CTC Media announces financial results for the third quarter and nine months ended september 30, 2014

29.10.2014 13:30:00

Moscow, Russia October 29, 2014 – CTC Media, Inc. (“CTC Media” or “the Company”) (NASDAQ: CTCM), Russia’s leading independent media company, today announced its unaudited consolidated financial results for the third quarter and nine months ended September 30, 2014.







Three Months


Change


Ended September 30,




(US$ 000’s except per share data)

2013

2014


in USD

in RUB







Total operating revenues

$171,084

$158,567


(7)%

3%

Including:






Advertising revenues

166,891

156,022


(7)%

4%

Total operating expenses

(126,897)

(114,307)


(10)%

0%

OIBDA1

52,337

50,629


(3)%

9%

OIBDA margin1

30.6%

31.9%




Net income attributable to CTC Media, Inc. stockholders

46,655

31,595


(32)%

(24)%

Fully diluted earnings per share

$0.30

$0.20


(33)%




Nine Months


Change


Ended September 30,




(US$ 000’s except per share data)

2013

2014


in USD

in RUB







Total operating revenues

$572,386

$529,126


(8)%

4%

Including:






Advertising revenues

556,477

523,080


(6)%

6%

Total operating expenses

(436,620)

(398,107)


(9)%

2%

OIBDA1

160,739

152,040


(5)%

7%

OIBDA margin1

28.1%

28.7%




Net income attributable to CTC Media, Inc. stockholders

106,836

89,472


(16)%

(5)%

Fully diluted earnings per share

$0.68

$0.57


(16)%


(1) OIBDA is defined as operating income before depreciation and amortization. OIBDA margin is defined as OIBDA divided by total operating revenues. Both OIBDA and OIBDA margin are non-GAAP financial measures. Please see the accompanying financial tables at the end of this release for a reconciliation of OIBDA to operating income and OIBDA margin to operating income margin.


Q3 2014 FINANCIAL HIGHLIGHTS

  • Total revenues up 3% year-on-year in ruble terms to $158.6 million

  • Advertising revenues up 4% year-on-year in ruble terms

  • Combined Russian national inventory was fully sold-out for Q3

  • OIBDA up 9% year-on-year in ruble terms to $50.6 million, with an OIBDA margin of 31.9%

  • Fully diluted earnings per share of $0.20 (Q3 2013: $0.30)

  • Net cash position2 of $149.0 million at the end of the period

  • Payment of cash dividends of $0.175 per share

  • Board of Directors has declared a cash dividend of $0.175 per share (or approximately $27.3 million in the aggregate) to be paid on or about December 26, 2014 to shareholders of record as of December 1, 2014.

Yuliana Slashcheva, Chief Executive Officer of CTC Media, commented:

I am pleased to report that CTC Media has delivered another set of strong operational results in Q3 2014.

Our Everest sales house successfully sold out the inventory of our primary channels, and our Russian TV advertising revenue continued to grow, with an increase of 4.3% in the third quarter YoY. We outperformed the Russian TV advertising market in both Q3 and the nine months ended September 30, 2014. However, our operating revenue grows more slowly due to weakening content sales in Ukraine.

We reconfirm our full year outlook for OIBDA margin at around 30%. Devaluation of the ruble, which lost 15% against the dollar during the third quarter, significantly affected our third-quarter performance. The ruble declined 17% year-on-year.

However, a comprehensive set of cost management initiatives undertaken by the management team is helping CTC Media to ensure efficient cost control. We expect that our full-year programming expenses will increase more slowly than our revenues. This will help us to keep high margins in extremely challenging macroeconomic conditions.

The core audience of our flagship CTC Channel are young adults aged between 25 and 35 who are responsible for their families and the success of their employers. This audience generates exceptional demand for news and accurate information about what is going on in the world and their country in times of political turbulence. As a result, we experienced strong pressure from news channels throughout the third quarter.

However, all new launches on CTC Channel enjoyed higher-than-average audience shares including “The 80s”, “Angelika” and “Family Business”.

There have been changes in the demand for content generated by the audience enjoying entertainment shows. The demand is shifting from humor and sitcoms to drama and happy-ending dramedy shows. We took this trend into consideration for content production, and CTC Media came up with a series of new projects in these genres that we are expecting to launch across our channels in the coming months.

The updated programming and content policy of Domashny is attracting significantly younger audiences to this channel. The share of women aged 50-59 in the audience of Domashny fell to 2% compared to 8% in the first quarter. Following this trend, we are evaluating whether to switch from women aged 25-59 to women aged 25-50, which is a more attractive demographic from an advertising standpoint, starting from 2016. We are also considering whether to increase our Domashny advertising prices faster than the market average starting from 2015, and we are consulting with our advertising partners on this matter. We are also evaluating a potential transformation of PERETZ, which took the hardest hit from the news channels.

(2) Net cash position is defined as cash, cash equivalents and short-term investments less interest bearing liabilities

СТС Love became a part of the TNS measurement panel in September and became a Top 20 TV Channel in its target audience with 0.8% share during the first month. Positive trends across CTC Media channels resulted in our September share of the all 10-45 audience reaching its highest level since January 2014.

