GOODWILL AND INTANGIBLE ASSETS

Goodwill:

Goodwill by reporting unit as at December 31, 2011 and December 31, 2010 is summarized as follows:



	Gross Balance, December 31, 2009	Accumulated Impairment Losses		Balance, December 31, 2009	Additions/ Adjustments	Impairment Charge	Foreign Currency		Balance, December 31, 2010	Accumulated Impairment Losses		Gross Balance, December 31, 2010
Broadcast segment:
Bulgaria	64,044	(64,044	)	—	115,641	—	(1,308	)	114,333	(64,044	)	178,377
Croatia	11,211	(10,454	)	757	—	—	(60	)	697	(10,454	)	11,151
Czech Republic	936,268	—		936,268	—	—	(19,123	)	917,145	—		917,145
Romania	69,825	—		69,825	—	—	(5,848	)	63,977	—		63,977
Slovak Republic	62,990	—		62,990	—	—	(4,565	)	58,425	—		58,425
Slovenia	20,398	—		20,398	—	—	(1,478	)	18,920	—		18,920
Media Pro Entertainment segment:
Fiction and reality and entertainment	18,537	—		18,537	2,580	—	(1,806	)	19,311	—		19,311
Production services	9,950	—		9,950	1,240	—	(879	)	10,311	—		10,311
Distribution	17,548	—		17,548	2,336	—	(1,701	)	18,183	—		18,183
Total	1,210,771	(74,498	)	1,136,273	121,797	—	(36,768	)	1,221,302	(74,498	)	1,295,800



	Gross Balance, December 31, 2010		Accumulated Impairment Losses			Balance, December 31, 2010		Additions/ Adjustments			Impairment Charge			Foreign Currency			Balance, December 31, 2011		Accumulated Impairment Losses			Gross Balance, December 31, 2011
Broadcast segment:
Bulgaria	$	178,377	$	(64,044	)	$	114,333	$	—		$	(53,416	)	$	(1,983	)	$	58,934	$	(117,460	)	$	176,394
Croatia	11,151		(10,454		)	697		—			—			(35		)	662		(10,454		)	11,116
Czech Republic	917,145		—			917,145		—			—			(54,688		)	862,457		—			862,457
Romania	63,977		—			63,977		707			—			(2,606		)	62,078		—			62,078
Slovak Republic	58,425		—			58,425		—			—			(1,850		)	56,575		—			56,575
Slovenia	18,920		—			18,920		—			—			(599		)	18,321		—			18,321
Media Pro Entertainment segment:
Fiction and reality and entertainment	19,311		—			19,311		(1,029		)	—			(780		)	17,502		—			17,502
Production services	10,311		—			10,311		1,029			(11,028		)	(312		)	—		(11,028		)	11,028
Distribution	18,183		—			18,183		1,477			—			(996		)	18,664		—			18,664
Total	$	1,295,800	$	(74,498	)	$	1,221,302	$	2,184		$	(64,444	)	$	(63,849	)	$	1,095,193	$	(138,942	)	$	1,234,135

Broadcast licenses and other intangible assets:

The net book value of our broadcast licenses and other intangible assets as at December 31, 2011 and December 31, 2010 is summarized as follows:



	Indefinite-Lived Broadcast Licenses			Amortized Broadcast Licenses			Trademarks			Customer Relationships			Other			Total
Balance, December 31, 2009	$	58,506		$	152,488		$	74,580		$	61,377		$	6,292		$	353,243
Additions	—			178,158			74,066			37,322			—			289,546
Impairment	—			—			(397		)	—			—			(397		)
Amortization	—			(15,133		)	(1,516		)	(8,249		)	(1,089		)	(25,987		)
Foreign currency movements	(4,670		)	(5,968		)	(5,061		)	(4,654		)	(411		)	(20,764		)
Balance, December 31, 2010	$	53,836		$	309,545		$	141,672		$	85,796		$	4,792		$	595,641
Additions	—			—			—			—			2,034			2,034
Impairment	—			—			(4,304		)	—			—			(4,304		)
Amortization	—			(18,759		)	(5,692		)	(9,200		)	(1,230		)	(34,881		)
Foreign currency movements	(2,036		)	(10,576		)	(5,031		)	(2,250		)	(402		)	(20,295		)
Balance, December 31, 2011	$	51,800		$	280,210		$	126,645		$	74,346		$	5,194		$	538,195

