OREANDA-NEWS. March 03, 2010. CTC Media, Inc. (“CTC Media” or “the Company”) (NASDAQ: CTCM), Russia’s leading independent media company, announced its unaudited consolidated financial results for the fourth quarter and twelve months ended December 31, 2009, reported the press-centre of CTC Media.

Total operating expenses (before non-recurring items) is a non-GAAP financial measure that excludes a USD232.7 million charge arising from the impairment of intangible assets of DTV Group in Russia, Channel 31 in Kazakhstan and a broadcasting group in Moldova in the fourth quarter of 2008; an USD 18.7 million charge arising from the impairment of the broadcasting licenses of certain regional owned-and-operated stations in Russia in the fourth quarter of 2009; and a USD 28.6 million stock-based compensation expense recognized in conjunction with the previously announced settlement of litigation brought by CTC Media against its former CEO in the fourth quarter of 2009. Please see the accompanying financial tables at the end of this release for a reconciliation of total operating expenses (before non-recurring items) to GAAP total operating expenses.

OIBDA is defined as operating income before depreciation and amortization (excluding amortization of programming rights and sublicensing rights). 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.

All adjusted numbers are non-GAAP financial measures reported before the non-recurring items described above. Please see the accompanying financial tables at the end of this release for a reconciliation of adjusted OIBDA to OIBDA, adjusted net income to GAAP reported net income and adjusted diluted earnings per share to GAAP reported earnings per share.

FINANCIAL HIGHLIGHTS
Total revenues up 4% year-on-year in ruble terms in the fourth quarter and down 1% for the full year

Russian advertising revenues up 2% year-on-year in ruble terms in the fourth quarter and down 3% for the full year

Organic operating expenses up 13% year-on-year in ruble terms in the fourth quarter and flat for the full year

Adjusted OIBDA of USD 87.4 million with an adjusted OIBDA margin of 48.4% in the fourth quarter, and USD 211.3 million with an adjusted OIBDA margin of 41.7% for the full year

Net cash position of USD 95.2 million at year-end

Increase in national television advertising market share in Russia year-on-year to 19.5% from 17.5% for the full year

Board of Directors approved USD 0.065 per share cash dividend (or USD 10 million in the aggregate) to be paid in March 2010, as first installment of an intended total of USD 40 million in cash dividends to be paid in 2010

OPERATING HIGHLIGHTS
Average full year combined 4+ audience share for the three networks in Russia up year-on-year to 13.2% from 13.0%

Average full year target audience shares up year-on-year for all three Russian networks with highest ever shares for Domashny and DTV

Acquisition of 8 regional stations in 6 Russian cities

Year-on-year increases in technical penetration of CTC, Domashny and DTV networks in Russia to 90.7% (from 87.5% in 2008), 76.4% (from 71.0% in 2008), and 68.4% (from 61.0% in 2008), respectively

Launch of CTC international channel in North America in December 2009

Organic operating expenses are total operating expenses excluding the operating expenses of the businesses acquired and consolidated in the second quarter of 2008 (DTV Group, CIS Group and Production Group), impairment charges on intangible assets, and stock-based compensation expense recognized in conjunction with the previously announced settlement by CTC Media of litigation brought by it against its former CEO.

Anton Kudryashov, Chief Executive Officer of CTC Media, commented: “We outperformed the Russian TV advertising market throughout 2009 and further increased our audience and advertising market shares. Our Russian advertising revenues were up 2% year-on-year in ruble terms in the fourth quarter and down only 3% for the full year, despite the impact of the economic recession on advertising budgets. This compares with an estimated 12% decline for the Russian TV advertising market in the fourth quarter and an 18% decline for the full year. We also managed to keep our underlying organic operating cost base flat year-on-year in ruble terms for the full year while, at the same time, raising the technical penetration and target audience shares of all three of our Russian networks. This efficient cost control enabled us to deliver underlying OIBDA margins of 48% in the quarter and 42% for the full year, when excluding non-recurring items.”

“Approximately 85% of our forecast full year 2010 Russian national inventory has now already been booked under forward contracts at approximately the same average prices as in 2009. The pricing environment is currently showing signs of improvement moving forward for later in the year and, while we do not expect to repeat the level of market outperformance that we achieved in 2009, our target audience shares have continued to grow so far in 2010. As indicated previously, we are also now substantially increasing our investments in the programming schedules and network coverage of our DTV and Domashny channels, in order to unlock their considerable future development potential.”

