own sales house—EvereST-S—and terminated our sales agency agreement with Video International, which had historically served as our sales house and which then had a share of the Russian TV advertising market greater than 35%. We continue to rely on Video International for material software and consulting services.



•

Following adoption of a prior amendment limiting advertising on pay-TV channels, additional amendments to the Advertising Law were adopted in February 2015 that will permit pay-TV channels that broadcast more than 75% Russian content to sell advertising. We do not believe that such amendments will affect our operations.

        In addition to the amendments above, the law "On protection of children from harmful information" came into effect in September 2012. This law prohibits the distribution of media that may be harmful to children of a certain age, such as scenes of violence, abusive language, pornography and scenes encouraging children to consume alcohol, drugs and tobacco. Implementation of this law has not adversely affected our channels to date, but we can provide no assurance that governmental authorities will not in the future interpret the law in such a way that will require us to revise our programming, which could adversely impact the audience share of our channels.

        In April 2013, new legislation came into force that prohibits the use of abusive language in mass media. We believe that these amendments have not affected and will not affect our channels as long as

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we constantly monitor our content, but since the term "abusive language" is not defined and is subject to interpretation, we cannot guarantee that we will not be faced with claims that we have violated this law or that we will be able to defend these claims successfully.

        In October 2013, new legislation came into force that regulates the advertising of biologically active additives ("BAA") and imposing penalties for inappropriate advertising thereof. According to this law, advertisements must include a disclaimer that BAAs are not a medicine. Advertisers as well as television channels broadcasting such BAA advertisements will be liable if such a disclaimer is not included or does not satisfy these new requirements. We do not expect this law to affect our business significantly, since we have editorial control over commercials we broadcast, but we cannot be sure that we will not receive any claims in the future, since there is limited legal practice in implementing these amendments and there are no court interpretations of them.

        In Kazakhstan, an amendment to the Kazakh Law "On advertising" came into force on July 13, 2014 that prohibits advertising umbrella brands of alcohol producers. We do not expect this law to affect our business significantly. In addition, increased competition from cable channels due to government initiatives to air at least 50% of TV programming in the Kazakh language (during every six-hour slot) by free-to-air channels may affect our Kazakh operations.

Changes in the method of measuring television audiences and ratings have at times in the past resulted, and may again in the future result, in decreases in our audience share and ratings.

        Our advertising revenues are largely driven by our audience share (the percentage of all people watching television at a given time who are watching our channels) and ratings (the percentage of the total population that is watching our channels at a given time). The system of audience measurement in Russia, currently run by TNS Russia, or TNS, has evolved as the advertising market has matured and in response to changing Russian demographics.

        TNS Russia measures usage in a "panel" of 77 cities, based on broadcasters' technical penetration in a larger group of 165 cities (the so-called "establishment survey"). The panel cities are chosen from among those Russian cities with more than 100,000 residents, which together account for approximately 50% of the total population of Russia. Our audience share could be negatively affected if we were to lose an affiliate in one of the cities in that group, or if our technical penetration in that group of cities were to be lower than our average technical penetration. TNS periodically changes the size or weighting of the establishment survey or panel.

        According to our estimates, recent such change have not lead to any significant changes in the weighting system or have any impact on our estimated ratings.

        In addition, on June 30, 2014, the Industry Committee on TV Audience Measurement in Russia announced a tender for the right to provide the industry-standard measurement of TV audiences in Russia for the period from 2017 through 2026. According to an official statement of the Industry Committee, the tender was later cancelled; further steps are expected to be formulated after consultations with all participants of the industry community, including TNS. There is no public information as to when this tender will be held, if at all, but in the event that it is held it may result in a change in the provider of audience measurement services in Russia, or may in any event result in changes in the audience measurement system. We are unable to predict at this time the impact of any such changes on our audience share or ratings, but any such changes may adversely affect our audience shares.

        We are also unable to predict how the audience measurement system may change as and when digital broadcasting is rolled out throughout Russia.

        When changes to the system of audience measurement occur, we attempt to take steps when possible in respect of our programming, distribution and sales to counteract the effects of such changes.

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We cannot assure you that these steps will be adequate or effective, or that any further changes in the measurement system will not result in decreases in our estimated audience shares and, as a result, a material decrease in our advertising revenues.

Restrictions on foreign involvement in the television business in Kazakhstan could be amended or interpreted in such a way as to result in our loss of necessary licenses or to require us to divest control of our Kazakh operating subsidiaries.

        The Mass Media Law in Kazakhstan restricts direct and indirect foreign ownership of any Kazakh television broadcaster to no more than 20%. In 2008, we acquired a 20% interest in the Kazakh television broadcast company Channel 31, and established two subsidiaries that provide the programming content and advertising sales functions to Channel 31 on an exclusive basis (together, the "Channel 31 Group"). Together, these interests provide us with a 60% economic interest in the Channel 31 Group as a whole. If the existing 20% limit were to be interpreted to restrict effective or economic control, rather than just direct ownership, or if the law were to be changed or interpreted to impose further restrictions or limitations on foreign ownership of Kazakh television broadcasters, we could be obliged to restructure this group in order to comply with such requirements or could be required to divest all or a portion of our interest in the Channel 31 Group. If we fail to comply in a timely manner, the authorities could suspend or revoke Channel 31's broadcasting licenses or could take other actions that could limit our ability to operate the Channel 31 Group. The book value of Channel 31's broadcasting license as at September 30, 2015, was approximately $2.2 million.