Until December 31, 2011, our broadcast licenses in Croatia, Romania and Slovenia were determined to have indefinite lives and were subject to annual impairment reviews. The licenses in Bulgaria were determined to have an estimated economic useful life of, and were amortized on a straight-line basis over, twenty-four years. Licenses in the Czech Republic were determined to have an economic useful life of, and were amortized on a straight-line basis over, twenty years. The license in the Slovak Republic was determined to have an economic useful life of, and was amortized on a straight-line basis over, thirteen years. We revised our estimate of the remaining useful life of certain of our Broadcast licenses as of January 1, 2012, and will prospectively amortize the remaining balances on a straight-line basis over the following periods, which are generally the remaining contractual life of the license: twelve years in Bulgaria, thirteen years in Czech Republic, three years in Romania, eight years in the Slovak Republic, and ten years in Slovenia. The license in Croatia was previously written down to a nominal value. The indefinite-lived licenses were not impaired as at December 31, 2011.

Customer relationships are deemed to have an economic useful life of, and are amortized on a straight-line basis over, five to fifteen years. Trademarks have an indefinite life. The amortized trademarks had a carrying amount of US$ 0.0 million and US$ 5.8 million as at December 31, 2011 and December 31, 2010, respectively.

The gross value and accumulated amortization of broadcast licenses and other intangible assets was as follows at December 31, 2011 and December 31, 2010:



	December 31, 2011			December 31, 2010
Gross value	$	514,640		$	538,884
Accumulated amortization	(154,891		)	(132,955		)
Net book value of amortized intangible assets	359,749			405,929
Indefinite-lived broadcast licenses and trademarks	178,446			189,712
Total broadcast licenses and other intangible assets, net	$	538,195		$	595,641

The estimated amortization expense for our intangible assets with finite lives as of December 31, 2011, which includes the change in estimates noted above, is as follows:



2012	$	46,563
2013	46,194
2014	45,573
2015	31,733
2016	31,736

Impairment of Goodwill, indefinite-lived intangible assets and long-lived assets:

Process of reviewing goodwill, indefinite-lived intangible assets and long-lived assets for impairment.

We review both goodwill and indefinite-lived intangible assets for impairment in the fourth quarter of each year. Goodwill is evaluated at the reporting unit level and each indefinite-lived intangible asset is evaluated individually. Long-lived assets are evaluated at the asset group level when there is an indication that they may be impaired.

Whenever events occur which suggest any asset in a reporting unit may be impaired, an evaluation of the goodwill and indefinite-lived intangible assets, together with the associated long-lived assets of each asset group, is performed. Outside our annual review, there are a number of factors which could trigger an impairment review, including:


•	under-performance of operating segments or changes in projected results;


•	changes in the manner of utilization of an asset;


•	severe and sustained declines in the trading price of shares of our Class A common stock that are not attributable to factors other than the underlying value of our assets;


•	negative market conditions or economic trends; and


•	specific events, such as new legislation, new market entrants, changes in technology or adverse legal judgments that we believe could have a negative impact on our business.

In testing the goodwill of each reporting unit, the fair value of the reporting unit is compared to the carrying value of its net assets, including goodwill. If the fair value of the reporting unit is less than its carrying value, the fair value of the reporting unit is then measured against the fair value of its underlying assets and liabilities, excluding goodwill, to estimate an implied fair value of the reporting unit's goodwill. The fair value of each reporting unit is determined using discounted estimated future cash flow models. Our expectations of these cash flows are developed during our long - and short-range business planning processes and incorporate several variables, including, but not limited to, discounted cash flows of a typical market participant, future market revenue and long-term growth projections, estimated market share for the typical participant and estimated profit margins based on market size and operation type. The cash flow model also assumes outlays for capital expenditures, future terminal values, an effective tax rate assumption and a discount rate based on number of factors including market interest rates, a weighted average cost of capital analysis of the media industry and includes adjustments for market risk.

An impairment loss is recognized for any excess of the carrying value of the reporting unit's goodwill over the implied fair value of that goodwill after adjusting for any impairment of indefinite-lived intangible assets or long-lived assets.

Indefinite-lived intangible assets are evaluated for impairment by comparing the fair value of the asset to its carrying value. Any excess of the carrying value over the fair value is recognized as an impairment charge.

Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset group to our estimate of the undiscounted future cash flows we expect that asset group will generate. If the carrying amount of an asset exceeds our estimate of its undiscounted future cash flows, an impairment charge is recognized equal to the amount by which the carrying amount exceeds the fair value of the respective asset.

