**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
 
 **FORM
        10-K/A**
 **AMENDMENT
        NO.1 TO FORM 10-K**
 
 x**ANNUAL
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
        1934**
 
 **For
        the fiscal year ended December 31, 2005**
 
 o **TRANSITION
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
        1934**
 For
        the
        transition period from __________ to __________
 
 Commission
        File Number 0-24796
 
 **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 (Exact
        name of registrant as specified in its charter)
 
 **BERMUDA**
              **98-0438382**(State
                  or other jurisdiction of incorporation and organization)
              (IRS
                  Employer Identification No.)Clarendon
                  House, Church Street, Hamilton
              HM
                  CX Bermuda(Address
                  of principal executive offices)
              (Zip
                  Code)
 
 Registrant's
        telephone number, including area code: 441-296-1431
 
 **Securities
        registered pursuant to Section 12(b) of the Act: NONE**
 
 **Securities
        registered pursuant to Section 12(g) of the Act:**
 **CLASS
        A COMMON STOCK, $0.08 PAR VALUE**
 
 Indicate
        by check mark if the registrant is a well-known seasoned issuer, as defined
        in
        Rule 405 of the Securities Act. Yes x No o
 
 Indicate
        by check mark if the registrant is not required to file reports pursuant
        to
        Section 13 or Section 15(d) of the Act. Yes o No x
 
 Indicate
        by check mark whether the registrant: (1) has filed all reports required
        to be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for each shorter period that the Registrant was required
        to file such reports), and (2) has been subject to such filing requirements
        for
        the past 90 days. Yes x No o
 
 Indicate
        by check mark if disclosure of delinquent filers pursuant to Item 405 of
        Regulation S-K is not contained herein, and will not be contained, to the
        best
        of registrant's knowledge, in definitive proxy or information statements
        incorporated by reference in Part III of this Form 10-K or any amendment
        to this
        Form 10-K. x
  Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See definition of “accelerated
        filer and large accelerated filer” in Rule 12b-2 of the Exchange
        Act.
 
 Large
                  accelerated filerx
              Accelerated
                  filero
              Non-accelerated
                  filero
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Act). Yes o No x
  
 
  The
        aggregate market value of the voting stock held by non-affiliates of the
        registrant as of June 30, 2005 (based on the closing sale price of $48.38
        of the
        registrant's Common Stock, as reported by the Nasdaq Exchange on such date)
        was
        approximately US$ 1.5 billion.
  Number
        of
        shares of Class A Common Stock outstanding as of March 6, 2006 :
        31,057,994
 
 Number
        of
        shares of Class B Common Stock outstanding as of March 6, 2006 :
        6,966,533
  
  **EXPLANATORY
        NOTE**
 
 This
        is
        Amendment No. 1 to the Annual Report on Form 10-K of Central European Media
        Enterprises Ltd., as originally filed on March 2, 2006.
  We
          are
          filing this Amendment No. 1:
 
 ·
                To
                    include Form 10-K, Part III information that we previously incorporated
                    by
                    reference to the Proxy Statement for our Annual General Meeting
                    of
                    Shareholders;
 
 ·
                To
                    modify in Item 8. Financial Statements and Supplementary Data,
                    the
                    following:
 
 (a)
                Footnote
                    1 to the financial statements of Slovenska televizna spolocnost
                    s.r.o. and
                    the report of Deloitte Audit s.r.o. with respect thereto to reflect
                    the
                    extension of the broadcast license of Markiza-Slovakia, spol.
                    s.r.o.;
 
 (b)
                The
                    unaudited pro-forma data for the years ended December 31, 2004
                    and 2005
                    appearing in Note 3, “Acquisitions and Disposals” to our consolidated
                    Financial Statements under “Czech Republic - Acquisition - TV
                    Nova”.
 
 No
          other
          information in Item 8. Financial Statements and Supplementary Data has
          been
          amended from that appearing in our Form 10-K as originally filed on March
          2,
          2006.
 
 We
          have
          not otherwise updated the Annual Report on Form 10-K/A to modify disclosures
          in
          Annual Report on Form 10-K for events occurring subsequent to the original
          March
          2, 2006 filing date, and except for the additions and modifications referred
          to
          in the preceding paragraph, it continues to speak as of March 2, 2006.
 **TABLE
        OF CONTENTS**
 
 Page**PART
                  II**Item
                  8
              
              Financial
                  Statements and Supplementary
                  Data
              2**PART
                  III**Item
                  10
              
              Directors
                  and Executive Officers of the
                  Registrant
              71Item
                  11
              
              Executive
                  Compensation
              75Item
                  12
              
              Security
                  Ownership of Certain Beneficial Owners and Management
                  and Related Stockholder Matters
              79Item
                  13
              
              Certain
                  Relationships and Related
                  Transactions
              84Item
                  14
              
              Principal
                  Accountant Fees and Services
              85
  *Page
            1*
 *Table
            of Contents*
  **ITEM
                  8.**
              **FINANCIAL
                  STATEMENTS AND SUPPLEMENTARY
                  DATA**
 
 (Financial
        Statements and Supplementary data begin on the following page.)
 
 **REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 To
        the
        Board of Directors and Shareholders of Central European Media Enterprises
        Ltd.
 
 We
        have
        audited the accompanying consolidated balance sheets of Central European
        Media
        Enterprises Ltd. and subsidiaries (the “Company”) as of December 31, 2005 and
        2004, and the related consolidated statements of operations and comprehensive
        income, shareholders' equity, and cash flows for each of the three years
        in the
        period ended December 31, 2005. Our audits also included the consolidated
        financial statement schedules listed in the Index at Item 15. These financial
        statements and financial statement schedules are the responsibility of the
        Company's management. Our responsibility is to express an opinion on these
        financial statements and financial statement schedules based on our
        audits.
 
 We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. An audit includes examining,
        on a
        test basis, evidence supporting the amounts and disclosures in the financial
        statements. An audit also includes assessing the accounting principles used
        and
        significant estimates made by management, as well as evaluating the overall
        financial statement presentation. We believe that our audits provide a
        reasonable basis for our opinion.
 
 In
        our
        opinion, such consolidated financial statements present fairly, in all material
        respects, the financial position of Central European Media Enterprises Ltd.
        and
        subsidiaries as of December 31, 2005 and 2004, and the results of their
        operations and their cash flows for each of the three years in the period
        ended
        December 31, 2005, in conformity with accounting principles generally accepted
        in the United States of America. Also, in our opinion, such consolidated
        financial statement schedules, when considered in relation to the basic
        consolidated financial statements taken as a whole, present fairly, in all
        material respects, the information set forth therein.
 
 We
        have
        also audited, in accordance with the standards of the Public Company Accounting
        Oversight Board (United States), the effectiveness of the Company's internal
        control over financial reporting as of December 31, 2005, based on the criteria
        established in Internal Control—Integrated Framework issued by the Committee of
        Sponsoring Organizations of the Treadway Commission and our report dated
        February 28, 2006 expressed an unqualified opinion on management's assessment
        of
        the effectiveness of the Company's internal control over financial reporting
        and
        an unqualified opinion on the effectiveness of the Company's internal control
        over financial reporting.
 
 DELOITTE
        & TOUCHE LLP
 London,
        United Kingdom
 February
        28, 2006
  *Page
            2*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **CONSOLIDATED
        BALANCE SHEETS**
 **(US$
        000’s)**
 
 **December
                  31,**
                **2005**
              
              **December
                  31,**
                **2004****ASSETS****Current
                  assets**Cash
                  and cash equivalents
              
              $
              71,658
              
              $
              152,568Restricted
                  cash (Note 7)
              
              
              34,172
              
              
              15,574Accounts
                  receivable (Note 8)
              
              
              97,396
              
              
              45,170Income
                  taxes receivable
              
              
              9,930
              
              
              90Program
                  rights
              
              
              34,914
              
              
              22,055Other
                  current assets (Note 9)
              
              
              38,856
              
              
              29,592**Total
                  current assets**
              
              
              **286,926**
              
              
              **265,049****Non-current
                  assets**Investments
                  (Note 6)
              
              
              23,936
              
              
              28,558Acquisition
                  costs (Notes 3 and 21)
              
              
              5,118
              
              
              10,770Property,
                  plant and equipment (Note 10)
              
              
              58,897
              
              
              31,548Program
                  rights
              
              
              33,081
              
              
              18,299Goodwill
                  (Note 4)
              
              
              746,583
              
              
              59,092Broadcast
                  licenses (Note 4)
              
              
              171,591
              
              
              14,575Other
                  intangible assets (Note 4)
              
              
              47,658
              
              
              12,756Other
                  non-current assets (Note 9)
              
              
              15,060
              
              
              3,992**Total
                  non-current assets**
              
              
              **1,101,924**
              
              
              **179,590****Total
                  assets**
              
              **$**
              **1,388,850**
              
              **$**
              **444,639**
 
 
 *The
        accompanying notes are an integral part of these consolidated financial
        statements.*
  *Page
            3*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **CONSOLIDATED
        BALANCE SHEETS (continued)**
 **(US$
        000’s)**
 
 **December
                  31, 2005**
              
              **December
                  31, 2004****LIABILITIES
                  AND SHAREHOLDERS’ EQUITY****Current
                  liabilities**Accounts
                  payable and accrued liabilities (Note 11)
              
              $
              84,849
              
              $
              67,042Duties
                  and other taxes payable
              
              
              27,654
              
              
              20,243Income
                  taxes payable (Note 14)
              
              
              21,894
              
              
              4,658Credit
                  facilities and obligations under capital leases (Note 12)
              
              
              43,566
              
              
              10,472Deferred
                  consideration - Croatia (Note 3)
              
              
              3,591
              
              
              6,384Deferred
                  consideration - Czech Republic (Note 3)
              
              
              24,402
              
              
              -Deferred
                  tax (Note 14)
              
              
              1,005
              
              
              946**Total
                  current liabilities**
              
              
              **206,961**
              
              
              **109,745****Non-current
                  liabilities**Credit
                  facilities and obligations under capital leases (Note 12)
              
              
              4,740
              
              
              8,898Senior
                  Notes (Note 5)
              
              
              436,424
              
              
              -Income
                  taxes payable (Note 14)
              
              
              681
              
              
              3,120Deferred
                  tax (Note 14)
              
              
              42,149
              
              
              6,213Other
                  non-current liabilities
              
              
              4,105
              
              
              734**Total
                  non-current liabilities**
              
              
              **488,099**
              
              
              **18,965**Commitments
                  and contingencies (Note 19)**Minority
                  interests in consolidated subsidiaries**
              
              
              **13,237**
              
              
              **4,861****SHAREHOLDERS'
                  EQUITY (Note 13):**Nil
                  shares of Preferred Stock of $0.08 each (2004 - nil)
              
              
              -
              
              
              -31,032,994
                  shares of Class A Common Stock of $0.08 each (2004 -
                  21,049,400)
              
              
              2,482
              
              
              1,6846,966,533
                  shares of Class B Common Stock of $0.08 each (2004 -
                  7,334,768)
              
              
              558
              
              
              587Additional
                  paid-in capital
              
              
              746,880
              
              
              387,305Accumulated
                  deficit
              
              
              (44,973
              )
              
              (87,468
              )Accumulated
                  other comprehensive income / (loss)
              
              
              (24,394
              )
              
              8,960**Total
                  shareholders’ equity**
              
              
              **680,553**
              
              
              **311,068****Total
                  liabilities and shareholders’ equity**
              
              **$**
              **1,388,850**
              
              **$**
              **444,639**
 
 *The
        accompanying notes are an integral part of these consolidated financial
        statements.*
  *Page
            4*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME**
 **(US$
        000’s, except share and per share data)**
 
 **For
                  the Years Ended December 31,****2005**
              
              **2004**
              
              **2003****Net
                  revenues**
              
              **$**
              **400,978**
              
              **$**
              **182,339**
              
              **$**
              **124,978**Operating
                  costs
              
              
              65,138
              
              
              33,615
              
              
              26,608Cost
                  of programming
              
              
              148,837
              
              
              71,793
              
              
              50,747Station
                  selling, general and administrative expenses
              
              
              46,382
              
              
              22,112
              
              
              14,245Depreciation
                  of station property, plant & equipment
              
              
              16,367
              
              
              6,429
              
              
              5,276Amortization
                  of broadcast licenses and other intangibles (Note 4)
              
              
              11,180
              
              
              465
              
              
              -Corporate
                  operating costs
              
              
              25,374
              
              
              29,185
              
              
              32,512Impairment
                  charge (Note 4)
              
              
              35,331
              
              
              -
              
              
              -**Total
                  operating expenses**
              
              
              **348,609**
              
              
              **163,599**
              
              
              **129,388****Operating
                  income/(loss)**
              
              
              **52,369**
              
              
              **18,740**
              
              
              **(4,410**
              **)**Interest
                  income
              
              
              4,124
              
              
              4,318
              
              
              5,507Interest
                  expense
              
              
              (29,387
              )
              
              (1,203
              )
              
              (12,010
              )Foreign
                  currency exchange gain/(loss), net
              
              
              37,968
              
              
              (574
              )
              
              (10,023
              )Other
                  expense
              
              
              (4,705
              )
              
              (698
              )
              
              (2,458
              )**Income/(loss)
                  before provision for income taxes, minority interest, equity in
                  income of
                  unconsolidated affiliates and discontinued
                  operations**
              
              
              **60,369**
              
              
              **20,583**
              
              
              **(23,394**
              **)**Provision
                  for income taxes (Note 14)
              
              
              (16,691
              )
              
              (11,089
              )
              
              (3,760
              )**Income/(loss)
                  before minority interest, equity in income of unconsolidated affiliates
                  and discontinued operations**
              
              
              **43,678**
              
              
              **9,494**
              
              
              **(27,154**
              **)**Minority
                  interest in income of consolidated subsidiaries
              
              
              (8,908
              )
              
              (4,106
              )
              
              (676
              )Equity
                  in income of unconsolidated affiliates (Note 6)
              
              
              8,238
              
              
              10,619
              
              
              3,629**Net
                  income/(loss) from continuing operations**
              
              
              **43,008**
              
              
              **16,007**
              
              
              **(24,201**
              **)****Discontinued
                  operations (Note 18):**Pre-tax
                  income from discontinued operations (Czech Republic)
              
              
              164
              
              
              146
              
              
              384,213Tax
                  on disposal of discontinued operations (Czech Republic)
              
              
              (677
              )
              
              2,378
              
              
              (14,000
              )**Net
                  income/(loss) from discontinued operations**
              
              
              **(513**
              **)**
              
              **2,524**
              
              
              **370,213****Net
                  income**
              
              **$**
              **42,495**
              
              **$**
              **18,531**
              
              **$**
              **346,012**Currency
                  translation adjustment, net
              
              
              (33,354
              )
              
              4,228
              
              
              10,056**Total
                  comprehensive income**
              
              **$**
              **9,141**
              
              **$**
              **22,759**
              
              **$**
              **356,068**
  *The
        accompanying notes are an integral part of these consolidated financial
        statements.*
  *Page
            5*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
        (continued)**
 **(US$
        000’s, except share and per share data)**
 
 **For
                  the Years Ended December 31,****2005**
              
              **2004**
              
              **2003****PER
                  SHARE DATA (Note 16):***Net
                  income/(loss) per share:*Continuing
                  operations - Basic
              
              $
              1.24
              
              $
              0.57
              
              $
              (0.91
              )Continuing
                  operations - Diluted
              
              
              1.21
              
              
              0.55
              
              
              (0.91
              )Discontinued
                  operations - Basic
              
              
              (0.01
              )
              
              0.09
              
              
              13.97Discontinued
                  operations - Diluted
              
              
              (0.01
              )
              
              0.09
              
              
              13.97Net
                  income - Basic
              
              
              1.23
              
              
              0.66
              
              
              13.06Net
                  income - Diluted
              
              $
              1.20
              
              $
              0.64
              
              $
              13.06*Weighted
                  average common shares used in computing per share amounts
                  (000s):*Basic
              
              
              34,664
              
              
              27,871
              
              
              26,492Diluted
              
              
              35,430
              
              
              29,100
              
              
              26,492
  *The
        accompanying notes are an integral part of these consolidated financial
        statements.*
  *Page
            6*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **CONSOLIDATED
        STATEMENT OF SHAREHOLDERS' EQUITY**
 **(US$
        000’s)**
 
 **Class
                  A Common Stock**
              
              **Class
                  B Common Stock**
              
              
              
              
              
              **Accumulated****Number
                  of**
                **shares**
              
              **Par
                  value**
              
              **Number
                  of**
                **shares**
              
              **Par
                  value**
              
              **Additional
                  Paid-**
                **In
                  Capital**
              
              **Accumulated**
                **Deficit**
              
              **Other**
                **Comprehensive**
                **Income/(Loss)**
              
              **Total**
                **Shareholders'**
                **Equity/
                  (Deficit)****BALANCE,
                  December 31, 2002**
              
              
              **18,523,768**
              
              **$**
              **1,482**
              
              
              **7,934,768**
              
              **$**
              **635**
              
              $
              **359,342**
              ****
              **$**
              **(452,011**
              **)**
              **$**
              **(5,324**
              **)**
              **$**
              **(95,876**
              **)**Stock-based
                  Compensation
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              13,209
              
              
              -
              
              
              -
              
              
              13,209Stock
                  options exercised
              
              
              145,998
              
              
              12
              
              
              -
              
              
              -
              
              
              111
              
              
              -
              
              
              -
              
              
              123Conversion
                  of Class B to Class A Common Stock
              
              
              600,000
              
              
              48
              
              
              (600,000
              )
              
              (48
              )
              
              -
              
              
              -
              
              
              -
              
              
              -Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              346,012
              
              
              -
              
              
              346,012Currency
                  translation adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              10,056
              
              
              10,056**BALANCE,
                  December 31, 2003**
              
              
              **19,269,766**
              
              **$**
              **1,542**
              
              
              **7,334,768**
              
              **$**
              **587**
              
              **$**
              **372,662**
              
              **$**
              **(105,999**
              **)**
              **$**
              **4,732**
              
              **$**
              **273,524**Stock-based
                  Compensation
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              10,102
              
              
              -
              
              
              -
              
              
              10,102Stock
                  options exercised
              
              
              1,083,634
              
              
              87
              
              
              -
              
              
              -
              
              
              2,853
              
              
              -
              
              
              -
              
              
              2,940Warrants
                  exercised
              
              
              696,000
              
              
              55
              
              
              -
              
              
              -
              
              
              1,688
              
              
              -
              
              
              -
              
              
              1,743Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              18,531
              
              
              -
              
              
              18,531Currency
                  translation adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              4,228
              
              
              4,228**BALANCE,
                  December 31, 2004**
              
              
              **21,049,400**
              
              **$**
              **1,684**
              
              
              **7,334,768**
              
              **$**
              **587**
              
              **$**
              **387,305**
              
              **$**
              **(87,468**
              **)**
              **$**
              **8,960**
              
              **$**
              **311,068**Stock-based
                  Compensation
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              2,954
              
              
              -
              
              
              -
              
              
              2,954Shares
                  issued to PPF
              
              
              3,500,000
              
              
              280
              
              
              -
              
              
              -
              
              
              120,603
              
              
              -
              
              
              -
              
              
              120,883Shares
                  issued, net of fees
              
              
              5,405,000
              
              
              432
              
              
              -
              
              
              -
              
              
              230,172
              
              
              -
              
              
              -
              
              
              230,604Stock
                  options exercised
              
              
              710,359
              
              
              57
              
              
              -
              
              
              -
              
              
              5,846
              
              
              -
              
              
              -
              
              
              5,903Conversion
                  of Class B to Class A Common Stock
              
              
              368,235
              
              
              29
              
              
              (368,235
              )
              
              (29
              )
              
              -
              
              
              -
              
              
              -
              
              
              -Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              42,495
              
              
              -
              
              
              42,495Currency
                  translation adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (33,354
              )
              
              (33,354
              )**BALANCE,
                  December 31, 2005**
              
              
              **31,032,994**
              
              **$**
              **2,482**
              
              
              **6,966,533**
              
              **$**
              **558**
              
              **$**
              **746,880**
              
              **$**
              **(44,973**
              **)**
              **$**
              **(24,394**
              **)**
              **$**
              **680,553**
  *The
        accompanying notes are an integral part of these consolidated financial
        statements.*
  *Page
            7*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **(US$
        000’s)**
 
 **For
                  the Years Ended December 31,****2005**
              
              **2004**
              
              **2003****CASH
                  FLOWS FROM OPERATING ACTIVITIES:****Net
                  income**
              
              **$**
              **42,495**
              
              **$**
              **18,531**
              
              **$**
              **346,012**Adjustments
                  to reconcile net income to net cash generated from/(used in) operating
                  activities:(Income)/loss
                  from discontinued operations (Note 18)
              
              
              513
              
              
              (2,524
              )
              
              (370,213
              )Equity
                  in income of unconsolidated affiliates, net of dividends
                  received
              
              
              3,454
              
              
              (4,340
              )
              
              (243
              )Depreciation
                  and amortization
              
              
              110,846
              
              
              49,357
              
              
              38,037Impairment
                  charge (Note 4)
              
              
              35,331
              
              
              -
              
              
              -Interest
                  receivable
              
              
              (185
              )
              
              (340
              )
              
              (344
              )Loss
                  on disposal of fixed assets
              
              
              685
              
              
              18
              
              
              -Stock-based
                  compensation (Note 15)
              
              
              2,954
              
              
              10,102
              
              
              13,209Minority
                  interest in income of consolidated subsidiaries
              
              
              8,908
              
              
              4,106
              
              
              676Foreign
                  currency exchange (gain)/loss, net
              
              
              (37,968
              )
              
              574
              
              
              10,023Net
                  change in (net of effects of acquisitions and disposals of
                  businesses):Accounts
                  receivable
              
              
              1,693
              
              
              (9,100
              )
              
              (3,547
              )Program
                  rights costs
              
              
              (110,364
              )
              
              (45,446
              )
              
              (33,049
              )Other
                  assets
              
              
              12,174
              
              
              (4,572
              )
              
              1,246Settlement
                  liability (Note 11)
              
              
              (41,606
              )
              
              -
              
              
              -Other
                  accounts payable and accrued liabilities
              
              
              (13,642
              )
              
              (13,611
              )
              
              (7,642
              )Income
                  and other taxes payable
              
              
              (11,744
              )
              
              (340
              )
              
              (1,615
              )**Net
                  cash generated from/(used in) continuing operating
                  activities**
              
              
              **3,544**
              
              
              **2,415**
              
              
              **(7,450**
              **)****CASH
                  FLOWS FROM INVESTING ACTIVITIES:**Net
                  change in restricted cash
              
              
              (19,521
              )
              
              (10,145
              )
              
              1,769Purchase
                  of property, plant and equipment
              
              
              (26,548
              )
              
              (10,808
              )
              
              (7,811
              )Proceeds
                  from disposal of property, plant and equipment
              
              
              125
              
              
              72
              
              
              -Investments
                  in subsidiaries and unconsolidated affiliates
              
              
              (35,305
              )
              
              (35,800
              )
              
              (8
              )Partial
                  consideration for acquisition of TV Nova (Czech Republic)
                  group
              
              
              (218,054
              )
              
              -
              
              
              -Proceeds
                  from partial disposal of investment
              
              
              -
              
              
              42
              
              
              -Repayment
                  of loans and advances to related parties
              
              
              500
              
              
              400
              
              
              -License
                  costs, other assets and intangible assets
              
              
              -
              
              
              (770
              )
              
              (6,060
              )**Net
                  cash used in continuing investing activities**
              
              
              **(298,803**
              **)**
              
              **(57,009**
              **)**
              
              **(12,110**
              **)****CASH
                  FLOWS FROM FINANCING ACTIVITIES:**Net
                  proceeds from issuance/(repurchase) of Senior Notes
              
              
              465,120
              
              
              -
              
              
              (183,739
              )Proceeds
                  from other credit facilities
              
              
              65,902
              
              
              -
              
              
              -Payment
                  of credit facilities and capital leases
              
              
              (41,243
              )
              
              (2,275
              )
              
              (17,905
              )Proceeds
                  from/(repayment) of loans from unconsolidated affiliates
              
              
              (5,827
              )
              
              -
              
              
              2,450Repayment
                  of notes for acquisition of TV Nova (Czech Republic) group
              
              
              (491,703
              )
              
              -
              
              
              -Repayment
                  of liabilities on acquisition of Galaxie Sport
              
              
              (3,000
              )
              
              -
              
              
              -Issuance
                  of Class A Common Stock
              
              
              236,507
              
              
              4,161
              
              
              123Dividends
                  paid to minority shareholders
              
              
              (397
              )
              
              -
              
              
              -Repayment
                  of other non-current liabilities
              
              
              -
              
              
              -
              
              
              (400
              )**Net
                  cash received from/(used in) financing activities**
              
              
              **225,359**
              
              
              **1,886**
              
              
              **(199,471**
              **)**NET
                  CASH RECEIVED FROM/(USED IN) DISCONTINUED OPERATIONS-OPERATING
                  (Revised -
                  See Note 2)
              
              
              (2,000
              )
              
              (9,463
              )
              
              343,358NET
                  CASH RECEIVED FROM DISCONTINUED OPERATIONS-INVESTING (Revised -
                  See Note
                  2)
              
              
              -
              
              
              20,349
              
              
              15,000**Impact
                  of exchange rate fluctuations on cash**
              
              
              **(9,010**
              **)**
              
              **2,144**
              
              
              **1,146**Net
                  increase/(decrease) in cash and cash equivalents
              
              
              (80,910
              )
              
              (39,678
              )
              
              140,473**CASH
                  AND CASH EQUIVALENTS, beginning of year**
              
              
              **152,568**
              
              
              **192,246**
              
              
              **51,773****CASH
                  AND CASH EQUIVALENTS, end of year**
              
              **$**
              **71,658**
              
              **$**
              **152,568**
              
              **$**
              **192,246**
 
 *The
        accompanying notes are an integral part of these consolidated financial
        statements.*
  *Page
            8*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS (continued)**
 **(US$
        000’s)**
  **For
                  the Years Ended December 31,****2005**
              
              **2004**
              
              **2003****SUPPLEMENTAL
                  DISCLOSURE OF CASH FLOW INFORMATION:**Cash
                  paid for interest
              
              $
              19,402
              
              $
              581
              
              $
              16,658Cash
                  paid for income taxes (net of refunds)
              
              $
              10,066
              
              $
              18,920
              
              $
              4,938**SUPPLEMENTAL
                  DISCLOSURE OF NON-CASH FINANCING AND INVESTING
                  ACTIVITIES:**Exchange
                  of 3.5 million shares of Class A Common Stock (Note 3)
              
              $
              120,883
              
              $
              -
              
              $
              -Notes
                  taken out for acquisition of TV Nova (Czech Republic) group (Note
                  3)
              
              $
              491,703
              
              $
              -
              
              $
              -Exchange
                  of Other receivable (Note 3)
              
              $
              18,541
              
              $
              -
              
              $
              -Purchase
                  of Krsak interest financed with payable (Note 3)
              
              $
              24,683
              
              $
              -
              
              $
              -Purchase
                  of share of Romania operations through settlement of loans receivable
                  (Note 3)
              
              $
              -
              
              $
              3,400
              
              $
              -Acquisition
                  of property, plant and equipment under capital lease
              
              $
              4,967
              
              $
              333
              
              $
              156
  *The
        accompanying notes are an integral part of these consolidated financial
        statements.*
  *Page
            9*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 **1.**
              **ORGANIZATION
                  AND BUSINESS**
 
 Central
        European Media Enterprises Ltd., a Bermuda corporation, was formed in June
        1994.
        Our assets are held through a series of Dutch and Netherlands Antilles holding
        companies. We invest in, develop and operate national and regional commercial
        television stations and channels in Central and Eastern Europe. At December
        31,
        2005, we have operations in Croatia, the Czech Republic, Romania, the Slovak
        Republic, Slovenia and Ukraine .
 
 Our
        principal subsidiaries and equity-accounted affiliates as at December 31,
        2005
        were:
 
 **Company
                  Name**
              
              **Voting**
                **Interest**
              
              **Jurisdiction
                  of**
                **Organization**
              
              **Subsidiary
                  / Equity-Accounted**
                **Affiliate
                  (1)**CME
                  Media Investments s.r.o.
              