A change in Russian law further limiting the amount of advertising time permitted on television could materially adversely affect our results of operations.

        Current Russian law limits the amount of time that a broadcaster may devote to advertising to no more than 15% of any broadcasting hour. From time to time, there are discussions in the Russian government regarding imposing additional restrictions on television advertising, such as limiting the types of products that may be advertised, limiting product placements in programming, limiting the number of advertising breaks allowed in certain programs or requiring channels to devote more broadcast time to public service announcements. If legislation were introduced to further limit our ability to broadcast paid advertising or product placements, we cannot guarantee that increases in advertising prices, if any, or any other steps we would be able to take to mitigate the impact of such further limitation would be sufficient to compensate for the loss of advertising time.

If free-to-air television does not continue to constitute a significant advertising forum in Russia, our revenues could be materially reduced.

        We generate substantially all our revenues from the sale of television advertising in Russia, which constituted approximately half of all advertising expenditures in Russia in 2014, having increased from 25% in 1999. In the broader advertising market, television competes with various other advertising media, such as print, radio, internet and outdoor advertising. In addition, the television broadcasting industry is affected by rapid innovations in technology. The implementation of new technologies and the introduction of broadcasting distribution systems other than free-to-air broadcasting, such as direct-to-home cable and satellite distribution systems, the internet, video-on-demand, user-generated content sites and the availability of television programming on portable digital devices, are changing consumer behavior by increasing the number of entertainment choices available to the audience. While television continues to constitute the single largest component of all advertising spending in Russia, there can be no assurance that television will maintain its current position among advertising media. Increases in competition arising from the development of new forms of advertising media could have an adverse effect on our ability to maintain and develop our advertising revenues and, as a result, on our results of operations.

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The loss of licenses, or the failure to comply with the terms of licenses, could have an adverse effect on our business.

        All broadcast television stations in Russia are required to have broadcasting and other operating licenses. Only a limited number of such licenses are available in each locality. These licenses currently have a standard term of ten years. We also hold so-called "universal licenses", which permit a channel to broadcast through free-to-air, cable and satellite broadcasting, in either digital or analog format across the whole territory of Russia. However, we anticipate that analog licenses will only be relevant until the full transition to digital broadcasting is complete.

        In addition, Russian law could be interpreted as requiring cable television operators to have broadcast and other operating licenses for each of the channels or networks they transmit on their cable systems. Most of the independent cable television operators that currently carry our networks do not possess such licenses. The issuance of a license, as well as the terms and conditions of any license, are often subject to the exercise of broad discretion by governmental authorities.

        A broadcaster must conform its programming to the programming concept outlined in the broadcasting license. In particular, the broadcaster is obliged to ensure compliance of its programming with the declared genres of the channel and to maintain a required balance in the volume-genre ratio of broadcasted materials, both of which are prescribed in the license. Until recently, the broadcasting licenses of our affiliate stations also contained various restrictions, including requirements with respect to the minimum amount of locally produced programming that must be broadcasted.

        The broadcasting license of Channel 31 in Kazakhstan also contains various restrictions and obligations. Kazakh law currently requires that broadcasters air at least 50% of their programming in the Kazakh language during every six-hour slot.

        We may not always be in full compliance with license requirements. Also, our affiliates have not always been in full compliance with all the requirements of their licenses or obtained all the licenses necessary for broadcasting. If the terms of a license are not complied with, or if we violate applicable legislation or regulations, the license may be suspended or terminated (which decision may be appealed in court). If an affiliate were to broadcast without all the necessary licenses, broadcasting by such affiliate may be terminated and fines could be imposed.

        The loss of an existing broadcasting license, or the failure to obtain a broadcasting license in a new market, particularly in a significant market, could reduce or limit the coverage of our networks and result in a loss of audience share and a fall in ratings, which could materially adversely affect our advertising revenues and business.

        See also "—If we fail to complete the proposed sale to UTH prior to January 1, 2016, amendments to the Russian law "On Mass Media" will likely materially adversely affect our operations and/or our stockholders and the value of our common stock."

The failure of our independent affiliates to comply with requirements in our network agreements that they broadcast our advertising creates the potential for complaints from our advertising clients.

        We seek to enter into formal agreements with our independent affiliate stations governing various aspects of the broadcast of our network programming. These agreements generally require our affiliates to air most of our programming, including advertising during federal advertising slots. The majority of our independent affiliate stations have their own broadcasting licenses which entitle them to form their own broadcasting grid structured in accordance with their licenses as well as our network agreements.

        Although we have introduced procedures to monitor the broadcasting of our network programming in cities that have not been included in TNS Russia Panel, we cannot ensure that our affiliates are always consistent in their compliance with the federal advertising provisions of our agreements. If an independent affiliate breaches its obligations under our network agreement, we may face complaints from our advertising clients.

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The loss of independent affiliates could result in a loss of audience share.

        We seek to enter into formal agreements with our independent affiliate stations that govern various aspects of the broadcast of our network programming. These agreements generally provide each party with the right to terminate the agreement on 60 or 90 days' notice without penalty. If an independent affiliate in a larger market, particularly in a city where audiences are measured and in which we do not own and operate a station, were to terminate its agreement with us, sell itself to a competing network or lose the ability to broadcast our signal, it could result in a decrease in our audience share.