“We are a growth company and are therefore committed to investing in the development and expansion of our operations. The cash dividend declared by our Board demonstrates our philosophy to return an appropriate amount of cash to shareholders when we do not need all of the cash we are generating for investments in the future growth of the business.”

Operating Review
Segment revenues are shown from external customers only, net of intercompany revenues of USD 26.2 million in the fourth quarter of 2008, USD 22.2 million in the fourth quarter of 2009, USD 54.8 million for the full year 2008, and USD 59.8 million for the full year 2009, primarily related to revenues from the Production Group that have been eliminated in the consolidation of the Company’s revenues.

Total operating revenues were down 4% year-on-year in the fourth quarter and 21% for the full year in US dollar terms, which reflected the year-on-year decline in the advertising markets, as well as the weakening of the Company’s principal operating currency (the Russian ruble) against its US dollar reporting currency. This depreciation had a negative impact of approximately 8% on the Company’s ruble-denominated sales in the fourth quarter and 21% for the full year 2009. In ruble terms, total operating revenues were up 4% year-on-year in the quarter and were approximately flat for the full year. 2009 results include full year contributions from DTV Group in Russia and Channel 31 Group in Kazakhstan for the first time, following the acquisition of both businesses during the first half of 2008.

CTC Media’s Russian advertising sales accounted for 94% of fourth quarter and full year 2009 revenues and were up 2% year-on-year in the quarter and down only 3% for the full year in ruble terms. This compared with an estimated 12% year-on-year decline in the Russian TV advertising market in the fourth quarter and an 18% decline for the full year, according to Video International. The Company reported increased target audience viewing shares and advertising market shares both in the quarter and for the full year.

The CIS Group, which accounted for 2% of full year revenues, reported a 25% year-on-year decline in sales in the fourth quarter but 1% growth for the full year. This reflected the mixed impact of higher advertising rates and sellout ratios, lower audience shares, the year-on-year depreciation of the Kazakh tenge against the US dollar, and the fact that Channel 31 in Kazakhstan was acquired and consolidated only from the first quarter of 2008. Channel 31 generated over 90% of CIS Group revenues in the quarter and for the full year.

Share of Viewing in Target Demographics
Each of the Russian networks delivered higher average target audience shares for the full year 2009 than in 2008, primarily reflecting further improvements in programming performance.

The flagship CTC Network’s average target audience share was up year-on-year and quarter-on-quarter, and the 13.5% average target audience share for November 2009 was the highest monthly average achieved since June 2006. Major audience share drivers in the fourth quarter included new seasons of the ‘Daddy’s Girls’ comedy series, as well as the premiers of ‘Margosha’, which is based on the Argentine ‘LaLola’ format, and the ‘Voroniny’ comedy series, which is based on hit U.S. format ‘Everybody Loves Raymond’.

Domashny’s target audience share was also up year-on-year in the fourth quarter and for the full year following the continued success of long-running series such as ‘Atlantida’ and ‘Desperate Housewives’, which were supported by a high-rating line-up of movies and documentaries. New locally produced comedy sketch show ‘One for All’ was launched in November 2009 and attracted solid viewing shares in its key access prime-time weekday slot.

The DTV channel has been focused on the 25-54 year-old target audience group since January 2009, and its average share of viewing in this target group grew on a full-year basis following the success of the locally produced ‘Marital Fiction’ show and the late prime-time slots for Russian and foreign criminal investigation and action series.

The decline in Channel 31’s audience share was primarily due to changes in the TNS audience measurement panel and the introduction of stricter local language programming requirements. Channel 31 did however maintain its position as the second-most watched channel in Kazakhstan in its target demographic, “all 6-54”.

Expenses
Excludes a USD 28.6 million stock-based compensation expense recognized in the fourth quarter of 2009 in conjunction with the previously announced settlement of litigation brought by CTC Media against its former CEO.

Total operating expenses, before non-recurring items, were up 2% year-on-year in the fourth quarter in US dollar terms and up 10% for the same period in Russian ruble terms, which primarily reflected the year-on-year increase in programming amortization costs and direct operating expenses. Total operating expenses, before non-recurring items, were down 18% year-on-year for the full year in US dollar terms but up 4% in Russian ruble terms, which reflected the year-on-year depreciation of the Russian ruble and Kazakh tenge, the Company’s principal operating currencies, against the US dollar reporting currency.

Organic operating expenses were up 13% year-on-year in ruble terms for the fourth quarter and flat for the full year. The increase in organic operating expenses in the fourth quarter of 2009 was due to the same factors mentioned above.