              100%
              
              Czech
                  Republic
              
              SubsidiaryVilja
                  a.s. (“Vilja”)
              
              100%
              
              Czech
                  Republic
              
              SubsidiaryCET
                  21 s.r.o. (“CET 21”)
              
              96.5%
              
              Czech
                  Republic
              
              SubsidiaryCME
                  Media Services s.r.o. (“CME Media Services”)
              
              100%
              
              Czech
                  Republic
              
              Subsidiary
                  (2)ERIKA
                  a.s.
              
              100%
              
              Czech
                  Republic
              
              SubsidiaryMedia
                  Capitol, a.s.
              
              100%
              
              Czech
                  Republic
              
              SubsidiaryNOVA
                  Consulting, a.s.
              
              100%
              
              Czech
                  Republic
              
              SubsidiaryHARTIC,
                  a.s.
              
              100%
              
              Czech
                  Republic
              
              SubsidiaryGalaxie
                  Sport s.r.o. (“Galaxie Sport”)
              
              100%
              
              Czech
                  Republic
              
              SubsidiaryPlejada
                  a.s.
              
              96.5%
              
              Czech
                  Republic
              
              Subsidiary
                  (in liquidation)Media
                  Pro International S.A. (“MPI”)
              
              85%
              
              Romania
              
              SubsidiaryMedia
                  Vision S.R.L. (“Media Vision”)
              
              70%
              
              Romania
              
              SubsidiaryMPI
                  Romania B.V.
              
              85%
              
              Netherlands
              
              SubsidiaryPro
                  TV S.A. (“Pro TV”)
              
              85%
              
              Romania
              
              SubsidiaryRadio
                  Pro S.R.L (“Radio Pro”)
              
              20%
              
              Romania
              
              Equity-Accounted
                  AffiliateInternational
                  Media Services Ltd. (“IMS”)
              
              60%
              
              Bermuda
              
              SubsidiaryInnova
                  Film GmbH (“Innova”)
              
              60%
              
              Germany
              
              SubsidiaryEnterprise
                  “Inter-Media” (“Inter-Media”)
              
              60%
              
              Ukraine
              
              SubsidiaryTV
                  Media Planet Ltd
              
              60%
              
              Cyprus
              
              SubsidiaryBroadcasting
                  Company “Studio 1+1” LLC (“Studio 1+1”)
              
              18%
              
              Ukraine
              
              Consolidated
                  Variable Interest Entity (3)Ukraine
                  Media Services LLC
              
              99%
              
              Ukraine
              
              SubsidiarySlovenska
                  Televizna Spolocnost s.r.o. (“STS”)
              
              49%
              
              Slovak
                  Republic
              
              Equity-Accounted
                  Affiliate (4)Markiza-Slovakia
                  s.r.o. (“Markiza”)
              
              34%
              
              Slovak
                  Republic
              
              Equity-Accounted
                  Affiliate (4)Gamatex
                  s.r.o.
              
              49%
              
              Slovak
                  Republic
              
              Equity-Accounted
                  Affiliate (4)ADAM
                  a.s.
              
              49%
              
              Slovak
                  Republic
              
              Equity-Accounted
                  Affiliate (4)
  *Page
            10*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 **Company
                  Name**
              
              **Voting**
                **Interest**
              
              **Jurisdiction
                  of**
                **Organization**
              
              **Subsidiary
                  / Equity-Accounted**
                **Affiliate
                  (1)**MM
                  TV 1 d.o.o.
              
              100%
              
              Slovenia
              
              SubsidiaryProdukcija
                  Plus d.o.o. (“Pro Plus”)
              
              100%
              
              Slovenia
              
              SubsidiaryPOP
                  TV d.o.o. (“Pop TV”)
              
              100%
              
              Slovenia
              
              SubsidiaryKanal
                  A d.o.o. (“Kanal A”)
              
              100%
              
              Slovenia
              
              SubsidiarySuper
                  Plus Holding d.d.
              
              100%
              
              Slovenia
              
              Subsidiary
                  (in liquidation)MTC
                  Holding d.o.o.
              
              24%
              
              Slovenia
              
              Equity-Accounted
                  AffiliateNova
                  TV d.d. (“Nova TV Croatia”)
              
              100%
              
              Croatia
              
              SubsidiaryOperativna
                  Kompanija d.o.o. (“OK”)
              
              100%
              
              Croatia
              
              SubsidiaryMedia
                  House d.o.o.
              
              100%
              
              Croatia
              
              SubsidiaryCME
                  Media Enterprises B.V.
              
              100%
              
              Netherlands
              
              SubsidiaryCME
                  Czech Republic B.V.
              
              100%
              
              Netherlands
              
              SubsidiaryCME
                  Czech Republic II B.V.
              
              100%
              
              Netherlands
              
              SubsidiaryCME
                  Germany B.V.
              
              100%
              
              Netherlands
              
              SubsidiaryCME
                  Hungary B.V.
              
              100%
              
              Netherlands
              
              SubsidiaryCME
                  Poland B.V.
              
              100%
              
              Netherlands
              
              SubsidiaryCME
                  Romania B.V.
              
              100%
              
              Netherlands
              
              SubsidiaryCME
                  Ukraine Holding GmbH
              
              100%
              
              Austria
              
              SubsidiaryCME
                  Germany GmbH
              
              100%
              
              Germany
              
              Subsidiary
                  (in liquidation)CME
                  Cyprus Holding Ltd
              
              100%
              
              Cyprus
              
              SubsidiaryCME
                  Development Corporation
              
              100%
              
              USA
              
              SubsidiaryCentral
                  European Media Enterprises N.V.
              
              100%
              
              Netherlands
                  Antilles
              
              SubsidiaryCentral
                  European Media Enterprises II B.V.
              
              100%
              
              Netherlands
                  Antilles
              
              Subsidiary
   (1)
              All
                  subsidiaries have been consolidated in our Consolidated Financial
                  Statements. All equity-accounted affiliates have been accounted
                  for using
                  the equity method.
  (2)
              Ceska
                  Produkcni 2000 a.s. and Mag Media 99 a.s. were merged into CME
                  Media
                  Services s.r.o. on December 31, 2005.
  (3)
              For
                  further information, see Note 2, "Summary of Significant Accounting
                  Policies".
  (4)
              On
                  January 23, 2006, we acquired 100% of A.R.J. a.s., thereby increasing
                  our
                  effective voting interest in STS to 89.8% and in Markiza to 80%.
                  From
                  January 23, 2006 we consolidate these entities. See Note 21, “Subsequent
                  Events”.
  *Page
            11*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 **2.**
              **SUMMARY
                  OF SIGNIFICANT ACCOUNTING
                  POLICIES**
 
 These
        financial statements have been prepared in accordance with accounting principles
        generally accepted in the United States of America.
 
 The
        significant accounting policies are summarized as follows:
 
 **Basis
        of Presentation**
 
 The
        consolidated financial statements include the accounts of Central European
        Media
        Enterprises Ltd. and our subsidiaries, after the elimination of intercompany
        accounts and transactions. We consolidate the financial statements of entities
        in which we hold at least a majority voting interest and also those entities
        which are deemed to be a Variable Interest Entity of which we are the primary
        beneficiary as defined by FASB Interpretation No. 46 (revised December 2003),
        “Consolidation of Variable Interest Entities” ("FIN 46 (R)"). Entities in which
        we hold less than a majority voting interest but over which we have the ability
        to exercise significant influence are accounted for using the equity method.
        Other investments are accounted for using the cost method.
 
 As
        we are
        the primary beneficiary related to the rights and obligations of Studio 1+1,
        we
        consolidate Studio 1+1 in accordance with FIN 46(R). Studio 1+1 is a license
        and
        broadcasting company within our Ukrainian operations and trades with the
        other
        companies within the group.
 
 The
        following table summarizes Consolidated Balance Sheet and Consolidated Statement
        of Operations information that we consolidate with regard to Studio
        1+1:
 
 **December
                  31, 2005**
              
              **December
                  31, 2004****Balance
                  Sheet:**Current
                  assets
              
              $
              18,475
              
              $
              10,711Non-current
                  assets
              
              
              1,315
              
              
              1,822Current
                  liabilities
              
              
              (9,678
              )
              
              (10,689
              )Non-current
                  liabilities
              
              
              (106
              )
              
              -Minority
                  interest
              
              
              (4,002
              )
              
              (738
              )**Net
                  Assets**
              
              **$**
              **6,004**
              
              **$**
              **1,106**
 
 **Statement
                  of Operations:**
              
              **For
                  the Year Ended**
                **December
                  31, 2005**
              
              **For
                  the Year Ended**
                **December
                  31, 2004**Net
                  revenues
              
              $
              62,586
              
              $
              43,903Operating
                  income
              
              
              12,401
              
              
              6,001Net
                  income
              
              $
              5,423
              
              $
              2,985
 
 **Revenue
        Recognition**
 
 Revenue
        is recognized when there is persuasive evidence of an arrangement, delivery
        of
        products has occurred or services have been rendered, the price is fixed
        or
        determinable and collectibility is reasonably assured.
 
 Revenues
        are recognized net of discounts and customer sales incentives. Our principal
        revenue streams and their respective accounting treatments are discussed
        below:
 
 *Advertising
        revenue*
 
 Revenues
        primarily result from the sale of advertising time. Television advertising
        revenue is recognized as the commercials are aired. In certain countries,
        we
        commit to provide advertisers with certain rating levels in connection with
        their advertising. Revenue is recorded net of estimated shortfalls, which
        are
        usually settled by providing the advertiser additional advertising
        time.
  *Page
            12*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 Discounts
        and agency commissions are recognized at the point when the advertising is
        broadcast and are reflected as a reduction to gross revenue.
 
 *Cable
        and satellite revenues*
 
 Subscriber
        fees receivable from cable operators and direct-to-home broadcasters are
        recognized as revenue over the period for which the channels are provided
        and to
        which the fees relate. Subscriber revenue is recognized as contracted, based
        upon the level of subscribers.
 
 *Program
        distribution revenue*
 
 Program
        distribution revenue is recognized when the relevant agreement has been entered
        into, the product is available for delivery, collectibility of the cash is
        reasonably assured and all of our contractual obligations have been satisfied.
 
 *Barter
        transactions*
 
 Barter
        transactions represent advertising time exchanged for non-cash goods and/or
        services, such as promotional items, advertising, supplies, equipment and
        services. Revenue from barter transactions are recognized as income when
        advertisements are broadcasted. Expenses are recognized when goods or services
        are received or used. We record barter transactions at the fair value of
        goods
        or services received or advertising surrendered, whichever is more readily
        determinable. Barter revenue amounted to US$ 7.0 million, US$
        5.7 million, and US$ 0.4 million for the years ending
        December 31, 2005, 2004, and 2003, respectively.
 
 **Cash
        and Cash Equivalents**
 
 Cash
        and
        cash equivalents consist of cash on hand and marketable securities with original
        maturities of three months or less. Cash that is subject to restrictions
        is
        classified as restricted cash.
 
 **Property,
        Plant and Equipment**
 
 Property,
        plant and equipment is carried at cost, less accumulated depreciation.
        Depreciation is computed using the straight-line method over the estimated
        useful lives assigned to each major asset category as below:
 
 **Asset
                  category**
              
              **Estimated
                  useful life**Land
              IndefiniteBuildings
              25
                  yearsStation
                  machinery, fixtures and equipment
              4
                  -
                  8 yearsOther
                  equipment
              3
                  -
                  8 yearsSoftware
                  licenses
              3
                  -
                  5 years
 
 Construction-in-progress
        is not depreciated until put into use. Capital leases are depreciated on
        a
        straight-line basis over the shorter of the estimated useful life of the
        asset
        or the lease term. Leasehold improvements are depreciated over the shorter
        of
        the related lease term or the life of the asset. Assets to be disposed of
        are
        reported at the lower of carrying value or fair value, less costs of
        disposal.
 
 
 **Long-Lived
        Assets Including Intangible Assets with Finite Lives**
 
 Long-lived
        assets include property, plant, equipment and intangible assets with finite
        lives.
 
 In
        accordance with FAS No. 144, “Accounting for the Impairment or Disposal of
        Long-Lived Assets” (“FAS 144”), we review long-lived assets for impairment
        whenever events or changes in circumstances indicate that the carrying value
        of
        an asset may not be recoverable. The carrying values of long-lived assets
        are
        considered impaired when the anticipated undiscounted cash flows from such
        assets are less than their carrying values. In that event, a loss is recognized
        based on the amount by which the carrying value exceeds the fair
        value.
  *Page
            13*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 No
        impairment has been recognized for any long-lived assets in 2005, 2004, or
        2003.
 
 **Program
        Rights**
 
 *Purchased
        program rights*
 
 Purchased
        program rights and the related liabilities are recorded at their gross value
        when the license period begins and the programs are available for broadcast.
 
 Program
        rights are amortized on a systematic basis over their expected useful lives,
        according to the number of runs of the license. The amortization percentages
        are
        as follows:
 
 **Amortization
                  %****Type
                  of programming**
              
              ***Run
                  1***
              
              ***Run
                  2***
              
              ***Run
                  3***
              
              ***Run
                  4***
              
              ***Run
                  5***Special
                  blockbuster
              
              30%
              
              25%
              
              20%
              
              15%
              
              10%Films
                  and series, 2 runs
              
              65%
              
              35%
              
              -
              
              -
              
              -Films
                  and series, 3 runs
              
              60%
              
              30%
              
              10%
              
              -
              
              -Concerts,
                  documentaries, film about film, etc.
              
              100%
              
              -
              
              -
              
              -
              
              -
  A
        “special blockbuster” must meet specific requirements to be classified as such,
        while the number of runs in other films and series is generally described
        in the
        license agreement.
 
 Program
        rights are evaluated to determine if expected revenues are sufficient to
        cover
        the unamortized portion of the program. To the extent that expected revenues
        are
        insufficient, the program rights are written down to their net realizable
        value.
 
 Purchased
        program rights are classified as current or non-current assets based on
        anticipated usage, while the related program rights liability is classified
        as
        current or non-current according to the payment terms of the license
        agreement.
 
 *Produced
        program rights*
 
 Program
        rights that are produced are stated at the lower of cost less accumulated
        amortization or fair value. The amortization charge is based on the ratio
        of the
        current period’s gross revenues to estimated remaining total gross revenues from
        such programs. Program rights are evaluated to determine if expected revenues
        are sufficient to cover the unamortized portion of the program. To the extent
        that expected revenues are insufficient, the program rights are written down
        to
        their net realizable value.
 
 Produced
        program rights are classified as current or non-current assets based on
        anticipated usage.
 
 **Goodwill
        and Indefinite-Lived Intangible Assets**
 
 Goodwill
        represents the excess of the fair value of consideration paid over the fair
        value of net tangible and other identifiable intangible assets acquired in
        a
        business combination. In accordance with FAS No. 142, “Goodwill and Other
        Intangible Assets” (“FAS 142”), the carrying value of goodwill is evaluated for
        impairment on an annual basis, or more frequently if events or changes in
        circumstances indicate that the asset might be impaired. We evaluate goodwill
        for impairment in the fourth quarter of each year, or more frequently if
        events
        or changes in circumstances indicate that the asset might be impaired. Potential
        impairment is identified when the carrying value of a reporting unit (including
        its goodwill), exceeds its fair value. Goodwill impairment is measured as
        the
        excess of the carrying value of goodwill over its implied fair value. In
        accordance with FAS 142, we have determined that our reporting units are
        the
        same as our operating segments.
  *Page
            14*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 Indefinite-lived
        intangible assets consist of certain acquired broadcast licenses and trademarks.
        Broadcast licenses are assigned indefinite lives after consideration of the
        following conditions:
 
 ·
              We
                  intend to renew the licenses into the foreseeable
                  future;
 ·
              We
                  have precedents of renewals, or reasonable expectation of
                  renewals;
 ·
              We
                  do not expect any substantial cost to be incurred as part of a
                  future
                  license renewal and no costs have been incurred in the renewals
                  to
                  date;
 ·
              We
                  have not experienced any historical evidence of a compelling challenge
                  to
                  our holding these licenses; and
 ·
              We
                  do not foresee that the technology used to exploit these licenses
                  will
                  undergo significant changes in the foreseeable
                  future.
 
 Indefinite-lived
        intangible assets are not amortized, but they are evaluated for impairment
        on an
        annual basis, or more frequently if events or changes in circumstances indicate
        that the asset might be impaired. Under FAS 142, an impairment loss is
        recognized if the carrying value of an indefinite-lived intangible asset
        exceeds
        its fair value.
 
 Fair
        value is determined based on estimates of future cash flows discounted at
        appropriate rates and on publicly available information, where appropriate.
        In
        the assessment of discounted future cash flows the following data is used:
        management plans for a period of at least five years, a terminal value at
        the
        end of this period assuming an inflationary perpetual growth rate, and a
        discount rate selected with reference to the relevant cost of capital.
 
 **Income
        Taxes**
 
 We
        account for income taxes under the asset and liability method as set out
        in FAS
        No. 109, "Accounting for Income Taxes". Deferred tax assets and liabilities
        are
        recognized for the expected tax consequences of temporary differences between
        the tax bases of assets and liabilities and their reported amounts. Valuation
        allowances are established when necessary to reduce deferred tax assets to
        amounts which are more likely than not to be realized.
 
 **Foreign
        Currency**
 
 *Translation
        of financial statements*
 
 Our
        reporting currency and functional currency is the US dollar. The financial
        statements of our operations whose functional currency is other than the
        US
        dollar are translated from such functional currency to US dollars at the
        exchange rates in effect at the balance sheet date for assets and liabilities,
        and at weighted average rates for the period for revenues and expenses,
        including gains and losses. Translational gains and losses are charged or
        credited to Accumulated Other Comprehensive Income/(Loss), a component of
        Shareholders’ Equity. Translation adjustments arising from intercompany
        financing that is a long-term investment in nature is accounted for in a
        similar
        manner. At December 31, 2005, a translation loss of US$ 17.8 million (December
        31, 2004: nil) related to intercompany financing that is a long-term investment
        in nature is included in Accumulated Other Comprehensive
        Income/(Loss).
 
 *Transactions
        in foreign currencies*
 
 Gains
        and
        losses from foreign currency transactions are included in Foreign currency
        exchange gain/(loss), in the Consolidated Statement of Operations in the
        period
        during which they arise.
 
 **Use
        Of Estimates**
 
 The
        preparation of financial statements in conformity with generally accepted
        accounting principles requires management to make estimates and assumptions
        that
        affect the reported amounts of assets and liabilities and disclosure of
        contingent assets and liabilities at the date of the financial statements
        and
        the reported amounts of revenues and expenses during the reporting year.
        Actual
        results could differ from those estimates.
  *Page
            15*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 **Leases**
 
 Leases
        are classified as either capital or operating. Those leases that transfer
        substantially all benefits and risks of ownership of the property to us are
        accounted for as capital leases. All other leases are accounted for as operating
        leases.
 
 Capital
        leases are accounted for as assets and are depreciated on a straight-line
        basis
        over the shorter of the estimated useful life of the asset or the lease term.
        Commitments to repay the principal amounts arising under capital lease
        obligations are included in current liabilities to the extent that the amount
        is
        repayable within one year; otherwise the principal is included in non-current
        liabilities. The capitalized lease obligation reflects the present value
        of
        future lease payments. The financing element of the lease payments is charged
        to
        interest expense over the term of the lease.
 
 Operating
        lease costs are charged to expense on a straight-line basis.
 
 **Stock-Based
        Compensation**
 
 Stock-based
        compensation costs are determined when options are issued and are measured
        under
        the fair value method as defined in FAS No. 123, "Accounting for Stock-based
        Compensation" ("FAS 123"). We adopted FAS 123 prospectively for employee
        stock
        option awards granted, modified, or settled beginning January 1, 2003, as
        contemplated by FAS No. 148, "Accounting for Stock-based Compensation -
        Transition & Disclosure" ("FAS 148"). In prior periods, we used the
        intrinsic method of accounting as defined in APB No. 25, "Accounting for
        Stock
        Issued to Employees" ("APB 25") (See Note 15, Stock-based Compensation”).
        Expense from stock options granted after the adoption of FAS 123 is recognized
        on a straight-line basis over the requisite service period of the underlying
        grant.
 
 Had
        compensation costs for employee stock option awards granted, modified or
        settled
        prior to January 1, 2003 been determined consistent with the fair value approach
        required by FAS 123 for all periods presented, using the Black-Scholes option
        pricing model with the assumptions as estimated on the date of each grant,
        our
        net income and net income per common share would decrease to the following
        pro
        forma amounts:
 
 **For
                  the Years Ended December 31,****2005**
              
              **2004**
              
              **2003****Net
                  Income**
              
              
              **As
                  Reported**
              
              **$**
              **42,495**
              
              **$**
              **18,531**
              
              **$**
              **346,012**Add:
                  Stock-based compensation expense included in reported net income,
                  net of
                  related tax effects
              
              
              As
                  Reported
              
              
              2,954
              
              
              10,102
              
              
              13,209Deduct:
                  Total stock-based compensation expense determined under fair value
                  based
                  method for all awards, net of related tax effects
              
              
              Pro
                  Forma
              
              
              (3,022
              )
              
              (10,315
              )
              
              (13,778
              )**Net
                  Income**
              
              
              **Pro
                  Forma**
              
              **$**
              **42,427**
              
              **$**
              **18,318**
              
              **$**
              **345,443**Net
                  Income - Basic:
              
              
              As
                  Reported
              
              $
              1.23
              
              $
              0.66
              
              $
              13.06Pro
                  Forma
              
              $
              1.23
              
              $
              0.66
              
              $
              13.04Net
                  Income - Diluted:
              
              
              As
                  Reported
              
              $
              1.20
              
              $
              0.64
              
              $
              13.06Pro
                  Forma
              
              $
              1.20
              
              $
              0.63
              
              $
              13.04
 
 **Contingencies**
 
 Contingencies
        are recorded in accordance with FAS No. 5, “Accounting for Contingencies” (“FAS
        5”). The estimated loss from a loss contingency such as a legal proceeding
        or
        claim is recorded in the Consolidated Statement of Operations if it is probable
        that an asset has been impaired or a liability has been incurred and the
        amount
        of the loss can be reasonably estimated. Disclosure of a loss contingency
        is
        made if there is at least a reasonable possibility that a loss has been
        incurred.
  *Page
            16*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 **Financial
        Instruments**
 
 *Fair
        value of financial instruments*
 
 The
        carrying value of financial instruments, including cash, accounts receivable,
        and accounts payable and accrued liabilities, approximate their fair value
        due
        to the short-term nature of these items. The fair value of our Senior Notes
        is
        included in Note 5.
 
 *Derivative
        financial instruments*
 
 We
        use
        derivative financial instruments for the purpose of mitigating currency risks,
        which exist as part of ongoing business operations. As a policy, we do not
        engage in speculative or leveraged transactions, nor do we hold or issue
        derivative financial instruments for trading purposes.
 
 Forward
        exchange contracts are used to mitigate exposures to currency fluctuations
        on
        certain short-term transactions generally denominated in currencies other
        than
        our functional currency. These contracts are marked to market at the balance
        sheet date, and the resultant unrealized gains and losses are recorded in
        the
        Consolidated Statement of Operations, together with realized gains and losses
        arising on settlement of these contracts.
 
 *Put
        options*
 
 Put
        options written on the stock of a consolidated subsidiary which do not provide
        net settlement are accounted for in accordance with FAS No. 150 “Accounting for
        Certain Financial Instruments with Characteristics of both Liabilities and
        Equity” and EITF No. 00-6 “Accounting for Freestanding Derivative Financial
        Instruments Indexed to, and Potentially Settled in the Stock of a Consolidated
        Subsidiary”. Put options are recorded in the Consolidated Balance Sheet at fair
        value, which at December 31, 2005 is considered to be US$ nil.
 
 **Discontinued
        Operations**
 
 We
        present our results of operations, financial position and cash flows of
        operations that have either been sold or that meet the criteria for
“held-for-sale accounting” as discontinued operations. At the time an operation
        qualifies for held-for-sale accounting, the operation is evaluated to determine
        whether or not the carrying value exceeds its fair value less cost to sell.
        Any
        loss as a result of carrying value in excess of fair value less cost to sell
        is
        recorded in the period the operation meets held-for-sale accounting. Management
        judgment is required to (1) assess the criteria required to meet held-for-sale
        accounting, and (2) estimate fair value. Changes to the operation could cause
        it
        to no longer qualify for held-for-sale accounting and changes to fair value
        could result in an increase or decrease to previously recognized
        losses.
 
 In
        2005,
        we have separately disclosed the operating, financing and investing portions
        of
        the cash flows attributable to discontinued operations, which in prior periods
        were presented as a single amount. During 2003, we disposed of our former
        operations in the Czech Republic; all results of this disposal have been
        treated
        as discontinued operations (see Note 18, “Discontinued
        Operations”).
 
 **Advertising
        Costs**
 
 Advertising
        costs are expensed as incurred. Advertising expense incurred for the years
        ending December 31, 2005, 2004 and 2003 totaled US$ 6.6 million, US$ 2.6
        million and US$ 2.9 million, respectively.
 
 **Earnings
        Per Share**
 
 Basic
        net
        income per share is computed using the weighted-average number of common
        shares
        outstanding during the period. Diluted net income per share is computed using
        the weighted-average number of common and dilutive potential common shares
        outstanding during the period.
  *Page
            17*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 **Reclassifications**
  Certain
        reclassifications were made to prior period amounts to conform to current
        period
        presentation.
 
 **Recent
        Accounting Pronouncements**
 
 In
        May 2005, the Financial Accounting Standards Board (FASB) issued FAS
        No. 154, “Accounting for Changes and Error Corrections” (“FAS 154”), which
        replaces APB Opinion No. 20 “Accounting Changes” (“APB 20”), and FAS
        No. 3, “Reporting Accounting Changes in Interim Financial Statements”, and
        changes the requirements for the accounting for and reporting of a change
        in
        accounting principle. APB 20 previously required that most voluntary changes
        in
        accounting principle be recognized by including in net income of the period
        of
        the change the cumulative effect of changing to the new accounting principle.
        FAS 154 requires that the new accounting principle be applied to the balances
        of
        assets and liabilities as of the beginning of the earliest period for which
        retrospective application is practicable and that a corresponding adjustment
        be
        made to the opening balance of retained earnings for that period rather than
        being reported in the income statement.  We will adopt the provisions of
        FAS 154 on January 1, 2006. The adoption of FAS 154 is not expected to have
        a
        material impact on our financial position or results of operations.
  In
        December 2004, the Financial Accounting Standards Board (FASB) issued FASB
        statement No. 123R, “Share-Based Payment” (“FAS 123R”), a revision of FASB
        statement No. 123, “Accounting for Stock-Based Compensation”, which
        addresses financial accounting and reporting for costs associated with
        stock-based compensation.  FAS 123R addresses all forms of share-based
        payment awards, including shares issued under employee stock purchase plans,
        stock options, restricted stock and stock appreciation rights.  In
        March 2005, the Staff of the Securities and Exchange Commission issued
        Staff Accounting Bulletin No. 107 (“SAB 107”) which provides guidance in
        the implementation of FAS 123R.  We will adopt the new accounting
        provisions on January 1, 2006.  The adoption of FAS 123R and SAB 107
        are not expected to have a material impact on our financial position or results
        of operations.
 
 
 **3.**
              **ACQUISITIONS
                  AND DISPOSALS**
 
 **Czech
        Republic**
 
 *Acquisition
        - TV Nova*
 
 On
        May 2,
        2005, we acquired 85% of the interest of PPF (Cyprus) Ltd (“PPF”) in the TV Nova
        (Czech Republic) group. Consideration for this acquisition was approximately
        US$
        630.3 million, including the incurrence of US$ 491.7 million of interim
        indebtedness to PPF (which was repaid in cash on May 5, 2005), the issuance
        of
        3.5 million unregistered shares of our Class A Common Stock (US$ 120.9 million)
        and forgiveness of a US$ 18.5 million balance categorized as “Other Receivable”
within “Other Current Assets” in our Consolidated Balance Sheet as at December
        31, 2004. The 3.5 million shares of Class A Common Stock issued were valued
        at
        US$ 34.538 per share, which was determined as the average of our share price
        over a reasonable period of time before and after the terms of the acquisition
        were agreed and announced. The final purchase price was reduced by US$ 0.7
        million following a post-completion audit for changes in the level of working
        capital and indebtedness from the time we entered into a framework agreement
        with PPF on December 13, 2004 to May 2, 2005.
 
