GOODWILL AND INTANGIBLE ASSETS

Goodwill:

Goodwill by reporting unit as at December 31, 2012 and December 31, 2011 is summarized as follows:



	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



	Gross Balance, December 31, 2011		Accumulated Impairment Losses			Balance, December 31, 2011		Additions/ Adjustments		Impairment Charge			Foreign Currency			Balance, December 31, 2012		Accumulated Impairment Losses			Gross Balance, December 31, 2012
Broadcast segment:
Bulgaria	$	176,394	$	(117,460	)	$	58,934	$	—	$	(10,366	)	$	1,079		$	49,647	$	(127,826	)	$	177,473
Croatia	11,116		(10,454		)	662		—		—			11			673		(10,454		)	11,127
Czech Republic	862,457		—			862,457		—		(287,545		)	37,098			612,010		(287,545		)	899,555
Romania	62,078		—			62,078		—		—			(370		)	61,708		—			61,708
Slovak Republic	56,575		—			56,575		—		—			1,118			57,693		—			57,693
Slovenia	18,321		—			18,321		—		—			361			18,682		—			18,682
Media Pro Entertainment segment:
Fiction and reality and entertainment	17,502		—			17,502		—		—			(18		)	17,484		—			17,484
Production services	11,028		(11,028		)	—		—		—			—			—		(11,028		)	11,028
Distribution	18,664		—			18,664		—		—			(23		)	18,641		—			18,641
Total	$	1,234,135	$	(138,942	)	$	1,095,193	$	—	$	(297,911	)	$	39,256		$	836,538	$	(436,853	)	$	1,273,391

Broadcast licenses and other intangible assets:

Changes in the net book value of our broadcast licenses and other intangible assets as at December 31, 2012 and December 31, 2011 is summarized as follows:



	Indefinite-Lived Broadcast Licenses			Amortized Broadcast Licenses			Trademarks			Customer Relationships			Other			Total
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
Reclassifications	(51,800		)	51,800			—			—			—			—
Additions	—			—			—			—			30			30
Impairment	—			(180,630		)	(7,171		)	(28,066		)	—			(215,867		)
Amortization	—			(37,325		)	—			(8,192		)	(1,110		)	(46,627		)
Foreign currency movements	—			5,515			2,287			1,006			402			9,210
Balance, December 31, 2012	$	—		$	119,570		$	121,761		$	39,094		$	4,516		$	284,941

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. Due to the change in estimates discussed below, these balances were reclassified from indefinite-lived to amortized on January 1, 2012. The indefinite-lived licenses were not impaired as at January 1, 2012. Prior to December 31, 2011, 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 now 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 the 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 impact of this change in estimates is a higher amortization charge of approximately US$ 20.7 million recorded during 2012, or US$ 0.27 and US$ 0.27 per basic common share and diluted common share.

Customer relationships are deemed to have an economic useful life of, and are amortized on a straight-line basis over, five years to fifteen years. Trademarks have an indefinite life.

The gross value and accumulated amortization of broadcast licenses and other intangible assets was as follows at December 31, 2012 and December 31, 2011:



	December 31, 2012			December 31, 2011
Gross value	$	357,183		$	514,641
Accumulated amortization	(194,003		)	(154,891		)
Net book value of amortized intangible assets	163,180			359,750
Indefinite-lived broadcast licenses and trademarks	121,761			178,445
Total broadcast licenses and other intangible assets, net	$	284,941		$	538,195

The estimated amortization expense for our intangible assets with finite lives as of December 31, 2012, which includes the change in estimates noted above and the impairments described below, is as follows:



2013	$	18,960
2014	18,724
2015	18,486
2016	17,487
2017	17,287

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 amount of its net assets, including goodwill. If the fair value of the reporting unit is less than its carrying amount, 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 a 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 amount of the reporting unit's goodwill over the implied fair value. If goodwill and another asset or asset group are tested for impairment at the same time, the other assets are tested for impairment before goodwill. If the other asset or asset group is impaired, this impairment loss is recognized prior to goodwill being tested for impairment.

Indefinite-lived intangible assets are evaluated for impairment by comparing the fair value of the asset to its carrying amount. Any excess of the carrying amount 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, 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 amount		Undiscounted future cash flows (Level 3 inputs*)
Fair value of broadcast licenses		Build-out method (Level 3 inputs*)
Fair value of indefinite-lived trademarks		Relief from royalty method (Level 3 inputs*)
Fair value of reporting units		Discounted cash flow model (Level 3 inputs*)

*As described in Note 12, "Financial Instruments and Fair Value Measurements"

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, 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 to cash flows in all reporting units at the end of 2012 were lower than those we had used in our annual impairment review at the end of 2011, which was driven primarily by a reduction in the CRP.

•

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 country. 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- and medium-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 long-term.


•	Market share: This is a function of the audience share we expect our stations 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 reporting unit, (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 with the prior year impairment reviews.

•

Growth rate into perpetuity: This 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 since the end of 2011.