We rely on third parties to provide us with re-transmission capabilities in certain locations, and our business would be adversely affected if such parties terminated or adversely changed the terms of those relationships.

        In certain locations, we depend on cable operators or other third parties to carry our signal. If we were to be denied continued access to the cable systems or other third parties that carry our networks' signals, our technical penetration could be materially adversely affected which would, in turn, have a material adverse effect on our audience shares. Depending on the exact terms of the transition to digital broadcasting, our dependence on cable operators may increase.

        On July 24, 2015 amendments to the Mass Media Law and the Communications Law came into force providing 'must carry' obligations for operators transmitting signals of the first and the second multiplexes. These amendments will secure transmission of signals of our CTC and Domashny channels in the territory of Russia. With respect to our Peretz channel (starting from November 2015—"Che"), which is not included in the second multiplex, there can be no assurance that we will be able to negotiate mutually acceptable transmission agreements in the future relating to the carriage of our signals with cable providers, besides, due to recent changes in broadcasting regulations, some broadcasters moved Peretz's position in the list of channels to a new place, this may result in losing the channel for some time by our viewers, thus the share of the channel can sufficiently decrease, which will have negative impact on our business.

We rely on third parties for the production of a significant portion of our original Russian programming, and our business could be adversely affected if we are unable to continue such relationships on acceptable terms.

        We rely on third-party production houses to produce a significant portion of our original programs. If we are unable to continue our close working relationships with the production houses we use or to develop new relationships, our ability to air premium new Russian content may be impeded, which would likely result in a loss of audience share and therefore a reduction in our share of the television advertising market.

We have substantial future programming commitments that we may not be able to vary in response to a decline in advertising revenues, and as a result could experience material reductions in operating margins.

        Programming represents our most significant expense, and at any given time we generally have substantial fixed commitments for the succeeding two to three years. For example, as of September 30, 2015 we had contractual commitments for the acquisition of approximately $43.1 million in programming rights in 2015, $58.6 million in 2016 and $4.3 million in 2017, including U.S.-dollar denominated commitments of approximately $9.5 million in 2015, $31.7 million in 2016 and $3.3 million in 2017.

        Given the size of these commitments, at any time a reduction in our advertising revenues could adversely affect our operating margins and results of operations. See also—"Depreciation of the Russian ruble against the U.S. dollar resulting from the current economic and political instability in Russia has negatively impacted our reported revenues and operating results. If the exchange rate between the ruble and the U.S. dollar remains at its current level or if the ruble depreciates further,

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our revenues and our operating results, both as reported in U.S. dollars, may continue to be negatively affected."

Our relationships with the co-owners of our television stations may limit our ability to implement our business plans and strategy.

        More than half of our owned-and-operated stations are 100% owned by CTC Media. Other shareholders own between less than 1% and 50% of each of the remaining owned-and-operated stations. In some cases, we depend to a significant extent on our local partners for their familiarity with the local business environment and public authorities. Moreover, we may in the future similarly rely on joint-owners as we acquire additional stations. Any significant disruption in our relationship with these parties could make it more difficult for us to operate these stations.

        Russian law and some of the agreements governing these stations grant protective rights to our co-owners that enable them to block certain significant corporate actions. Under Russian company law, significant corporate decisions, such as declaring and paying dividends and entering into substantial transactions, require the consent of the holders of two-thirds or three- quarters of the voting interests of the company, depending on the subject matter and the legal structure of the company. In addition, unanimous shareholder approval is required in limited instances, which could further affect our control over certain actions. For example, approval of a joint stock company's initial charter and reorganization of a joint stock company into a non-commercial partnership requires 100% approval of shareholders. In the case of a limited liability company, increases in charter capital, amendments to a limited liability company's charter, and liquidation, among other actions, require 100% approval of the holders of participation interests.

        As a result, we are often required to obtain the consent of our co-owners when making significant corporate decisions. Although we are not aware of any specific transaction in which we failed to obtain the requisite approval of the co-owners of our stations, due to the formalistic nature of Russian law and the large number of corporate actions that are taken annually by our co-owned stations, we believe it is likely that, from time to time, not all necessary minority shareholder consents have been obtained. As a result, we cannot guarantee that co-owners of our stations will not bring claims against us for failure to obtain these necessary consents, which, if successful, could result in the transaction in question being voided. Moreover, even if not technically required by law or contract, we generally prefer to obtain the consent and support of our co-owners before undertaking significant corporate actions. If this consent cannot be obtained, we may decide to forego a transaction that is commercially favorable to us in an effort to preserve goodwill with our co-owners.

        We hold a 20% interest in Channel 31 in Kazakhstan and majority interests in two other companies that provide the programming content and advertising sales functions to Channel 31 on an exclusive basis, giving us a 60% economic interest in the Channel 31 Group as a whole. Pursuant to the provisions of Kazakh company law, our co-owners of the Channel 31 group companies may block certain significant corporate actions, which may limit our flexibility in managing these operations.

Loss of key personnel could affect our growth and future success.

        We believe that our growth and our future success will depend in large part upon our ability to attract and retain highly skilled senior management, production talent, finance and legal personnel, particularly in the challenging regulatory circumstances we face. The competition is intense in Russia for qualified personnel who are familiar with the Russian television industry and/or who are knowledgeable about U.S. accounting and legal practices.