 On
        May
        27, 2005, we acquired from Peter Krsak his 16.67% interest in CET 21, which
        holds the national terrestrial broadcast license for TV NOVA in the Czech
        Republic, for CZK 1.2 billion (approximately US$ 49.4 million at the date
        of
        acquisition). The purchase price was payable in two installments: one half
        of
        the consideration was paid on May 27, 2005 and the second installment of
        CZK 0.6
        billion (approximately US$ 24.4 million) will be paid on the earlier of July
        15,
        2006 or the date on which we are registered with the Czech commercial register
        as the owner of 16.67% of CET 21. This installment is classified in our
        Consolidated Balance Sheet as restricted cash and deferred consideration
        as at
        December 31, 2005.
  *Page
            18*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 Following
        the exercise of our call option, we acquired from PPF its remaining 15% interest
        in the TV Nova (Czech Republic) group for cash consideration of approximately
        US$ 216.4 million on May 31, 2005.
 
 As
        a
        result of these transactions, we have acquired a 100% interest in CME Media
        Services, which provides services related to programming, production and
        advertising for the TV NOVA (Czech Republic) channel and a 100% interest
        in Vilja
        a.s., which owns a 52.075% interest in CET 21. When this interest is aggregated
        with the purchase of the Krsak interest, we own 68.745% of CET 21. Our voting
        and economic interest in CET 21 is 96.50% because CET 21 itself holds an
        undistributed 28.755% interest that is not entitled to voting rights or
        dividends.
 
 The
        remaining minority interests in CET 21 are currently held by Ceska Sporitelna
        a.s .
        (1.25%)
        and CEDC GmbH (1.25%). Subject to the consent of the Czech Media Council,
        the
        interests of Ceska Sporitelna and CEDC will be transferred to the TV Nova
        (Czech
        Republic) group for nominal consideration.
 We
        completed a fair value exercise to allocate the purchase price to the acquired
        assets and liabilities, and identified separately identifiable intangible
        assets. The following table summarizes the fair values of the assets acquired
        and liabilities assumed at the date of acquisition:
 
 **Fair
                  Value on**
                **Acquisition**Cash
              
              $
              35,592Receivables
              
              
              56,832Property,
                  plant and equipment
              
              
              17,379Program
                  library
              
              
              26,937Intangible
                  assets subject to amortization (1)
              
              
              178,054Intangible
                  assets not subject to amortization (2)
              
              
              17,979Goodwill
              
              
              723,503Other
                  assets
              
              
              23,562Liabilities
              
              
              (122,249
              )Deferred
                  tax liability
              
              
              (45,933
              )Minority
                  interest
              
              
              (2,200
              )**Total
                  purchase****price****(3)**
              
              **$**
              **909,456**
  (1)
        The
        intangible assets subject to amortization comprise approximately US$ 11.9
        million in customer relationships, which are being amortized over five to
        fourteen years (weighted average: 12.4 years), US$ 0.6 million of customer
        backlog (fully amortized in 2005) and approximately US$ 165.6 million relating
        to the acquired television broadcast license, which is being amortized over
        twelve years.
  (2)
        Intangible assets not subject to amortization relate to the ‘TV NOVA’ trade
        name.
  (3)
        Total
        purchase price includes US$ 13.3 million of capitalized acquisition
        costs.
  As
        of
        December 31, 2004 we had accrued US$ 10.8 million of acquisition costs
        (principally fees relating to legal and accounting diligence and mergers
        and
        acquisitions advisory services) in relation to the acquisition of the TV
        Nova
        (Czech Republic) group. As of December 31, 2005, all acquisition costs have
        been
        charged to goodwill following the acquisition of the TV Nova (Czech Republic)
        group.
  *Page
            19*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 Our
        Consolidated Statement of Operations reflects the increased interest expense
        and
        amortization charges resulting from the acquisition of 85% of the TV Nova
        (Czech
        Republic) group on May 2, 2005, the Krsak interest on May 27, 2005 and 15%
        of
        the TV Nova (Czech Republic) group on May 31, 2005. On an unaudited pro-forma
        basis, assuming that these acquisitions had occurred at the beginning of
        2005 or
        2004, our Consolidated Statements of Operations would have been as
        follows:
 
 **Pro-forma
                  (unaudited)**
              
              **For
                  the Years Ended December 31,****2005**
              
              **2004**Net
                  revenues
              
              $
              483,102
              
              $
              390,139Net
                  income from continuing operations (as restated)
              
              
              60,839
              
              
              36,153Net
                  income (as restated)
              
              
              60,326
              
              
              38,677Per
                  Share Data:Net
                  income-Basic
                  (as restated)
              
              $
              1.60
              
              $
              1.05Net
                  income - Diluted (as restated)
              
              $
              1.57
              
              $
              1.02
 
 The
        pro-forma net income for each period presented reflects all costs relating
        to
        the Senior Notes issued to finance the acquisition of the TV Nova (Czech
        Republic) group and the Krsak interest. The earnings per share calculation
        reflects the increase in the number of shares issued relating to these
        acquisitions.
 
 The
        primary reason for the purchase of the TV Nova (Czech Republic) group and
        the
        main factor that contributed to a purchase price that results in the recognition
        of goodwill is the opportunity for us to secure a significant broadcasting
        asset
        at a favorable valuation. Adding the leading broadcaster of one of the larger
        Central and East European markets to our portfolio of stations and channels
        has
        doubled our size and substantially enhanced our cash-flows, confirming our
        position as the dominant broadcaster in the region. Ownership of a significant
        asset such as the TV Nova (Czech Republic) group creates a solid base for
        further expansion when opportunities arise.
 
 *Acquisition
        - Galaxie Sport*
 
 On
        September 1, 2005, CP 2000 (which was subsequently merged into CME Media
        Services) acquired 100% of Galaxie Sport s.r.o. from PPF for consideration
        of
        CZK 49.5 million (approximately US$ 2.1 million at the time of acquisition)
        and
        the settlement of shareholder loans of CZK 69.2 million (approximately US$
        3.0
        million at the time of acquisition). Galaxie Sport holds a satellite and
        cable
        broadcasting license in the Czech Republic and the Slovak Republic for the
        sports cable channel GALAXIE SPORT.
 
 We
        completed a fair value exercise to allocate the purchase price to the acquired
        assets and liabilities, and identified separately identifiable intangible
        assets. In accordance with FAS No. 141, “Business Combinations (“FAS 141”), we
        allocated US$ 0.4 million of the purchase price to trademarks, which were
        assigned an indefinite life, and recognized a deferred tax liability arising
        from this asset. After allocating the purchase price to all acquired assets,
        liabilities and intangible assets, US$ 3.8 million of goodwill
        remained.
 
 
 **Romania**
 
 *Acquisition
        of additional interest - MPI and Pro TV*
 
 On
        March
        29, 2004, we acquired a 14% voting and economic interest in each of our
        consolidated subsidiaries MPI and Pro TV from Rootland Trading Limited for
        purchase consideration of US$ 20.3 million. Rootland Trading Limited is
        controlled by Adrian Sarbu, the General Director of our Romanian operations.
        This acquisition brought our total voting interest and share of profits to
        80%
        in both companies. The consideration for the acquisition consisted of US$
        16.9
        million cash and the settlement of loans receivable from companies controlled
        by
        Mr. Sarbu that he had personally guaranteed (Inter-Media srl: US$ 1.8 million
        and Media Pro Pictures: US$ 1.6 million). The purchase price was agreed based
        on
        a multiple of MPI's and Pro TV's projected future earnings. In accordance
        with
        FAS 141, we allocated US$ 3.7 million to broadcast licenses, US$ 5.5 million
        to
        trademarks and US$ 2.0 million to customer relationships. We recognized a
        corresponding deferred tax liability on the tax basis difference arising
        from
        these assets. Both trademarks and broadcast licenses were assigned an indefinite
        life, while customer relationships were deemed to have an economic useful
        life
        of, and are being amortized on a straight-line basis over, eight years. An
        amount of US$ 8.8 million was recognized as goodwill.
  *Page
            20*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 On
        February 28, 2005, we acquired from Mr. Sarbu a 2% voting and economic interest
        in MPI and Pro TV for aggregate consideration of US$ 5.0 million. Following
        this
        transaction we owned a voting and economic interest in MPI and Pro TV of
        82%.
        The purchase price was agreed based on a multiple of MPI and Pro TV’s earnings.
        In accordance with FAS 141, we allocated US$ 1.2 million to broadcast licenses,
        US$ 0.9 million to trademarks and US$ 0.2 million to customer relationships.
        We
        recognized a corresponding deferred tax liability on the tax basis difference
        arising from these assets. Both trademarks and broadcast licenses were assigned
        an indefinite life, while customer relationships were deemed to have a remaining
        economic useful life of, and are being amortized on a straight-line basis
        over,
        eight years. An amount of US$ 2.9 million was recognized as
        goodwill.
 
 On
        July
        29, 2005, we acquired from Mr. Sarbu a 3% voting and economic interest in
        MPI
        and Pro TV for aggregate consideration of US$ 15.0 million. Following this
        transaction we held a voting and economic interest in MPI and Pro TV of 85%.
        The
        purchase price was finalized during July 2005 based on a multiple of MPI
        and Pro
        TV's future earnings. In accordance with FAS 141, we have allocated US$ 3.0
        million of the purchase price to broadcast licenses, US$ 2.8 million to
        trademarks and US$ 2.3 million to customer relationships. We have recognized
        a
        corresponding deferred tax liability on the tax basis difference arising
        from
        these assets. Both trademarks and broadcast licenses have been assigned an
        indefinite life, while customer relationships are deemed to have a remaining
        economic useful life of, and are amortized on a straight-line basis over,
        eight
        years. An amount of US$ 8.0 million was recognized as goodwill.
 
 On
        February 17, 2006, we purchased an additional 5% of Pro TV, MPI and Media
        Vision
        from Mr. Sarbu for consideration of US$ 27.2 million (for further information
        see Note 21, “Subsequent Events”). We now own a 90% voting and economic interest
        in Pro TV and MPI and a 75% voting and economic interest in Media Vision.
        Mr.
        Sarbu has the right to sell his remaining 10% shareholding in Pro TV and
        MPI to
        us under a put option agreement entered into in July 2004 at a price to be
        determined by an independent valuation, subject to a floor price of US$ 1.45
        million for each 1% interest sold. This put is exercisable from March 1,
        2009
        for a twenty-year period thereafter. As
        at
        December 31, 2005, we consider the fair value of the put option to approximate
        to nil.
  *Disposal
        of Interest in Radio Pro*
 
 Following
        our acquisition of an additional 14% interest in MPI and Pro TV on March
        29,
        2004, we sold a 24% holding in Radio Pro to Mr. Sarbu for consideration of
        US$
        0.04 million to comply with Romanian Media Council regulations. This decreased
        our holding in Radio Pro from 44% to 20% and resulted in a loss on disposal
        of
        US$ 0.02 million.
 
 
 **Croatia**
 
 *Acquisition
        - Nova TV*
 
 We
        acquired 100% of Nova TV (Croatia) and OK
        in Croatia for Euro 20.3 million (approximately US$ 24.7 million at the time
        of
        acquisition) on July 16, 2004. The purchase price is payable in three
        installments. Euro 15.6 million (approximately US$ 19.0 million at the time
        of
        payment) was paid at closing on the basis of an estimated purchase price.
        Euro
        1.7 million (approximately US$ 2.1 million at the time of payment) was paid
        on
        February 9, 2005 following the determination of the final purchase price.
        Approximately Euro 3.1 million (approximately US$ 3.6 million) of the total
        purchase price is being held in escrow and is classified at December 31,
        2005 in
        our Consolidated Balance Sheet as restricted cash, with a corresponding
        liability recorded as deferred consideration. This amount will be held in
        escrow
        until the date on which any claims by us in excess of such amount relating
        to
        breaches of representation and warranty or covenant provisions contained
        in the
        acquisition agreement are resolved or settled.
  *Page
            21*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 In
        May
        2005, we completed a fair value exercise and allocated the purchase price
        to the
        acquired assets and liabilities. This fair value exercise included identifying
        separately identifiable intangible assets. As a result, we allocated US$
        18.7
        million of the purchase price to broadcast licenses and US$ 7.4 million to
        trademarks, both of which had been preliminarily allocated to goodwill net
        of
        taxes at December 31, 2004. We recognized a deferred tax liability arising
        from
        these assets. Both trademarks and broadcast licenses were assigned an indefinite
        life. After allocating the purchase price to all acquired assets, liabilities
        and intangible assets, US$ 10.4 million of goodwill remained.
 
 During
        the second quarter of 2005 we performed a strategic assessment of Nova TV
        (Croatia). As a result of this new strategy, requiring cash flows significantly
        different from those previously forecast, we recognized an impairment charge
        of
        US$ 18.6 million relating
        to the broadcast license, US$ 7.0 million relating to trademarks and US$
        9.7
        million relating to goodwill. For further information, see Note 4, “Goodwill and
        Intangible Assets”.
 
 **Slovenia**
 
 *Acquisition
        of additional interest - Pro Plus*
 
 On
        June
        24, 2005, we acquired from Marijan Jurenec, director of our Adriatic regional
        operations, his remaining 3.15% interest in Pro Plus for Euro 4.7 million
        (approximately US$ 5.7 million at the date of acquisition). The purchase
        price
        was determined with reference to the put option agreement we entered into
        with
        Mr. Jurenec in January 2003. Following this transaction we own a voting and
        economic interest in Pro Plus of 100%. We allocated US$ 2.5 million of the
        purchase price to broadcast licenses and US$ 0.5 million to trademarks. We
        recognized a corresponding deferred tax liability of US$ 0.7 million on the
        tax
        basis difference arising from these assets. Both trademarks and broadcast
        licenses were assigned an indefinite life. An amount of US$ 2.3 million was
        recognized as goodwill.
 
 At
        December 31, 2004, we had recognized a fair value of the option of US$ 0.6
        million as a liability in our Consolidated Balance Sheet.
  *Page
            22*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 **4.**
              **GOODWILL
                  AND INTANGIBLE ASSETS**
 
 Our
        goodwill and intangible asset additions are the result of acquisitions in
        Croatia, the Czech Republic, Romania, Slovenia and Ukraine (see Note 3,
“Acquisitions and Disposals”). No goodwill is expected to be deductible for tax
        purposes.
 
 *Goodwill:*
 
 Goodwill
        by operating segment as at December 31, 2005, 2004, and 2003 is summarized
        as
        follows:
 
 **Slovenia******
              
              **Ukraine**
              
              **Romania**
              
              **Croatia**
              
              **Czech**
                **Republic**
              
              **Total****Balance,
                  December 31, 2003**
              
              **$**
              **13,725**
              
              **$**
              **4,096**
              
              **$**
              **-**
              
              **$**
              **-**
              
              **$**
              **-**
              
              **$**
              **17,821**Additions
              
              
              -
              
              
              -
              
              
              8,826
              
              
              29,260
              
              
              -
              
              
              38,086Foreign
                  currency movements
              
              
              999
              
              
              -
              
              
              -
              
              
              2,186
              
              
              -
              
              
              3,185**Balance,
                  December 31, 2004**
              
              **$**
              **14,724**
              
              **$**
              **4,096**
              
              **$**
              **8,826**
              
              **$**
              **31,446**
              
              **$**
              **-**
              
              **$**
              **59,092**Additions
              
              
              2,300
              
              
              -
              
              
              10,928
              
              
              -
              
              
              727,282
              
              
              740,510Allocation
                  (1)
              
              
              -
              
              
              -
              
              
              -
              
              
              (18,817
              )
              
              -
              
              
              (18,817
              )Impairment
                  charge
              
              
              -
              
              
              -
              
              
              -
              
              
              (9,706
              )
              
              -
              
              
              (9,706
              )Foreign
                  currency movements
              
              
              (1,936
              )
              
              -
              
              
              -
              
              
              (2,228
              )
              
              (20,332
              )
              
              (24,496
              )**Balance,
                  December 31, 2005**
              
              **$**
              **15,088**
              
              **$**
              **4,096**
              
              **$**
              **19,754**
              
              **$**
              **695**
              
              **$**
              **706,950**
              
              **$**
              **746,583**
 
 (1)
        We
        acquired our Croatian operations in July 2004. At December 31, 2004 we had
        not
        completed our purchase price allocation, and the excess of the purchase price
        over the net book value was preliminarily allocated to goodwill. After we
        completed our fair value exercise in 2005, part of this balance was allocated
        to
        other asset and liability accounts.
 
 *Broadcast
        licenses:*
 
 The
        net
        book value of our broadcast licenses as at December 31, 2005, 2004, and 2003
        is
        summarized as follows:
 
 **Indefinite-lived**
                **broadcast**
                **licenses**
              
              **Amortized**
                **broadcast**
                **licenses**
              
              **Total****Balance,
                  December 31, 2003**
              
              **$**
              **6,420**
              
              **$**
              **655**
              
              **$**
              **7,075**Additions
              
              
              6,552
              
              
              784
              
              
              7,336Amortization
              
              
              -
              
              
              (234
              )
              
              (234
              )Foreign
                  currency movements
              
              
              428
              
              
              (30
              )
              
              398**Balance,
                  December 31, 2004**
              
              **$**
              **13,400**
              
              **$**
              **1,175**
              
              **$**
              **14,575**Additions
              
              
              6,639
              
              
              165,576
              
              
              172,215Allocation
                  (1)
              
              
              18,654
              
              
              -
              
              
              18,654Amortization
              
              
              -
              
              
              (9,316
              )
              
              (9,316
              )Impairment
                  charge
              
              
              (18,604
              )
              
              -
              
              
              (18,604
              )Foreign
                  currency movements
              
              
              (1,153
              )
              
              (4,780
              )
              
              (5,933
              )**Balance,
                  December 31, 2005**
              
              **$**
              **18,936**
              
              **$**
              **152,655**
              
              **$**
              **171,591**
 
 (1)
        We
        acquired our Croatian operations in July 2004. At December 31, 2004 we had
        not
        completed our purchase price allocation, and the excess of the purchase price
        over the net book value was preliminarily allocated to goodwill. After we
        completed our fair value exercise in 2005, part of this balance was allocated
        to
        other asset and liability accounts (including the broadcast
        license).
  *Page
            23*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 With
        the
        exception of our broadcast licenses in the Czech Republic and Ukraine, our
        broadcast licenses primarily have indefinite lives and are subject to annual
        impairment reviews. The licenses in Ukraine have economic useful lives of
        and
        are amortized on a straight-line basis over seven and ten years. The license
        in
        the Czech Republic has an economic useful life of, and is amortized on a
        straight-line basis over, twelve years.
 
 The
        gross
        value and accumulated amortization of amortized broadcast licenses was as
        follows at December 31, 2005 and 2004:
 
 **December
                  31,**
                **2005**
              
              **December
                  31,**
                **2004**Gross
                  value
              
              $
              163,628
              
              $
              2,753Accumulated
                  amortization
              
              
              (10,973
              )
              
              (1,578
              )**Total
                  net book value**
              
              **$**
              **152,655**
              
              **$**
              **1,175**
 
 
 *Other
        intangible assets:*
 
 The
        net
        book value of our other intangible assets as at December 31, 2005, 2004,
        and
        2003 is summarized as follows:
 
 **Trademarks**
              
              **Customer
                  relationships**
              
              **Total****Balance,
                  December 31, 2003**
              
              **$**
              **2,479**
              
              **$**
              **-**
              
              **$**
              **2,479**Additions
              
              
              7,816
              
              
              2,468
              
              
              10,284Amortization
              
              
              -
              
              
              (231
              )
              
              (231
              )Foreign
                  currency movements
              
              
              224
              
              
              -
              
              
              224**Balance,
                  December 31, 2004**
              
              **$**
              **10,519**
              
              **$**
              **2,237**
              
              **$**
              **12,756**Additions/Allocations
                  (1)
              
              
              30,015
              
              
              14,921
              
              
              44,936Amortization
              
              
              -
              
              
              (1,864
              )
              
              (1,864
              )Impairment
                  charge
              
              
              (7,021
              )
              
              -
              
              
              (7,021
              )Foreign
                  currency movements
              
              
              (953
              )
              
              (196
              )
              
              (1,149
              )**Balance,
                  December 31, 2005**
              
              **$**
              **32,560**
              
              **$**
              **15,098**
              
              **$**
              **47,658**
 
 (1)
        We
        acquired our Croatian operations in July 2004. At December 31, 2004 we had
        not
        completed our purchase price allocation, and the excess of the purchase price
        over the net book value was preliminarily allocated to goodwill. After we
        completed our fair value exercise in 2005, part of this balance was allocated
        to
        other asset and liability accounts (including the broadcast
        license).
  *Page
            24*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 Customer
        relationships are deemed to have an economic useful life of and are amortized
        on
        a straight-line basis over between five and fourteen years. Trademarks have
        an
        indefinite life.
 
 The
        gross
        value and accumulated amortization of customer relationships was as follows
        at
        December 31, 2005 and 2004:
 
 **December
                  31,**
                **2005**
              
              **December
                  31,**
                **2004**Gross
                  value
              
              $
              17,038
              
              $
              2,468Accumulated
                  amortization
              
              
              (1,940
              )
              
              (231
              )**Total
                  net book value**
              
              **$**
              **15,098**
              
              **$**
              **2,237**
 
 The
        estimated total annual amortization expense for our existing amortized broadcast
        licenses and customer relationships will be approximately US$ 16.0 million
        for
        2006 and for each of the years 2007 - 2010.
 
 *Impairment*
 
 In
        connection with our on-going review of our Croatian operations and following
        a
        strategic assessment of the performance of Nova TV (Croatia), we modified
        our
        strategy for Croatia in late June 2005. This new strategy requires higher
        current expenditures than had been planned prior to the strategic assessment
        in
        order to secure our audience and market share targets. At the end of the
        second
        quarter of 2005, we performed an analysis of our Croatian business to determine
        if it was impaired, given that the new strategy results in cash flows that
        differ significantly from those previously forecast. As
        a
        result of our analysis, we recognized an impairment charge of US$ 18.6 million
        relating to the broadcast license, US$ 7.0 million relating to trademarks
        and
        US$ 9.7 million relating to goodwill. Included in provision for income taxes
        is
        a US$ 5.1 million credit representing a release of deferred tax relating
        to the
        impairment charge on the license and trademark. A further impairment charge
        relating to other Long-Lived assets was not deemed necessary under the
        requirements of FAS
        144. For
        purposes of the impairment assessment, the fair value of the trademark was
        determined using the royalty relief method and the fair value of the broadcast
        license was determined using the build -out
        method. The royalty relief method measures the after-tax royalties saved
        by
        owning the intangible assets; the build-out method assumes that the business
        begins holding only the license and a plan must build up the assets and
        workforce needed to run the business.
 
 We
        completed our annual assessment of the carrying value of goodwill in the
        fourth
        quarter of 2005 and determined that no further impairment charges were
        required.
 
 
 **5.**
              **SENIOR
                  NOTES**
 
 Our
        Senior Notes consist of the following:
 
 
 **Carrying
                  value**
              
              **Fair
                  value****December
                  31,**
                **2005**
              
              **December
                  31,**
                **2004**
              
              **December
                  31,**
                **2005**
              
              **December
                  31,**
                **2004**Euro
                  245 million 8.25% Senior Notes
              
              $
              288,984
              
              $
              -
              
              $
              323,737
              
              $
              -Euro
                  125 million floating rate Senior Notes
              
              
              147,440
              
              
              -
              
              
              156,324
              
              
              -**$**
              **436,424**
              
              **$**
              **-**
              
              **$**
              **480,061**
              
              **$**
              **-**
   On
        May 5,
        2005, we issued Senior Notes in the aggregate principal amount of Euro 370
        million consisting of Euro 245 million of 8.25% Senior Notes due May 2012
        and
        Euro 125 million of floating rate Senior Notes due May 2012, which bear interest
        at six-month Euro Inter-Bank Offered Rate (“EURIBOR”) plus 5.5% (8.0% at
        December 31, 2005). Interest is payable semi-annually in arrears on each
        May 15
        and November 15, commencing November 15, 2005. The fair value of the Senior
        Notes as at December 31, 2005 was calculated by multiplying the outstanding
        debt
        by the traded market price.
  *Page
            25*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 The
        Senior Notes are secured senior obligations and rank pari passu with all
        existing and future senior indebtedness and are effectively subordinated
        to all
        existing and future indebtedness of our subsidiaries. The amounts outstanding
        are guaranteed by certain of our subsidiaries and are secured by a pledge
        of
        shares of those subsidiaries and an assignment of certain contractual rights.
        The terms of our indebtedness restrict the manner in which our business is
        conducted, including the incurrence of additional indebtedness, the making
        of
        investments, the payment of dividends or the making of other distributions,
        entering into certain affiliate transactions and the sale of assets.
 
 In
        the
        event that (A) there is a change in control by which (i) any party other
        than
        our present shareholders becomes the beneficial owner of more than 35% of
        our
        total voting power; (ii) we agree to sell substantially all of our operating
        assets; or (iii) there is a change in the composition of a majority of our
        Board
        of Directors; and (B) on the 60 th day
        following any such change of control the rating of the Senior Notes is either
        withdrawn or downgraded from the rating in effect prior to the announcement
        of
        such change of control, we can be required to repurchase the Senior Notes
        at a
        purchase price in cash equal to 101% of the principal amount of the Senior
        Notes
        plus accrued and unpaid interest to the date of purchase.
 
 The
        Senior Notes are redeemable at our option, in whole or in part, at the
        redemption prices set forth below:
 
 **From:**
              **Euro
                  245 million 8.25%**
                **Senior
                  Notes**
                **Redemption
                  Price**
              **From:**
              **Euro
                  125 million floating**
                **rate
                  Senior Notes**
                **Redemption
                  Price**May
                  15, 2009 to May 14, 2010
              104.125%
              May
                  15, 2007 to May 14, 2008
              102.000%May
                  15, 2010 to May 14, 2011
              102.063%
              May
                  15, 2008 to May 14, 2009
              101.000%May
                  15, 2011 and thereafter
              100.000%
              May
                  15, 2009 and thereafter
              100.000%
 
 In
        addition, at any time prior to May 15, 2008, we may redeem up to 35% of the
        fixed rate notes with the proceeds of any public equity offering at a price
        of
        108.250% of the principal amount of such notes, plus accrued and unpaid
        interest, if any, to the redemption date.
 
 In
        addition, prior to May 15, 2009, we may redeem all or a part of the fixed
        rate
        notes at a redemption price equal to 100% of the principal amount of such
        notes,
        plus a “make-whole” premium and accrued and unpaid interest to the redemption
        date.
 
 Certain
        derivative instruments, including redemption call options and change of control
        and asset disposition put options, have been identified as being embedded
        in the
        Senior Notes but as they are considered clearly and closely related to the
        Senior Notes, they are not accounted for separately.
 