Assessing goodwill, indefinite-lived intangible assets and long-lived assets for impairment is a complex iterative process that requires significant judgment and involves a great deal of detailed quantitative and qualitative business-specific analysis and many individual assumptions which fluctuate with the passage of time. Our estimate of the cash flows our operations will generate in future periods forms the basis for most of the significant assumptions inherent in our impairment reviews. Our expectations of these cash flows are developed during our long- and short-range business planning processes, which are designed to address the uncertainties inherent in the forecasting process by capturing a range of possible views about key trends which govern future cash flow growth. Historically, the overall cash flow growth rates achieved by our operations have not provided a good indication of future cash flows. This is largely because the markets in which we operate are relatively new and have experienced high levels of growth as advertising markets became rapidly established. Instead, we have observed over many years a strong positive correlation between the macro economic performance of our markets and the size of the television advertising market and ultimately the cash flows we generate. With this in mind, we have placed a high importance on developing our expectations for the future development of the macro economic environment in general and the advertising market and our share of it in particular. While this has involved an appreciation of historical trends, we have placed a higher emphasis on forecasting these market trends, which has involved detailed review of macro-economic data, a range of both proprietary and publicly-available estimates for future market development, and a process of on-going consultation with local management.

Some of the key assumptions underpinning these forecasts include the size of the absolute reduction in the television advertising market during the economic downturn, the point at which growth will resume and the speed with which historical levels of demand will be achieved. In developing our forecasts of future cash flows we take into account available external estimates in addition to considering developments in each of our markets, which provide direct evidence of the state of the market and future market development. In concluding whether a goodwill impairment charge is necessary, we perform the impairment test under a range of possible scenarios. In order to check the reasonableness of the fair values implied by our cash flow estimates we also calculate the value of shares of our Class A common stock implied by our cash flow forecasts and compare this to actual traded values to understand the difference between the two.

The table below shows the key measurements involved and the valuation methods applied:



Measurement		Valuation Method
Recoverability of carrying value		Undiscounted future cash flows
Fair value of indefinite-lived broadcast licenses		Build-out method
Fair value of indefinite-lived trademarks		Relief from royalty method
Fair value of reporting units		Discounted cash flow model

Each method noted above involves a number of significant assumptions over an extended period of time which could materially change our decision as to whether assets are impaired. The most significant of these assumptions include: the discount rate applied, the total advertising market size, achievable levels of market share, level of forecast OIBDA and capital expenditure and the rate of growth into perpetuity, each described in more detail below:

•

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. We calculate 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 macro-economic environment. The costs of capital that we have applied in all reporting units at the end of 2011 were slightly higher than or comparable to those we had used in our annual impairment review at the end of 2010, which we believe represents a slight increase in the perceived level of risk of investing in emerging markets by market participants.

•

Growth rate into perpetuity: reflects the level of economic growth in each of our markets from the last forecasted period into perpetuity and is the sum of an estimated real growth rate, which reflects our belief that macro-economic growth in our markets will eventually converge to Western European markets, and long term expectations for inflation. Our estimates of these rates are based on observable market data and have not changed.

•

Total advertising market: The size of the television advertising market effectively places an upper limit on the advertising revenue we can expect to earn in each business. Our estimate of the total advertising market is developed from a number of external sources, in combination with a process of on-going consultation with local management. In our annual impairment review performed in the fourth quarter, we decreased our short-term view of the size of the television advertising markets based on current market views regarding growth rates in the coming periods before markets recover in the medium- to long-term.


•	Market share: This is a function of the audience share we expect our businesses to generate, and the relative price at which we can sell advertising. Our estimate of the total advertising market is developed from a number of external sources, in combination with a process of on-going consultation with local management.

•

Forecast OIBDA: The level of cash flow generated by each operation is ultimately governed by the extent to which we manage the relationship between revenues and costs. We forecast the level of operating costs by reference to (a) the historical absolute and relative levels of costs we have incurred in generating revenue in each business, (b) the operating strategy of each business and (c) specific forecast costs to be incurred. Our annual impairment review includes assumptions to reflect further cost control we intend to execute.

•

Forecast capital expenditure: The size and phasing of capital expenditure, both recurring expenditure to replace retired assets and investments in new projects, has a significant impact on cash flows. We forecast the level of future capital expenditure based on current strategies and specific forecast costs to be incurred. In line with our ongoing efforts to protect our operating margins, the absolute levels of capital expenditure forecast remained broadly constant from the prior year impairment reviews.