        Moreover our current and prospective employees may be uncertain about their future roles and relationships with our operating business following the completion of the proposed sale transaction with UTH. This uncertainty may adversely affect our ability to attract and retain key management and

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personnel. We cannot assure you that we will be able to retain qualified personnel, or hire appropriate replacements on reasonable terms or at all.

A broadcasting systems failure could prevent us from transmitting our network signal and lead to a loss of viewers, damage to our reputation and a reduction in our advertising revenues.

        Our networks' signals originate in Moscow and are uplinked to multiple separate satellite systems that transmit our signals to our affiliate stations and unmanned repeater transmitters. From time to time we experience insignificant signal failures. Although we are able to backup our signal, prolonged or repeated disruptions in our signals could lead to a loss of viewers, damage to our reputation and a reduction in our advertising revenues. We do not carry business interruption insurance to protect us in the event of a catastrophe or termination of our ability to transmit our signals, even though such an event could have a significant negative impact on our business.

We do not carry all of the insurance coverage customary in many countries for a business of our size and nature, and as a result could experience substantial loss or disruption.

        The insurance industry is less developed in Russia than in other developed countries, and many forms of insurance protection common in other countries are not yet available in Russia on comparable terms. Although we have insurance covering risks of loss of satellite signal and satellite capacity, at present, we have no coverage for business interruption or loss of key management personnel. We do not maintain separate funds or otherwise set aside reserves for these types of losses. Any such loss may cause substantial disruption and may have a material adverse effect on our business, results of operations and financial condition.

We may from time to time be involved in lawsuits and investigations that could entail significant costs and, if determined against us, could require us to pay substantial damages, fines and/or penalties.

        In the normal course of our business we are involved in various legal proceedings. These lawsuits and other proceedings include commercial disputes, claims regarding intellectual property, tax disputes and labor disputes. Litigation can be expensive, lengthy and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. If a lawsuit is decided in a way that is unfavorable to us, this could have a material adverse effect on our business, reputation, operating results, or financial condition.

        As a publicly listed company, we may be exposed to lawsuits in which plaintiffs allege that CTC Media or our directors or officers failed to comply with applicable securities laws, stock market regulations or other laws, regulations or requirements. Whether or not there is merit to such claims, the time and costs incurred in defending our company and its directors or officers, and any potential settlement or compensation we might be obligated to pay the plaintiffs, could have a significant impact on our reported results, as well as our reputation.

        See also "If we fail to complete the proposed sale to UTH prior to January 1, 2016, amendments to the Russian law "On Mass Media" will likely materially adversely affect our operations and/or our stockholders and the value of our common stock."

Our principal stockholders may have interests that are different from, or in addition to, the interests of other stockholders of CTC Media.

        MTG Russia AB, an affiliate of the publicly listed Modern Times Group MTG AB ("MTG"), which holds approximately 38% of our common stock, and its principal shareholders have historically been involved in other businesses in Russia. MTG and its principal shareholders have been required to address the nature and structure of its holdings in such businesses in light of the amended Mass Media

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Law. MTG may have interests that are different from or in addition to interests of other stockholders of CTC Media, including as a result of its interests in other Russian operations.

        We understand that the beneficial owners of our second largest shareholder Telcrest, including Bank Rossiya, have investments in Russian media businesses, including through indirect minority equity interests in Channel One, REN-TV and TRK 5 (Channel 5). We understand that Bank Rossiya also has indirect significant minority interests in Video International, with which we have software license and service agreements in respect of advertising sales.

        Pursuant to a stockholders agreement that terminated in June 2015, Telcrest originally designated three of the nine members of our board of directors, none of whom we understand is currently primarily engaged in the operations of Channel One, REN-TV, TRK 5 or Video International. We compete with broadcasters in which the beneficial owners of Telcrest have equity and financial interests, and we believe the services of Video International are important to our operations. Although we are not aware of any conflicts of interest with Telcrest in this regard, Telcrest and its beneficial owners may have interests that are different from or in addition to interests of other stockholders of CTC Media.

        See also "—The current geopolitical situation regarding Ukraine and Crimea and related international economic sanctions may adversely affect our business, financial conditions and results of operations, and may require us to employ significant time and resources to ongoing compliance efforts", "—If we fail to complete the proposed sale to UTH prior to January 1, 2016, amendments to the Russian law "On Mass Media" will likely materially adversely affect our operations and/or our stockholders and the value of our common stock", and "Special Note Regarding Telcrest."

Risks relating to doing business and investing in Russia

        See also "—If we fail to complete the proposed sale to UTH prior to January 1, 2016, amendments to the Russian law "On Mass Media" will likely materially adversely affect our operations and/or our stockholders and the value of our common stock."

The Russian banking system remains underdeveloped, and another banking crisis could place severe liquidity constraints on our business.

        Russia's banking and other financial systems are less developed and regulated than those of many other developed countries, and Russian legislation relating to banks and bank accounts is subject to varying interpretations and inconsistent application. Many Russian banks do not meet international banking standards, and the transparency of the Russian banking sector still lags far behind internationally accepted norms. Furthermore, Russian bank deposits made by corporate entities generally are not insured. Moreover, the sector specific sanctions on certain Russian banks recently introduced by the United States and European Union have negatively affected the Russian banking system.