 
 **6.**
              **INVESTMENTS**
 
 We
        hold
        the following investments in unconsolidated affiliates:
 
 **Voting
                  interest**
              
              **December
                  31,**
                **2005**
              
              **December
                  31,**
                **2004**STS
              
              
              49%
              
              $
              23,886
              
              $
              28,506Other
              
              
              Various
              
              
              50
              
              
              52**$**
              **23,936**
              
              **$**
              **28,558**
 
 Our
        share
        of income from Unconsolidated Affiliates in respect of STS (MARKIZA TV) was
        US$
        8.2 million, US$ 10.4 million, and US$ 4.5 million for the years ended December
        31, 2005, 2004, and 2003, respectively. In the years ended December 31, 2005,
        2004 and 2003 we received dividends of US$ 11.7 million, US$ 6.3 million,
        and
        US$ 3.1 million, respectively, from STS (MARKIZA TV).
  *Page
            26*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 The
        following is a summary of significant balance sheet and income statement
        items
        of STS (MARKIZA TV) at December 31, 2005 and 2004, and for the years ending
        December 31, 2005, 2004 and 2003:
 
 **STS
                  (MARKIZA TV)****December
                  31, 2005**
              
              **December
                  31, 2004**Current
                  assets
              
              $
              23,261
              
              $
              25,548Non-current
                  assets
              
              
              18,612
              
              
              16,919Current
                  liabilities
              
              
              (12,673
              )
              
              (15,445
              )Non-current
                  liabilities
              
              
              (125
              )
              
              (149
              )Minority
                  interest
              
              
              (635
              )
              
              (371
              )**Net
                  Assets**
              
              **$**
              **28,440**
              
              **$**
              **26,502**
 
 **STS
                  (MARKIZA TV)****For
                  the Years Ended December 31,****2005**
              
              **2004**
              
              **2003**Net
                  revenues
              
              $
              64,266
              
              $
              61,576
              
              $
              50,814Operating
                  income
              
              
              14,641
              
              
              15,790
              
              
              10,579Net
                  income
              
              
              11,771
              
              
              13,868
              
              
              8,523Currency
                  translation adjustment
              
              $
              (3,226
              )
              $
              4,760
              
              $
              5,315
 
 Included
        in our accumulated deficit at December 31, 2005 is approximately US$ 3.1
        million
        of undistributed earnings of STS (Markiza TV).
 
 **7.**
              **RESTRICTED
                  CASH**
 
 Restricted
        cash consists of the following at December 31, 2005 and 2004:
 
 **December
                  31,**
                **2005**
              
              **December
                  31,**
                **2004**Czech
                  Republic (Note 3)
              
              $
              24,554
              
              $
              -Croatia
                  (Note 3)
              
              
              3,640
              
              
              10,348Directors’
                  and officers’ insurance
              
              
              5,285
              
              
              5,226Other
              
              
              693
              
              
              -**Total**
              
              **$**
              **34,172**
              
              **$**
              **15,574**
 
 **8.**
              **ACCOUNTS
                  RECEIVABLE**
 
 Accounts
        receivable consist of the following at December 31, 2005 and 2004:
 
 **December
                  31,**
                **2005**
              
              **December
                  31,**
                **2004*****Trading:***Third-party
                  customers
              
              $
              103,921
              
              $
              49,813Less:
                  allowance for bad debts and credit notes
              
              
              (8,612
              )
              
              (5,661
              )Related
                  parties
              
              
              2,034
              
              
              757Less:
                  allowance for bad debts and credit notes
              
              
              (265
              )
              
              (189
              )**Total
                  trading**
              
              **$**
              **97,078**
              
              **$**
              **44,720**
  *Page
            27*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 ***Other:***Third-party
                  customers
              
              $
              257
              
              $
              18Less:
                  allowance for bad debts and credit notes
              
              
              (83
              )
              
              -Related
                  parties
              
              
              434
              
              
              722Less:
                  allowance for bad debts and credit notes
              
              
              (290
              )
              
              (290
              )**Total
                  other**
              
              **$**
              **318**
              
              **$**
              **450****Total
                  accounts receivable**
              
              **$**
              **97,396**
              
              **$**
              **45,170**
 
 Bad
        debt
        expense for the years ending December 31, 2005, 2004 and 2003 was US$ 1.8
        million, US$ 0.3 million, and US$ (0.4) million, respectively.
 
 **9.**
              **OTHER
                  ASSETS**
 
 Other
        current and non-current assets consist of the following at December 31, 2005
        and
        2004:
 
 **December
                  31,**
                **2005**
              
              **December
                  31,**
                **2004****Current:**Prepaid
                  programming
              
              $
              17,534
              
              $
              2,837Other
                  prepaid expenses
              
              
              6,009
              
              
              6,189Other
                  receivable
              
              
              -
              
              
              18,368Deferred
                  tax
              
              
              3,025
              
              
              760VAT
                  recoverable
              
              
              7,888
              
              
              664Loan
                  to related party (Note 20)
              
              
              600
              
              
              300Capitalized
                  debt costs
              
              
              2,250
              
              
              -Assets
                  held-for-sale
              
              
              341
              
              
              -Other
              
              
              1,209
              
              
              474**Total
                  other current assets**
              
              **$**
              **38,856**
              
              **$**
              **29,592****Non-current:**Capitalized
                  debt costs
              
              $
              11,618
              
              $
              -Loan
                  to related party (Note 20)
              
              
              1,910
              
              
              2,525Deferred
                  tax
              
              
              779
              
              
              31Other
              
              
              753
              
              
              1,436**Total
                  other non-current assets**
              
              **$**
              **15,060**
              
              **$**
              **3,992**
 
 The
        increases in other current and non-current assets relate primarily to our
        acquisition of the TV Nova (Czech Republic) group in May 2005.
 
 Capitalized
        debt costs primarily comprise the costs incurred in connection with the issuance
        of our Senior Notes in May 2005 (see Note 5, ”Senior Notes”), and are being
        amortized over the term of the Senior Notes using the effective interest
        method.
        The assets held-for-sale relate to land and buildings in our Croatian
        operations. The other receivable relates to a balance due to us from PPF
        at
        December 31, 2004 in respect of the sale in 2003 of our participation in
        CNTS,
        our former Czech operating company. Forgiveness of this receivable constituted
        part of the consideration paid for our acquisition of the TV Nova (Czech
        Republic) group (see Note 3, “Acquisitions and Disposals, Czech
        Republic””).
  *Page
            28*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 **10.**
              **PROPERTY,
                  PLANT & EQUIPMENT**
 
 Property,
        plant and equipment consists of the following:
 
 **December
                  31,**
                **2005**
              
              **December
                  31,**
                **2004**Land
                  and buildings
              
              $
              17,548
              
              $
              13,076Station
                  machinery, fixtures and equipment
              
              
              72,017
              
              
              62,117Other
                  equipment
              
              
              20,447
              
              
              10,363Software
                  licenses
              
              
              8,360
              
              
              5,028Construction
                  in progress
              
              
              5,180
              
              
              4,846**Total
                  cost**
              
              
              **123,552**
              
              
              **95,430**Less:
                  Accumulated depreciation
              
              
              (64,655
              )
              
              (63,882
              )**Total
                  net book value**
              
              **$**
              **58,897**
              
              **$**
              **31,548****Assets
                  held under capital leases (included in the above)**Land
                  and buildings
              
              $
              4,980
              
              $
              983Station
                  machinery, fixtures and equipment
              
              
              1,434
              
              
              393**Total
                  cost**
              
              
              **6,414**
              
              
              **1,376**Less:
                  Accumulated depreciation
              
              
              (1,167
              )
              
              (463
              )**Net
                  book value**
              
              **$**
              **5,247**
              
              **$**
              **913**
 
 For
        further information on capital leases, see Note 12, “Credit Facilities and
        Obligations under Capital Leases”.
 
 The
        increases in property, plant and equipment relate primarily to our acquisition
        of the TV Nova (Czech Republic) group in May 2005.
 
 Depreciation
        expense for the years ending December 31, 2005, 2004 and 2003 was US$ 16.7
        million, US$ 6.4 million, and US$ 5.4 million, respectively. This includes
        corporate depreciation expense for the years ending December 31, 2005, 2004
        and
        2003 of US$ 0.4 million, US$ 0.1 million and US$ 0.1 million, respectively,
        which are included in corporate operating costs.
 
 
 **11.**
              **ACCOUNTS
                  PAYABLE AND ACCRUED
                  LIABILITIES**
 
 Accounts
        payable and accrued liabilities consist of the following:
 
 **December
                  31,**
                **2005**
              
              **December
                  31,**
                **2004**Accounts
                  payable
              
              $
              21,533
              
              $
              16,642Programming
                  liabilities
              
              
              18,891
              
              
              22,156Settlement
                  liability
              
              
              10,007
              
              
              -Accrued
                  interest payable
              
              
              4,483
              
              
              -Deferred
                  income
              
              
              7,202
              
              
              5,631Accrued
                  wages
              
              
              9,402
              
              
              6,027Other
                  accrued liabilities
              
              
              13,331
              
              
              16,586**$**
              **84,849**
              
              **$**
              **67,042**
 
 The
        increases in the above accounts relate primarily to our acquisition of the
        TV
        Nova (Czech Republic) group in May 2005.
  *Page
            29*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 The
        settlement liability represents an amount owed by CET 21 under a settlement
        agreement among CET 21, Ceska nezavisla televizni spolecnost ("CNTS")
        and the PPF Group dated December 19, 2003 following a mediation. This
        liability was assumed as part of the TV Nova (Czech Republic) group acquisition
        (see Note 3, “Acquisitions and Disposals, Czech Republic”).
 
 The
        accrued interest payable balance relates primarily to interest calculated
        on our
        Senior Notes (see Note 5, “Senior Notes”).
 
 **12.**
                **CREDIT
                    FACILITIES AND OBLIGATIONS UNDER CAPITAL
                    LEASES**
 
 Group
        loan obligations and overdraft facilities consist of the following:
 
 **December
                  31, 2005**
              
              **December
                  31, 2004****Credit
                  facilities:**CME
                  Media Enterprises B.V.
              
              
              (a)
              
              $
              -
              
              $
              7,687Croatian
                  operations
              
              
              (b)
                  - (d)
              
              
              1,135
              
              
              1,668Czech
                  Republic operations
              
              
              (e)
                  - (f)
              
              
              42,703
              
              
              -Slovenian
                  operations
              
              
              (g)
                  - (h)
              
              
              -
              
              
              8,903**Total
                  credit facilities**
              
              
              
              
              **$**
              **43,838**
              
              **$**
              **18,258****Capital
                  leases**Croatian
                  operations, net of interest
              
              
              
              
              $
              132
              
              $
              381Czech
                  operations, net of interest
              
              
              
              
              
              6
              
              
              -Romanian
                  operations, net of interest
              
              
              
              
              
              290
              
              
              44Slovenian
                  operations, net of interest
              
              
              
              
              
              4,040
              
              
              628Ukrainian
                  operations
              
              
              
              
              
              -
              
              
              59**Total
                  capital leases**
              
              
              
              
              **$**
              **4,468**
              
              **$**
              **1,112****Total
                  credit facilities and capital leases**
              
              
              
              
              **$**
              **48,306**
              
              **$**
              **19,370****Less
                  current maturities**
              
              
              
              
              
              **(43,566**
              **)**
              
              **(10,472**
              **)****Total
                  non-current maturities**
              
              
              
              
              **$**
              **4,740**
              
              **$**
              **8,898**
 
  *CME
        Media Enterprises B.V.*
 
 (a)
        On
        December 1, 2005 CME Media Enterprises B.V. repaid STS, our equity-accounted
        affiliate in the Slovak Republic, SKK
        228
        million (approximately US$ 7.1 million at the date of repayment) in settlement
        of the principal and interest due on a loan that had been advanced to us
        in 2002
        and 2003 .
        The
        loan bore interest at a rate of three-month Bratislava Inter-Bank Offered
        Rate
        (“BRIBOR”) plus 2.2%.
 
 
 *Croatia*
 
 (b)
        A
        total of Euro 0.8 million (approximately
        US$ 0.9 million) was drawn down on three agreements our Croatian operations
        have
        with Hypo Alpe-Adria-Bank d.d. These
        loans bear a variable interest rate of the European Inter Bank Official Rate
        ("EURIBOR") three-month rate plus 2.5% and are repayable in quarterly
        installments until April 1, 2011. As at December 31, 2005, a rate of 4.75%
        applied to these loans.
        These loans are secured by the real property and fixed assets of OK, which
        as at
        December 31, 2005 have a carrying amount of approximately US$ 0.3 million.
  *Page
            30*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 (c) An
        amount
        of Euro 0.01 million (approximately US$ 0.01 million) was drawn down on an
        agreement our Croatian operations have with Hypo Alpe-Adria-Bank d.d. This
        loan
        bears a fixed interest rate of 7.25% and is repayable on July 31,
        2006.
 
 (d) Euro
        0.2
        million (approximately US$ 0.2 million) was drawn down by our Croatian
        operations under a loan agreement with BKS Bank fur Karnten and Steiermark
        AG. This
        loan bears a variable interest rate of EURIBOR three-month rate plus 3.0%
        and is
        repayable on October 1, 2006. As at December 31, 2005 a rate of 5.25% applied
        to
        this loan.
 
 *Czech
        Republic*
 
 (e)
        CZK
        800 million (approximately US$ 32.5 million) was drawn by CET 21 under a
        four-year credit facility of CZK 1.2 billion (approximately US$ 48.8 million)
        with Ceska Sporitelna, a.s. (“CS”). The amount drawn bears interest at
        three-month Prague Inter-Bank Offered Rate (“PRIBOR”) plus 1.95% (three-month
        PRIBOR at December 31, 2005 was 2.17%). This facility is secured by a guarantee
        of CME Media Services and a pledge of receivables under a factoring agreement
        between CME Media Services and Factoring Ceska Sporitelna, a.s., a subsidiary
        of
        CS. Following the merger of CET 21 with CME Media Services, scheduled for
        2006,
        this loan will be renegotiated.
  (f)
        CZK
        250 million (approximately US$ 10.2 million) has been drawn by CET 21 and
        CME
        Media Services under a working capital facility agreement with CS which expires
        on October 31, 2006 and bears interest at the three-month PRIBOR rate plus
        1.65%
        (three-month PRIBOR at December 31, 2005 was 2.17%). This working capital
        facility is secured by a pledge of receivables under the factoring agreement
        between CME Media Services and Factoring Ceska Sporitelna.
  *Slovenia*
 
 (g)
        On
        July 29, 2005, Pro Plus entered into a revolving facility agreement for up
        to
        Euro 37.5 million (approximately US$ 44.2 million) in aggregate principal
        amount
        with ING Bank N.V., Nova Ljubljanska Banka d.d., Ljubljana and Bank Austria
        Creditanstalt d.d., Ljubljana. The facility availability amortizes by 10%
        each
        year for four years commencing one year after signing, with 60% repayable
        after
        five years. This facility is secured by a pledge of the bank accounts of
        Pro
        Plus, the assignment of certain receivables, a pledge of our interest in
        Pro
        Plus and a guarantee of our wholly-owned subsidiary CME Media Enterprises
        B.V.
        Loans drawn under this facility will bear interest initially at EURIBOR plus
        3.6%. The applicable margin may be reduced (by increments of 0.5% to a minimum
        of 2.1%) if Pro Plus exceeds certain benchmarks for the ratio of net debt
        to
        broadcasting cash flow. As at December 31, 2005, the balance on this revolving
        facility is nil.
 
 (h)
        In
        December 2002, Pro Plus entered into a loan agreement for a facility of up
        to
        Euro 8.0 million (approximately US$ 10.8 million) with Bank Austria
        Creditanstalt d.d. and Nova Ljubljanska banka d.d. maturing in February 2009.
        This loan bore a variable interest rate of the six-month EURIBOR plus 3.0%
        and
        was retired on August 16, 2005.
 
 *Total
        Group*
 
 At
        December 31, 2005, the maturity of our debt (including our Senior Notes)
        is as
        follows:
 
 2006
              
              $
              43,0812007
              
              
              1552008
              
              
              1622009
              
              
              1702010
              
              
              1782011
                  and thereafter
              
              
              436,516**Total**
              
              **$**
              **480,262**
  *Page
            31*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 *Capital
        Lease Commitments*
 
 We
        lease
        certain of our office and broadcast facilities as well as machinery and
        equipment under various leasing arrangements. The future minimum lease payments
        from continuing operations, by year and in the aggregate, under capital leases
        with initial or remaining non-cancelable lease terms in excess of one year,
        consisted of the following at December 31, 2005:
  2006
              
              $
              6942007
              
              
              6582008
              
              
              4602009
              
              
              4652010
              
              
              4652011
                  and thereafter
              
              
              3,164**5,906**Less:
                  amount representing interest
              
              
              (1,438
              )**Present
                  value of net minimum lease payments**
              
              **$**
              **4,468**
 
 **13.**
              **SHAREHOLDERS’
                  EQUITY**
 
 *Preferred
        Stock*
  5,000,000
        shares of Preferred Stock, with a $0.08 par value, were authorized as at
        December 31, 2005 and 2004.  None were issued and outstanding as at
        December 31, 2005 and 2004.
  *Class
        A and B Common Stock*
  100,000,000
        shares of Class A Common Stock and 15,000,000 shares of Class B Common Stock
        were authorized as at December 31, 2005 and 2004.  The rights of the
        holders of Class A Common Stock and Class B Common Stock are identical
        except for voting rights. The shares of Class A Common Stock are entitled
        to one vote per share and the shares of Class B Common Stock are entitled
        to ten votes per share. Class B Common Stock is convertible into Class A
        Common
        Stock for no additional consideration on a one-for-one basis. Holders of
        each
        class of shares are entitled to receive dividends and upon liquidation or
        dissolution are entitled to receive all assets available for distribution
        to
        shareholders. The holders of each class have no preemptive or other subscription
        rights and there are no redemption or sinking fund provisions with respect
        to
        such shares.
 
 *Warrants*
 
 As
        a
        result of a transaction in 2002 with GoldenTree Asset Management LLC, the
        resale
        of shares issuable on exercise of warrants to purchase 696,000 shares of
        Class A
        Common Stock with an exercise price of US$ 2.504 was registered with the
        SEC on
        February 4, 2004 and the warrants were exercised on February 19, 2004. We
        received US$ 1.7 million on exercise and the stock issued is included in
        our
        31,032,994 shares of Class A Common Stock outstanding as at December 31,
        2005.
 
 *Two-for-One
        Stock Splits:*
 
 On
        December 16, 2002 a duly authorized committee of the Board of Directors of
        Central European Media Enterprises Ltd. approved a two-for-one stock split
        by
        way of the issue of one pari-passu bonus share in respect of each share of
        Class
        A or Class B Common Stock. This applied to stockholders as at the record
        date of
        December 30, 2002 and the additional share was distributed on January 10,
        2003.
 
 On
        October 14, 2003 a duly authorized committee of the Board of Directors of
        Central European Media Enterprises Ltd. approved a two-for-one stock split
        by
        way of the issue of one pari-passu bonus share in respect of each share of
        Class
        A or Class B Common Stock. This applied to stockholders as at the record
        date of
        October 27, 2003 and the additional share was distributed on November
        5, 2003.
  *Page
            32*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 The
        two-for-one stock splits: (i) had no effect on the par value of our Class
        A and
        Class B Common Stock; (ii) increased the value of the authorized share capital
        of our Class A Common Stock from US$ 373,395 to US$ 1,486,168; and (iii)
        increased the value of the authorized share capital of our Class B Common
        Stock
        from US$ 158,695 to US$ 634,782.
 
 On
        December 29, 2003, 600,000 shares of Class B Common Stock owned by RSL Capital
        LLC, a company wholly owned by Ronald S. Lauder, were converted into 600,000
        shares of Class A Common Stock (par value of US$ 48,000), which decreased
        Class
        B Common Stock to US$ 586,782.
 
 On
        December 9, 2005, EL/RSLG Media Inc. converted 306,000 shares of Class B
        Common
        Stock and on December 15, 2005 Ronald Lauder converted 62,235 shares of Class
        B
        Common Stock into a total of 368,235 shares of Class A Common Stock (par
        value
        of US$ 29,459), which decreased Class B Common Stock to US$ 557,323.
 
 All
        share
        and per share information in the financial statements have been retroactively
        adjusted to reflect these two-for-one stock splits.
 
 
 **14.**
              **INCOME
                  TAXES**
 
 As
        our
        investments are predominantly owned by Dutch holding companies, the
        components of the provision for income taxes and of the income / (loss) from
        continuing operations before provision for income taxes have been analyzed
        between their Netherlands and non-Netherlands components.  Similarly the
        Dutch corporate income tax rate has been used in the reconciliation of income
        taxes.
 
 *Income/(loss)
        before provision for income taxes, minority interest, equity in income of
        unconsolidated affiliates and discontinued operations:*
 
 The
        Netherlands and non-Netherlands components of income/(loss) from continuing
        operations before income taxes are:
 
 **For
                  the Years Ended December 31,****2005**
              
              **2004**
              
              **2003**Domestic
              
              $
              (2,270
              )
              $
              5,127
              
              $
              (39,207
              )Foreign
              
              
              62,639
              
              
              15,456
              
              
              15,813**$**
              **60,369**
              
              **$**
              **20,583**
              
              **$**
              **(23,394**
              **)**
 
 
 Total
        tax
        charge for the years ended December 31, 2005, 2004 and 2003 was allocated
        as
        follows:
 
 **For
                  the Years Ended December 31,****2005**
              
              **2004**
              
              **2003**Income
                  tax expense from continuing operations
              
              $
              16,691
              
              $
              11,089
              
              $
              3,760Income
                  tax expense/(benefit) from discontinued operations
              
              
              677
              
              
              (2,378
              )
              
              14,000Currency
                  translation adjustment in accumulated other comprehensive
                  loss
              
              
              (3,266
              )
              
              **-**
              
              
              **-****Total
                  tax charge**
              
              **$**
              **14,102**
              
              **$**
              **8,711**
              
              **$**
              **17,760**
  *Page
            33*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 *Income
        Tax Provision:*
 
 The
        Netherlands and non-Netherlands components of the provision for income taxes
        from continuing operations consists of:
 
 **For
                  the Years Ended December 31,****2005**
              
              **2004**
              
              **2003**Current
                  Income tax expense:Domestic
              
              $
              186
              
              $
              2,104
              
              $
              911Foreign
              
              
              25,512
              
              
              9,047
              
              
              3,386**$**
              **25,698**
              
              **$**
              **11,151**
              
              **$**
              **4,297**Deferred
                  tax benefit:Domestic
              
              $
              (1,467
              )
              $
              -
              
              $
              -Foreign
              
              
              (7,540
              )
              
              (62
              )
              
              (537
              )**$**
              **(9,007**
              **)**
              **$**
              **(62**
              **)**
              **$**
              **(537**
              **)****Provision
                  for income taxes**
              
              **$**
              **16,691**
              
              **$**
              **11,089**
              
              **$**
              **3,760**
 
 *Reconciliation
        of Effective Income Tax Rate:*
 
 The
        following is a reconciliation of income taxes, calculated at statutory
        Netherlands rates, to the income tax provision included in the accompanying
        Consolidated Statements of Operations for the years ended December 31, 2005,
        2004 and 2003:
 
 **For
                  the Years Ended December 31,****2005**
              
              **2004**
              
              **2003**Income
                  taxes at Netherlands rates (2005: 31.5%; 2004, 2003: 34.5%)
              
              $
              19,015
              
              $
              7,101
              
              $
              (8,071
              )Jurisdictional
                  differences in tax rates
              
              
              (15,685
              )
              
              393
              
              
              6,141Tax
                  effect of Croatian goodwill impairment
              
              
              1,983
              
              
              -
              
              
              -Tax
                  effect of other permanent differences
              
              
              4,867
              
              
              6,186
              
              
              1,667Effect
                  of change in tax rates
              
              
              620
              
              
              (858
              )
              
              68Change
                  in valuation allowance
              
              
              5,115
              
              
              (1,366
              )
              
              3,192Other
              
              
              776
              
              
              (367
              )
              
              763**Provision
                  for income taxes**
              
              **$**
              **16,691**
              
              **$**
              **11,089**
              
              **$**
              **3,760**
 
 The
        amount included in 2005 for jurisdictional differences in tax rates includes
        US$
        13.1 million relating to profits arising in Bermuda, which are not subject
        to
        tax.
  *Page
            34*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 *Components
        of Deferred Tax Assets and Liabilities:*
 
 The
        following table shows the significant components included in deferred income
        taxes as at December 31, 2005 and 2004:
 
 **December
                  31,**
                **2005**
              
              **December
                  31,**
                **2004****Assets:**Tax
                  benefit of loss carry-forwards and other tax credits
              
              $
              17,748
              
              $
              9,242Programming
                  rights
              
              
              1,220
              
              
              -Property,
                  plant and equipment
              
              
              527
              
              
              127Accrued
                  expense
              
              
              2,807
              
              
              1,285Other
              
              
              722
              
              
              299**Gross
                  deferred tax assets**
              
              
              **23,024**
              
              
              **10,953**Valuation
                  allowance
              
              
              (11,934
              )
              
              (8,011
              )**Net
                  deferred tax assets**
              
              **$**
              **11,090**
              
              **$**
              **2,942****Liabilities:**Broadcast
                  licenses, trademarks and customer relationships
              
              $
              (42,674
              )
              $
              (4,406
              )Property,
                  plant and equipment
              
              
              (4,057
              )
              
              -Investment
                  write-off
              
              
              -
              
              
              (1,763
              )Undistributed
                  reserves not permanently reinvested
              
              
              (1,944
              )
              
              (2,437
              )Temporary
                  difference due to timing
              
              
              (1,765
              )
              
              (704
              )**Total
                  deferred tax liabilities**
              
              **$**
              **(50,440**
              **)**
              **$**
              **(9,310**
              **)****Net
                  deferred income tax liability**
              
              **$**
              **(39,350**
              **)**
              **$**
              **(6,368**
              **)**
 
 Deferred
        tax is recognized on the Consolidated Balance Sheet as follows:
 
 **December
                  31,**
                **2005**
              
              **December
                  31,**
                **2004**Current
                  deferred tax assets
              
              $
              3,025
              
              $
              760Non-current
                  deferred tax assets
              
              
              779
              
              
              31$
              3,804
              
              $
              791Current
                  deferred tax liabilities
              
              
              (1,005
              )
              
              (946
              )Non-current
                  deferred tax liabilities
              
              
              (42,149
              )
              
              (6,213
              )$
              (43,154
              )
              $
              (7,159
              )**Net
                  deferred income tax liability**
              
              **$**
              **(39,350**
              **)**
              **$**
              **(6,368**
              **)**
 
 The
        increase in the deferred tax liability in respect of broadcast licenses,
        trademarks and customer relationships relates primarily to our acquisition
        of
        the TV Nova (Czech Republic) group in May 2005.
 
 We
        provided a valuation allowance against potential deferred tax assets of US$
        11.9
        million and US$ 8.0 million as at December 31, 2005 and 2004, respectively,
        since it has been determined by management based on the weight of all available
        evidence that it is more likely than not that the benefits associated with
        these
        assets will not be realized. Of the valuation allowance recorded at December
        31,
        2005, US$ 0.9 million would reverse through equity and US$ 0.8 million would
        reverse through goodwill.
  *Page
            35*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 During
        2005, we had the following movements on valuation allowances:
 
 
 **Balance
                  at December 31, 2004**
              
              **$**
              **8,011**Companies
                  acquired
              
              
              1,045Charged
                  to costs and expenses
              
              
              5,115Charged
                  to other accounts
              
              
              (1,230
              )Foreign
                  exchange
              
              
              (1,007
              )**Balance
                  at December 31, 2005**
              
              **$**
              **11,934**
 
 
 As
        of
        December 31, 2005 we have operating loss carry-forwards that will expire
        in the
        following periods:
 
 
 **Year**
              
              **Total**
              
              **Netherlands**
              
              **Austria**
              
              **Croatia**
              
              **Czech
                  Republic**
              
              **Slovenia**2006
              
              $
              9,007
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              9,0072007
              
              
              938
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              9382008
              
              
              150
              
              
              -
              
              
              -
              
              
              -
              
              
              18
              
              
              1322009
              
              
              12,506
              
              
              -
              
              
              -
              
              
              11,288
              
              
              1,218
              
              
              -2010
              
              
              42,735
              
              
              -
              
              
              -
              
              
              18,089
              
              
              24,646
              
              
              -Indefinite
              
              
              11,689
              
              
              4,956
              
              
              6,733
              
              
              -
              
              
              -
              
              
              -**$**
              **77,025**
              
              **$**
              **4,956**
              
              **$**
              **6,733**
              
              **$**
              **29,377**
              
              **$**
              **25,882**
              
              **$**
              **10,077**
 
 The
        losses are subject to examination by the tax authorities and to restriction
        on
        their utilization. In particular the losses can only be utilized against
        profits
        arising in the legal entity in which the losses arose. We have provided 100%
        valuation allowances against the operating loss carry-forwards arising in
        Austria, Croatia and Slovenia as we consider it more likely than not that
        we
        will fail to utilize these losses.
 
