10. IMPAIRMENT LOSS

The following table summarizes the impairment losses recorded by the Company in 2012, 2013 and 2014 as a result of impairment reviews:

	2012			2013		2014
Analog broadcasting licenses	$	82,503		$	—	$	—

Peretz goodwill		—			—		29,356

Production unit goodwill		—			29,869		—

Total impairment losses	$	82,503		$	29,869	$	29,356


Income tax effect		(16,501	)		—		—


Total effect on consolidated net income	$	66,002		$	29,869	$	29,356

See details below.

Impairment reviews during 2014

In 2014, Russia has experienced economic instability. In the fourth quarter of 2014 and early 2015, the economic downturn was characterized by substantial depreciation of its currency, sharp fluctuations of interest rates, a forecasted decline in the gross domestic product in 2015 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 the fourth quarter of 2014, some large advertisers reduced their initially planned advertising expenditures. Also, in the fourth quarter of 2014, media agencies and analysts revised their estimates on the 2015 Russian television advertising market downwards, which the Company concluded was an additional impairment indicator. Accordingly, the Company has revised estimates of future cash flows in the impairment review performed at December 31, 2014, primarily to reflect the revised expectations of Russian advertising market for 2015 and increased uncertainty in the medium-term. Although the Company continued to project future long-term growth in cash flows, such growth is lower than originally anticipated, due to the reasons described above. As of December 31, 2014, the Company recorded non-cash impairment losses of $29,356 related to Peretz goodwill.

Based on information currently available and a current assessment of factors that could impact the Company's future cash flows, the estimated fair value of the CTC reporting unit was significantly in excess of its respective carrying amount of December 31, 2014. Due to the revision of estimates of future cash flows in the impairment review as of December 31, 2014, excess of fair value over the carrying amount of the Domashny reporting unit decreased to 15%.

The Company's estimate of the total advertising market for 2015 and thereafter is highly dependent on the changing macroeconomic environment and political headwinds. There is considerable uncertainty concerning economic stability globally in the medium-term, including uncertainty over the impact of changes in the global economy on the Russian television advertising market. The Company used forecasts of Russian television advertising market dynamics based on all available internal and external estimates, including estimates of industry experts and analysts. In order to check the reasonableness of the fair values implied by cash flow estimates, the Company also calculates the value of its common stock implied by its cash flow forecasts and compares this to actual traded values. As of December 31, 2014, the Company's consolidated net book value (or shareholders' equity) amounted to $417,442 (after the impairment losses recorded in 2014 as a result of impairment review, as described above). This compares to a market capitalization of the Company of $758,562 as of December 31, 2014 ($655,759 as of February 28, 2015).

The potential negative trends in the macroeconomic environment may further adversely affect the total Russian television advertising market and, in turn, the fair values of our assets. The fair value estimates are also highly sensitive to the cost of capital used by the Company in the discounting of expected cash flows attributable to indefinite-lived assets and reporting units. The potential negative trends in the macroeconomic environment could increase the risk to investors investing in Russian markets, which could increase the cost of capital, which in turn will decrease the fair value of the respective assets or reporting units. Additionally, changes in the financial markets, such as an increase in interest rates or an increase in the expected required return on equity by market participants within the industry, could increase the discount rate, thus decreasing the fair value of assets. The cost of capital used by the Company in its analysis ranged from 15.7% to 18.6% in 2014, reflecting worsening macroeconomic conditions and based on the level of risk related to each particular asset or reporting unit. In order to evaluate the sensitivity of the fair value calculations in its impairment analysis, the Company applied hypothetical 10 and 20 percentage points decreases to the 2015 television advertising market forecast and a hypothetical 3 percentage point increase to the cost of capital used:

	Additional impairment loss that could be recorded if 2015 advertising market forecast is lower by:						Additional impairment loss that could be recorded if cost of capital is higher by:
	10 pp			20 pp			3 pp
Broadcasting licenses*	$	(9,517	)	$	(9,822	)	$	(9,395	)
Goodwill:
CTC goodwill		—			—			—
Domashny goodwill		(15,060	)		(15,133	)		(15,133	)
Peretz goodwill		(4,158	)		(4,158	)		(4,158	)

Total	$	(28,735	)	$	(29,113	)	$	(28,686	)

*	pre-tax effect

This sensitivity analysis assumes a hypothetical change in advertising market dynamic/cost of capital with all other variables constant, i.e. it does not consider the effect of changes on other key assumptions; in practice, changes in other key assumptions could magnify or counteract the sensitivities. In addition, the sensitivity analysis does not consider any corrective action that the Company may take to mitigate the impact of any adverse changes in assumptions.

The Company also considers the developments in digital broadcasting and their potential impacts on business models. The fair value of the Peretz reporting unit is particularly sensitive to changes in revenues and costs that may result depending on its distribution model. Currently, the terms for participation in the third digital multiplex have not been specified. In addition, current Russian legislation does not provide 'must carry' obligations for cable and satellite operators, and accordingly we may be unable to secure or maintain carriage of our signal over cable in certain regions, or at transmission rates that are consistent with our historical experience. Also, given the terms and fees associated with participation in the second multiplex, the Company expects to encounter certain risks and uncertainties in the execution of each of CTC and Domashny channels' business models. It is difficult to predict accurately how the digitalization of broadcasting may affect the market. While digital broadcasting would increase CTC's and Domashny's overall technical penetration, the necessary investments for digital migration may not be fully monetized. Depending on further information about the terms of the transition to digital broadcasting, terms of interaction with cable and satellite providers, as well as other future developments, the Company may need to further revise its projected cash flows, which could adversely impact the fair value of its reporting units and related assets, and the Company would then record additional impairment charges.

Although management considered all current information in the impairment reviews, any future changes in events or circumstances, such as adverse changes in the economy and television advertising market (discussed above), the planned transition to digital broadcasting, further decreases in audience shares or ratings or changes in the audience measurement system, as well as other future developments, may result in further revision of the Company's projected cash flows, which could adversely impact the fair value of its reporting units and related goodwill.

Impairment reviews during 2013

In 2013, the Company recorded an impairment charge for goodwill associated with the in-house production unit in the full amount of $29,869, reflecting downward revisions of our long-term cash flow projections as a result of our in-house production restructuring.

Impairment reviews during 2012

In 2012, the Company's impairment loss related to analog broadcasting licenses reflecting the reassessment of their useful lives from indefinite to finite as a result of developments in the transition to digital broadcasting. As the broadcasting licenses are no longer expected to continue to contribute to the Company's cash flows for the foreseeable future, the Company tested them for impairment as of September 30, 2012, and commenced amortization from October 1, 2012. As of September 30, 2012, the decrease in estimated cash flows attributable to analog broadcasting licenses resulted in impairment losses of $82,503.