Our transmedia business is growing fast. We signed a partnership agreement with a leading social network in Russia, Odnoklassniki, which helped us to increase traffic on all CTC Media resources and open up new monetization opportunities. We are preparing to launch seven large-scale transmedia projects in 2014 that we expect will generate 124 million rubles of revenue. I would like to highlight that one of them has been launched on CTC Love channel that has generated income not only from the sale of TV-advertising, but also in digital projects. Overall, CTC Media has consolidated its position as a technology leader on the market. The revenue of the transmedia unit increased by 55% on a year-over-year basis for the first nine months of 2014.

We see potential benefits in the proposed new structure of Video International ("Vi"), the leading TV advertising seller. To be co-owned by four TV holdings and the management team, Vi will consolidate a significant part of all TV advertising sales. We think this consolidation is a positive factor, as it will put advertising sellers in a stronger position overall, which is especially important given the slow down in the advertising market. CTC Media did not participate in this transaction because we believe our own Everest sales house generates sustainable shareholder value.

In Q3, our sales house has exceeded the average market growth rate of 3.5% (according to preliminary estimate), achieving Russian TV Ad revenue growth YoY totaling 4.3% YoY, notwithstanding our advertising inventory decreasing by 6% in the third quarter. In other words, the efficiency of Everest was around seven percentage points higher than the market average.

We will keep using the consulting services of Video International. We will also continue reviewing the opportunities of further cooperation with "New Vi" which could potentially increase value for our shareholders”.

Yuliana Slashcheva, Chief Executive Officer of CTC Media, also commented the amendments to the Russian law “On Mass Media”:

A bill establishing a 20% cap on the foreign ownership of Russian mass media businesses was submitted to the State Duma at the end of the third quarter. This bill was approved by the State Duma and the Federation Council, signed by the President and enacted within less than a month.

The executive team of CTC Media is working closely on these matters with the State Duma, the Government of Russia and other industry participants.

At this time, we understand that the law may have significant implications for the ownership structure of our operating business by our U.S. incorporated parent company and its non-Russian stockholders. We are focused on analyzing and establishing the most effective response to these developments, and are therefore reviewing all of our options to protect the interests of our stockholders.

The Board of CTC Media has established an advisory committee consisting of non-executive directors, which is in the process of appointing financial and legal advisers, and evaluating the potential actions that the Company may take moving forward in order to comply with the amended law. These actions may include corporate restructuring, franchising and licensing structures, capital reorganization or divestments.

The law does not create direct implications for CTC media current operations”.

Operating Review

Share of Viewing


Average Target Audience Shares (%)


Q3 2013 9M 2013


Q2 2014

Q3 2014 9M 2014






CTC Channel (all 10-45)

11.6 11.4


10.2

10.3 10.4

Domashny Channel (females 25-59)

3.9 3.5


3.3

3.7 3.4

Peretz Channel(all 25-49)

2.3 2.4


1.9

2.1 2.1

Channel 31 (all 6-54)

14.1 13.3


13.7

14.9 13.4

Our Russian channels’ target audience shares were affected by overall audience fragmentation and increased competition. All larger national free‑to‑air TV channels in Russia were negatively impacted by increased competition from smaller non‑free‑to‑air and niche TV channel viewership in the “All 4+” category, which increased from 15.5% in 2012 to 17.2% in 2013 and 18.3% in the nine months ended September 30, 2014.

In the third quarter of 2014, the CTC channel maintained its place as the third most-watched broadcaster in Russia in its target demographic of 10 to 45 year old viewers. Its target audience share was down year-on-year from 11.6% to 10.3%, primarily reflecting the increased competition from other channels, including channels that broadcast political news on the Ukraine crisis, the effect of audience fragmentation and the relative underperformance of certain programming in the third quarter of 2014.

Domashny channel’s target audience share decreased year-on-year in the third quarter 2014 from 3.9% to 3.7%, reflecting the effect of audience fragmentation and increased competition from the channels that broadcast political news on the Ukraine crisis, partially offset by successful changes in the programming schedule in daytime and primetime slots. In October 2014, Domashny channel launched a restyle of its logo and updated its visual format with a new motto: “Forever for women”. Domashny channel is continuing to share positive and bright emotions with its viewers and to grow its core female audience segment.

Peretz channel’s target audience share was down year-on-year in the third quarter 2014 from 2.3% to 2.1%, reflecting increased competition from the channels that broadcast political news on the situation in Ukraine, audience fragmentation and the relative underperformance of certain programming. Peretz channel is continuing to refresh its positioning and programming grid to be a more cutting edge and dynamic channel, with a focus on edgy action content.

Channel 31’s average target audience share increased year-on-year in the third quarter of 2014 from 14.1% to 14.9%, reflecting successful changes in the programming schedule and better performance of certain locally-produced programming and foreign series.

Revenues




Total operating revenues were down 7% year-on-year in US dollar terms but up 3% year-on-year in ruble terms in the third quarter of 2014, primarily reflecting the estimated growth in the overall Russian television advertising market of approximately 4% in ruble terms, partially offset by the effect of lower year‑on‑year target audience shares of our channels.