 We
        have
        not provided income taxes or withholding taxes on US$ 119.0 million (2004:
        US$
        80.0 million) of cumulative undistributed earnings of our subsidiaries and
        affiliates as these earnings are either permanently reinvested in the companies
        concerned or can be recovered tax-free. It is not practicable to estimate
        the
        amount of taxes that might be payable on the distribution of these
        earnings.
 
 
 **15.**
              **STOCK-BASED
                  COMPENSATION**
 
 The
        charge for stock-based compensation in our Consolidated Statements of Operations
        is as follows:
 
 **For
                  the Years Ended December 31,****2005**
              
              **2004**
              
              **2003**Stock-based
                  compensation charged under FIN 44
              
              $
              745
              
              $
              8,977
              
              $
              12,948Stock-based
                  compensation charged under FAS 123
              
              
              2,209
              
              
              1,125
              
              
              261**Total
                  stock-based compensation**
              
              **$**
              **2,954**
              
              **$**
              **10,102**
              
              **$**
              **13,209**
 
 *Stock-based
        compensation under FIN 44*
 
 For
        certain options issued in 2000, our stock-based compensation charge is
        calculated according to FASB Interpretation 44, "Accounting for Certain
        Transactions involving Stock Compensation" ("FIN 44"). This requires that
        compensation costs for modified awards are adjusted for increases and decreases
        in the intrinsic value in subsequent periods until that award is exercised,
        forfeited or expires unexercised, subject to a minimum of the original intrinsic
        value at the original measurement date. The last of these options were exercised
        on May 11, 2005.
  *Page
            36*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 For
        the
        year ending December 31, 2005, there were net charges of US$ 0.7 million
        in
        respect of variable plan accounting, a result of an increase in our stock
        price
        from US$ 38.92 per share on December 31, 2004 to US$ 41.88 on May 11, 2005.
        For
        the years ending December 31, 2004 and 2003, there were charges of US$ 9.0
        million and US$ 12.9 million, respectively.
 
 *Stock-based
        compensation under FAS 123*
 
 Under
        the
        provisions of FAS 123, the fair value of stock options is estimated on the
        grant
        date using the Black-Scholes option-pricing model and recognized ratably
        over
        the vesting period. The weighted average assumptions used in the Black-Scholes
        model for grants made in the years ending December 31, 2005, 2004 and 2003
        were
        as follows:
 
 
 **For
                  the Years Ended December 31,****2005**
              
              **2004**
              
              **2003**Risk-free
                  interest rate
              
              
              4.00
              %
              
              3.50
              %
              
              1.90
              %Expected
                  term (years)
              
              
              6.25
              
              
              6.00
              
              
              6.00Expected
                  volatility
              
              
              50.56
              %
              
              51.50
              %
              
              56.66
              %Dividend
                  yield
              
              
              0
              %
              
              0
              %
              
              0
              %Weighted-average
                  fair value
              
              $
              26.29
              
              $
              12.51
              
              $
              5.71
 
 The
        following table summarizes information about stock option activity during
        2005,
        2004, and 2003:
 
 **2005**
              
              **2004**
              
              **2003****Shares**
              
              **Weighted**
                **Average**
                **Exercise**
                **Price**
                **(US$)**
              
              **Shares**
              
              **Weighted**
                **Average**
                **Exercise**
                **Price**
                **(US$)**
              
              **Shares**
              
              **Weighted**
                **Average**
                **Exercise**
                **Price**
                **(US$)****Outstanding
                  at beginning of year**
              
              
              **1,705,017**
              
              **$**
              **12.89**
              
              
              **2,527,717**
              
              **$**
              **7.10**
              
              
              **2,503,715**
              
              **$**
              **6.40**Awards
                  granted
              
              
              194,500
              
              
              49.23
              
              
              419,500
              
              
              23.84
              
              
              252,000
              
              
              10.64Awards
                  exercised
              
              
              (685,359
              )
              
              8.08
              
              
              (1,083,634
              )
              
              2.74
              
              
              (145,998
              )
              
              0.83Awards
                  forfeited
              
              
              (95,883
              )
              
              11.90
              
              
              (158,566
              )
              
              19.11
              
              
              (82,000
              )
              
              7.83**Outstanding
                  at end of year**
              
              
              **1,118,275**
              
              **$**
              **22.23**
              
              
              **1,705,017**
              
              **$**
              **12.89**
              
              
              **2,527,717**
              
              **$**
              **7.10**
 
 In
        addition to the amounts shown above, 25,000 options for shares of Class A
        Common
        Stock granted to a former director in August 1995 outside of our stock option
        plans were exercised in 2005.
 
 The
        following table summarizes information about stock options outstanding at
        December 31, 2005:
 
 **Outstanding
                  options**
              
              **Exercisable****Range
                  of exercise**
                **prices**
              
              **Shares**
              
              **Average**
                **remaining**
                **contractual
                  life**
                **(years)**
              
              **Weighted**
                **average**
                **exercise
                  price**
                **(US$)**
              
              **Shares**
              
              **Weighted**
                **average**
                **exercise**
                **price
                  (US$)**$1.00-9.99
              
              
              182,000
              
              
              6.20
              
              $
              1.94
              
              
              152,400
              
              $
              1.99$10.00-19.99
              
              
              374,400
              
              
              7.73
              
              
              15.03
              
              
              139,300
              
              
              13.62$20.00-29.99
              
              
              275,000
              
              
              4.47
              
              
              22.78
              
              
              184,300
              
              
              22.87$30.00-39.99
              
              
              92,375
              
              
              8.92
              
              
              32.95
              
              
              21,600
              
              
              32.93$40.00-49.99
              
              
              122,000
              
              
              9.42
              
              
              44.61
              
              
              -
              
              
              -$50.00-59.99
              
              
              72,500
              
              
              10.00
              
              
              57.00
              
              
              -
              
              
              -**Total**
              
              
              **1,118,275**
              
              
              **7.11**
              
              **$**
              **22.23**
              
              
              **497,600**
              
              **$**
              **14.31**
 *Page
              37*
 *Table
              of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 **16.**
              **EARNINGS
                  PER SHARE**
 
 The
        components of basic and diluted earnings per share are as follows:
 
 **For
                  the Years Ended December 31,****2005**
              
              **2004**
              
              **2003****Net
                  income available for common shareholders**
              
              **$**
              **42,495**
              
              **$**
              **18,531**
              
              **$**
              **346,012****Weighted
                  average outstanding shares of common stock (000’s)**
              
              
              **34,664**
              
              
              **27,871**
              
              
              **26,492**Dilutive
                  effect of employee stock options (000’s)
              
              
              766
              
              
              1,229
              
              
              -**Common
                  stock and common stock equivalents**
              
              
              **35,430**
              
              
              **29,100**
              
              
              **26,492****Earnings
                  per share:**Basic
              
              $
              1.23
              
              $
              0.66
              
              $
              13.06Diluted
              
              $
              1.20
              
              $
              0.64
              
              $
              13.06
 
 At
        December 31, 2005, 194,500 stock options were antidilutive to income from
        continuing operations and excluded from the calculation of earnings per share.
        These may become dilutive in the future.
 
 **17.**
              **SEGMENT
                  DATA**
 
 We
        manage
        our business on a country-by-country basis and review the performance of
        each
        business segment using data that reflects 100% of operating and license company
        results. Our business segments are comprised of Croatia, the Czech Republic,
        Romania, the Slovak Republic, Slovenia and Ukraine.
 
 We
        evaluate the performance of our business segments based on Segment Net Revenues
        and Segment EBITDA. Segment Net Revenues and Segment EBITDA include STS and
        Markiza (our operating and license company affiliates in the Slovak Republic)
        for the year ended December 31, 2005 and STS, Markiza and Radio Pro in Romania
        for the year ended December 31, 2004. These entities are not consolidated
        under
        US GAAP.
 
 We
        acquired our Croatian operations on July 16, 2004; therefore, comparable
        2004
        financial information is included from the date of acquisition only. We acquired
        our Czech operations on May 2, 2005; therefore, 2005 results are from the
        date
        of acquisition. We do not include any detailed year-on-year comparisons of
        financial results for our Croatian operations and qualified limited comparisons
        for our Czech operations.
 
 Our
        key
        performance measure of the efficiency of our business segments is EBITDA
        margin.
        We define Segment EBITDA margin as the ratio of Segment EBITDA to Segment
        Net
        Revenue.
 
 Segment
        EBITDA is determined as segment net income/loss, which includes program rights
        amortization costs, before interest, taxes, depreciation and amortization
        of
        intangible assets. Items that are not allocated to our business segments
        for
        purposes of evaluating their performance and therefore are not included in
        Segment EBITDA, include:
 
 ·
              expenses
                  presented as corporate operating costs in our Consolidated Statements
                  of
                  Operations;
 
 ·
              foreign
                  currency exchange gains and losses;
                  and
 
 ·
              certain
                  unusual or infrequent items (e.g., extraordinary gains and losses,
                  impairments on assets or
                  investments).
  *Page
            38*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 EBITDA
        is
        not a term defined under US GAAP and Segment EBITDA may not be comparable
        to
        similar measures reported by other companies. Non-GAAP measures should be
        evaluated in conjunction with, and are not a substitute for, US GAAP financial
        measures.
 
 We
        believe Segment EBITDA is useful to investors because it provides a more
        meaningful representation of our performance as it excludes certain items
        that
        either do not impact our cash flows or the operating results of our stations.
          Segment EBITDA is also used as a component in determining management
        bonuses.
 
 Below
        are
        tables showing our Segment Net Revenues, Segment EBITDA, segment depreciation
        and segment asset information by operation, including a reconciliation of
        these
        amounts to our consolidated US GAAP results for the years ending December
        31,
        2005, 2004 and 2003 for P&L data and as at December 31, 2005 and 2004 for
        balance sheet data:
 
 **SEGMENT
                  FINANCIAL INFORMATION****For
                  the Years Ended December 31,****Segment
                  Net Revenues (1)**
              
              **Segment
                  EBITDA****2005**
              
              **2004**
              
              **2003**
              
              **2005**
              
              **2004**
              
              **2003****Country**Croatia
                  (NOVA TV)
              
              $
              22,030
              
              $
              9,757
              
              $
              -
              
              $
              (15,866
              )
              $
              (3,756
              )
              $
              -Czech
                  Republic (TV NOVA, GALAXIE SPORT)
              
              
              154,010
              
              
              -
              
              
              -
              
              
              71,544
              
              
              -
              
              
              -Romania
                  (2)
              
              
              103,321
              
              
              76,463
              
              
              51,177
              
              
              43,803
              
              
              25,198
              
              
              12,206Slovak
                  Republic (MARKIZA TV)
              
              
              64,266
              
              
              61,576
              
              
              50,814
              
              
              17,240
              
              
              18,975
              
              
              11,657Slovenia
                  (POP TV and KANAL A)
              
              
              48,770
              
              
              45,388
              
              
              37,168
              
              
              19,337
              
              
              19,077
              
              
              13,173Ukraine
                  (STUDIO 1+1)
              
              
              72,847
              
              
              53,351
              
              
              36,633
              
              
              21,803
              
              
              14,729
              
              
              7,999**Total
                  Segment Data**
              
              **$**
              **465,244**
              
              **$**
              **246,535**
              
              **$**
              **175,792**
              
              **$**
              **157,861**
              
              **$**
              **74,223**
              
              **$**
              **45,035****Reconciliation
                  to Consolidated Statement of Operations and Comprehensive
                  Income:****Consolidated
                  Net Revenues / Income/(loss) before provision for income taxes,
                  minority
                  interest, equity in income of unconsolidated affiliates and discontinued
                  operations**
              
              **$**
              **400,978**
              
              **$**
              **182,339**
              
              **$**
              **124,978**
              
              **$**
              **60,369**
              
              **$**
              **20,583**
              
              **$**
              **(23,394**
              **)**Corporate
                  operating costs
              
              
              -
              
              
              -
              
              
              -
              
              
              25,374
              
              
              29,185
              
              
              32,512Impairment
                  charge
              
              
              -
              
              
              -
              
              
              -
              
              
              35,331
              
              
              -
              
              
              -Unconsolidated
                  equity affiliates (3)
              
              
              64,266
              
              
              64,196
              
              
              50,814
              
              
              17,240
              
              
              19,404
              
              
              11,657Depreciation
                  of station property, plant & equipment
              
              
              -
              
              
              -
              
              
              -
              
              
              16,367
              
              
              6,429
              
              
              5,276Amortization
                  of broadcast licenses and other intangibles
              
              
              
              
              
              
              
              
              
              
              
              11,180
              
              
              465
              
              
              -Interest
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              (4,124
              )
              
              (4,318
              )
              
              (5,507
              )Interest
                  expense
              
              
              -
              
              
              -
              
              
              -
              
              
              29,387
              
              
              1,203
              
              
              12,010Foreign
                  currency exchange (gain)/loss, net
              
              
              -
              
              
              -
              
              
              -
              
              
              (37,968
              )
              
              574
              
              
              10,023Other
                  expense
              
              
              -
              
              
              -
              
              
              -
              
              
              4,705
              
              
              698
              
              
              2,458**Total
                  Segment Data**
              
              **$**
              **465,244**
              
              **$**
              **246,535**
              
              **$**
              **175,792**
              
              **$**
              **157,861**
              
              **$**
              **74,223**
              
              **$**
              **45,035**
  (1)
        All
        net revenues are derived from external customers. There are no inter-segmental
        revenues.
  (2)
        Romanian networks are PRO TV, PRO CINEMA, ACASA and PRO TV INTERNATIONAL
        for the
        year ended December 31, 2005 and PRO TV, PRO CINEMA, ACASA, PRO TV
        INTERNATIONAL, PRO FM and INFOPRO for the years ended December 31, 2004 and
        2003.
  (3)
        Unconsolidated equity affiliates are STS and Markiza in the Slovak Republic
        and
        Radio Pro in Romania.
  *Page
              39*
 *Table
              of Contents*
 
 **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 **For
                  the Years Ended December 31,****Depreciation
                  of station property, plant & equipment and amortization of broadcast
                  licenses and other intangibles:**
              
              **2005**
              
              **2004**
              
              **2003**Croatia
              
              $
              2,951
              
              $
              1,173
              
              $
              -Czech
                  Republic
              
              
              15,960
              
              
              -
              
              
              -Romania
              
              
              3,829
              
              
              2,843
              
              
              3,144Slovak
                  Republic
              
              
              2,599
              
              
              1,735
              
              
              1,805Slovenia
              
              
              2,947
              
              
              1,654
              
              
              1,385Ukraine
              
              
              1,860
              
              
              1,224
              
              
              747**Total**
              
              **$**
              **30,146**
              
              **$**
              **8,629**
              
              **$**
              **7,081****Reconciliation
                  to Consolidated Statement of Operations:**Unconsolidated
                  equity affiliates
              
              
              (2,599
              )
              
              (1,735
              )
              
              (1,805
              )**Total
                  consolidated depreciation and amortization**
              
              
              **27,547**
              
              
              **6,894**
              
              
              **5,276**Represented
                  as follows:Depreciation
                  of station property, plant & equipment
              
              
              16,367
              
              
              6,429
              
              
              5,276Amortization
                  of broadcast licenses and other intangibles
              
              
              11,180
              
              
              465
              
              
              -
 
  **As
                  at December 31,****Total
                  assets (1):**
              
              **2005**
              
              **2004**Croatia
              
              $
              25,017
              
              $
              52,905Czech
                  Republic
              
              
              1,018,253
              
              
              -Romania
              
              
              123,699
              
              
              79,622Slovak
                  Republic
              
              
              41,873
              
              
              42,467Slovenia
              
              
              62,926
              
              
              64,044Ukraine
              
              
              49,438
              
              
              32,706**Total
                  segment assets**
              
              **$**
              **1,321,206**
              
              **$**
              **271,744****Reconciliation
                  to Consolidated Balance Sheet:**Unconsolidated
                  equity affiliates
              
              
              (41,873
              )
              
              (42,467
              )Corporate
              
              
              109,517
              
              
              215,362**Total
                  assets**
              
              **$**
              **1,388,850**
              
              **$**
              **444,639**
 
 (1)
        Segment assets exclude any inter-company investments, loans, payables and
        receivables.
  *Page
            40*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 **As
                  at December 31,****Long-lived
                  assets (1):**
              
              **2005**
              
              **2004**Croatia
              
              $
              6,264
              
              $
              6,775Czech
                  Republic
              
              
              16,027
              
              
              -Romania
              
              
              13,154
              
              
              9,081Slovak
                  Republic
              
              
              14,245
              
              
              12,818Slovenia
              
              
              15,523
              
              
              11,834Ukraine
              
              
              7,127
              
              
              3,153**Total
                  long-lived assets**
              
              **$**
              **72,340**
              
              **$**
              **43,661****Reconciliation
                  to Consolidated Balance Sheet:**Unconsolidated
                  equity affiliates
              
              
              (14,245
              )
              
              (12,818
              )Corporate
              
              
              802
              
              
              705**Total
                  Long-lived assets**
              
              **$**
              **58,897**
              
              **$**
              **31,548**
 
 (1)
        Reflects property, plant and equipment
 
 We
        do not
        rely on any single major customer or group of major customers. No customer
        accounts for more than 10% of revenue.
 
 
 **18.**
              **DISCONTINUED
                  OPERATIONS**
 
 
 **For
                  the Years Ended December 31,****2005**
              
              **2004**
              
              **2003**Net
                  revenues of discontinued operation
              
              $
              -
              
              $
              -
              
              $
              109Expenses
                  of discontinued operation
              
              
              -
              
              
              -
              
              
              (1,197
              )Gain
                  on disposal of CNTS
              
              
              -
              
              
              -
              
              
              41,421Arbitration
                  related proceeds
              
              
              -
              
              
              -
              
              
              358,635Arbitration
                  related costs
              
              
              164
              
              
              146
              
              
              (14,796
              )Other
                  income of discontinued operation
              
              
              -
              
              
              -
              
              
              41**Income
                  on disposal of discontinued operations**
              
              
              **164**
              
              
              **146**
              
              
              **384,213**Tax
                  on disposal of discontinued operations
              
              
              (677
              )
              
              2,378
              
              
              (14,000
              )**Net
                  income/(loss) from discontinued operations**
              
              **$**
              **(513**
              **)**
              **$**
              **2,524**
              
              **$**
              **370,213**
 
 On
        May
        19, 2003, we received US$ 358.6 million from the
        Czech Republic in final settlement of our UNCITRAL arbitration in respect
        of our
        former operations in the Czech Republic.
 
 On
        June
        19, 2003, our Board of Directors decided to withdraw from operations in the
        Czech Republic. The revenues and expenses of our former Czech operations
        and the
        award income and related legal expenses have therefore all been accounted
        for as
        discontinued operations for the year 2003.
 
 In
        2003,
        we incurred US$ 14.8 million of arbitration related costs (primarily legal
        costs) relating to the arbitration proceedings against the Czech Republic
        and to
        the ICC arbitration against Dr Zelezny.
 
 On
        October 23, 2003 we sold our 93.2% participation interest in CNTS, our former
        Czech operating company, to PPF for US$ 53.2 million.
 
 The
        first
        installment of US$ 7.5 million was received on October 8, 2003, the second
        US$
        7.5 million installment was received on October 23, 2003 and the third US$
        20.3
        million installment was received on July 14, 2004. The remainder of the sales
        price was offset against our payment obligations to PPF in connection with
        the
        acquisition of the TV Nova (Czech Republic) group.
  *Page
            41*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 On
        February 9, 2004 we entered into an agreement with the Dutch tax authorities
        to
        settle all tax liabilities outstanding for the years up to and including
        2003,
        including receipts in respect of our 2003 award in the arbitration against
        the
        Czech Republic for a payment of US$ 9.0 million. We expect to continue to
        pay
        tax in the Netherlands of between US$ 1.0 and US$ 2.5 million for the
        foreseeable future and therefore have also agreed to a minimum payment of
        US$
        2.0 million per year for the years 2004 - 2008 and US$ 1.0 million for 2009.
 
 We
        have
        re-evaluated our forecasts of our Dutch tax liabilities based on our inter
        company loans and at December 31, 2005 have provided US$ 2.1 million (US$
        0.7
        million in non-current liabilities and US$ 1.4 million in current liabilities)
        in respect of the additional tax which is required to be paid should our
        taxable
        income fall below the minimum amount agreed with the Dutch tax authorities
        over
        the next four years. As of December 31, 2004, we had provided US$ 3.5 million
        (US$ 3.1 million in non-current liabilities and US$ 0.4 million in current
        liabilities). In our Consolidated Statement of Operations, we recognized
        a
        charge of US$ 0.7 in 2005, a benefit of US$ 2.4 million in 2004 and a charge
        of
        US$ 14.0 million in 2003.
 
 The
        settlement with the Dutch tax authorities also provides that if any decision
        is
        issued at any time prior to December 31, 2008 exempting awards under Bilateral
        Investment Treaties from taxation in the Netherlands, we will be allowed
        to use
        any resulting losses, which could be up to US$ 195.0 million, to offset other
        income within the applicable carry forward rules. This would not reduce the
        minimum amount of tax agreed payable under the settlement agreement. At this
        time there is no indication that the Dutch tax authorities will issue such
        a
        decision.
 
 
 **19.**
              **COMMITMENTS
                  AND CONTINGENCIES**
 
 *Commitments*
 
 *a)*
              *Station
                  Programming Rights Agreements*
 
 At
        December 31, 2005 and 2004, we had the following commitments in respect of
        future programming, including contracts signed with license periods starting
        after the balance sheet date:
 
 **As
                  at December 31,****2005**
              
              **2004**Croatia
              
              $
              3,014
              
              $
              4,632Czech
                  Republic
              
              
              22,812
              
              
              -Romania
              
              
              14,073
              
              
              9,114Slovenia
              
              
              3,080
              
              
              445Ukraine
              
              
              8,864
              
              
              3,862**Total**
              
              **$**
              **51,843**
              
              **$**
              **18,053**
 
 In
        addition to the amounts above, STS, our unconsolidated equity affiliate,
        had
        programming commitments of US$ 4.6 million (2004: US$ 9.1 million).
 
 The
        increase above is primarily due to the acquisition of the Czech Republic
        operations, and also reflects our Ukrainian, Romanian and Slovenian operations
        entering into additional contracts with programming providers.
  *Page
            42*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 *b)*
              *Operating
                  Lease Commitments*
 
 For
        the
        fiscal years ended December 31, 2005, 2004, and 2003 we incurred aggregate
        rent
        on all facilities of US$ 5.9 million, US$ 1.6 million, and US$ 0.8 million.
        Future minimum operating lease payments at December 31, 2005 for non-cancelable
        operating leases with remaining terms in excess of one year (net of amounts
        to
        be recharged to third parties) are payable as follows:
 
 **December
                  31, 2005**2005
              
              $
              7,8412006
              
              
              5,7332007
              
              
              2,3202008
              
              
              1,4562009
              
              
              1,3262010
                  and thereafter
              
              
              1,530**Total**
              
              **$**
              **20,206**
 
 *c)*
              *Acquisition
                  of minority shareholdings*
 
 On
        February 17, 2006, we purchased an additional 5% of Pro TV, MPI and Media
        Vision
        from Mr. Sarbu for consideration of US$ 27.2 million (for further information,
        see Note 21, “Subsequent Events”). We now own a 90% voting and economic interest
        in Pro TV and MPI and a 75% voting and economic interest in Media Vision.
        Mr.
        Sarbu has the right to sell his remaining 10% shareholding in Pro TV and
        MPI to
        us under a put option agreement entered into in July 2004 at a put price
        that
        will be determined by an independent valuation and is subject to a floor
        price
        of US$ 1.45 million for each 1% interest sold. This put is exercisable from
        March 1, 2009 for a twenty-year period thereafter. As
        at
        December 31, 2005, we consider the fair value of the put option to approximate
        to nil.
 
 *d)*
              *Other*
 
 *Dutch
        tax*
 
 On
        February 9, 2004 we entered into an agreement with the Dutch tax authorities
        to
        settle all tax liabilities outstanding for the period through 2003, including
        receipts in respect of our 2003 award in the arbitration against the Czech
        Republic, for a payment of US$ 9.0 million. We expected to continue to pay
        tax
        in the Netherlands of between US$ 1.0 and US$ 2.5 million for the foreseeable
        future and therefore also agreed to a minimum tax payable of US$ 2.0 million
        per
        year for the years 2004 - 2008 and US$ 1.0 million for 2009. Should the Dutch
        Ministry of Finance later rule that arbitration awards such as the one we
        received are not taxable, we will be entitled to claim a tax loss, which
        can be
        offset against other taxable income but will not reduce our minimum payment
        commitments.
 
 As
        at
        December 31, 2005 we provided US$ 2.1 million (US$ 0.7 million in non-current
        liabilities and US$ 1.4 million in current liabilities) (as at December 31,
        2004: US$ 3.5 million (US$ 3.1 million in non-current liabilities and US$
        0.4
        million in current liabilities)) of tax in the Netherlands as the difference
        between our obligation under this agreement and our estimate of tax in the
        Netherlands that may fall due over this period from business operations,
        based
        on current business structures and economic conditions, and charged US$ 0.7
        million through discontinued operations in our Consolidated Statement of
        Operations for the year ended December 31, 2005.
 
 *Czech
        Republic - Guarantee and Factoring of Trade Receivables*
 
 CET
        21
        and CME Media Services have a working capital credit facility of CZK 250
        million
        (approximately US$ 10.2 million) with Ceska Sporitelna, a.s. This facility
        is
        secured by a pledge of receivables under the factoring agreement between
        CME
        Media Services and Factoring Ceska Sporitelna.
 
 The
        sale
        of the receivables is accounted for as a secured borrowing under FASB Statement
        No. 140, *‘Accounting
        for Transfers and Servicing of Financial Assets and Extinguishments of
        Liabilities’,* with the
        proceeds received recorded in the Consolidated Balance Sheet as a liability
        and
        included in current credit facilities and obligations under capital leases.
        The
        corresponding receivables are a part of accounts receivable, as the risks
        of
        ownership remain with CME Media Services.
  *Page
            43*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 During
        the period May 2, 2005 to December 31, 2005, no trade receivables were sold
        by
        Mag Media (which was merged into CME Media Services on December 31, 2005).
        As at
        December 31, 2005, CME Media Services had a 'nil' current credit facilities
        balance in relation to the sale of trade receivables and CZK 250 million
        (approximately US$ 10.2 million) has been drawn under the working capital
        facility.
 
 *Contingencies*
 
 *a)*
              *Litigation*
 
 We
        are,
        from time to time, a party to litigation that arises in the normal course
        of our
        business operations. Other than those claims discussed below, we are not
        presently a party to any such litigation which could reasonably be expected
        to
        have a material adverse effect on our business or operations. Unless otherwise
        disclosed, no provision has been made against any potential losses that could
        arise.
 
 We
        present below a summary of our more significant proceedings by
        country.
 