Impairment reviews and charges recognized in 2012

We anticipated that 2012 would be a challenging year for the advertising markets in the territories in which we operate, but we expected the rate of decline in advertising spending to reduce by the end of the year and particularly during the fourth quarter. There was an overall improvement in the perceived level of risk associated with investing in the Eurozone and its periphery, which led to the reduction in CRPs as at December 31, 2012 noted above; however, this did not translate into a corresponding improvement in advertising spending during the fourth quarter of 2012 that we previously expected. The fourth quarter is traditionally the most significant quarter for television advertising, and therefore this period tends to have a larger influence on developing our long- and short-range forecasts for our businesses.

Our medium-term outlook included in forecasts used for our previous impairment review performed in 2011 anticipated a recovery in total advertising spending during 2013, which was consistent with then current internal and external projections for the television advertising markets in our territories following overall flat growth in these advertising markets during 2011. During 2012 the demand for television advertising declined across our markets and a recovery in the fourth quarter of 2012 that we expected earlier in the year did not occur because advertisers did not honor previous spending commitments. As a result, our outlook for future periods is less certain and we made significant downward revisions in our estimates of the cash flows that our operations will generate in future periods. This decrease in estimated future cash flows during the impairment review performed during the fourth quarter of 2012 more than offset the impact of the decrease in the cost of capital, and resulted in estimated fair values for each reporting unit that were significantly less than those calculated during the previous impairment review in 2011.

Our current medium-term outlook included in forecasts used for the impairment review performed during the fourth quarter of 2012 expects continuing challenges in our markets during 2013. This difference from the impairment review performed in 2011 related to the timing of recovery causes current projections for the size of the advertising market over the long-term in certain territories to be less than the values calculated under significant adverse changes (see Item 7, "Critical Accounting Policies and Estimates) when evaluating our significant accounting estimates in the prior year, and resulted in a significant decrease in the estimated fair values of each reporting unit in 2012 when compared to the amounts estimated in 2011.

Upon conclusion of this review, we determined that a charge was required to impair certain long-lived assets, broadcast licenses, customer relationships, trademarks and goodwill in certain reporting units, as presented below. The equity fair value of each reporting unit where goodwill was not impaired as of December 31, 2012 was substantially in excess of its equity carrying amount, after considering the impairments of intangible assets recorded, with the exception of the MPE distribution reporting unit where the equity fair value was 4.0% more than its equity carrying amount. In connection with our 2012 goodwill impairment analysis, we have concluded that the total estimated fair values used for purposes of the test are reasonable by comparing the market capitalization of the Company to the results of the discounted cash flows analysis of our reporting units, as adjusted for unallocated corporate assets and liabilities.

We recognized impairment charges in the following reporting units in respect of goodwill, tangible and intangible assets during the year ended December 31, 2012:



	Long-lived assets		Trademark		Customer relationship		Broadcast license		Goodwill		Total
Broadcast - Bulgaria	$	—	$	7,171	$	—	$	147,822	$	10,366	$	165,359
Broadcast - Czech Republic	6,846		—		—		—		287,545		294,391
Broadcast - Romania	—		—		—		26,907		—		26,907
Broadcast - Slovak Republic	1,866		—		28,066		5,901		—		35,833
Total	$	8,712	$	7,171	$	28,066	$	180,630	$	297,911	$	522,490

Goodwill and Intangible Assets

We concluded that the trademark recorded on the acquisition of the bTV group was further impaired during 2012 and recorded a charge of US$ 7.2 million to write it down to its estimated fair value. We also determined that the broadcast license in Bulgaria was no longer recoverable, and fully impaired the asset. After adjusting the reporting unit's carrying amount for the impairment of indefinite-lived intangible assets, we determined that the carrying amount for goodwill exceeded its implied fair value by US$ 10.4 million and recorded this amount as an impairment of goodwill. We determined that the carrying amount 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.

Similarly, we determined that the asset groups in the Czech Republic were recoverable by reference to the expected cash flows to be generated, and therefore no impairment was recorded for long-lived or intangible assets, except as noted below. However, we determined that the carrying amount of goodwill exceeded its implied fair value by US$ 287.5 million and recorded this amount as an impairment of goodwill.

Lastly, we determined that the customer relationship intangible asset in the Slovak Republic, as well as the broadcast licenses in both the Slovak Republic and Romania, were not recoverable, and fully impaired these assets. After adjusting the carrying amount of each of these reporting units for the impairment of finite-lived intangible assets, the resulting carrying amounts were substantially in excess of their estimated fair values, and therefore we determined that goodwill was not impaired.

Long-lived Assets

We also recorded a total of US$ 8.7 million of impairment losses related to a construction project and land for development in the Czech Republic and Slovak Republic, respectively. Our plans to complete these developments were not included in our latest long-term forecasts and the carrying amounts were therefore determined not to be recoverable. As a result, the carrying amounts were impaired to their fair value using significant Level 2 inputs as described in Note 12, "Financial Instruments and Fair Value Measurements", estimated as replacement cost.

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, our forecast of the macro economic environment reflected 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 amount.

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

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 amount exceeded the fair value of the reporting unit and measured for impairment. We concluded the implied fair value of goodwill was zero and recorded an impairment to write-off the balance as of December 31, 2011.

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 amount for the indefinite-lived intangible asset impairment, we determined that the carrying amount for goodwill exceeded its fair value by US$ 53.4 million and recorded this amount as an impairment of goodwill. We determined that the carrying amount 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 amount 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 amount of the InfoPro trademark after determining that it was not recoverable.