        There are currently a limited number of creditworthy Russian banks, most of which are located in Moscow and the largest of which are state-owned. We generally hold a large majority of our cash balance in Russian banks, including the Russian subsidiaries of foreign banks. Of that balance, a significant portion is held in ruble-denominated accounts. There are few, if any, safe ruble-denominated instruments in which we may invest our excess ruble cash. A banking crisis or the bankruptcy or insolvency of the banks from which we receive or with which we hold our funds could result in the loss of our deposits or affect our ability to complete banking transactions in Russia, which could have a material adverse effect on our business, financial conditions and results of operations.

        See also "—Geopolitical and macroeconomic events have adversely affected and created uncertainty and instability in the Russian economy."

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The Russian legal system can create an uncertain environment for investment and business activity, which could have a material adverse effect on our business and the value of our common stock.

        The legal framework to support a market economy remains new and in flux in Russia and, as a result, the Russian legal system can be characterized by:

•

inconsistencies between and among laws and governmental, ministerial and local regulations, orders, decisions, resolutions and other acts;



•

substantial gaps in the regulatory structure resulting from the delay in adoption or absence of implementing regulations;



•

limited judicial and administrative guidance on interpreting Russian legislation;



•

the relative inexperience of judges and courts in interpreting relatively new commercial legislation;



•

a lack of judicial independence from political, social and commercial forces;



•

under-funding and under-staffing of the court system;



•

a high degree of discretion on the part of the judiciary and governmental authorities; and



•

poorly developed bankruptcy procedures that are subject to abuse.

        As is true of civil law systems, judicial precedents generally have no binding effect on subsequent decisions. Not all Russian legislation and court decisions are readily available to the public or organized in a manner that facilitates understanding. The Russian judicial system can be slow, and enforcement of court orders can in practice be very difficult. All of these factors make judicial decisions in Russia difficult to predict and effective redress uncertain. Additionally, court claims and governmental prosecutions are sometimes used in furtherance of political aims.

        The untested nature of much of recent Russian legislation and the rapid evolution of the Russian legal system in ways that may not always coincide with market developments may result in ambiguities, inconsistencies and anomalies in the Russian legal system. Such uncertainties in the Russian legal system could affect our ability to enforce our rights under our licenses and under our contracts, or to defend ourselves against claims by others, including government authorities. Furthermore, we cannot assure you that regulators, judicial authorities or third parties will not challenge our compliance with applicable laws, decrees and regulations.

        See also "—If we fail to complete the proposed sale to UTH prior to January 1, 2016, amendments to the Russian law "On Mass Media" will likely materially adversely affect our operations and/or our stockholders and the value of our common stock."

Businesses in Russia can be subject to politically motivated actions, which could materially adversely affect our operations.

        The Russian government has taken various actions in past years against business people and companies operating in Russia that have been perceived as having been politically motivated, including actions for technical violations of law or violations of laws that have been applied retroactively, including violations of tax laws. These actions have on occasion resulted in significant fluctuations in the market prices of the securities of businesses operating in Russia, a weakening of investor confidence in Russia and doubts about the progress of market and political reforms in Russia. For example, the Russian state has recently won legal proceedings against AFK Sistema concerning the acquisition of its controlling stake in OAO Bashneft during 2005 to 2009. The state expropriated Sistema's interest in the regional oil producer on the grounds that it had been privatized without state consent. The risk of similar claims, which may be perceived as being politically motivated, against

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Russian companies and/or companies operating in the Russian market has created uncertainty and instability which may inhibit our ability to operate and exert downward pressure on our stock price.

        Media businesses can be particularly vulnerable to politically motivated actions. We believe that our focus on entertainment, and the fact that we broadcast entertainment and celebrity news, but do not offer "hard" news, commentary or analysis on our national networks, could lessen the risk of provoking politically motivated actions. However, we do not restrict the ability of our independent affiliates to broadcast local news in local broadcasting windows, and some of our independent affiliates, as well as one of our owned-and-operated CTC stations, broadcast local political news, generally with the approval of our local partners and the local authorities. Any politically motivated action against us, our networks, our independent affiliates, or any of our principal stockholders, including the beneficial owners of MTG or Telcrest, could materially adversely affect our operations. See also "—The current geopolitical situation regarding Ukraine and Crimea and related international economic sanctions may adversely affect our business, financial conditions and results of operations, and may require us to employ significant time and resources to ongoing compliance efforts" and "—If we fail to complete the proposed sale to UTH prior to January 1, 2016, amendments to the Russian law "On Mass Media" will likely materially adversely affect our operations and/or our stockholders and the value of our common stock."

Selective or arbitrary government action may have an adverse effect on our business and the value of our common stock.

        Government authorities have a high degree of discretion in Russia and have at times exercised their discretion selectively or arbitrarily, without hearing or prior notice, and sometimes in a manner that is influenced by political or commercial considerations. The government also has the power, in certain circumstances, to interfere with the performance of, nullify or terminate contracts. Selective or arbitrary actions have included withdrawal of licenses, sudden and unexpected tax audits, criminal prosecutions and civil actions. Federal and local government entities have also used common defects in documentation as pretexts for court claims and other demands to invalidate and/or to void transactions, apparently for political purposes. We cannot assure you that regulators, judicial authorities or third parties will not challenge our compliance (including that of our subsidiaries) with applicable laws, decrees and regulations in Russia. Selective or arbitrary government action could have a material adverse effect on our business and on the value of our common stock. See also "—If we fail to complete the proposed sale to UTH prior to January 1, 2016, amendments to the Russian law "On Mass Media" will likely materially adversely affect our operations and/or our stockholders and the value of our common stock."