Advertising revenues accounted for approximately 98% of total operating revenues in the third quarter of 2014 (Q3 2013: 98%) and were down 7% year-on-year in US dollar terms but up 4% year-on-year in ruble terms, due to estimated growth in the Russian television advertising market (which includes both national and regional markets) of 4% in ruble terms, reflecting higher advertiser demand, which was especially reflected in higher sales of our CTC and Domashny inventory and greater sponsorship revenues, partially offset by lower year‑on‑year audience share of CTC channel.



Three Months

Ended September 30,







Change

(US$ 000’s)

2013

2014


in USD

in RUB

Operating revenues by segment:






CTC Channel

$119,329

$109,140


(9)%

2%

Domashny Channel

26,099

26,100


0%

11%

Peretz Channel

17,115

15,108


(12)%

(2)%

Channel 31

6,409

5,226


(18)%

(3)% *

All Other

2,132

2,993


40%

57%

Total operating revenues

$171,084

$158,567


(7)%

3%

*in Kazakh tenge


Nine Months

Ended September 30,







Change

(US$ 000’s)

2013

2014


in USD

in RUB

Operating revenues by segment:






CTC Channel

$403,794

$374,257


(7)%

4%

Domashny Channel

85,559

82,051


(4)%

8%

Peretz Channel

59,018

50,966


(14)%

(3)%

Channel 31

17,355

13,761


(21)%

(6)% *

All Other

6,660

8,091


21%

37%

Total operating revenues

$572,386

$529,126


(8)%

4%

*in Kazakh tenge


Three Months

Ended September 30,







Change

(US$ 000’s)

2013

2014


in USD

in RUB

Advertising revenues by segment:






CTC Channel

$116,247

$107,946


(7)%

3%

Domashny Channel

25,976

25,992


0%

11%

Peretz Channel

17,091

15,107


(12)%

(2)%

Channel 31

6,249

4,970


(20)%

(5)% *

All Other

1,328

2,007


51%

69%

Total advertising revenues

$166,891

$156,022


(7)%

4%

*in Kazakh tenge



Nine Months

Ended September 30,







Change

(US$ 000’s)

2013

2014


in USD

in RUB

Advertising revenues by segment:






CTC Channel

$392,899

$372,451


(5)%

7%

Domashny Channel

84,547

81,641


(3)%

9%

Peretz Channel

58,323

50,778


(13)%

(2)%

Channel 31

17,132

13,092


(24)%

(9)%*

All Other

3,576

5,118


43%

61%

Total advertising revenues

$556,477

$523,080


(6)%

6%

*in Kazakh tenge

CTC channel’s operating revenues were down 9% in US dollar terms year-on-year in the third quarter but up 2% in ruble terms, principally due to increased sales of the channel’s inventory on a federal level and increased sponsorship revenues, reflecting our ability to command higher advertising prices for our target audience, partially offset by an 11% decrease in the audience share, reflecting the increased competition from other channels, including channels that broadcast political news on the Ukraine crisis, the effect of audience fragmentation and the relative underperformance of certain programming in the third quarter of 2014.

Domashny channel’s operating revenues were flat in US dollar terms year-on-year in the third quarter but up 11% in ruble terms, principally due to increased sales of the channel’s inventory and sponsorship revenues, reflecting our ability to command higher advertising prices for our target audience, partially offset by a 5% decrease in the audience share. The decrease in Domashny’s audience share was primarily due to the effect of audience fragmentation and increased competition from the channels that broadcast political news, partially offset by successful changes in the programming schedule in daytime and primetime slots. In October 2014, Domashny channel launched a restyle of its logo and updated its visual format with a new motto: “Forever for women”. Domashny channel is continuing to share positive and bright emotions with its viewers and to grow its core female audience segment.

Peretz channel’s operating revenues were down 12% in US dollar terms year-on-year in the third quarter and 2% in ruble terms, principally due to a 9% decrease in audience share, partially offset by the estimated growth in the Russian television advertising market of 4% in ruble terms, reflecting our ability to command higher advertising prices for our target audience. The decrease in Peretz’s audience share was primarily due to increased competition from the channels that broadcast political news on the situation in Ukraine, audience fragmentation and the relative underperformance of certain programming.

Channel 31’s operating revenues in US dollar terms were down 18% year-on-year in the third quarter and 3% in Kazakh tenge terms, principally due to an overall decrease in the estimated overall television advertising market in Kazakhstan of 5% in Kazakh tenge terms.

All otherrevenues in the third quarter of 2014 represent mainly revenues of $1.0 million from CTC-International (Q3 2013: $0.8 million) and revenues of $1.6 million from digital media businesses (Q3 2013: $1.1 million), which was up 65% in ruble terms during the period.


Expenses



Three Months

Ended September 30,


Change


(US$ 000’s)

2013

2014


in USD

in RUB







Operating expenses:






Direct operating expenses

$(10,682)

$(10,131)


(5)%

5%

Selling, general & administrative expenses

(37,808)

(33,816)


(11)%

(1)%

Programming expenses

(69,738)

(63,350)


(9)%

0%

Stock-based compensation expense

(519)

(641)


24%

36%

Depreciation & amortization

(8,150)

(6,369)


(22)%

(14)%

Total operating expenses

$(126,897)

$(114,307)


(10)%

0%





Nine Months

Ended September 30,


Change

(US$ 000’s)

2013

2014


in USD

in RUB







Operating expenses:






Direct operating expenses

$(33,582)

$(34,743)


3%

16%

Selling, general & administrative expenses

(122,540)

(114,376)


(7)%

5%

Programming expenses

(252,368)

(227,581)


(10)%

1%

Stock-based compensation expense

(3,157)

(386)


(88)%

(86)%

Depreciation & amortization

(24,973)

(21,021)


(16)%

(6)%

Total operating expenses

$(436,620)

$(398,107)


(9)%

2%

Total operating expenses were down 10% year-on-year in US dollar terms and remained flat in ruble terms in the third quarter.

