INCOME TAXES

12 Months Ended

Dec. 31, 2011

INCOME TAXES

INCOME TAXES

15.   INCOME TAXES

        The components of the Company's income (loss) before income taxes were as follows:

	2009			2010			2011
Pretax income (loss):
Domestic	$	(41,376	)	$	(10,145	)	$	(31,892	)
Foreign		190,021			227,211			168,811
	$	148,645		$	217,066		$	136,919

        The following the Company's significant components of the provision for income taxes:

	2009			2010			2011
Domestic—current	$	(458	)	$	(1,938	)	$	(24,130	)
Foreign—current		(51,485	)		(62,648	)		(59,140	)
Domestic—deferred		(1,994	)		(3,256	)		(3,938	)
Foreign—deferred		8,311			1,808			10,805
	$	(45,626	)	$	(66,034	)	$	(76,403	)

        The Company is subject to US (domestic), Russian and Kazakh income taxes, based on the US legislation, the Russian tax legislation, Kazakh legislation and the Double Tax Treaty of 1992 between the US and Russia ("Treaty"). US taxable income or losses recorded are reported on CTC Media, Inc.'s US income tax return. CTC Media, Inc.'s taxable revenues consist predominantly of dividends and interest paid by its owned-and-operated affiliate stations and Networks. 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 9% in 2009, 2010 and 2011. Starting from 2010, withholding tax is abolished with respect to dividends distributed out of profits earned in 2010 and following periods, for Russian companies holding more than 50% in a Russian distributing subsidiary for more than 365 days.

        The Russian- and Kazakh-based companies are subject to Russian and Kazakh income tax. The statutory income tax rates in Russia and Kazakhstan was 20% in 2009, 2010 and 2011. The reconciliation of the US statutory federal tax rate of 35% to the Company's effective tax rate is as follows:

	2009			2010			2011
Income tax expense at US statutory rates (35%)	$	(52,026	)	$	(75,973	)	$	(47,922	)
Non-deductible expenses (stock-based compensation)		(18,430	)		(11,902	)		(6,411	)
Non-off-settable losses		(7,017	)		(942	)		(283	)
Foreign withholding tax		(4,091	)		—			—
Reversals of tax contingencies		3,954			1,806			1,075
Previously unrecognised tax credit		—			6,094			871
Different foreign tax rates		32,158			13,072			(793	)
Effect of impairment loss (non-deductible assets)		—			—			(25,091	)
Other permanent differences		(174	)		1,811			2,151
Income tax expense	$	(45,626	)	$	(66,034	)	$	(76,403	)

        The reversals of tax contingencies recognized in 2009, 2010 and 2011 income include reversals relating to Channel 31 Group income and non-income tax contingencies recorded due to a lapse in the statute of limitations. The major part of these tax contingencies relate to the pre-acquisition periods of the Peretz Group and Channel 31 Group. Also, the reversals of tax contingencies recognized in 2009 income include reversals relating to Peretz income and non-income tax contingencies recorded based on the results of audit by tax authorities.

        Deferred tax assets and liabilities are recorded for the difference between the financial statement and tax bases of assets and liabilities. The following table summarizes the major components of the Company's deferred tax assets and liabilities as of December 31, 2010 and 2011:

	2010			2011
Deferred tax assets and liabilities
Net operating losses and tax loss carry forwards	$	554		$	551
Foreign tax credits		953			—
Programming rights		41,329			46,081
Valuation allowance		(1,481	)		(531	)
Total deferred tax assets	$	41,355		$	46,101
Intangible assets		(35,110	)		(34,474	)
Property and equipment		(909	)		(955	)
Unremitted earnings of Russian subsidiaries		(8,916	)		(12,540	)
Other deferred tax liabilities		(843	)		(427	)
Total deferred tax liabilities	$	(45,778	)	$	(48,396	)

        As of December 31, 2011, the amount of unrecognized deferred tax liabilities for unremitted earnings of Russian subsidiaries (including earnings already reinvested) is approximately $53 million as it is the Company's intention to reinvest such earnings permanently.