Impairment reviews and charges recognized in 2011

During the third quarter of 2011, there was a significant decrease in the trading price of shares of our Class A common stock, but internal and external estimates of the TV advertising markets in which we operate were for the most part unchanged. As there were no downward revisions to our internal cash flow projections, and our results for the nine months ended September 30, 2011 had improved from the corresponding period of the prior year, we determined it was unlikely that the results of an impairment review, if performed at that time, would reach a conclusion different to the last annual impairment review performed in 2010.

When performing our annual impairment reviews as of December 31, 2011 as discussed above, our forecast of the macro economic environment became more conservative due to uncertainty surrounding the Eurozone and its periphery, in line with the view of the market. Upon conclusion of this review, we determined that a charge was required to impair goodwill in the production services reporting unit and goodwill and intangible assets in the Bulgaria Broadcast reporting unit. In all other cases, the extent to which the respective assets tested passed the impairment test decreased since they were previously tested for impairment in the fourth quarter of 2010, however, the equity fair value was still substantially in excess of the equity carrying value.

We recognized impairment charges in the following reporting units in respect of goodwill and indefinite-lived intangible assets in the year ended December 31, 2011:



	Trademark		Goodwill		Total
MPE - Production Services	$	—	$	11,028	$	11,028
Broadcast - Bulgaria	4,304		53,416		57,720
Total	$	4,304	$	64,444	$	68,748

MPE - Production Services

We revised our estimates of future cash flows in our production services reporting unit during the final quarter of 2011 primarily to reflect an expectation of challenges in growing third party revenues for this reporting unit. As a result of these changes, we concluded that the carrying value exceeded the fair value of the reporting unit and measured for impairment. We concluded the implied fair value of goodwill was zero and recorded impairment to write-off the balance as of December 31, 2011.

Broadcast - Bulgaria

We revised our estimates of future cash flows in our Bulgaria Broadcast operations during the final quarter of 2011 to reflect our revised expectations of uncertainty in the Eurozone periphery. Bulgaria has been continually impacted by the global economic crisis, which has been reflected in the returns expected by investors resulting from the increased actual and perceived risk of investing in Bulgaria continuing to be higher than their historical norms. We concluded that the trademark recorded in connection with the acquisition of the bTV group was impaired and recorded a charge of US$ 4.3 million to write it down to its estimated fair value. After adjusting the reporting unit's carrying value for the indefinite-lived intangible asset impairment, we determined that the implied fair value for goodwill exceeded its carrying value by US $ 53.4 million and recorded this amount as an impairment of goodwill. We determined that the carrying value of the asset group in Bulgaria was recoverable by reference to the expected cash flows to be generated, and therefore no impairment was recorded for long-lived assets or intangible assets subject to amortization.

Impairment reviews and charges recognized in 2010

We performed our annual impairment test in the fourth quarter of 2010 and determined that none of our reporting units were at risk of impairment. As of December 31, 2010, the equity fair value of all our reporting units exceeded their carrying value by more than 10.0%.

In the fourth quarter of 2010, we decided to cease operating InfoPro, a radio channel in Romania and part of our Romania Broadcast segment, and recorded an impairment charge of US$ 0.4 million to write off the carrying value of the InfoPro trademark after determining that it was not recoverable.

Impairment charges recognized in 2009

During the first and second quarter of 2009, due to the severity of the global economic downturn, continued reduction in the short and medium economic projections for our markets by external analysts, increasing reluctance of advertisers to make spending commitments, the decline in the financial performance of our stations and the decrease in the trading price of shares of our Class A common stock and our market capitalization, we tested our goodwill and broadcast licenses for impairment.

We recognized the following impairment charges in respect of goodwill, indefinite-lived intangible and long-lived assets in the year ended December 31, 2009:



	Amortized Trademarks		Amortized Broadcast Licenses		Other Intangible Assets		Other Assets		Total
Pro.BG business	$	76	$	75,788	$	4,882	$	1,097	$	81,843

We did not have any indicators of impairment in the third quarter of 2009 and therefore we did not make any further revisions to our forecasted cash flows, cash flow multiples, and discount rates for that period. We performed our annual impairment test in the fourth quarter of 2009 and we concluded that no further impairment charges were required.