Direct operating expenses were down 5% year-on-year in the third quarter in US dollar terms but up 5% year-on-year in ruble terms largely as a result of increases in salaries and benefits costs, reflecting annual salary raises and increased headcount.

Selling, general and administrative expenses were down 11% year-on-year in the third quarter in US dollar terms and 1% in ruble terms, reflecting the joint effect of increased compensation payable to Video International due to increased revenues and a decrease in advertising and promotion expenses as the result of the timing of advertising campaigns.

Programming expenses were down 9% year-on-year in US dollar terms and remained flat in ruble terms in the third quarter. These changes were due to the joint effect of CTC channel airing more expensive foreign content, partially offset by less expensive Russian content to support the channel’s audience share, increases in the cost and volume of high‑rating Russian series at Peretz channel in response to increased competition from other channels and the timing of investing in Domashny’s schedule which is planned for the fourth quarter of 2014 as a result of the launch of its restyling in October 2014.

Stock-based compensation expenseswere approximately flat at $0.5-0.6 million when comparing the three months ended September 30, 2014 and 2013 and decreased by $2.8 million when comparing the nine months ended September 30, 2014 and 2013, primarily as the result of re-measuring the equity‑based cash incentive awards granted to employees under our 2009 Stock Incentive Plan at their fair value, as the result of our decreased share price in 2014.

CTC Media’s consolidated OIBDA was therefore up 9% year-on-year in ruble terms to $50.6 million in the third quarter (Q3 2013: $52.3 million). OIBDA margin was up year-on-year to 31.9% in the third quarter of 2014 (Q3 2013: 30.6%).

Net interest income was $2.2 million for the third quarter (Q3 2013: $2.1 million), primarily reflecting the interest earned on CTC Media’s cash balances and short‑term investments.

CTC Media’s effective tax rate was approximately 31% in the three months ended September 30, 2014, and (4%) in the three months ended September 30, 2013. The effective tax rate of the third quarter of 2013 reflected the effect of the change in the approach to the recognition of foreign tax benefits that were available for offset against US taxes based on a comprehensive examination of certain positions taken in the historical US income tax filings. This approach was applied prospectively for the recognition of such tax benefits starting from the third quarter of 2013. Net of this effect, CTC Media’s effective tax rate for the three‑month period ended September 30, 2013 would have been 30%.

Net income attributable to CTC Media, Inc. stockholders therefore was down 24% in ruble terms to $31.6 million in the third quarter (Q3 2013: $46.7 million) and fully diluted earnings per share decreased to $0.20 (Q3 2013: $0.30).

Cash Flow

The Company’s net cash provided by operating activities decreased by $9.5 million, totaling $55.0 million for the first nine months of 2014 (9m 2013: $64.5 million), primarily due to the depreciation of the Russian ruble against the US dollar. In ruble terms, net cash provided by operating activities remained approximately flat, reflecting the joint effect of higher cash receipts from advertising sales and higher spending on the acquisition of programming.

Net cash provided by investing activities totaled $33.1 million for the first nine months of 2014 (9m 2013: $22.2 million) and represented receipts from deposits of $36.9 million and cash paid for capital expenditures of $3.8 million.

Net cash used in financing activities amounted to $87.0 million for the first nine months of 2014 (9m 2013: $111.5 million) and primarily reflected the payment of $61.0 million in cash dividends to the Company’s stockholders, $4.6 million in dividends paid to minority shareholders of the Group’s subsidiaries and a $20.8 million increase in other non‑current assets, which represent dividends to one of our stockholders that were blocked pursuant to US sanctions imposed on Bank Rossiya.

The Company’s cash and cash equivalents and short-term investments less overdraft and loan balance amounted to $149.0 million as of September 30, 2014, compared to $119.1 million at the end of the third quarter of 2013 and $190.3 million at the end of the second quarter of 2014.

Dividends

The CTC Media Board of Directors has declared cash dividends of $0.70 per share (or approximately $109 million in the aggregate) in 2014, a year-on-year increase of 11% compared to cash dividends of $0.63 per share (or $98.8 million in the aggregate) paid in 2013, including a cash dividend of $0.175 per share (or approximately $27.3 million in the aggregate) to be paid on or about December 26, 2014 to shareholders of record as of December 1, 2014. We will comply with any applicable blocking requirements related to U.S. sanctions in connection with the payment of dividends.

Full Year 2014 Outlook

Almost 100% of CTC Media’s forecast full-year 2014 Russian national inventory is currently committed at prices higher than the 2013 average.

At the same time we see some signs of market deterioration in Q4 2014. The Russian TV advertising market is currently expected to grow between 1% and 3% year-on-year for the full-year 2014 in ruble terms.