If the Russian Federal Antimonopoly Service were to conclude that we acquired or created a new company in contravention of anti-monopoly legislation, it could impose fines or administrative penalties and could require the divestiture of such company or other assets.

        Our business has grown in part through the acquisition and establishment of companies, many of which transactions required the prior approval of, or subsequent notification to, the Russian Federal Antimonopoly Service or its predecessor agencies (the "FAS"). The relevant legislation restricts the acquisition or establishment of companies by groups of companies or individuals acting in concert without the required approval or notification. This legislation is vague in parts and subject to varying interpretations. If the FAS were to conclude that an acquisition or establishment of a new company had been effected in contravention of applicable legislation and competition has been reduced as a result, it could impose administrative penalties and require the divestiture of such company or other assets, adversely affecting our business strategy and our results of operations.

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If one of our principal subsidiaries is forced into liquidation due to negative net assets, our results of operations could suffer.

        If at the end of any fiscal year a Russian company's net assets as determined in accordance with Russian accounting regulations are below the minimum amount of charter capital required by Russian law, the company is required to convene a shareholders meeting to adopt a decision to liquidate. If it fails to do so within a "reasonable period," the company's creditors may request early termination or acceleration of the company's obligations to them, as well as damages, and governmental authorities may seek to cause the involuntary liquidation of the company. It is unclear under Russian law whether a historical violation of this requirement may be retroactively cured, even if a company later comes into compliance with the requirement. On occasion, Russian courts have ordered the involuntary liquidation of a company for having negative net assets even if the company has continued to fulfill its obligations and had net assets in excess of the minimum amount at the time of liquidation.

        Certain of our regional subsidiaries have had, and continue to have, negative equity as reported in their respective Russian statutory financial statements. None of these companies has applied for voluntary liquidation. We are currently taking steps to remedy the negative net asset value of these subsidiaries, but we have not included it as a contingency in our financial statements because we believe that, so long as these subsidiaries continue to fulfill their obligations, the risk of their forced liquidation is remote.

        There has been no judicial or other official interpretation of what constitutes a "reasonable period" within which a company must act to liquidate. If any of our subsidiaries were to be liquidated involuntarily, we would be forced to reorganize the operations we currently conduct through that subsidiary. The liquidation of any of our owned-and-operated station subsidiaries would result in the termination of their existing broadcast and other licenses, and we cannot assure you that we would be able to secure new licenses needed for these stations to continue to operate. Accordingly, any liquidation could have a material adverse effect on our business.

Russian law requires the approval of certain transactions by the minority shareholders of our subsidiaries, including several of our owned-and-operated television stations, and failure to receive this approval could adversely affect our business and results of operations.

        We own less than 100% of many of our owned-and-operated stations. Under Russian law, certain transactions defined as "interested-party transactions" require approval by disinterested members of the board of directors or disinterested shareholders of the companies involved. Our owned-and-operated stations that have other shareholders engage in numerous transactions with us that require interested-party transaction approvals in accordance with Russian law. Due to the formalistic nature of much of Russian law, these transactions have not always been properly approved, and therefore may be contested by minority shareholders. In the event that these other shareholders were successfully to contest past interested-party transactions, or prevent the approval of such transactions in the future, our flexibility in operating these television stations could be limited and our results of operations could be adversely affected.

        Certain transactions between members of our consolidated corporate group may constitute interested-party transactions under Russian law even when the companies involved are wholly owned by us. Although we generally endeavor to obtain all corporate approvals required under Russian law to consummate these transactions, we have not always applied special approval procedures in connection with our consummation of transactions with or between our subsidiaries. In the event that a claim is filed in relation to certain transactions with or between our subsidiaries, such transactions are found to have been interested-party transactions, and we are found to have failed to obtain the appropriate approvals, such transactions may be declared invalid. The unwinding of any transactions concluded with or between our subsidiaries may have a negative impact on our business and results of operations.

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Shareholder liability under Russian legislation could cause us to become liable for the obligations of our subsidiaries.

        The Russian Civil Code, the Law on Joint Stock Companies and the Law on Limited Liability Companies generally provide that shareholders in a Russian joint stock company or limited liability company are not liable for the obligations of the company and bear only the risk of loss of their investment. This may not be the case, however, when one person (an "effective parent") is capable of determining decisions made by another (an "effective subsidiary"). The effective parent bears joint and several responsibilities for transactions concluded by the effective subsidiary in carrying out these decisions in certain circumstances.

        In addition, a parent is secondarily liable for an effective subsidiary's debts if an effective subsidiary becomes insolvent or bankrupt as a result of the action or inaction of the parent. This is the case no matter how the parent's capability to determine decisions of the effective subsidiary arises. For example, this liability could arise through ownership of voting securities or by contract. In these instances, other shareholders of the effective subsidiary may claim compensation for the effective subsidiary's losses from the parent that caused the effective subsidiary to act or fail to act, knowing that such action or inaction would result in losses. Accordingly, in CTC Media's position as a parent, it could be liable in some cases for the debts of its effective subsidiaries. Although the total indebtedness of CTC Media's effective subsidiaries is currently immaterial, it is possible that CTC Media could face material liability in this regard in the future, which could materially adversely affect our business and our results of operations.