 *Croatia*
 
 On
        October 29, 2004, OK filed suit against Global Communications d.o.o. claiming
        approximately HRK 53 million (approximately US$ 8.6 million) in damages.
        Global
        Communications is a company controlled by Ivan Caleta, who had previously
        operated Nova TV (Croatia) through OK. Global Communications, together with
        GRP
        Media d.o.o., another company controlled by Mr. Caleta, had provided certain
        goods and services to OK and Nova TV (Croatia) in exchange for advertising
        time.
        Global Communications and GRP Media were functionally managing the advertising
        inventory of Nova TV (Croatia). On December 31, 2003, Global Communications
        entered into an agreement by which OK acknowledged that Global Communications
        was entitled to approximately 375,000 seconds of advertising time for goods
        and
        services previously provided. Following our acquisition of Nova TV (Croatia)
        and
        OK in July 2004, OK concluded that Global Communications had used all of
        its
        seconds by June 2004 based on a substantial discrepancy discovered between
        the
        utilization of advertising time recorded by Global Communications and that
        recorded by AGB Puls, an independent television audience measurement service
        operating in Croatia. In the course of its investigation of the usage of
        seconds
        by Global Communications, OK discovered that computer records of advertising
        seconds kept for OK may have been altered. OK brought a suit to recover amounts
        for advertising time used by Global Communications in excess of the 375,000
        seconds agreed. Global Communications filed a counterclaim in January 2005
        for
        HRK 68 million (approximately US$ 11.0 million), claiming that the AGB data
        is
        unreliable and that it is entitled to additional seconds under the previous
        agreement. We do not believe that these counterclaims will prevail.
  *Czech
        Republic*
 
 *Claims
        Relating to the Vilja Shareholding in CET 21*
 
 On
        May
        20, 2002, Vilja, now our wholly-owned subsidiary, acquired its ownership
        interest in CET 21 from Messrs. Alan, Huncik and Venclik. On July 19, 2002,
        Peter Krsak, a shareholder of CET 21, filed a claim with the City Court in
        Prague challenging a number of CET 21 shareholder resolutions adopted by
        written
        consent (the “Krsak 2002 Petition”). In relevant part, his complaint included
        challenges to (1) a decision of the CET 21 shareholders of April 22, 2002
        to
        approve the transfer by Messrs. Alan and Venclik of their ownership interests
        in
        CET 21 to Vilja and (2) a written resolution of the CET 21 shareholders on
        the
        redistribution of a 60% interest in CET 21 then held by the company itself.
        This
        60% interest had previously been held by Vladimir Zelezny, who had been forced
        to relinquish it in an enforcement proceeding against him following his default
        on a judgment adverse to him in another proceeding. These claims, in effect,
        constituted a challenge to the ownership by Vilja of a 52.075% ownership
        interest in CET 21.
  *Page
            44*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 On
        June
        18, 2003, before the City Court had issued a decision in the Krsak 2002
        Petition, CET 21 petitioned the City Court to approve, among other things,
        the
        registration of Vilja in the commercial register maintained by the City Court
        (the “Commercial Register”) as the owner of 52.075% of CET 21 (the “CET 21
        Petition”).
 
 On
        February 24, 2005 we entered into the Agreement on the Settlement of Disputes
        and Transfer of Ownership Interest with Peter Krsak (the “Krsak Agreement”). The
        Krsak Agreement provides that Mr. Krsak will file petitions to withdraw all
        of
        his claims in respect of the TV Nova (Czech Republic) group following the
        satisfaction of specified conditions precedent. Those conditions were satisfied
        in April 2005 and Mr. Krsak filed the necessary petitions in May 2005. The
        City
        Court in Prague accepted a petition to withdraw the Krsak 2002 Petition on
        May
        24, 2005 and issued a resolution confirming that the proceedings in respect
        of
        the Krsak 2002 Petition have been terminated. This decision has become
        final.
 
 In
        connection with an extraordinary appeal filed by Mr. Krsak on August 8, 2003
        the
        Commercial Register file of CET 21 was lodged with the Supreme Court. Pursuant
        to the Krsak Agreement, Mr. Krsak filed a petition on May 31, 2005 to withdraw
        this claim, and the court has confirmed that the proceedings in respect of
        this
        claim have been terminated. The Commercial Register file of CET 21 was returned
        to the City Court in Prague as a result of the termination of the proceedings
        before the Supreme Court. On October 14, 2005, the City Court in Prague
        confirmed the registration of Vilja in the Commercial Register as the owner
        of
        52.075% of CET 21. The decision became final on December 17, 2005.
 
 *Disposition
        of the CET 21 Interest Held by CET 21*
 
 Following
        an enforcement proceeding against Vladimir Zelezny in another matter, his
        60%
        interest passed to CET 21. The CET 21 shareholder resolution based on a proposal
        dated July 4, 2002 provided for the redistribution of this 60% interest among
        Vilja, Krsak, CEDC and CS, the four remaining shareholders of CET 21. Only
        Vilja
        elected to participate in the redistribution of that interest; it acquired
        its
        pro rata portion of the 60% interest and thereby increased its ownership
        in CET
        21 to 52.075% (from a 20.83% interest of an aggregate 40% interest then held
        by
        the four remaining shareholders). Neither Mr. Krsak, who previously held
        a
        16.67% interest in CET 21, or CS or CEDC, which each holds a 1.25% interest,
        participated in the redistribution. As a result, their pro rated portions
        of the
        60% interest (equal to an aggregate 28.755% interest in CET 21) continue
        to be
        held by CET 21 itself. The preliminary injunction which had previously
        prohibited the disposition of this 28.755% interest ceased to exist as a
        result
        of termination of one of the lawsuits previously launched by Mr. Krsak. On
        October 14, 2005, the City Court in Prague confirmed the registration of
        CET 21
        in the Commercial Register as the owner of this 28.755% interest. The decision
        became final on December 17, 2005.
 
 *Claims
        brought by Alan, Huncik, Venclik and Gal*
 
 On
        May 7,
        2003, Messrs. Alan, Huncik, Venclik and Gal, former shareholders of CET 21,
        filed a claim against Krsak, Zelezny, CET 21, CEDC and CS with the City Court
        in
        Prague. The substance of this challenge concerns the basis on which Zelezny
        purported to increase his ownership interest in CET 21 to 60% in 1997. The
        claim
        was withdrawn by Messrs. Alan, Huncik, Venclik and Gal on November 18, 2005.
        Subsequently, the proceedings were terminated by a court resolution dated
        November 25, 2005.
 
 *Claims
        Relating to the Interests of CS and CEDC in CET 21*
 
 On
        April
        2, 2003, CS entered into an agreement with Vilja to transfer its 1.25% interest
        in CET 21 to Vilja. This transfer was approved by a resolution of the CET
        21
        shareholders adopted by written consent on May 16, 2003. Mr. Krsak filed
        a
        petition against CET 21 in the City Court in Prague on August 8, 2003 to
        declare
        the shareholders resolution invalid. Pursuant to the Krsak Agreement, Mr.
        Krsak
        filed a petition in May 2005 with the High Court in Prague to withdraw this
        claim. The High Court in Prague decided on June 22, 2005 to return the file
        to
        the City Court in Prague for a formal decision on the withdrawal of the claim
        and termination of the proceeding. On January 11, 2006, the City Court in
        Prague
        issued a resolution confirming that the proceedings in respect of this petition
        have been terminated. This decision has become final.
  *Page
            45*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 CET
        21
        adopted a shareholder resolution by written consent on January 5, 2004 to
        approve the transfer of the 1.25% interest of CEDC in CET 21 to PPF. Mr.
        Krsak
        filed a petition against CET 21 in the City Court in Prague on February 3,
        2004
        to declare this shareholders resolution invalid. Pursuant to the Krsak
        Agreement, Mr. Krsak filed a petition in May 2005 with the High Court in
        Prague
        to withdraw this claim. The High Court in Prague issued a resolution on August
        1, 2005 confirming that the proceedings in respect of this petition have
        been
        terminated. This decision has become final.
 
 The
        consent of the Czech Media Council to the transfer of each of these 1.25%
        interests, which is necessary for such transfers to become effective, has
        been
        requested but has not yet been issued.
 
 *Other
        Claims*
 
 On
        January 25, 2005, Mr. Krsak filed on his own behalf and on behalf of CET
        21 an
        action in the City Court in Prague against twenty-five parties, including
        PPF
        and its affiliates, CP 2000, Vilja, and certain former and current members
        of
        management. In his filing, Mr. Krsak claimed damages to himself in the amount
        of
        approximately CZK 1.25 billion (approximately US$ 50.9 million) and on behalf
        of
        CET 21 in the amount of approximately CZK 7.5 billion (approximately US$
        305.7
        million). The substance of this claim is that various entities and persons
        controlling CET 21 caused CET 21 damage by entering into agreements on
        disadvantageous terms with service companies related to such controlling
        person
        (such as CP 2000 and Mag Media, which have subsequently been merged into
        CME
        Media Services).
 
 Pursuant
        to the Krsak Agreement, Mr. Krsak filed a petition to withdraw this claim
        in May
        2005 with the City Court in Prague. The City Court in Prague accepted this
        petition on May 31, 2005 and issued a resolution confirming that the proceedings
        have been terminated. This decision has not yet become final.
 
 In
        December 2002, the Czech Republic Union of Authors (“OSA”), a collective
        administrator of copyright, filed an action against CET 21, claiming payment
        of
        CZK 46.8 million (approximately US$ 1.9 million) plus interest for alleged
        unauthorized use of works from the OSA library. CET 21 had been attempting
        to
        negotiate a revised pricing structure with OSA since 2002 and paying advances
        on
        the licensing fee to OSA on an estimated basis pending final agreement of
        the
        amounts payable. At a hearing on September 19, 2005, the Municipal Court
        in
        Prague upheld OSA’s claim. On December 21, 2005, CET 21 entered into a
        settlement agreement with OSA to
        pay
        CZK 39.6 million (approximately US$ 1.6 million) as full payment for all amounts
        claimed by OSA for the period from 2002 through 2005. CET
        21
        also entered into a
        contract with OSA to fix payments for the period from 2006 through
        2008.
 
 *Antimonopoly
        Office*
 
 Following
        an investigation that the Office for the Protection of Economic Competition
        of
        the Czech Republic began conducting during the fourth quarter of 2005 regarding
        potential infringements of Czech antimonopoly legislation in respect of the
        sale
        of advertising on the TV NOVA channel from 2004, CET 21 has, without
        acknowledging any infringements alleged by the Antimonopoly Office, agreed
        to
        make certain undertakings in respect of the sale of advertising on TV NOVA.
        Upon
        acceptance of these undertakings by the Antimonopoly Office and subject to
        observance of them, the investigation will be terminated.
 
 *Romania*
 
 There
        are
        no significant outstanding legal actions that relate to our business in
        Romania.
  *Page
            46*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 *Slovenia*
 
 On
        November 20, 2002, we received notice of a claim filed by Mrs. Zdenka Meglic,
        the founder and a former shareholder of MMTV 1 d.o.o (MMTV), against MMTV,
        a
        subsidiary of CME Media Enterprises BV. In her claim against MMTV, Mrs. Meglic
        is seeking an amount equal to SIT 190 million (approximately US$ 1.0 million)
        for repayment of monies advanced to MMTV from 1992 to 1994 (in the amount
        of
        approximately SIT 29 million (approximately US$ 0.1 million)) plus accrued
        interest. On September 9, 2004, the court of first instance found against
        MMTV
        and issued a judgment requiring MMTV to pay SIT 190 million (approximately
        US$
        1.0 million) plus interest as well as costs. On September 24, 2004, MMTV
        filed
        an appeal against the judgment. On December 15, 2004, the appellate court
        vacated the judgment of the lower court and returned the case for further
        proceedings. We do not believe that Mrs. Meglic will prevail and will continue
        to defend the claim.
 
 *Slovak
        Republic*
 
 There
        are
        no significant outstanding legal actions that relate to our business in the
        Slovak Republic.
 
 *Ukraine*
 
 On
        October 11, 2005, Igor Kolomoiski filed a lawsuit against Alexander Rodnyansky
        and Studio 1+1 in a district court in Kiev. Our Ukrainian affiliate Intermedia
        has been joined in the proceedings as a “third party”. Mr. Kolomoiski is
        attempting to enforce what he alleges was a binding agreement with Mr.
        Rodnyansky to purchase the latter’s 70% interest in Studio 1+1 for consideration
        of US$ 70.0 million and to transfer that interest to Mr. Kolomoiski on receipt
        of a prepayment of US$ 2.0 million. The lawsuit arises from abortive
        negotiations among Mr. Kolomoiski, Mr. Rodnyanksy and Boris Fuchsmann for
        the
        acquisition by Mr. Kolomoiski of the totality of interests in the Studio
        1+1
        Group held by Mr. Rodnyanksy and Mr. Fuchsmann, subject to Mr. Kolomoiski
        assuming all of their obligations under our existing partnership arrangements.
        Following a series of initial hearings, proceedings on the merits have been
        suspended pending the resolution of a procedural matter that has
        been
        appealed to the Supreme Court of Ukraine. This appeal is currently pending. We
        believe the lawsuit is without merit primarily because there was no agreement
        with Mr. Kolomoiski and because any transfer would, in any event, breach
        Intermedia’s statutory and contractual consent and pre-emptive rights. In
        the
        event of an adverse outcome which results in the ownership of 70% of Studio
        1+1
        being transferred from Mr. Rodnyanksy to Mr. Kolomoiski pursuant to a court
        decision, we may not be able to secure and enforce our contractual rights
        to a
        60% beneficial interest in Studio 1+1 or rights related to the governance
        of
        Studio 1+1 against Mr. Kolomoiski. A reduction in our right to future
        distributable cash from Studio 1+1 would have an adverse impact on our financial
        position and results of operations.
 
 On
        December 23, 2005, we initiated proceedings against our partners Alexander
        Rodnyansky and Boris Fuchsmann in order to enforce our contractual rights
        and
        compel a restructuring of the ownership of Studio 1+1 in order to permit
        us to
        hold a 60% interest in Studio 1+1 through a subsidiary organized in Ukraine.
        Initiation of this proceeding followed protracted negotiations with our partners
        to restructure following confirmation from the Ukraine Media Council that
        our
        proposed ownership structure would not be in violation of restrictions on
        foreign ownership contained in the Ukraine Media Law, which restricts direct
        (but not indirect) investment by foreign persons in Ukrainian broadcasters
        to
        30%. On January 12, 2006, the Ukraine parliament adopted an amended version
        of
        the Ukraine Media Law that clarifies the absence of any restriction on indirect
        foreign ownership of television broadcasters. This amended Ukraine Media
        Law is
        expected to come into force in March 2006. Following adoption of these
        amendments, our partners have confirmed they are prepared to proceed with
        the
        restructuring. Upon successful completion of the restructuring, we will
        terminate the proceedings initiated in December 2005.
 
 *b)*
              *Licenses*
 
 Regulatory
        bodies in each country in which we operate control access to available
        frequencies through licensing regimes. We believe that the licenses for our
        license companies will be renewed prior to expiry. In Romania, the Slovak
        Republic, Slovenia and Ukraine local regulations contain a qualified presumption
        for extensions of broadcast licenses, according to which a broadcast license
        may
        be renewed if the licensee has operated substantially in compliance with
        the
        relevant licensing regime. To date, all expiring licenses; however, there
        can be
        no assurance that any of the licenses will be renewed upon expiration of
        their
        current terms. The failure of any such license to be renewed could adversely
        affect the results of our operations.
  *Page
            47*
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            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 The
        following summarizes the expiry dates of our licenses:
 
 Croatia
              The
                  license of NOVA TV (Croatia) expires in April 2010.Czech
                  Republic
              The
                  license of TV NOVA (Czech Republic) expires in January
                  2017.Romania
              Licenses
                  expire on dates ranging from July 2006 to February 2014.****Slovak
                  Republic
              The
                  license of MARKIZA TV in the Slovak Republic expires in September
                  2007.Slovenia
              The
                  licenses of both our channels in Slovenia expire in August
                  2012.Ukraine
              The
                  15-hour license of STUDIO 1+1 expires in December 2006. The license
                  to
                  broadcast for the remaining nine hours in off prime expires in
                  August
                  2014.
 
 c)
              *Restrictions
                  on dividends from Consolidated Subsidiaries and Unconsolidated
                  Affiliates*
 
 Corporate
        law in the Central and Eastern European countries in which we have operations
        stipulates generally that dividends may be declared by shareholders, out
        of
        yearly profits, subject to the maintenance of registered capital and required
        reserves after the recovery of accumulated losses. The reserve requirement
        restriction generally provides that before dividends may be distributed,
        a
        portion of annual net profits (typically 5%) be allocated to a reserve, which
        reserve is capped at a proportion of the registered capital of a company
        (ranging from 5% to 25%). The restricted net assets of our consolidated
        subsidiaries and equity in earnings of investments accounted for under the
        equity method together are less than 25% of consolidated net assets as at
        December 31, 2005.
 
 
 **20.**
              **RELATED
                  PARTY TRANSACTIONS**
 
 **Overview**
 
 There
        is
        a limited local market for many specialist television services in the countries
        in which we operate, many of which are provided by parties known to be connected
        to our local shareholders.  As stated in FAS No. 57 “Related Party
        Disclosures” (“FAS 57”) transactions involving related parties cannot be
        presumed to be carried out on an arm's-length basis, as the requisite conditions
        of competitive, free-market dealings may not exist.  We will continue to
        review all of these arrangements.
 
 We
        consider related parties to be those shareholders who have direct control
        and/or
        influence and other parties that can significantly influence management;
        a
        "connected" party is one in which we are aware of a family or business
        connection to a shareholder.
 
 ***Croatia***
 
 We
        have
        no related party transactions in Croatia.
 
 ***Czech
        Republic***
 
 We
        have
        no related party transactions in the Czech Republic.
 
 ***Romania***
 
 The
        total
        purchases from companies related or connected with Adrian Sarbu in 2005 were
        approximately US$ 12.0 million (2004: US$ 6.9 million).  The purchases were
        mainly for programming rights and for various technical, production and
        administrative related services.  The total sales to companies related or
        connected with Adrian Sarbu in 2005 were approximately US$ 0.4 million (2004
        :
        US$ 0.1 million).  At December 31, 2005, companies connected to Mr. Sarbu
        had an outstanding balance due to us of US$ 1.4 million which includes a
        prepayment of US$ 0.6 million (2004 : US$ 0.6 million). At December 31, 2005,
        companies related to Mr. Sarbu had an outstanding balance due to them of
        US$ 0.5
        million (2004 : US$ 0.6 million).
  *Page
            48*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 On
        February 28, 2005 we acquired 2% of Pro TV and MPI from Mr. Sarbu for US$
        5.0
        million and on July 29, 2005 we acquired an additional 3% of Pro TV and MPI
        from
        Mr. Sarbu for US$ 15.0 million. (see Note 3, “Acquisitions and Disposals,
        Romania”).
 
 On
        February 17, 2006, we purchased an additional 5% of Pro TV, MPI and Media
        Vision
        from Mr. Sarbu for consideration of US$ 27.2 million (see Note 21, “Subsequent
        Events”). We now own a 90% voting and economic interest in Pro TV and MPI and a
        75% voting and economic interest in Media Vision. Mr. Sarbu has the right
        to
        sell his remaining 10% shareholding in Pro TV and MPI to us under a put option
        agreement entered into in July 2004 at a put price that will be determined
        by an
        independent valuation and is subject to a floor price of US$ 1.45 million
        for
        each 1% interest sold. This put is exercisable from March 1, 2009 for a
        twenty-year period thereafter.
 
 We
        have
        an option to acquire a minority interest in S.C. Studiourile Media Pro S.A.,
        a
        Romanian film studio company, from Mr. Sarbu at a price to be determined
        by an
        independent valuation. This option expires in May 2006, and we do not anticipate
        exercising this option. The fair value of this option at December 31, 2005
        was
        US$ nil.
 
 ***Slovenia***
 
 On
        June
        24, 2005, we acquired from Marijan Jurenec, director of our Adriatic regional
        operations, his remaining 3.15% interest in Pro Plus for Euro 4.7 million
        (approximately US$ 5.7 million at the date of acquisition).
 
 ***Slovak
        Republic***
 
 On
        December 1, 2005 we repaid STS, our equity-accounted affiliate in the Slovak
        Republic, SKK
        228
        million (approximately US$ 7.1 million at the date of repayment) in settlement
        of the principal and interest due upon a loan that had been advanced to us
        in
        2002 and 2003 .
        The
        loan bore interest at a rate of three-month BRIBOR plus 2.2%.
 
 STS
        has a
        number of contracts with companies connected to Jan Kovacik, a shareholder
        in
        Markiza, and indirectly STS, for the provision of television programs. Many
        of
        these contracts are for the production of programs that require specialist
        studios and specific broadcast rights. Total purchases from these companies
        in
        2005 amounted to US$ 0.5 million (2004: US$ 0.4 million, 2003: US$ nil).
  STS
        also
        sold advertising time through an advertising agency controlled by Jan Kovacik.
        The total 2005 advertising sales of STS placed through Mr. Kovacik’s advertising
        agency were US$ 0.2 million (2004: US$ 1.9 million, 2003: US$ 2.5 million),
        and
        the total amount due to STS from this agency at December 31, 2005 was US$
        nil
        (2004: US$ 0.4 million).
 
 We
        have
        received contractual management fees from STS since 1998. The value of these
        fees was US$ 0.4 million in each of 2005, 2004 and 2003. In 2003, the other
        local shareholders suggested that they were also entitled to fees for their
        services to STS. Consequently, we made a provision of US$ 0.7 million in
        our
        Consolidated Statement of Operations (representing our 70% share of a potential
        US$ 1.1 million charge against STS). During 2004, this issue was resolved
        and
        our 2004 results include a write-back of the provision taken in 2003.
 
 ***Ukraine***
 
 We
        contract with Contact Film Studios for the production of certain television
        programs. This is a company connected to Boris Fuchsmann, the 40% shareholder
        and joint Managing Director of Innova, which is one of the operating companies
        for the Studio 1+1 Group. Our total purchases from Contact Film Studios in
        2005
        were US$ 0.1 million (2004: US$ 0.1 million, 2003: US$ nil
        million).
  *Page
            49*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 In
        1998
        we made a loan to Mr. Fuchsmann with a total balance outstanding at December
        31,
        2005 of US$ 2.5 million (2004: US$ 2.8 million). The interest rate on this
        loan
        is three-month US$ LIBOR+3%, subject to a minimum of 5%.
 
 Alexander
        Rodnyansky, the former general director and current Honorary President of
        Studio
        1+1, continues as the 70% shareholder in the license company. Mr. Rodnyansky
        is
        also the general director of the Russian broadcaster CTC based in Moscow.
        Our
        total purchases from CTC in 2005 were US$ 0.2 million (2004: US$ 0.1 million,
        2003: US$ 0.4 million).
 
 We
        acquire legal and consulting services from LLC Legal Company Varlamov and
        Partners, headed by the Deputy General Director of Studio 1+1. The total
        amount
        of services rendered by the company in 2005 was US$ 0.3 million (2004: US$
        0.2
        million).
 
 We
        contract with Vabank for the provision of banking services. This is a bank
        connected to the minority shareholder and joint Managing Director of Innova
        Boris Fuchsmann through his presence on Vabank’s Supervisory Board. Our deposit
        balance with the Vabank was US$ 5.0 million as at December 31, 2005. Commission
        and other expenses charged to us for banking services rendered by Vabank
        amount
        to US$ 0.1 million for the twelve months ended December 31, 2005. Income
        earned
        on funds on current account with Vabank was US$ 0.1 million.
 
 We
        contract with Kino-Kolo magazine for advertising for Studio 1+1. Kino-Kolo
        is
        75% owned by Alexander Rodnyansky, who is a 70% shareholder in the license
        company. Purchases of services from Kino-Kolo in 2005 amounted to US$ 0.1
        million.
  Innova
        Marketing is a company fully owned and headed by Boris Fuchsmann. Innova
        Marketing renders consulting services to Innova. The amount of such services
        provided in 2005 was US$ 0.1 million (2004: US$ 0.2 million).
 
 ***Corporate***
 
 On
        May
        27, 2003 we paid US$ 4.7 million to Ronald S. Lauder, our non-executive Chairman
        and controlling shareholder, reimbursing costs previously incurred by him
        in
        pursuing his Czech Republic arbitration. The payment was approved unanimously
        by
        our independent directors following a review of the ways in which the Lauder
        arbitration contributed to our success in the UNCITRAL Arbitration against
        the
        Czech Republic.
 
 
 **21.**
              **SUBSEQUENT
                  EVENTS**
 
 **Romania**
 
 On
        February 17, 2006, we purchased an additional 5% of Pro TV, MPI and Media
        Vision
        from Mr. Sarbu for consideration of US$ 27.2 million. At completion, we now
        own
        a 90% voting and economic interest in Pro TV and MPI and a 75% voting and
        economic interest in Media Vision.
 
 **Slovak
        Republic**
 
 *Acquisition
        - A.R.J a.s.*
 
 On
        January 23, 2006, we completed the acquisition of a controlling interest
        in
        Markiza, the license-holding company for MARKIZA TV, by purchasing 100% of
        the
        share capital of A.R.J. a.s. (“ARJ”). ARJ owns 46% of the voting rights in
        Markiza.
 
 This
        acquisition consisted of our acquiring a 34% interest in ARJ from Pavol Rusko
        for total consideration of SKK 575.0 million (approximately US$ 18.5 million
        at
        the date of acquisition) of which SKK 494.0 million (US$ 15.9 million at
        the
        date of acquisition) was paid on closing and SKK 81 million (US$ 2.6 million
        at
        the date of acquisition) is payable by May 31, 2006. In addition, we acquired
        the remaining 66% in ARJ from Media Partners s.r.o. and Salis s.r.o. for
        consideration of Euro 7.0 million (approximately US$ 8.5 million at the date
        of
        acquisition) paid on closing, and SKK 78.0 million (approximately US$ 2.5
        million at the date of acquisition) payable by May 31, 2006. As part of this
        transaction, we are entitled to 100% of any dividend declared by STS in respect
        of the year ended December 31, 2005. Thereafter our economic interest in
        Markiza
        will be 80%.
  *Page
            50*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 As
        a
        result of these transactions, as of January 23, 2006, we hold an 80% voting
        interest in Markiza (including 46% voting interest held by ARJ and 34% voting
        interest held by us directly) and an 89.8% voting interest in STS. In addition,
        we have increased our economic interest in the Slovak operations from 70%
        to
        80%.
 
 The
        remaining minority interests in Markiza are held by our partners Jan Kovacik
        and
        Milan Fil’o through Media Invest s.r.o. Markiza and STS will be consolidated
        from the date of acquisition of ARJ.
 
 **Ukraine**
 
 *Acquisition
        - Ukrpromtorg 2003 LLC.*
 
 On
        October 28, 2005, we entered into an agreement with Dertus Finance Group
        Limited
        (“Dertus”) providing for the purchase by us of a 65.5% interest in Ukrpromtorg
        2003 LLC (“Ukrpromtorg”), a company that owns and operates the GRAVIS television
        channel and two other local channels in Ukraine, for a total investment of
        approximately US$ 7.0 million. The final purchase price is subject to adjustment
        following the completion of a closing balance sheet audit. At December 31,
        2005,
        US$ 5.0 million of the consideration was recorded in our Consolidated Balance
        Sheet within Acquisition costs. The acquisition was completed on January
        11,
        2006.
 
 We
        have
        an option to acquire an additional 21.5% of Ukrpromtorg from Dertus for
        consideration of US$ 3.2 million. This option expires on March 16,
        2006.
  *Page
            51*
 *Table
            of Contents*
  **REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 To
        the
        Board of Directors and Shareholders of
 Slovenska
        televizna spolocnost, s.r.o.
 Bratislava,
        Slovak Republic
 
 We
        have
        audited the accompanying consolidated balance sheets of Slovenska televizna
        spolocnost, s.r.o., and subsidiaries (the “Company”) as of December 31, 2005 and
        2004 and the related consolidated statements of operations and comprehensive
        income, shareholders’ equity, and cash flows for each of the three years in the
        period ended December 31, 2005. These financial statements are the
        responsibility of the Company’s management. Our responsibility is to express an
        opinion on these financial statements based on our audits.
 
 We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. The Company is not required
        to
        have, nor were we engaged to perform, an audit of its internal control over
        financial reporting. Our audit includes consideration of internal control
        over
        financial reporting as a basis for designing audit procedures that are
        appropriate in the circumstances, but not for the purpose of expressing an
        opinion on the effectiveness of the Company’s internal control over financial
        reporting. Accordingly, we express no such opinion. An audit also includes
        examining, on a test basis, evidence supporting the amounts and disclosures
        in
        the financial statements, assessing the accounting principles used and
        significant estimates made by management, as well as evaluating the overall
        financial statement presentation. We believe that our audits provide a
        reasonable basis for our opinion.
 