CTC Media aims to outperform the overall market in Russian television advertising revenues for the year, and expects comparatively less growth in total revenues due to the decrease in sublicensing revenue to broadcasters in Ukraine.

The Company will continue to invest in content, but anticipates that its programming expenses will grow at a rate not higher than the growth of its total revenues and at lower pace than in 2013.

CTC Media currently expects to report an OIBDA margin of approximately 30% for the full year 2014.

Conference Call

The company will host a conference call to discuss its third quarter 2014 financial results today, Wednesday, October 29, 2014 at 8:00 a.m. EST / 12:00 p.m. UK / 3:00 p.m. Moscow time. To access the conference call, please dial:

US/International: +1 678 805 0960

UK/International: +44 (0) 20 3003 2666

Russia: +7 (8) 499 272 433

Confirmation code: CTC Media

A live webcast of the conference call will also be available via the investor relations section of the Company's corporate web site - www.ctcmedia.ru/investors. The webcast will also be archived on the Company’s web site for two weeks.

About CTC Media, Inc.

CTC Media is a leading Russian independent media company, with operations throughout Russia and elsewhere in the CIS. It operates three free-to-air television networks in Russia – CTC, Domashny and Peretz – as well as Channel 31 in Kazakhstan and a TV company in Moldova, with a combined potential audience of over 150 million people. The international pay-TV version of the CTC channel is available in North America, Europe, Central Asia, Armenia, Georgia, Azerbaijan, the Middle East and Kyrgyzstan. Peretz is also available in Belarus and Kyrgyzstan. CTC Media also has a number of digital entertainment media assets: videomore.ru, domashniy.ru, ctc.ru, peretz.ru. The Company’s common stock is traded on the NASDAQ Global Select Market under the symbol “CTCM”. For more information on CTC Media, please visit www.ctcmedia.ru.

***

For further information, please visit www.ctcmedia.ru or contact:

CTC Media, Inc.

Investor Relations


Nickolai Ivanov
Head of Investor Relations
+7 495 981 0740
ir@ctcmedia.ru

Media Relations

Igor Ivanov

Press secretary

+7 (495) 785 63 47, ext. 4352,

+ 7 (985) 763 00 85

pr@ctcmedia.ru

Use of Non-GAAP Financial Measures

To supplement its consolidated financial statements, which are prepared and presented in accordance with US GAAP, the Company uses the following non-GAAP financial measures: OIBDA (on a consolidated and segment basis) and OIBDA margin. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP. For more information on these non-GAAP financial measures, please see the accompanying financial tables included at the end of this release.

The Company uses these non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. The Company believes that these non-GAAP financial measures provide meaningful supplemental information regarding its performance and liquidity by excluding certain expenses that may not be indicative of its recurring core business operating results. These metrics are used by management to further its understanding of the Company’s operating performance in the ordinary, ongoing and customary course of operations. The Company also believes that these metrics provide investors and equity analysts with a useful basis for analyzing operating performance against historical data and the results of comparable companies.

OIBDA and OIBDA margin. OIBDA is defined as operating income before depreciation and amortization (exclusive of amortization of programming rights and sublicensing rights). OIBDA margin is defined as OIBDA divided by total operating revenues. The most directly comparable GAAP measures to OIBDA and OIBDA margin are operating income and operating income margin, respectively. Unlike operating income, OIBDA excludes depreciation and amortization, other than amortization of programming rights and sublicensing rights. The purchase of programming rights is the Company’s most significant expenditure that enables it to generate revenues, and OIBDA includes the impact of the amortization of these rights. Expenditures for capital items such as property, plant and equipment have a materially less significant impact on the Company’s ability to generate revenues. For this reason, the Company excludes the related depreciation expense for these items from OIBDA. Moreover, a significant portion of the Company’s intangible assets were acquired in business acquisitions. The amortization of intangible assets is therefore also excluded from OIBDA.

Caution Concerning Forward Looking Statements

Certain statements in this press release that are not based on historical information are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include, among others, statements regarding developments in the volume and pricing of television advertising in the Company’s target markets; the Company’s anticipated advertising sell-out in 2014; the further development of the Peretz and Domashny channels; the anticipated expenses associated with the roll-out of digital broadcasting in Russia; the Company’s anticipated capital expenditures and operating expenses, including programming expenses, in 2014; the Company’s expected rate of its full year 2014 OIBDA margin; and the Company’s expected increase of its total operating revenues in ruble terms in 2014; the impact of recent amendments to the Russian law “On Mass Media”; and the impact of the reorganization of “Video International”. These statements reflect the Company's current expectations concerning future results and events. These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of CTC Media to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

The potential risks and uncertainties that could cause actual future results to differ from those expressed or implied by forward-looking statements include, among others, the effect of geopolitical developments and related international economic sanctions; the impact of recent amendments to the Russian law “On Mass Media”; changes in the size of the Russian television advertising market compared with current estimates of anticipated market growth; the continued successful operation of the Company’s own internal sales house structure; the impact of the reorganization of “Video International”; competitive pressures; depreciation of the value of the Russian ruble compared to the US dollar; geopolitical events involving Russia and the other countries in which the Company operates, including any potential negative economic impact of such events; the Company’s ability to deliver audience share, particularly in primetime, to its advertisers; free-to-air television remaining a significant advertising forum in Russia; and restrictions on foreign involvement in the Russian television business. These and other risks are described in the "Risk Factors" section of CTC Media's annual report on Form 10-K filed with the SEC on March 6, 2014, 14 and its quarterly report on Form 10-Q to be filed with the SEC on or about the date hereof.