Changes in the Russian tax system or arbitrary or unforeseen application of existing rules could materially adversely affect our financial condition.

        Our tax burden may become greater than the estimated amount that we have expensed to date and paid or accrued on our balance sheets. Russian tax authorities have often been arbitrary and aggressive in their interpretation of tax laws and their many ambiguities, as well as in their enforcement and collection activities. Many companies are often forced to negotiate their tax bills with tax inspectors who may demand higher taxes than applicable law appears to provide. Any additional tax liability, as well as any unforeseen changes in Russian tax laws, could have a material adverse effect on our future results of operations or cash flows in a particular period. We have at times accrued substantial amounts for contingent tax liabilities, a substantial portion of which accruals we have reversed as contingencies have been resolved favorably or changes in circumstances have occurred. The amounts currently accrued for tax contingencies may not be sufficient to meet any liability we may ultimately face. From time to time, we also identify tax contingencies for which we have not provided an accrual. Such unaccrued tax contingencies could materialize and require us to pay additional amounts of tax.

        Under Russian accounting and tax principles, financial statements of our Russian companies are not consolidated for tax purposes. As a result, each Russian-registered entity in our group pays its own Russian taxes and we cannot offset the profits or losses in any single entity against the profits and losses of any other entity. Consequently, our overall effective tax rate may increase as we expand our operations, unless we are able to maintain an effective corporate structure that minimizes the effect of these Russian accounting and tax norms.

        The Russian tax system imposes additional burdens and costs on our operations in Russia, and complicates our tax planning and related business decisions. The uncertainty involved potentially exposes us to significant fines, penalties and enforcement measures despite our best efforts at compliance, which could result in a greater than expected tax burden on our subsidiaries. These factors raise the risk of a sudden imposition of arbitrary or onerous taxes on our operations in Russia. This could adversely affect our business and the value of our common stock.

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Any U.S. or other foreign judgments that may be obtained against us may be difficult to enforce against us in Russia.

        Although CTC Media is a Delaware corporation, subject to suit in U.S. federal and other courts, most of our assets are located in Russia, and all of our directors and their assets are located outside the United States. Although arbitration awards are generally enforceable in Russia, judgments obtained in the United States or in other foreign courts, including those with respect to U.S. federal securities law claims, may not be enforceable in Russia. There is no mutual recognition treaty between the United States and the Russian Federation, and no Russian federal law provides for the recognition and enforcement of foreign court judgments. Therefore, it may be difficult to enforce any U.S. or other foreign court judgment obtained against our company, any of our operating subsidiaries or any of our directors in Russia.

Risks relating to doing business elsewhere in the CIS

We face similar risks in other countries of the CIS.

        In addition to Russia, we currently have operations in other countries in the CIS, including Kazakhstan and Moldova. The functional currency of Channel 31 in Kazakhstan is Kazakh tenge. In the nine months ended September 30, 2015 revenues of Channel 31 approximate 5% from our consolidated revenues. Our reported revenues and results of operations are impacted by fluctuations in the exchange rate between the U.S. dollar and the Kazakh tenge. In the three and nine months ended September 30, 2015, the Kazakh tenge depreciated against the U.S. dollar by 31% and 33%, respectively, and was on average 16% and 9% lower than the average value of the Kazakh tenge compared to the U.S. dollar during the three and nine months ended September 30, 2014, respectively. The prevailing exchange rate as of September 30, 2015 and November 1, 2015 was KZT 270.4 to $1.00 and KZT 279.2 to $1.00, respectively. Also, our operations in Kazakhstan were negatively impacted by decrease in local advertising market by 11% (in Kazakh tenge terms) in the third quarter 2015 when comparing with the same period of 2014 as result of economic slowdown. We may acquire additional operations in other countries of the CIS. In many respects, the risks inherent in transacting business in these countries are similar to those in Russia, especially those risks set out above in "—Risks relating to doing business and investing in Russia".

Emerging markets such as Russia and other CIS countries are subject to greater risks than more developed markets, including legal, economic and political risks.

        Investors in emerging markets such as Russia and other CIS countries should be aware that these markets are subject to greater risk than more developed markets, including in some cases legal, economic and political risks. Investors should also note that emerging economies, such as the economies of Russia and Kazakhstan, are subject to rapid change and that the information set out herein may become outdated relatively quickly. Furthermore, in doing business in various countries of the CIS, we face risks similar to (and sometimes greater than) those that we face in Russia. For example, the current circumstances involving Ukraine, including international economic sanctions, may have deleterious macroeconomic and other effects on the regions in which we operate, including, among other things, increased volatility in foreign currency values and a weaker overall business environment. Moreover the recently adopted amendment to the Russian law On Mass Media restricts foreign investments over 20% in Russian mass media and broadcasting companies that may negatively affect our company and the price of its shares. Recently adopted legislation in Ukraine will prohibit distribution (screening) of Russian movies produced after January 1, 2014. This may adversely affect our business because we will not be able to broadcast or sublicense such films and series in Ukraine.