 In
        our
        opinion, such consolidated financial statements present fairly, in all material
        respects, the financial position of Slovenska televizna spolocnost, s.r.o.
        and
        its subsidiaries as of December 31, 2005, and 2004 and the results of their
        operations and their cash flows for each of the three years in the period
        ended
        December 31, 2005, in conformity with accounting principles generally accepted
        in the United States of America.
  Deloitte
        Audit s. r.o.
 Bratislava,
        Slovak Republic
 23
        February 2006, except for Note 1, as which the date is 15 March
        2006
  *Page
            52*
 *Table
            of Contents*
  **SLOVENSKA
        TELEVIZNA SPOLOCNOST S.R.O.**
 **CONSOLIDATED
        BALANCE SHEETS**
 **(US$
        000’s)**
 
 **December
                  31, 2005**
              
              **December
                  31, 2004****ASSETS****Current
                  assets**Cash
                  and cash equivalents
              
              $
              5,253
              
              $
              4,601Accounts
                  receivable (Note 3)
              
              
              9,452
              
              
              18,043Program
                  rights
              
              
              5,509
              
              
              1,815Other
                  current assets (Note 4)
              
              
              3,047
              
              
              1,089**Total
                  current assets**
              
              
              **23,261**
              
              
              **25,548****Non-current
                  assets**Investments
              
              
              4
              
              
              4Property,
                  plant and equipment (Note 5)
              
              
              14,245
              
              
              12,818Program
                  rights
              
              
              4,156
              
              
              2,722Intangible
                  assets (Note 6)
              
              
              46
              
              
              132Deferred
                  income tax, non-current (Note 4)
              
              
              161
              
              
              1,243**Total
                  non-current assets**
              
              
              **18,612**
              
              
              **16,919****Total
                  assets**
              
              **$**
              **41,873**
              
              **$**
              **42,467**
  *The
        accompanying notes are an integral part of these consolidated financial
        statements.*
  *Page
            53*
 *Table
            of Contents*
  **SLOVENSKA
        TELEVIZNA SPOLOCNOST S.R.O.**
 **CONSOLIDATED
        BALANCE SHEETS (continued)**
 **(US$
        000’s)**
 
 **December
                  31,**
                **2005**
              
              **December
                  31,**
                **2004****LIABILITIES
                  AND SHAREHOLDERS’ EQUITY****Current
                  liabilities:**Accounts
                  payable and accrued liabilities (Note 7)
              
              $
              11,481
              
              $
              10,874Duties
                  and other taxes payable
              
              
              412
              
              
              515Income
                  taxes payable
              
              
              -
              
              
              917Credit
                  facilities and obligations under capital leases (Note 8)
              
              
              71
              
              
              2,878Other
                  current liabilities
              
              
              709
              
              
              261**Total
                  current liabilities**
              
              
              **12,673**
              
              
              **15,445****Non-current
                  liabilities**Credit
                  facilities and obligations under capital leases (Note 8)
              
              
              125
              
              
              149**Total
                  non-current liabilities**
              
              
              **125**
              
              
              **149**Commitments
                  and contingencies (Note 10)**Minority
                  interests in consolidated subsidiaries**
              
              
              **635**
              
              
              **371****SHAREHOLDERS'
                  EQUITY:**Registered
                  capital
              
              
              6
              
              
              6Additional
                  paid-in capital
              
              
              24,242
              
              
              24,242Shareholder
                  loans (Note 11)
              
              
              -
              
              
              (11,061
              )Retained
                  earnings
              
              
              4,414
              
              
              10,311Accumulated
                  other comprehensive income/ (loss)
              
              
              (222
              )
              
              3,004**Total
                  shareholders’ equity**
              
              
              **28,440**
              
              
              **26,502****Total
                  liabilities and shareholders’ equity**
              
              **$**
              **41,873**
              
              **$**
              **42,467**
  *The
        accompanying notes are an integral part of these consolidated financial
        statements.*
 *Page
              54*
 *Table
              of Contents*
  **SLOVENSKA
        TELEVIZNA SPOLOCNOST S.R.O.**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME**
 **(US$
        000’s, except share and per share data)**
 
 **For
                  the Years Ended December 31,****2005**
              
              **2004**
              
              **2003****Net
                  revenues**
              
              **$**
              **64,266**
              
              **$**
              **61,576**
              
              **$**
              **50,814**Operating
                  costs
              
              
              7,090
              
              
              6,824
              
              
              5,828Cost
                  of programming
              
              
              22,445
              
              
              20,902
              
              
              19,276Depreciation
                  and amortization
              
              
              2,599
              
              
              1,735
              
              
              1,805Selling,
                  general and administrative expenses
              
              
              17,491
              
              
              16,325
              
              
              13,326**Total
                  operating expenses**
              
              
              **49,625**
              
              
              **45,786**
              
              
              **40,235****Operating
                  income**
              
              
              **14,641**
              
              
              **15,790**
              
              
              **10,579**Interest
                  income
              
              
              588
              
              
              836
              
              
              731Interest
                  expense
              
              
              (134
              )
              
              (200
              )
              
              (285
              )Foreign
                  currency exchange gain/(loss), net
              
              
              (258
              )
              
              571
              
              
              932Other
                  income
              
              
              245
              
              
              405
              
              
              436**Income
                  before provision for income taxes, and minority
                  interest**
              
              
              **15,082**
              
              
              **17,402**
              
              
              **12,393**Provision
                  for income taxes (Note 9)
              
              
              (3,276
              )
              
              (3,511
              )
              
              (3,870
              )**Income
                  before minority interest**
              
              
              **11,806**
              
              
              **13,891**
              
              
              **8,523**Minority
                  interest in income of consolidated subsidiaries
              
              
              (35
              )
              
              (23
              )
              
              -**Net
                  income**
              
              
              **11,771**
              
              
              **13,868**
              
              
              **8,523**Currency
                  translation adjustment, net
              
              
              (3,226
              )
              
              4,760
              
              
              5,315**Total
                  comprehensive income**
              
              **$**
              **8,545**
              
              **$**
              **18,628**
              
              **$**
              **13,838**
  *The
        accompanying notes are an integral part of these consolidated financial
        statements.*
  *Page
            55*
 *Table
            of Contents*
  **SLOVENSKA
        TELEVIZNA SPOLOCNOST, S.R.O.**
 **CONSOLIDATED
        STATEMENT OF SHAREHOLDERS' EQUITY**
 **(US$
        000’s)**
  **Registered**
                **Capital**
              
              **Additional
                  Paid-**
                **In
                  Capital**
              
              **Shareholders’**
                **loans**
              
              **Retained**
                **Earnings
                  /**
                **(Accumulated**
                **Deficit)**
              
              **Accumulated**
                **Other**
                **Comprehensive**
                **Income/(Loss)**
              
              **Total**
                **Shareholders'**
                **Equity****BALANCE,
                  December 31, 2002**
              
              **$**
              **6**
              
              **$**
              **39,326**
              
              **$**
              **(4,694**
              **)**
              **$**
              **(12,080**
              **)**
              **$**
              **(7,071**
              **)**
              **$**
              **15,487**Shareholders’
                  loans granted
              
              
              -
              
              
              -
              
              
              (4,298
              )
              
              -
              
              
              -
              
              
              (4,298
              )Dividend
                  distribution
              
              
              -
              
              
              (4,678
              )
              
              -
              
              
              -
              
              
              -
              
              
              (4,678
              )Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              8,523
              
              
              -
              
              
              8,523Currency
                  translation adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              5,315
              
              
              5,315**BALANCE,
                  December 31, 2003**
              
              **$**
              **6**
              
              **$**
              **34,648**
              
              **$**
              **(8,992**
              **)**
              **$**
              **(3,557**
              **)**
              **$**
              **(1,756**
              **)**
              **$**
              **20,349**Shareholders’
                  loans granted
              
              
              -
              
              
              -
              
              
              (2,069
              )
              
              -
              
              
              -
              
              
              (2,069
              )Dividend
                  distribution
              
              
              -
              
              
              (10,406
              )
              
              -
              
              
              -
              
              
              -
              
              
              (10,406
              )Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              13,868
              
              
              -
              
              
              13,868Currency
                  translation adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              4,760
              
              
              4,760**BALANCE,
                  December 31, 2004**
              
              **$**
              **6**
              
              **$**
              **24,242**
              
              **$**
              **(11,061**
              **)**
              **$**
              **10,311**
              
              **$**
              **3,004**
              
              **$**
              **26,502**Shareholders’
                  loans repaid
              
              
              -
              
              
              -
              
              
              11,061
              
              
              -
              
              
              -
              
              
              11,061Dividend
                  distribution
              
              
              -
              
              
              -
              
              
              -
              
              
              (17,668
              )
              
              -
              
              
              (17,668
              )Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              11,771
              
              
              -
              
              
              11,771Currency
                  translation adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (3,226
              )
              
              (3,226
              )**BALANCE,
                  December 31, 2005**
              
              **$**
              **6**
              
              **$**
              **24,242**
              
              **$**
              **-**
              
              **$**
              **4,414**
              
              **$**
              **(222**
              **)**
              **$**
              **28,440**
  *The
        accompanying notes are an integral part of these consolidated financial
        statements.*
  *Page
            56*
 *Table
            of Contents*
  **SLOVENSKA
        TELEVIZNA SPOLOCNOST, S.R.O.**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **(US$
        000’s)**
 
 **For
                  the Years Ended December 31,****2005**
              
              **2004**
              
              **2003****CASH
                  FLOWS FROM OPERATING ACTIVITIES:****Net
                  income**
              
              **$**
              **11,771**
              
              **$**
              **13,868**
              
              **$**
              **8,523**Adjustments
                  to reconcile net income to net cash generated from operating
                  activities:Depreciation
                  and amortization
              
              
              9,584
              
              
              10,834
              
              
              11,454Receivables
                  write-off and provision for doubtful accounts receivable
              
              
              101
              
              
              77
              
              
              (35
              )(Gain)/loss
                  on disposal of fixed assets
              
              
              (40
              )
              
              (87
              )
              
              2Deferred
                  income taxes
              
              
              769
              
              
              336
              
              
              945Net
                  change in:Accounts
                  receivable
              
              
              6,790
              
              
              (1,080
              )
              
              (1,969
              )Other
                  assets
              
              
              (1,131
              )
              
              (3
              )
              
              198Program
                  rights
              
              
              (11,779
              )
              
              (9,129
              )
              
              (10,124
              )Accounts
                  payable and accrued liabilities
              
              
              913
              
              
              109
              
              
              (1,773
              )Income
                  and other taxes payable
              
              
              (1,751
              )
              
              (1,744
              )
              
              2,329Other
                  current liabilities
              
              
              440
              
              
              (17
              )
              
              277**Net
                  cash generated from operating activities**
              
              
              **15,667**
              
              
              **13,164**
              
              
              **9,827****CASH
                  FLOWS FROM INVESTING ACTIVITIES:**Purchase
                  of property, plant and equipment
              
              
              (5,283
              )
              
              (2,110
              )
              
              (942
              )Proceeds
                  from disposal of property, plant and equipment
              
              
              54
              
              
              257
              
              
              27Investments
                  in subsidiaries and unconsolidated affiliates
              
              
              -
              
              
              -
              
              
              (3
              )Purchase
                  of other assets and intangibles
              
              
              (154
              )
              
              (26
              )
              
              (212
              )**Net
                  cash used in investing activities**
              
              
              **(5,383**
              **)**
              
              **(1,879**
              **)**
              
              **(1,130**
              **)****CASH
                  FLOWS FROM FINANCING ACTIVITIES:**Proceeds
                  from credit facilities
              
              
              -
              
              
              105
              
              
              -Payment
                  of credit facilities and capital leases
              
              
              (2,565
              )
              
              (600
              )
              
              (973
              )Repayment
                  of loans and advances to shareholders
              
              
              10,104
              
              
              -
              
              
              -Loans
                  and advances to shareholders
              
              
              -
              
              
              (596
              )
              
              (2,955
              )Dividends
                  paid
              
              
              (16,647
              )
              
              (10,329
              )
              
              (4,205
              )**Net
                  cash used in financing activities**
              
              
              **(9,108**
              **)**
              
              **(11,420**
              **)**
              
              **(8,133**
              **)****Impact
                  of exchange rate fluctuations on cash**
              
              
              **(524**
              **)**
              
              **657**
              
              
              **628**Net
                  increase in cash and cash equivalents
              
              
              652
              
              
              522
              
              
              1,192**CASH
                  AND CASH EQUIVALENTS, beginning of year**
              
              
              **4,601**
              
              
              **4,079**
              
              
              **2,887****CASH
                  AND CASH EQUIVALENTS, end of year**
              
              **$**
              **5,253**
              
              **$**
              **4,601**
              
              **$**
              **4,079****SUPPLEMENTAL
                  DISCLOSURES OF CASH FLOW INFORMATION:**Cash
                  paid for interest
              
              $
              131
              
              $
              200
              
              $
              212Cash
                  paid for income taxes (net of refunds)
              
              $
              4,108
              
              $
              6,448
              
              $
              847
  *The
        accompanying notes are an integral part of these consolidated financial
        statements.*
  *Page
            57*
 *Table
            of Contents*
   **1.**
              **ORGANIZATION
                  AND BUSINESS**
  Slovenska
        televizna spolocnost, s.r.o. (STS) is a Slovak limited liability partnership
        (without shares), having its legal seat in Blatné 18, 900 82 Blatné, Slovak
        Republic. It was founded on September 28, 1995 and incorporated into the
        Commercial Register on October 9, 1995. The main activities of STS
        are:
 
 ·
              The
                  broadcasting of programming (both own production and acquired);
                  and
 ·
              The
                  sale of advertising.
 
 **License
        renewal**
  STS
        operates in conjunction with Markiza Slovakia, the license holder, based
        on an
        Exclusivity agreement.
  The
        Slovak Republic Media Council granted the license to operate the MARKIZA
        TV
        network to Markiza-Slovakia, spol. s.r.o. for a period of 12 years, expiring
        in
        September 2007. According to the Act on Broadcasting and Retransmission,
        a
        license can be extended once, for an additional 12 years by the Slovak Republic
        Media Council. We
        filed
        for an extension of the license on February 3, 2006 and were informed on
        March
        10, 2006 by the Media Council that they had extended the license for
        an additional 12 years.  We expect to receive the final official
        communication of the extension in the near future.
  Our
        principal subsidiaries at December 31, 2005 were:
 
 **Company
                  Name**
              
              **Voting**
                **Interest**
              
              **Jurisdiction
                  of**
                **Organization**
              
              **Subsidiary
                  (1)**ADAM
                  a.s.
              
              100%
              
              Slovakia
              
              SubsidiaryGamatex
                  s.r.o.
              
              100%
              
              Slovakia
              
              SubsidiaryMarkiza
                  Slovakia, spol. s.r.o. (“Markiza”)
              
              -%
              
              Slovakia
              
              Consolidated
                  Variable-Interest Entity (2)
 
 (1)
              All
                  subsidiaries have been consolidated in our Financial Statements.
 (2)
              For
                  further information, see Note 2, "Summary of Significant Accounting
                  Policies".
  **2.**
              **SUMMARY
                  OF SIGNIFICANT ACCOUNTING
                  POLICIES**
  These
        financial statements have been prepared in accordance with accounting principles
        generally accepted in the United States of America.
  The
        significant accounting policies are summarized as follows:
  **Basis
        of Presentation**
  The
        accompanying consolidated financial statements include the accounts of STS
        and
        its subsidiaries, after the elimination of inter-company accounts and
        transactions.
  We
        consolidate the financial statements of entities in which we hold a majority
        voting interest and also those entities which are deemed to be a Variable
        Interest Entity of which we are the primary beneficiary as defined by FASB
        Interpretation No. 46 (revised December 2003), “Consolidation of Variable
        Interest Entities” ("FIN 46(R)"). Entities in which we hold less than a majority
        voting interest but over which we have the ability to exercise significant
        influence are accounted for using the equity method. Other investments are
        accounted for using the cost method.
  *Page
            58*
 *Table
            of Contents*
  **SLOVENSKA
        TELEVIZNA SPOLOCNOST, S.R.O.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 In
        accordance with FIN 46(R), we consolidate Markiza, a license holding company.
        This is due to the fact that Markiza’s activity is in the interest of STS and an
        obligation exists via an Exclusivity Agreement for STS to fund Markiza through
        a
        cost plus margin reimbursement arrangement. Markiza has little activity with
        any
        third parties.
 
 The
        following table summarizes balance sheet and income statement information
        that
        we consolidate with regard to Markiza. Minority
        interest represents the amount of statutory equity of Markiza including a
        part
        of 2004 dividend income from STS which is to be distributed 99.9% to the
        Slovak
        shareholders.
 
 
 **Consolidated
                  Balance Sheet Financial Statement Caption**
              
              **As
                  at December 31, 2005****Balance
                  prior to**
                **adjustment**
              
              **Impact
                  of FIN 46**
                **(R)**
              
              **Adjusted**
                **Balance**(US$
                  000's)Total
                  current assets
              
              $
              22,682
              
              $
              579
              
              $
              23,261Total
                  assets
              
              
              41,291
              
              
              582
              
              
              41,873Total
                  current liabilities
              
              
              12,726
              
              
              (53
              )
              
              12,673Total
                  non-current liabilities
              
              
              125
              
              
              -
              
              
              125Minority
                  interest
              
              
              -
              
              
              635
              
              
              635**Total
                  shareholders' equity**
              
              **$**
              **28,440**
              
              **$**
              **-**
              
              **$**
              **28,440**
 
 
 **Consolidated
                  Statement of Operations Financial Statement
                  Caption**
              
              **For
                  the Twelve Months ended December 31, 2005****Balance
                  prior to**
                **adjustment**
              
              **Impact
                  of FIN 46**
                **(R)**
              
              **Adjusted**
                **Balance**(US$
                  000's)Net
                  revenues
              
              $
              64,266
              
              $
              -
              
              $
              64,266Total
                  operating expenses
              
              
              49,664
              
              
              (39
              )
              
              49,625Operating
                  income
              
              
              14,602
              
              
              39
              
              
              14,641Income
                  before minority interest
              
              
              11,771
              
              
              35
              
              
              11,806**Net
                  income**
              
              **$**
              **11,771**
              
              **$**
              **-**
              
              **$**
              **11,771**
  *Page
            59*
 *Table
            of Contents*
  **SLOVENSKA
        TELEVIZNA SPOLOCNOST, S.R.O.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 *Revenue
        Recognition*
 
  Revenues
        are recognized net of discounts and customer sales incentives. Our principal
        revenue streams and their respective accounting treatments are discussed
        below:
 
 *Advertising
        revenues*
 
 Revenues
        primarily result from the sale of advertising time. Television advertising
        revenue is recognized as the commercials are aired. In certain instances,
        we
        commit to provide advertisers with certain rating levels in connection with
        their advertising. Revenue is recorded net of estimated shortfalls, which
        are
        usually settled by providing the advertiser additional advertising
        time.
 
 Discounts
        and agency commissions are recognized at the point when the advertising is
        broadcast and are reflected as a reduction to gross revenue.
 
 *Program
        distribution revenue*
 
 Program
        distribution revenue is recognized when the relevant agreement has been entered
        into, the product is available for delivery, collectibility of the cash is
        reasonably assured and all of our contractual obligations have been satisfied.
 
 *Barter
        transactions*
 
 Barter
        transactions represent advertising time exchanged for non-cash goods and/or
        services, such as promotional items, advertising, supplies, equipment and
        services. Revenue from barter transactions is recognized as income when
        advertisements are broadcasted. Expenses are recognized when goods or services
        are received or used. We record barter transactions at the fair value of
        goods
        or services received or advertising surrendered, whichever is more readily
        determinable. Barter revenue amounted to US$ 1.6 million, US$ 1.9 million,
        and
        US$ 1.7 million for the years ending December 31, 2005, 2004, and 2003,
        respectively.
 
 We
        do not
        rely on any single major customer or group of customers. No customer accounts
        for more than 10% of revenue*.*
 
  **Cash
        and Cash Equivalents**
  Cash
        and
        cash equivalents consist of cash on hand and marketable securities with original
        maturities of three months or less. Cash that is restricted for use is
        classified as restricted cash.
   **Property,
        Plant and Equipment**
  Property,
        plant and equipment are carried at cost, less accumulated depreciation.
        Depreciation is computed using the straight-line method over the estimated
        useful lives assigned to each major asset category as below:
 
 **Asset
                  category**
              **Estimated
                  useful life**Land
              IndefiniteBuildings
              25
                  yearsStation
                  machinery, fixtures and equipment
              4
                  -
                  8 yearsOther
                  equipment
              3
                  -
                  8 yearsSoftware
                  licenses
              3
                  -
                  5 years
  *Page
            60*
 *Table
            of Contents*
  **SLOVENSKA
        TELEVIZNA SPOLOCNOST, S.R.O.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 Construction-in-progress
        is not depreciated until put into use. Capital leases are depreciated on
        a
        straight-line basis over the shorter of the estimated useful life of the
        asset
        or the lease term. Leasehold improvements are depreciated over the shorter
        of
        the related lease term or the life of the asset. Assets to be disposed of
        are
        reported at the lower of carrying value or fair value, less costs of
        disposal.
  Certain
        assets, such as stages and scenes, are built for specific programs or shows.
        The
        depreciation expense for the year ended December 31, 2005 related to these
        assets of US$ 0.7 million (2004: US$ nil , 2003: US$ nil ) is included in
        Depreciation and amortization in the Consolidated Statement of
        Operations.
   **Long-lived
        Assets Including Intangible Assets with Finite Lives**
  Long-lived
        assets include property, plant, equipment and intangible assets with finite
        lives.
 
 In
        accordance with FAS No. 144, “Accounting for the Impairment or Disposal of
        Long-Lived Assets” (“FAS 144”), we review for impairment of long-lived assets
        whenever events or changes in circumstances indicate that the carrying value
        of
        an asset may not be recoverable. The carrying values of long-lived assets
        are
        considered impaired when the anticipated undiscounted cash flows from such
        assets are less than their carrying values. In that event, a loss is recognized
        based on the amount by which the carrying value exceeds the fair
        value.
 
 Fair
        value is determined by reference to the higher of recoverable value and the
        discounted future cash flows that are expected to be generated based upon
        management’s expectations of future economic and operating conditions.
        Recoverable value is the higher of the net selling price and value in
        use.
 
 No
        impairment has been recognized for any long-lived assets in 2005, 2004, or
        2003.
   **Program
        Rights**
  *Purchased
        program rights*
 
 Purchased
        program rights and the related liabilities are recorded at their gross value
        when the license period begins and the programs are available for broadcast.
        Program rights are amortized on a systematic basis over their expected useful
        lives, according to the number of runs of the license. The amortization
        percentages are as follows:
 
 **Amortization
                  %****Type
                  of programming**
              
              ***Run
                  1***
              
              ***Run
                  2***
              
              ***Run
                  3***
              
              ***Run
                  4***
              
              ***Run
                  5***Films
                  and series, 2 runs
              
              65%
              
              35%
              
              -
              
              -
              
              -Concerts,
                  documentaries, film about film, etc.
              
              100%
              
              -
              
              -
              
              -
              
              -
  Program
        rights are evaluated to determine if expected revenues are sufficient to
        cover
        the unamortized portion of the program. To the extent that expected revenues
        are
        insufficient, the program rights are written down to their net realizable
        value.
        An impairment reserve of US$ nil at December 31, 2005 (2004: US$ 1.0 million)
        was recorded against program rights.
 
 Purchased
        program rights are classified as current or non-current assets based on
        anticipated usage in the following year, while the related program rights
        liability is classified as current or non-current according to the payment
        terms
        of the license agreement.
  *Page
            61*
 *Table
            of Contents*
  **SLOVENSKA
        TELEVIZNA SPOLOCNOST, S.R.O.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 Future
        program rights of US$ 4.6 million (2004: US$ 9.1 million), which were acquired
        in 2005 but whose license period starts after December 31, 2005, are not
        included in Program rights on the Consolidated Balance Sheet at December
        31,
        2005 (see Note 10, “Commitments and Contingencies”).
 
 *Produced
        program rights*
 
 Program
        rights that are produced are stated at the lower of cost less accumulated
        amortization or fair value. The amortization charge is based on the ratio
        of the
        current period’s gross revenues to estimated remaining total gross revenues from
        such programs. Program rights are evaluated to determine if expected revenues
        are sufficient to cover the unamortized portion of the program. To the extent
        that expected revenues are insufficient, the program rights are written down
        to
        their net realizable value.
 
 Produced
        program rights are classified as current or non-current assets based on
        anticipated usage in the following year.
   **Intangible
        Assets**
  Intangible
        assets are stated at cost less accumulated amortization. Amortization is
        provided using the straight-line method over the estimated useful lives of
        the
        assets, which are between one and three years.
   **Income
        Taxes**
  We
        account for income taxes under the asset and liability method as set out
        in FAS
        No. 109, "Accounting for Income Taxes". Deferred tax assets and liabilities
        are
        recognized for the expected tax consequences of temporary differences between
        the tax bases of assets and liabilities and their reported amounts. Valuation
        allowances are established when necessary to reduce deferred tax assets to
        amounts which are more likely than not to be realized.
   **Foreign
        Currency**
  *Translation
        of Financial Statements*
 
 Our
        reporting currency is the US dollar and our functional currency is the Slovak
        Crown (SKK). All assets and liabilities are translated into the reporting
        currency at the exchange rates in effect at the balance sheet date. Income
        and
        expense items are translated at the average exchange rates for the period.
        Net
        exchange gains or losses resulting from such translation are included in
        Other
        Comprehensive Income, a component of Shareholders’ Equity.
 
 *Transactions
        in Foreign Currencies*
 
 Gains
        and
        losses from foreign currency transactions are included in Foreign currency
        exchange gain/(loss), in the Consolidated Statements of Operations in the
        period
        during which they arise.
   **Use
        of Estimates**
  The
        preparation of financial statements in conformity with generally accepted
        accounting principles requires management to make estimates and assumptions
        that
        affect the reported amounts of assets and liabilities and disclosure of
        contingent assets and liabilities at the date of the financial statements
        and
        the reported amounts of revenues and expenses during the reporting year.
        Actual
        results could differ from those estimates. Main estimates include bad debts
        provision, amortization and creation of reserve for program rights, depreciation
        of assets and creation of reserve for legal claims.
  *Page
            62*
 *Table
            of Contents*
  **SLOVENSKA
        TELEVIZNA SPOLOCNOST, S.R.O.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
  **Leases**
  Leases
        are classified as either capital or operating. Those leases that transfer
        substantially all benefits and risks of ownership of the property to us are
        accounted for as capital leases. All other leases are accounted for as operating
        leases.
 
 Capital
        leases are accounted for as assets and are depreciated on a straight-line
        basis
        over the shorter of the estimated useful life of the asset or the lease term.
        Commitments to repay the principal amounts arising under capital lease
        obligations are included in current liabilities to the extent that the amount
        is
        repayable within one year, otherwise the principal is included in non-current
        liabilities. The capitalized lease obligation reflects the present value
        of
        future lease payments. The financing element of the lease payments is charged
        to
        interest expense over the term of the lease.
 
 Operating
        lease costs are charged to expense on a straight-line basis.
  **Contingencies**
  Contingencies
        are recorded in accordance with FAS No. 5, “Accounting for Contingencies” (“FAS
        5”). The estimated loss from a loss contingency such as a legal proceeding
        or
        claim is recorded in the Statement of Operations and Comprehensive Income
        if it
        is probable that an asset has been impaired or a liability has been incurred
        and
        the amount of the loss can be reasonably estimated. Disclosure of a loss
        contingency is made if there is at least a reasonable possibility that a
        loss
        has been incurred.
  **Financial
        Instruments**
  The
        carrying value of financial instruments, including cash, accounts receivable,
        and accounts payable and accrued liabilities, approximate their fair value
        due
        to the short-term nature of these items.
 