Other unknown or unpredictable factors could have material adverse effects on CTC Media's future results, performance or achievements. In light of these risks, uncertainties, assumptions and factors, the forward-looking events discussed herein may not occur. You are cautioned not to place undue reliance on these forward-looking statements. CTC Media does not undertake any obligation to publicly update or revise any forward-looking statements because of new information, future events or otherwise.

CTC MEDIA, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands of US dollars, except share and per share data)


Three months ended September 30,

Nine months ended September 30,


2013

2014

2013

2014

REVENUES:





Advertising

$166,891

$156,022

$556,477

$523,080

Sublicensing revenue and other revenues

4,193

2,545

15,909

6,046

Total operating revenues

171,084

158,567

572,386

529,126

EXPENSES:





Direct operating expenses (exclusive of programming expenses, shown below; exclusive of depreciation and amortization of $7,066 and $5,542 for the three months and $21,860 and $18,157 for the nine months ended September 30, 2013 and 2014, respectively; and exclusive of stock‑based compensation expense (benefit) of $(26) and $(11) for the three months and $1,417 and $(787) for the nine months ended September 30, 2013 and 2014, respectively)

(10,682)

(10,131)

(33,582)

(34,743)

Selling, general and administrative (exclusive of depreciation and amortization of $1,084 and $827 for the three months and $3,113 and $2,864 for the nine months ended September 30, 2013 and 2014, respectively; and exclusive of stock‑ based compensation expense of $545 and $652 for the three months and $1,740 and $1,173 for the nine months ended September 30, 2013 and 2014, respectively)

(37,808)

(33,816)

(122,540)

(114,376)

Stock‑based compensation expense

(519)

(641)

(3,157)

(386)

Programming expenses

(69,738)

(63,350)

(252,368)

(227,581)

Depreciation and amortization

(8,150)

(6,369)

(24,973)

(21,021)

Total operating expenses

(126,897)

(114,307)

(436,620)

(398,107)

OPERATING INCOME

44,187

44,260

135,766

131,019

FOREIGN CURRENCY (LOSS) GAIN

(49)

1,159

1,187

(3,546)

INTEREST INCOME

2,233

2,356

8,203

8,698

INTEREST EXPENSE

(178)

(131)

(577)

(395)

OTHER NON‑OPERATING LOSS, net

(271)

(179)

(374)

(771)

EQUITY IN (LOSS) INCOME OF INVESTEE COMPANIES

385

244

840

(425)

Income before income tax

46,307

47,709

145,045

134,580

INCOME TAX (EXPENSE)/ BENEFIT

1,785

(14,724)

(33,696)

(41,906)

CONSOLIDATED NET INCOME

$48,092

$32,985

$111,349

$92,674

LESS: INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST

$(1,437)

$(1,390)

$(4,513)

$(3,202)

NET INCOME ATTRIBUTABLE TO CTC MEDIA, INC. STOCKHOLDERS

$46,655

$31,595

$106,836

$89,472

Net income per share attributable to CTC Media, Inc. stockholders—basic

$0.30

$0.20

$0.68

$0.57

Net income per share attributable to CTC Media, Inc. stockholders—diluted

$0.30

$0.20

$0.68

$0.57

Weighted average common shares outstanding—basic

155,986,822

155,762,166

157,286,789

155,742,190

Weighted average common shares outstanding—diluted

156,099,208

156,125,495

157,339,072

155,970,240

Dividends declared per share

$0.16

$0.18

$0.47

$0.53


CTC MEDIA, INC, AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands of US dollars, except share and per share data)


December 31,
2013

September 30,
2014

ASSETS



CURRENT ASSETS:



Cash and cash equivalents

$30,574

$29,837

Short‑term investments

180,337

121,982

Trade accounts receivable, net of allowance for doubtful accounts (December 31, 2013—$483; September 30, 2014—$565)

36,875

29,934

Taxes reclaimable

22,929

23,816

Prepayments

57,536

64,398

Programming rights, net

172,197

154,758

Deferred tax assets

30,400

22,048

Other current assets

4,373

6,110

TOTAL CURRENT ASSETS

535,221

452,883

PROPERTY AND EQUIPMENT, net

36,874

26,671

INTANGIBLE ASSETS, net:



Broadcasting licenses

59,676

41,361

Cable network connections

20,422

17,160

Trade names

5,332

4,525

Other intangible assets

4,876

3,425

Net intangible assets

90,306

66,471

GOODWILL

135,276

112,427

PROGRAMMING RIGHTS, net

121,802

103,591

INVESTMENTS IN AND ADVANCES TO INVESTEES

5,524

3,873

PREPAYMENTS

27,602

24,365

DEFERRED TAX ASSETS

18,371

13,107

OTHER NON‑CURRENT ASSETS

24,776

TOTAL ASSETS

$970,976

$828,164

LIABILITIES AND STOCKHOLDERS’ EQUITY



CURRENT LIABILITIES:



Accounts payable

105,849

81,181

Accrued liabilities

20,449

43,151

Taxes payable

33,630

11,475

Deferred revenue

10,223

6,092

Deferred tax liabilities

49,770

58,663

Other current liabilities

3,390

2,780

TOTAL CURRENT LIABILITIES

223,311

203,342

DEFERRED TAX LIABILITIES

13,549

9,758

COMMITMENTS AND CONTINGENCIES



STOCKHOLDERS’ EQUITY:



Common stock ($0.01 par value; shares authorized 175,772,173; shares issued December 31, 2013 and September 30, 2014—158,210,719)

1,582

1,582

Additional paid‑in capital

494,122

496,056

Retained earnings

386,575

394,281

Accumulated other comprehensive loss

(124,339)

(252,172)

Less: Common stock held in treasury, at cost (December 31, 2013—2,500,000; September 30, 2014—2,448,553 shares)

(29,727)

(29,115)

Non‑controlling interest

5,903

4,432

TOTAL STOCKHOLDERS’ EQUITY

734,116

615,064

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$970,976

$828,164


CTC MEDIA, INC, AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands of US dollars)


Nine months ended September 30,


2013

2014

CASH FLOWS FROM OPERATING ACTIVITIES:



Consolidated net income

$111,349

$92,674

Adjustments to reconcile net income to net cash provided by operating activities:



Deferred tax expense

1,378

11,631

Depreciation and amortization

24,973

21,021

Programming expenses

252,368

227,581

Stock based compensation expense

3,157

386

Equity in loss (income) of unconsolidated investees

(840)

425

Foreign currency losses (gains)

(1,187)

3,546

Changes in operating assets and liabilities:



Trade accounts receivable

(7,903)

12,982

Prepayments

957

(6,799)

Other assets

(5,819)

(8,779)

Accounts payable and accrued liabilities

(4,513)

(9,178)

Deferred revenue

(914)

(1,190)

Other liabilities

(26,721)

(16,913)

Dividends received from equity investees

707

772

Acquisition of programming and sublicensing rights

(282,487)

(273,182)

Net cash provided by operating activities

64,505

54,977

CASH FLOWS FROM INVESTING ACTIVITIES:



Acquisitions of property and equipment and intangible assets

(3,548)

(3,793)

Acquisitions of businesses, net of cash acquired

(461)

Receipts from deposits

26,219

36,936

Net cash provided by investing activities

22,210

33,143

CASH FLOWS FROM FINANCING ACTIVITIES:



Repurchases of common stock

(29,727)

Proceeds from exercise of stock options

454

Settlements of overdraft and loans

(3,587)

(628)

Increase in other non‑current assets

(20,763)

Dividends paid to stockholders

(73,854)

(61,003)

Dividends paid to noncontrolling interest

(4,795)

(4,591)

Net cash used in financing activities

(111,509)

(86,985)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

(2,613)

(1,872)

Net decrease in cash and cash equivalents

(27,407)

(737)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

55,181

30,574

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$27,774

$29,837


CTC MEDIA, INC. AND SUBSIDIARIES

UNAUDITED SEGMENT FINANCIAL INFORMATION

(in thousands of US dollars)


Three months ended September 30, 2013


Operating revenue from external customers

Intersegment revenues

Advertising revenue from external customers

Operating income/ (loss)

Depreciation and amortization

Programming expenses

OIBDA

CTC Channel

$119,329

$315

$116,247

$42,536

$(2,211)

$(47,525)

$44,747

Domashny Channel

26,099

29

25,976

3,636

(1,956)

(12,289)

5,592

Peretz Channel

17,115

5

17,091

1,166

(2,863)

(6,788)

4,029

31 Channel

6,409

6,249

1,167

(721)

(3,118)

1,888

All other

2,132

1,328

(4,318)

(399)

(18)

(3,919)

Business segment results

$171,084

$349

$166,891

$44,187

$(8,150)

$(69,738)

$52,337

Eliminations

(349)

Consolidated results

$171,084

$

$166,891

$44,187

$(8,150)

$(69,738)

$52,337



CTC MEDIA, INC. AND SUBSIDIARIES

UNAUDITED SEGMENT FINANCIAL INFORMATION (CONTINUED)

(in thousands of US dollars)




Three months ended September 30, 2014


Operating revenue from external customers

Intersegment revenues

Advertising revenue from external customers

Operating income/ (loss)

Depreciation and amortization

Programming expenses

OIBDA

CTC Channel

$109,140

$333

$107,946

$38,930

$(1,648)

$(43,247)

$40,578

Domashny Channel

26,100

27

25,992

7,978

(1,269)

(10,326)

9,247

Peretz Channel

15,108

2

15,107

125

(2,108)

(7,394)

2,233

31 Channel

5,226

21

4,970

1,185

(620)

(2,213)

1,805

All other

2,993

21

2,007

(3,958)

(724)

(170)

(3,234)

Business segment results

$158,567

$404

$156,022

$44,260

$(6,369)

$(63,350)

$50,629

Eliminations

(404)

Consolidated results

$158,567

$

$156,022

$44,260

$(6,369)

$(63,350)

$50,629


CTC MEDIA, INC. AND SUBSIDIARIES

UNAUDITED SEGMENT FINANCIAL INFORMATION (CONTINUED)

(in thousands of US dollars)


