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 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.

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 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:

	Total		Through 2015		2016		2017		2018		2019		2020
	(in thousands)
Acquisition of programming rights	$	106,012	$	43,052	$	58,651	$	4,309	$	—	$	—	$	—
Transmission and satellite fees		58,792		3,088		13,210		13,661		14,297		7,264		7,272
Leasehold obligations		21,339		1,028		4,187		4,744		3,790		3,970		3,620
Network affiliation agreements		6,030		373		1,579		1,619		1,699		371		389
Payments for intellectual rights		5,389		223		936		987		1,038		1,088		1,117
Other contractual obligations		12,735		964		2,657		2,223		2,318		2,415		2,158

Total	$	210,297	$	48,728	$	81,220	$	27,543	$	23,142	$	15,108	$	14,556

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