        The following table presents the Company's deferred tax assets and liabilities as of December 31, 2010 and 2011 attributable to different tax paying components in different tax jurisdictions:

	2010			2011
Deferred tax assets:
Domestic tax component	$	792		$	—
Foreign tax component		42,044			46,632
Valuation allowance		(1,481	)		(531	)
Total deferred tax assets	$	41,355		$	46,101
Deferred tax liabilities:
Domestic tax component	$	(9,485	)	$	(12,370	)
Foreign tax component		(36,293	)		(36,026	)
Total deferred tax liabilities	$	(45,778	)	$	(48,396	)

        The following table summarizes the changes in the valuation allowance for the year ended December 31, 2011:

	Balance at December 31, 2010		Deductions			Foreign currency translation adjustment			Balance at December 31, 2011
Valuation allowance	$	1,481		(871	)		(79	)	$	531

        As of December 31, 2010 and 2011, certain of the Company's consolidated Russian subsidiaries had tax loss carryforwards of $2,640 and $2,655, respectively, resulting in potential deferred tax benefits of $528 and $531 respectively. The Company has established a valuation allowance on the Russian tax carryforwards due to the uncertainty of the future utilization. The NOLs expire in 2021.

        Effective January 1, 2007, the Company elected to claim foreign tax credits ("FTCs"). FTCs allow the Company to decrease US income tax by the amount of appropriate foreign income and withholding taxes. As of December 31, 2010 and 2011, the FTC potential deferred tax benefit amounted to $953 and $nil, respectively. The decrease in the FTC potential deferred tax benefit relates to the utilization of FTC as a result of the increase in dividends upstream from Russian subsidiaries in 2011.

        As of December 31, 2010 and December 31, 2011, the Company included accruals for unrecognized income tax benefits and related interest and penalties totaling $5,280 and $3,819, respectively, as a component of accrued liabilities, including amounts relating to pre-acquisition operations of the Channel 31 Group of $3,464 and $2,091, respectively. All of the unrecognized income tax benefits, if recognized, would affect the Company's effective tax rate. Interest and penalties related to unrecognized income tax benefits are classified in the financial statements as interest expense and other non-operating expense, respectively.

        The following table summarizes the changes in the accrual for unrecognized income tax benefits and related interest and penalties for the years ended December 31, 2009, 2010 and 2011:

	2009						2010						2011
	Unrecognized income tax benefits			Interest and penalties			Unrecognized income tax benefits			Interest and penalties			Unrecognized income tax benefits			Interest and penalties
Balance, beginning of the period	$	5,155		$	6,176		$	2,607		$	4,321		$	1,838		$	3,442
Amounts assumed at acquisitions		—			—			—			—			—			—
Additions based on tax positions related to the current year		217			70			281			61			481			104
Additions of tax positions of prior years		958			949			110			401			88			267
Reductions of tax positions of current year		(175	)		(11	)		—			—			—			—
Reductions of tax positions of prior year		(2,955	)		(1,199	)		(453	)		(254	)		(225	)		(32	)
Lapse of statute of limitations		(272	)		(719	)		(704	)		(1,109	)		(664	)		(1,432	)
Foreign currency translation adjustment		(321	)		(945	)		(3	)		22			(41	)		(7	)
Balance, end of the period	$	2,607		$	4,321		$	1,838		$	3,442		$	1,477		$	2,342

        In 2009, based on results of the audit of the Peretz Group performed by tax authorities for 2006-2008 years, the Company reversed $2,131 and $1,199, respectively, relating to previously accrued unrecognized income tax benefits and related interest and penalties with respect to those years.

        Although the Company believes it is more likely than not that all recognized income tax benefits would be sustained upon examination, the Company has recognized some income tax benefits that have a reasonable possibility of being successfully challenged by the tax authorities. These income tax positions could result in total unrecognized tax benefits increasing by up to $2,482 if the Company were to lose such a challenge by the tax authorities. However, the Company believes that it is reasonably possible that only $1,221 of the total $2,482 potential increase could occur within twelve months from December 31, 2011. This amount mainly represents certain recognized income tax benefits which may be challenged by the tax authorities during their ongoing inspections of Domashny and Peretz Networks, Soho Media, CTC Region and their the planned inspection of CTC Network, as well as certain income tax penalties which may be imposed by US tax authorities as the result of late payment by CTC Media, Inc. of estimated tax for 2007.

        The total amount of unrecognized tax benefit that could significantly change within 12 months due to a lapse of statutory limitation term comprised $2,426 as of December 31, 2011.

        The tax years ended December 31, 2009, 2010 and 2011 remain subject to examination by the Russian and US tax authorities. The tax years ended December 31, 2007 through 2011 remain subject to examination by the Kazakh tax authorities.