        Accordingly, investors should exercise care in evaluating the risks involved and must decide for themselves whether, in light of those risks, their investment is appropriate. Generally, investment in

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emerging markets is only suitable for sophisticated investors who fully appreciate the significance of the risks involved and investors are urged to consult with their own legal and financial advisors before making an investment in our shares. See also "—The current geopolitical situation regarding Ukraine and Crimea and related international economic sanctions may adversely affect our business, financial conditions and results of operations, and may require us to employ significant time and resources to ongoing compliance efforts." and "—If we fail to complete the proposed sale to UTH prior to January 1, 2016, amendments to the Russian law "On Mass Media" will likely materially adversely affect our operations and/or our stockholders and the value of our common stock."

Risks relating to our stock

The price of our common stock has experienced significant volatility in the past and may be volatile in the future.

        Our stock price has experienced significant volatility in the past and is likely to be volatile in the future, particularly in light of the current regulatory, geopolitical and macroeconomic environment. The stock markets in general and, in emerging markets, like Russia, in particular, have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. This volatility has been more pronounced due to the turmoil in world financial markets, and most recently due to the current situation in Ukraine, including international economic sanctions. The macroeconomic environment in Russia has also resulted in a widespread deterioration in the price of Russian-exchange listed stocks and the stock of companies which predominantly operate in Russia and the CIS that are traded on other exchanges. Furthermore, the recently adopted amendment to the Russian law "On Mass Media", which restricts foreign ownership of mass media and broadcasting entities, has also had a significant negative impact on our company's stock price. Overall, our stock price was down from $6.65 per share on September 30, 2014 to $1.75 per share on September 30, 2015. See also "—Geopolitical and macroeconomic events have adversely affected and created uncertainty and instability in the Russian economy" and "—If we fail to complete the proposed sale to UTH prior to January 1, 2016, amendments to the Russian law "On Mass Media" will likely materially adversely affect our operations and/or our stockholders and the value of our common stock." These factors create a high level of uncertainty regarding the stock price which the company can achieve in the near and long-term future.

        As a result of this volatility, and the terms of the proposed sale transaction with UTH, investors may not be able to sell their shares of our common stock at or above the price at which they purchase it. The market price for our common stock may be influenced by many factors, including:

•

the pending implementation of the foreign-ownership restrictions imposed by the amended Russian Mass Media Law;



•

our ability to complete the announced pending transaction with UTH, or any alternative transaction or restructuring prior to the effectiveness of the amended Russian Mass Media Law;



•

the terms of the proposed sale transaction with UTH, and the proposed subsequent merger transaction;



•

changes in economic, political and market conditions in Russia and globally;



•

changes in law;



•

developments related to international sanctions;



•

fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;

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changes in estimates of our financial results or recommendations by securities analysts, or termination of coverage by such analysts;



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changes in market valuations of similar companies;



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extraordinary expenses or charges in particular periods, including material impairment losses;



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changes in the audience shares of our networks;



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changes in the structure of advertising sales in Russia; and



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public announcements by industry experts regarding trends in advertising spending in Russia and globally;

        Moreover, only a relatively small number of shares of our common stock are currently actively traded in the public market. As of September 30, 2015, approximately 37% of our outstanding common stock was held by parties other than our principal stockholders. The limited liquidity of our common stock may have a material adverse effect on the price of our common stock.

        In the past, following periods of volatility in the market price of a company's securities, stockholders have often instituted class action securities litigation against those companies. Such litigation, if instituted, could result in substantial costs and diversion of management attention and resources, which could significantly harm our profitability and reputation.

Insiders have substantial control over our company and may have significant influence over the outcome of any stockholder vote.

        As of September 30, 2015, our two principal stockholders, beneficially owned, in the aggregate, approximately 63% of our outstanding common stock. The shares of our company held by Telcrest, representing approximately 25% of our outstanding shares, constitute "blocked property" pursuant to U.S. economic sanctions requirements. Our largest stockholder, MTG, holds approximately 38% of our common stock, and as a result, may have the ability to significantly influence the outcome of matters submitted to our stockholders for approval, including the election and removal of directors and any merger, consolidation or sale of all or substantially all of our assets. See also "—The current geopolitical situation regarding Ukraine and Crimea and related international economic sanctions may adversely affect our business, financial conditions and results of operations, and will require us to employ significant time and resources to ongoing compliance efforts" and "Special Note Regarding Telcrest."

If there are substantial sales of our common stock in the market by our existing stockholders, our stock price could decline.

        If our existing stockholders sell a large number of shares of our common stock or the public market perceives that existing stockholders might sell shares of common stock, the market price of our common stock could decline significantly.

        The introduction of expanded restrictions on the foreign ownership of Russian mass media and broadcasting entities pursuant to the Russian Mass Media Law has significantly increased the risk of substantial sales in our stock by investors who may want to reduce risk exposure in relation to any further decrease in the value of our stock. See also "—If we fail to complete the proposed sale to UTH prior to January 1, 2016, amendments to the Russian law "On Mass Media" will likely materially adversely affect our operations and/or our stockholders and the value of our common stock."

Item 6.    Exhibits

        The Exhibit index is incorporated herein by reference.

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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 thereunto duly authorized.

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EXHIBIT INDEX

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