Direct operating expenses were up 43% year-on-year in the fourth quarter but flat for the full year in US dollar terms. The increase in the fourth quarter primarily reflected USD 4.8 million of stock-based compensation expenses arising from the granting of options in October and December 2009 under the Company’s 2009 Stock Incentive Plan.

Selling, general and administrative expenses were down 16% year-on-year in the fourth quarter and down 23% for the full year in US dollar terms when excluding a one-off stock-based compensation expense of USD 28.6 million. That one-off expense relates to a payment made under a share appreciation rights agreement with the Company’s former CEO and Board member Alexander Rodnyansky in settlement of legal actions brought by the Company against Mr. Rodnyansky, which was recognized in the fourth quarter of 2009.

Total stock-based compensation expenses were USD 36.0 million in the fourth quarter (Q4 2008: USD 4.2 million) and USD 47.6 million for the full year (2008: USD 16.1 million).

Programming expenses were up 2% year-on-year in the fourth quarter but down 19% for the full year in US dollar terms. The year-on-year increase in programming costs in the fourth quarter reflected a relatively more expensive programming mix. The decrease in programming costs for the full year reflected the depreciation of the Russian ruble against the US dollar reporting currency, as well as changes made to the amortization rates for certain types of Russian-produced programming in order to better reflect anticipated revenue generation patterns. These changes resulted in a USD 5.9 million year-on-year reduction in amortization expenses for the full year.

Sublicensing and own production costs were up 33% year-on-year in the fourth quarter but down 19% for the full year. In the fourth quarter, the increase in sublicensing and own production costs reflected the increase in the corresponding revenues. The decrease in the amortization of sublicensing rights and own production costs when comparing full-year 2009 to 2008 was due primarily to the decreased cost of internally produced series and sitcoms sold to a third party in Ukraine. The decrease in cost was due primarily to the depreciation of the Russian ruble against the US dollar.

As a result of the latest annual year-end asset impairment test, the Company has reported an USD 18.7 million non-cash impairment charge in the fourth quarter of 2009. The charge related to the impairment of a number of local broadcasting licenses in Russia resulting from a re-weighting of the cities in the TNS audience measurement panel.

CTC Media recognized an aggregate USD 232.7 million non-cash intangible asset impairment charge in the fourth quarter of 2008, of which USD 95.6 million related to the broadcasting licenses and trademarks of DTV Group in Russia, USD 132.9 million related to the broadcasting licenses and goodwill balances of Channel 31 in Kazakhstan, and USD 4.2 million related to the licenses of the broadcasting group in Moldova. The impairments reflected the changes in market conditions and revisions to the outlooks for the businesses compared to when the assets were acquired.

Consolidated adjusted OIBDA was USD 87.4 million in the fourth quarter (Q4 2008: USD 96.5 million) and USD 211.3 million for the full year (2008: USD 280.2 million). The Company therefore reported an adjusted OIBDA margin of 48.4% in the quarter (Q4 2008: 51.5%) and 41.7% for the full year (2008: 43.8%).

Group depreciation and amortization charges decreased by 13% year-on-year to USD 3.3 million in the quarter (Q4 2008: USD 3.8 million) and by 14% to USD 11.5 million for the full year (2008: USD 13.4 million) and adjusted consolidated operating income totaled USD 84.0 million in the quarter (Q4 2008: USD 92.7 million) and USD 199.8 million for the full year (2008: USD 266.9 million).

Net interest income was USD 2.3 million in the fourth quarter of 2009 compared to a net interest expense of USD 2.0 million in the same period of 2008, while net interest expenses fell 73% year-on-year to USD 0.9 million (2008: USD 3.2 million) for the full year following scheduled repayments on the Company’s USD 135 million syndicated loan in 2008 and 2009.

Adjusted pre-tax income therefore grew by 18% year-on-year to USD 87.6 million in the fourth quarter (Q4 2008: USD 74.3 million) and totaled USD 196.0 million for the full year (2008: USD 237.1 million).

The adjusted effective tax rate in 2008 was 21% for the full year and 2% for the fourth quarter including the one-off impact on the Company’s deferred taxes assets and liabilities of the decrease in the statutory income tax rates in Russia (from 24% to 20%) and Kazakhstan (from 30% to 20%) from the beginning of 2009, which resulted in the recognition of a USD 19.0 million income tax benefit in the fourth quarter of 2008. Net of this impact, the adjusted effective tax rate in 2008 would have been 29% for the full year and 28% for the fourth quarter. The lower adjusted effective tax rate of 24% in the fourth quarter and 25% for the full year of 2009 primarily reflected the decrease in statutory tax rates effective from January 1, 2009. The tax rate also includes the USD 2.0 million accrual of tax payments that will fall due in 2010 on the USD 40 million of dividend payments to be paid in 2010.