Nine months ended September 30, 2013


Operating revenue from external customers

Intersegment revenues

Advertising revenue from external customers

Operating income/ (loss)

Depreciation and amortization

Programming expenses

OIBDA



CTC Channel

$403,794

$883

$392,899

$130,486

$(6,832)

$(178,906)

$137,318

Domashny Channel

85,559

161

84,547

13,373

(5,870)

(40,436)

19,243

Peretz Channel

59,018

9

58,323

2,856

(8,898)

(23,981)

11,754

31 Channel

17,355

17,132

2,762

(2,198)

(8,543)

4,960

All other

6,660

161

3,576

(13,711)

(1,175)

(502)

(12,536)

Business segment results

$572,386

$1,214

$556,477

$135,766

$(24,973)

$(252,368)

$160,739

Eliminations

(1,214)

Consolidated results

$572,386

$

$556,477

$135,766

$(24,973)

$(252,368)

$160,739

CTC MEDIA, INC. AND SUBSIDIARIES

UNAUDITED SEGMENT FINANCIAL INFORMATION (CONTINUED)

(in thousands of US dollars)


Nine months ended September 30, 2014


Operating revenue from external customers

Intersegment revenues

Advertising revenue from external customers

Operating income/ (loss)

Depreciation and amortization

Programming expenses

OIBDA



CTC Channel

$374,257

$991

$372,451

$117,177

$(5,730)

$(163,415)

$122,907

Domashny Channel

82,051

81

81,641

19,823

(4,569)

(34,405)

24,392

Peretz Channel

50,966

6

50,778

2,479

(7,120)

(22,670)

9,599

31 Channel

13,761

67

13,092

1,673

(1,898)

(6,713)

3,571

All other

8,091

66

5,118

(10,133)

(1,704)

(378)

(8,429)

Business segment results

$529,126

$1,211

$523,080

$131,019

$(21,021)

$(227,581)

$152,040

Eliminations

(1,211)

Consolidated results

$529,126

$

$523,080

$131,019

$(21,021)

$(227,581)

$152,040


CTC MEDIA, INC. AND SUBSIDIARIES

RECONCILIATION OF CONSOLIDATED OIBDA TO

CONSOLIDATED OPERATING INCOME



Three months ended



September 30,

(US$ 000’s)


2013

2014





OIBDA


$52,337

$50,629

Depreciation and amortization


(8,150)

(6,369)

Operating income


$44,187

$44,260




Nine months ended



September 30,

(US$ 000’s)


2013

2014





OIBDA


$160,739

$152,040

Depreciation and amortization


(24,973)

(21,021)

Operating income


$135,766

$131,019


CTC MEDIA, INC. AND SUBSIDIARIES

RECONCILIATION OF CONSOLIDATED OIBDA MARGIN TO

CONSOLIDATED OPERATING INCOME MARGIN



Three months ended



September 30,



2013

2014





OIBDA margin


30.6%

31.9%

Depreciation and amortization as a % of total operating revenues


(4.8)%

(4.0)%

Operating income margin


25.8%

27.9%




Nine months ended



September 30,



2013

2014





OIBDA margin


28.1%

28.7%

Depreciation and amortization as a % of total operating revenues


(4.4)%

(3.9)%

Operating income margin


23.7%

24.8%

CTC MEDIA, INC. AND SUBSIDIARIES

RECONCILIATION OF SEGMENT OIBDA TO SEGMENT OPERATING INCOME

Three Months Ended September 30, 2013

(US$ 000’s)

OIBDA

Depreciation and amortization

Operating income / (loss)





CTC Channel

$44,747

$(2,211)

$42,536

Domashny Channel

5,592

(1,956)

3,636

Peretz Channel

4,029

(2,863)

1,166

31 Channel

1,888

(721)

1,167

All other

(3,919)

(399)

(4,318)

Consolidated results

$52,337

$(8,150)

$44,187

Three Months Ended September 30, 2014

(US$ 000’s)

OIBDA

Depreciation and amortization

Operating income / (loss)





CTC Channel

$40,578

$(1,648)

$38,930

Domashny Channel

9,247

(1,269)

7,978

Peretz Channel

2,233

(2,108)

125

31 Channel

1,805

(620)

1,185

All other

(3,234)

(724)

(3,958)

Consolidated results

$50,629

$(6,369)

$44,260

Nine Months Ended September 30, 2013

(US$ 000’s)

OIBDA

Depreciation and amortization

Operating income / (loss)





CTC Channel

$137,318

$(6,832)

$130,486

Domashny Channel

19,243

(5,870)

13,373

Peretz Channel

11,754

(8,898)

2,856

31 Channel

4,960

(2,198)

2,762

All other

(12,536)

(1,175)

(13,711)

Consolidated results

$160,739

$(24,973)

$135,766


Nine Months Ended September 30, 2014

(US$ 000’s)

OIBDA

Depreciation and amortization

Operating income / (loss)





CTC Channel

$122,907

$(5,730)

$117,177

Domashny Channel

24,392

(4,569)

19,823

Peretz Channel

9,599

(7,120)

2,479

31 Channel

3,571

(1,898)

1,673

All other

(8,429)

(1,704)

(10,133)

Consolidated results

$152,040

$(21,021)

$131,019