Adjusted net income attributable to CTC Media, Inc. stockholders therefore decreased year-on-year to USD 64.5 million in the fourth quarter (Q4 2008: USD 64.6 million) and amounted to USD 144.0 million for the full year (2008: USD 176.1 million). Adjusted fully diluted earnings per share amounted to USD 0.41 in the quarter (Q4 2008: USD 0.41) and USD 0.91 for the full year (2008: USD 1.11).

Cash Flow
The Company’s net cash flow from operating activities totaled USD 132.9 million for the full year 2009 (2008: USD 185.9 million) and reflected the net effect of lower advertising sales and lower spending for programming and sublicensing rights in 2009. The cash flow from operating activities was impacted by the USD 29.4 million cash payment made in December 2009 in part settlement of litigation brought by CTC Media against its former CEO.

Cash used in investing activities totaled USD 81.7 million for the full year 2009 (2008: USD 419.0 million) and included the acquisition of regional television stations in Russia for a total cash consideration of USD 14.6 million, USD 11.0 million of earn-out payments related to the acquisitions of the Costafilm and Soho Media companies in 2008, purchases of equipment and software for the Company’s new digital broadcasting center in Moscow and USD 39.8 million of cash placed in short-term deposits.

Cash used for financing activities amounted to USD 62.5 million for the full year (cash provided by financing activities for 2008: USD 20.6 million). This included a USD 62.0 million part repayment of the Company’s USD 135 million syndicated loan, which was drawn down in July 2008 in order to finance the acquisition of DTV Group. Also, in 2009, the Company received USD 3.4 million in proceeds from exercise of share appreciation rights by its former CEO.

The Company’s cash and cash equivalents and short-term investments amounted to USD 123.5 million at December 31, 2009, compared to USD 98.1 million at the end of 2008.

Borrowings
The Company’s total borrowings and accrued interest amounted to USD 28.3 million at the end of the year, compared to USD 90.6 million at the end of 2008. The Company therefore had a net cash position, which is defined as cash and cash equivalents and short-term deposits less interest-bearing liabilities, of USD 95.2 million at the end 2009, compared to a net cash position of USD 7.5 million at the end of 2008. The Company intends to repay the remaining USD 28.3 million balance under its USD 135 million syndicated loan facility on March 22, 2010.

Dividends
The CTC Media Board of Directors has announced its intention to pay an aggregate of USD 40 million in cash dividends in 2010. The payment of the first installment of USD 0.065 per outstanding share of common stock, or USD 10 million in total, has been approved by the Board. The record date for this first installment is March 10, 2010 and the payment date is March 31, 2010. The Board has also announced its intention to pay the three remaining USD 10 million installments in each of June, September and December 2010. While it is the Board’s current intention to declare and pay these three future installments, there can be no assurance that such installments will in fact be declared and paid. Any such declaration is at the discretion of the Board and will depend upon factors such as CTC Media’s earnings, financial position and cash requirements.

2010 Outlook
CTC Media has now contracted approximately 85% of its forecast full year 2010 Russian national inventory under forward contracts at approximately the same average price levels as in 2009. CTC Media expects to continue to outperform the Russian advertising market in 2010, but not by the level achieved in 2009. The pricing environment is currently showing signs of improvement moving forward for later in the year and CTC Media’s target audience shares have continued to grow so far in 2010.

CTC Media is also substantially increasing its investments in the development of the DTV and Domashny channels in 2010, and will invest throughout the year to further enhance the programming schedules and expand the coverage of these two networks, in order to significantly accelerate their development. As a result of these and other investments, the Company’s operating expenses are expected to increase by approximately 15% for the full year based on average 2009 ruble / dollar exchange rates, when excluding the non-recurring impairment charges and stock-based compensation expenses in 2009. The year-on-year increase in operating expenses is expected to be significantly weighted to the first half of the year. CTC Media’s capital expenditures are expected to reach up to USD 40 million in 2010 as a result of the establishment of a unified digital play-out facility in Moscow, the ongoing digitalization of the Company’s content library, the upgrading of broadcasting equipment and the planned move to a new principal office location in Moscow.