 **Advertising
        Costs**
  Advertising
        costs are expensed as incurred. Advertising expense incurred for the years
        ending December 31, 2005, 2004, and 2003 totaled US$ 1.6 million, US$ 1.6
        million, and US$ 0.8 million, respectively.
  **Reclassifications**
  Certain
        minor reclassifications were made to the prior period balance sheet to conform
        to current period classifications.
  *Page
              63*
 *Table
              of Contents*
 
 **SLOVENSKA
        TELEVIZNA SPOLOCNOST, S.R.O.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
  **3.**
              **ACCOUNTS
                  RECEIVABLE:**
 
 Accounts
        receivable consist of the following at December 31, 2005 and 2004:
 
 **December
                  31,**
                **2005**
              
              **December
                  31,**
                **2004*****Trading:***Third-party
                  customers
              
              $
              10,936
              
              $
              19,497Less:
                  allowance for bad debts and credit notes
              
              
              (1,540
              )
              
              (1,902
              )Related
                  parties
              
              
              56
              
              
              448**Total**
              
              **$**
              **9,452**
              
              **$**
              **18,043**
 
 Bad
        debt
        expense/(benefit) for the years ending December 31, 2005, 2004 and 2003 was
        US$
        (0.1) million, US$ (0.1) million, and US$ 0.04 million,
        respectively.
 
  **4.**
              **OTHER
                  ASSETS:**
 
 Other
        current and non-current assets consist of the following at December 31, 2005
        and
        2004:
 
 **December
                  31,**
                **2005**
              
              **December
                  31,**
                **2004****Current:**Prepaid
                  expenses and advances
              
              $
              621
              
              $
              590Income
                  tax receivable
              
              
              1,084
              
              
              216VAT
                  and other taxes receivable
              
              
              854
              
              
              -Deferred
                  income taxes
              
              
              267
              
              
              79Other
                  receivables
              
              
              221
              
              
              204**Total**
              
              **$**
              **3,047**
              
              **$**
              **1,089****Non-current:**Deferred
                  income taxes
              
              $
              161
              
              $
              1,243**Total**
              
              **$**
              **161**
              
              **$**
              **1,243**
  *Page
            64*
 *Table
            of Contents*
  **SLOVENSKA
        TELEVIZNA SPOLOCNOST, S.R.O.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
  **5.**
              **PROPERTY,
                  PLANT AND EQUIPMENT**
  Property,
        plant and equipment consist of the following
  **December
                  31,**
                **2005**
              
              **December
                  31,**
                **2004**Land
                  and buildings
              
              $
              11,771
              
              $
              12,910Machinery,
                  fixtures and equipment
              
              
              19,734
              
              
              17,945Other
                  equipment
              
              
              6,963
              
              
              7,186Software
              
              
              1,431
              
              
              1,435Construction
                  in progress
              
              
              111
              
              
              76**Total
                  cost**
              
              
              **40,010**
              
              
              **39,552**Less:
                  Accumulated depreciation
              
              
              (25,765
              )
              
              (26,734
              )**Total
                  net book value**
              
              **$**
              **14,245**
              
              **$**
              **12,818****Assets
                  held under capital lease (included in the above):**Other
                  equipment
              
              $
              429
              
              $
              418**Total
                  costs**
              
              
              **429**
              
              
              **418**Less:
                  Accumulated depreciation
              
              
              (154
              )
              
              (114
              )**Net
                  book value**
              
              **$**
              **275**
              
              **$**
              **304**
 
 For
        further information on capital leases, see Note 8, “Credit Facilities and
        Obligations under Capital Leases”
 
 Depreciation
        expense for the years ending December 31, 2005, 2004 and 2003 was US$ 2.6
        million US$ 1.7 million, and US$ 1.8 million, respectively.
 
  **6.**
              **INTANGIBLE
                  ASSETS**
  The
        gross
        value and accumulated amortization of other intangible assets, which mainly
        include jingles was as follows at December 31, 2005 and 2004:
 
 **December
                  31,**
                **2005**
              
              **December
                  31,**
                **2004**Gross
                  value
              
              $
              577
              
              $
              700Accumulated
                  amortization
              
              
              (531
              )
              
              (568
              )**Total
                  net book value**
              
              **$**
              **46**
              
              **$**
              **132**
 
 Amortization
        expense for the years ending December 31, 2005, 2004 and 2003 was US$ 0.02
        million, US$ 0.03 million, and US$ 0.02 million, respectively.
  *Page
            65*
 *Table
            of Contents*
  **SLOVENSKA
        TELEVIZNA SPOLOCNOST, S.R.O.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 **7.**
              **ACCOUNTS
                  PAYABLE AND ACCRUED
                  LIABILITIES**
 
 Accounts
        payable and accrued liabilities consist of the following:
 
 **December
                  31,**
                **2005**
              
              **December
                  31,**
                **2004**Accounts
                  payable
              
              $
              3,312
              
              $
              2,650Programming
                  liabilities
              
              
              3,623
              
              
              3,028Other
                  accrued liabilities
              
              
              4,546
              
              
              5,196**$**
              **11,481**
              
              **$**
              **10,874**
  **8.**
              **CREDIT
                  FACILITIES AND OBLIGATIONS UNDER CAPITAL
                  LEASES**
  Group
        loan obligations and overdraft facilities consist of the following:
 
 **December
                  31,**
                **2005**
              
              **December
                  31,**
                **2004**Long-term
                  loans
              
              
              (a
              )
              $
              -
              
              $
              2,807Capital
                  leases
              
              
              
              
              
              196
              
              
              220**Total**
              
              
              
              
              
              **196**
              
              
              **3,027**Less
                  current maturities
              
              
              
              
              
              (71
              )
              
              (2,878
              )**Total
                  non-current maturities**
              
              
              
              
              **$**
              **125**
              
              **$**
              **149**
 
 (a)
        On 24
        July 2002 we obtained from Vseobecna uverova banka, a.s. a mid-term facility
        of
        SKK 100.0 million (US$ 3.5 million at December 31, 2004). Interest on this
        facility was 3-month BRIBOR+1.7%. The interest rate as at 31 December 2004
        was
        5.98%. The balance on this facility was repaid in 2005.
  *Capital
        Lease Commitments*
  Assets
        held under capital leases represent vehicles. The future minimum lease payments
        from continuing operations, by year and in the aggregate, under capital leases
        with initial or remaining non-cancellable lease terms in excess of one year,
        consisted of the following at December 31, 2005:
 
 2006
              
              $
              902007
              
              
              812008
              
              
              492009
              
              
              -2010
              
              
              -2011
                  and thereafter
              
              
              -**Total**
              
              
              220Less:
                  amount representing interest
              
              
              (24
              )**Present
                  value of net minimum lease payments**
              
              **$**
              **196**
  *Page
            66*
 *Table
            of Contents*
  **SLOVENSKA
        TELEVIZNA SPOLOCNOST, S.R.O.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
  **9.**
              **INCOME
                  TAXES**
  *Income
        Tax Provision:*
  The
        provision for income tax consists of:
  **For
                  the Years Ended December 31,****2005**
              
              **2004**
              
              **2003**Current
                  income tax expense
              
              $
              2,507
              
              $
              3,175
              
              $
              2,925Deferred
                  tax provision
              
              
              769
              
              
              336
              
              
              945**Provision
                  for income taxes**
              
              **$**
              **3,276**
              
              **$**
              **3,511**
              
              **$**
              **3,870**
 
  *Reconciliation
        of Effective Income Tax Rate:*
  The
        following is a reconciliation of income taxes, calculated at statutory rates
        in
        the Slovak Republic, to the income tax provision included in the accompanying
        Consolidated Statements of Operations for the years ended December 31, 2005,
        2004 and 2003:
 
 **For
                  the Years Ended December 31,****2005**
              
              **2004**
              
              **2003**Income
                  taxes at statutory rates (2005, 2004: 19.0%; 2003: 25.0%)
              
              $
              2,866
              
              $
              3,295
              
              $
              3,098Effect
                  of change in tax rate
              
              
              -
              
              
              -
              
              
              531Tax
                  effect of permanent differences
              
              
              410
              
              
              216
              
              
              377Change
                  in valuation allowance
              
              
              -
              
              
              -
              
              
              (136
              )**Provision
                  for income taxes**
              
              **$**
              **3,276**
              
              **$**
              **3,511**
              
              **$**
              **3,870**
  *Page
            67*
 *Table
            of Contents*
  **SLOVENSKA
        TELEVIZNA SPOLOCNOST, S.R.O.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
  *Components
        of Deferred Tax Assets and Liabilities:*
  The
        following table shows the significant components included in deferred income
        taxes as at December 31, 2005 and 2004:
  **December
                  31,**
                **2005**
              
              **December
                  31,**
                **2004****Assets:**Property,
                  plant and equipment
              
              $
              40
              
              $
              185Programs
                  rights
              
              
              281
              
              
              996Accounts
                  receivable
              
              
              113
              
              
              233**Gross
                  deferred tax assets**
              
              
              **434**
              
              
              **1,414**Valuation
                  allowance
              
              
              -
              
              
              -**Net
                  deferred tax assets**
              
              **$**
              **434**
              
              **$**
              **1,414****Liabilities:**Unrealized
                  foreign exchange, net
              
              
              (6
              )
              
              (83
              )Other
              
              
              -
              
              
              (9
              )**Total
                  deferred tax liabilities**
              
              **$**
              **(6**
              **)**
              **$**
              **(92**
              **)****Net
                  deferred income tax assets**
              
              **$**
              **428**
              
              **$**
              **1,322**
  **10.**
              **COMMITMENTS
                  AND CONTINGENCIES**
  **Operating
        lease commitments**
  For
        the
        fiscal years ended December 31, 2005, 2004, and 2003 we incurred aggregate
        rent
        on all facilities of US$ 0.6 million, US$ 0.7 million, and US$ 0.7 million.
        Future minimum operating lease payments at December 31, 2005 for non-cancellable
        operating leases with remaining terms in excess of one year (net of amounts
        to
        be recharged to third parties) are payable as follows:
 
 2006
              
              $
              5212007
              
              
              3352008
              
              
              -2009
              
              
              -2010
              
              
              -2011
                  and thereafter
              
              
              -**Total**
              
              **$**
              **856**
  *Page
            68*
 *Table
            of Contents*
  **SLOVENSKA
        TELEVIZNA SPOLOCNOST, S.R.O.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
  **Future
        Contractual Obligations**
  We
        have
        the following future contractual obligations:
  **Payments
                  due by period****Total**
              
              **Less
                  than 1 year**
              
              **2
                  years**
              
              **3
                  years**
              
              **More
                  than 3 years**Unconditional
                  purchase obligations
              
              $
              13,170
              
              $
              13,170
              
              $
              -
              
              $
              -
              
              $
              -Station
                  program rights
              
              
              4,629
              
              
              2,267
              
              
              2,362
              
              
              -
              
              
              -Other
                  long-term obligations
              
              
              5,446
              
              
              5,446
              
              
              -
              
              
              -
              
              
              -**Total**
              
              **$**
              **23,245**
              
              **$**
              **20,883**
              
              **$**
              **2,362**
              
              **$**
              **-**
              
              **$**
              **-**
 
 Unconditional
        purchase obligations relates to production expenses and overall operating
        expenses, such as utilities, legal and other consultancy etc.
  Station
        program rights - We have commitments for US$ 4.6 million in respect of future
        programming. This includes all contracts signed in 2005 with license periods
        starting after December 31, 2005.
  Other
        long-term obligations include broadcast telecommunication charges, author’s
        rights, and certain other related charges.
  **Legal
        claims**
  STS
        and
        Markiza Slovakia are in the normal course of business involved in litigation.
        The following summarizes cases where we have made a provision for contingent
        losses based on our assessment of each case.
  The
        Media
        Council has fined us for violations during a broadcast of a reality show
        and a
        late-night series. In response to these fines, we have accrued a total of
        US$
        0.6 million, which represents our best estimate of the cost to settle these
        fines.
  A
        remaining provision of US$ 0.3 million has been established in response to
        claims relating to our public affairs and news programs.
   **11.**
              **RELATED
                  PARTY TRANSACTIONS**
  There
        is
        a limited local market for many specialist television services in the country
        in
        which we operate, many of which are provided by parties known to be connected
        to
        some of our shareholders. As stated in FAS No. 57 “Related Party Disclosures”
(“FAS 57”) transactions involving related parties cannot be presumed to be
        carried out on an arm's-length basis, as the requisite conditions of
        competitive, free-market dealings may not exist. We will continue to review
        all
        of these arrangements.
 
 *CME*
  We
        loaned
        to CME, one of our shareholders, a total of SKK 187 million (approximately
        US$
        6.6 million at December 31, 2004). The loan had an interest rate of 3-month
        BRIBOR+2.2 %, a rate which we believe was comparable to independently negotiated
        third-party rates. This loan and related interest was repaid in full in December
        2005.
  *Page
            69*
 *Table
            of Contents*
  **SLOVENSKA
        TELEVIZNA SPOLOCNOST, S.R.O.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**
 
 We
        also
        pay CME contractual management fees. These fees totalled US$ 0.4 million
        for
        each of the years ended December 31, 2005, 2004 and 2003.
 
 *Media
        Invest*
 
 We
        loaned
        to Media Invest, one of our indirect shareholders, a total of SKK 80 million
        (approximately US$ 2.8 million at December 31, 2004). The loan had an interest
        rate of 3-month BRIBOR+2.2 %, a rate which we believe was comparable to
        independently negotiated third-party rates. This loan and related interest
        was
        repaid in December 2005.
 
 *Forza
        Group*
  Markiza
        purchases several shows from the companies of the Forza Group, which are
        owned
        by one of our shareholders. Total production costs related to these shows
        were
        US$ 0.5 million, US$ 0.4 million, and US$ nil for the years ended December
        31,
        2005, 2004 and 2003, respectively.
  We
        also
        lease technical equipment and sell advertising spots to the Forza Group.
        Total
        revenues from the Forza Group amounted to US$ 0.1 million, US$ 0.1 million,
        and
        US$ nil for the years ended December 31, 2005, 2004, and 2003.
   **12.**
              **RESTRICTION
                  ON DIVIDEND DISTRIBUTION**
  The
        laws
        under which we are organized provide generally that dividends may be declared
        by
        the partners or shareholders out of yearly profits subject to the maintenance
        of
        registered capital, required reserves and after the recovery of accumulated
        losses. In the case of STS, distributions may be paid from net profits subject
        to an initial reserve requirement of 10% of net profits until the reserve
        fund
        equals 5% of registered capital. Subsequently, the reserve requirement is
        equal
        to 5% of net profits until the reserve fund equals 10% of registered capital.
        Distribution of dividends must be approved by the General Assembly.
  In
        the
        Statutory accounts our equity comprises of basic capital, capital funds and
        profit for the year. Other capital funds represent CME investment into STS
        and
        are netted by the losses generated. All of the above funds may not be readily
        distributable because they are not created from profits. In the case of ultimate
        liquidation, if CME has not received by way of distributed profits an amount
        equivalent to its total capital contribution increased cumulatively by 6%
        for
        each year of operation, it shall receive such amount less the total of
        distributed profits received by CME.
  *Page
            70*
 *Table
            of Contents*
  **PART
        III**
 
 **ITEM
                  10.**
              **DIRECTORS
                  AND EXECUTIVE OFFICERS OF THE
                  REGISTRANT**
 
  **DIRECTORS**
  **Name
                  of Director**
              
              **Principal
                  Occupation**
              
              **Age**
              
              **Year**
                **Became
                  a**
                **Director**Ronald
                  S. Lauder
              
              Non-executive
                  Chairman of the Board
              
              62
              
              1994Michael
                  Garin
              
              Chief
                  Executive Officer and Director
              
              59
              
              2003Charles
                  R. Frank, Jr.
              
              Financial
                  Advisor
              
              68
              
              2001Herbert
                  A. Granath
              
              Chairman
                  Emeritus, ESPN
              
              77
              
              2002Herbert
                  Kloiber
              
              Chairman,
                  Tele Muenchen Group
              
              58
              
              2006Alfred
                  W. Langer
              
              Consultant
              
              55
              
              2000Bruce
                  Maggin
              
              Principal,
                  the H.A.M. Media Group, LLC
              
              62
              
              2002Ann
                  Mather
              
              Former
                  CFO, Pixar Animation Studios
              
              46
              
              2004Eric
                  Zinterhofer
              
              Partner,
                  Apollo Management, L.P.
              
              34
              
              2004
  *Ronald
        S. Lauder* ,
        a
        founder of the Company, has served as non-executive Chairman of the Board
        of the
        Company since its incorporation in 1994. Mr. Lauder is a principal shareholder
        and a director of The Estée Lauder Companies, Inc. (“Estée Lauder”) and has
        served as Chairman of Estée Lauder International and Chairman of Clinique
        Laboratories, Inc., divisions of Estée Lauder, since returning to the private
        sector from government service in 1987. From 1986 until 1987, Mr. Lauder
        served
        as U.S. Ambassador to Austria. From 1983 to 1986, Mr. Lauder served as Deputy
        Assistant Secretary of Defense for European and NATO Affairs. He is Chairman
        of
        the Board of Trustees of the Museum of Modern Art, President of the Jewish
        National Fund, former Chairman of the Council of Presidents of American Jewish
        Organizations, a member of the Board of Governors of the Joseph H. Lauder
        Institute of Management and International Studies at the University of
        Pennsylvania and a member of the Visiting Committee of the Wharton School
        at the
        University of Pennsylvania. He received his B.S. in International Business
        from
        the Wharton School of the University of Pennsylvania.
  *Michael
        N. Garin* has
        served as Director since December 2003 and Chief Executive Officer since
        February 2004. Mr. Garin currently serves as a Director and Chairman of the
        Audit Committee of American Media, publisher of the National Enquirer, Star,
        Globe and other publications; and a Director and member of the Compensation
        Committee of MortgageIT Holdings, Inc., a real estate investment trust and
        residential mortgage bank. From 2000 until January 2004, Mr. Garin served
        as the
        Chairman of Adcom Information Services, the leading U.S. cable television
        viewership data provider. From 1999 to 2001, Mr. Garin was President and
        Chief
        Operating Officer of Digital Convergence Corporation, an Internet technology
        company.  In March 2002, Digital Convergence filed a voluntary petition for
        bankruptcy under Chapter 7 of the U.S. Bankruptcy Code.  From 1988 to 1999,
        Mr. Garin served ING Barings (Furman Selz) in various roles, including Executive
        Vice President and Member of the Management Committee. As Global Head of
        Media,
        Telecommunications and Information Services Investment Banking for Furman
        Selz,
        he was responsible for building the firm’s investment banking practice in those
        areas. Mr. Garin was one of the founders of Lorimar Telepictures and helped
        run
        the company until it was acquired by Warner Communications in 1988. Mr. Garin
        received his BA degree from Harvard University and holds a Masters degree
        in
        Philosophy and the Arts.
  *Page
            71*
 *Table
            of Contents*
  *Charles
        R. Frank, Jr.* has
        served as a Director of the Company since 2001. Mr. Frank currently serves
        a
        non-executive member of the board of Mittal Steel Galati, the Romanian
        subsidiary of Mittal Steel Company N.V., and of Megafon, the third largest
        mobile phone operator in Russia. He is a member of the investment committee
        of
        the Darby Converging Europe Mezzanine Fund. From 1997 to 2001, Mr. Frank
        was
        First Vice President and twice acting President of the European Bank for
        Reconstruction and Development (EBRD), which makes debt and equity investments
        in Central and Eastern Europe and the former Soviet Union. Mr. Frank was
        Managing Director of the Structured Finance Group at GE Capital (a financial
        services company), and Vice President of GE Capital Services from 1988 to
        1997.
        Mr. Frank served as Chief Executive Officer of Frank and Company from 1987
        to
        1988, and Vice President of Salomon Brothers from 1978 until 1987. Mr. Frank
        has
        held senior academic and government positions, including Deputy Assistant
        Secretary of State and Chief Economist at the U.S. Department of State, Senior
        Fellow at the Brookings Institution, Professor of Economics and International
        Affairs at Princeton University, and Assistant Professor of Economics at
        Yale
        University. Mr. Frank graduated from Rensselaer Polytechnic Institute with
        a
        B.S. in mathematics and economics before completing a Ph.D. in economics
        at
        Princeton University.
  *Herbert
        A. Granath* has
        served as a Director of the Company since January 2002. Mr. Granath is Chairman
        Emeritus, ESPN, a cable sports network and Senior Content Advisor to Telenet;
        the largest cable operator in Belgium. He is a Director of Crown Media Holdings,
        which owns and operates the Hallmark Channel. Mr. Granath was employed by
        ABC
        for over 35 years and was Chairman, Disney/ABC International (an international
        broadcasting company) from 1996 to January 1998 where he pioneered many aspects
        of ABC’s expanding television business, including its successes in the cable and
        international programming arenas. He served as Chairman of the Board of ESPN
        for
        16 years and Senior Vice President of ABC, Inc. from 1998 until 2001. He
        also
        served as Chairman of the Board of A&E, The History Channel, The Biography
        Channel and Lifetime Television, and was a founding partner and Board member
        of
        Eurosport, the largest cable network in Europe. He also served on the Boards
        of
        Telefunf, RTL2 and TM3 networks in Germany, SBS Broadcasting SA and TVA,
        the
        Brazilian pay-TV company. Among the awards Mr. Granath has received are two
        Tony
        awards (along with six Tony nominations), an International EMMY (Lifetime
        Achievement in International TV), and a U.S. EMMY (Lifetime Achievement in
        Sports Television). He has also been honored by the National Association
        of
        Broadcasters as a Broadcast Pioneer and receive the European Lifetime
        Achievement Award at the Rose d’Or Festival in Lucerne,
        Switzerland.
  *Herbert
        Kloiber* has
        served as a Director of the Company since 2006. Dr. Kloiber is chairman and
        majority shareholder of the media conglomerate TeleMuenchen Group, which
        was a
        production company when he initially acquired it in 1977. He is also a member
        of
        the board of Bavarian Film Funding Organization in Germany and of Sun New
        Media
        Inc. in China. Dr. Kloiber also serves as Chairman of the board for CineMedia
        Film AG, Cinemax AG and ATV+ AG. From April 1998 until August 2005, Dr. Kloiber
        was a member of the board of SBS Broadcasting SA. He has received the
        Directorate Award of the Academy of Television Arts and Sciences, the Chevalier
        des Arts et Lettres, the Bavarian Order of Merit and the Grand Decoration
        of
        Honor for Services to Austria. Dr. Kloiber has a Ph.D in law from University
        of
        Vienna.
  *Alfred
        W. Langer* has
        served as a Director of the Company since 2000. Mr. Langer currently serves
        as a
        consultant to a number of privately held, mostly German companies, engaged
        in
        the area of mergers and acquisitions, structured financing and organizational
        matters. Mr. Langer ** served
        as
        Chief Financial Officer of Solvadis AG, a German based chemical distribution
        and
        trading company, from July 2001 until June 2002. Mr. Langer served as Treasurer
        of Celanese AG, a German listed chemical company, from October 1999 until
        May
        2001. From June 1997 until October 1999, Mr. Langer served as Chief Financial
        Officer of Celanese Corp., a U.S. chemical company. Mr. Langer served as
        Chief
        Executive Officer of Hoechst Trevira GmbH, a producer of synthetic fibers,
        from
        October 1994 until July 1997. From 1988 until September 1994, Mr. Langer
        served
        as a member of the Board of Management of Hoechst Holland N.V., a regional
        production and distribution company. Mr. Langer received an M.B.A. degree
        from
        the University GH Siegen.
  *Page
            72*
 *Table
            of Contents*
  *Bruce
        Maggin* has
        served as a Director of the Company since September 2002. Mr. Maggin has
        served
        as Principal of the H.A.M Media Group, LLC, an international media investment
        and advisory company since 1997. He is currently executive vice president
        and a
        director of Media and Entertainment Holdings Inc. and a member of the Board
        of
        Advisors of Jump TV. From 1999 to 2002, Mr. Maggin served as the Chief Executive
        Officer of TDN Media, Inc., a joint venture between Thomson Multimedia, NBC
        Television and Gemstar-TV Guide International. TDN sells advertising on
        proprietary interactive television platforms. Mr. Maggin also currently is
        a
        Director and Chair of the Audit Committee of Phillips-Van Heusen Corporation.
        Mr. Maggin is a member of the New York State Bar. He received a BA degree
        from
        Lafayette College and JD and MBA degrees from Cornell University.
  *Ann
        Mather* has
        served as a Director of the Company since April 2004. Ms. Mather is also
        Chair
        of the Audit Committee of Google, Inc. From 1999 to 2004, Ms. Mather was
        Executive Vice President, Chief Financial Officer and Secretary of Pixar
        Animation Studios. Prior to joining Pixar, she was Executive Vice President
        and
        Chief Financial Officer at Village Roadshow Pictures. From 1993 to 1999,
        Ms.
        Mather held various executive positions at the Walt Disney Company in Los
        Angeles, including Senior Vice President of Finance and Administration of
        its
        Buena Vista International Theatrical Division, where she supervised operations
        in Europe, Asia and Latin America as well as the start up of distribution
        operations in several Asian markets including China, Australia and Malaysia.
        From 1992 to 1993, Ms. Mather worked for Disney in Paris, France where she
        helped establish the international theatrical distribution arm of Disney
        in ten
        European countries. From 1991 to 1992, she was the European Controller for
        Alico, a division of AIG, Inc. From 1989 to 1991 she was the Director of
        Finance
        for Polo Ralph Lauren Europe’s retail operations, and from 1984 to 1988, Ms.
        Mather was at Paramount Pictures Corporation where she held various positions
        in
        London, Amsterdam and New York. She worked for KPMG in London, England between
        1981 and 1984 covering a broad range of audit, tax and consulting assignments
        and is a Chartered Public Accountant. She has an MA degree from Cambridge
        University in England.
  *Eric
        Zinterhofer* has
        served as a Director of the Company since April 2004. Mr. Zinterhofer is
        a
        partner at Apollo Management, L.P., and has been with Apollo since 1998.
        From
        1994 to 1996, Mr. Zinterhofer was a member of the Corporate Finance Department
        at Morgan Stanley Dean Witter & Co. From 1993 to 1994, Mr. Zinterhofer was a
        member of the Structured Equity Group at J.P. Morgan Investment Management.
        Mr.
        Zinterhofer graduated Cum Laude from the University of Pennsylvania with
        BA
        degrees in Honors Economics and European History and received his MBA from
        the
        Harvard Business School.
  The
        Board
        of Directors has determined that the following members of the Board satisfy
        the
        independence requirements set forth in Rule 4200 of the National Association
        of
        Securities Dealers’ listing standards: Charles Frank, Herb Granath, Herbert
        Kloiber, Alfred Langer, Bruce Maggin and Ann Mather.
  There
        is
        no arrangement or understanding between any director and any other person
        pursuant to which such person was selected as a director. Directors serve
        until
        the next annual general meeting or until a successor is appointed. There
        is no
        family relationship among any directors or executive officers of the Company
        other than Eric Zinterhofer, who is Mr. Lauder’s son-in-law.
  **Audit
        Committee**
  *Audit
        Committee* .
        The
        Board of Directors has an Audit Committee which is composed of Messrs. Frank
        and
        Langer (Chairman) and Ms. Mather. The current members of the Audit Committee
        satisfy the independence and expertise requirements set forth in the National
        Association of Securities Dealers’ listing standards. In addition, the Board has
        determined that Mr. Langer, Ms. Mather and Mr. Frank qualify as “audit committee
        financial experts”.
  *Page
            73*
 *Table
            of Contents*
  **EXECUTIVE
        OFFICERS**
  Set
        forth
        below is certain information describing the Company’s executive officers (other
        than in respect of Michael Garin, who is also a director):
  *Robert
        E. Burke,* age 54,
        has served as President and Chief Operating Officer since March 2003 and
        as Vice
        President and Chief Operating Officer of the Company since July 2001. From
        1999
        to 2001, Mr. Burke served as Executive Vice President of Microcast, Inc.,
        an
        internet broadcasting company which filed for bankruptcy protection in the
        State
        of Delaware on or about December 1, 2000. From 1995 to 1998, Mr. Burke served
        as
        President and Chief Executive Officer of WTN, a subsidiary of ABC based in
        London, United Kingdom. WTN was a diversified global news and television
        production company and, prior to its sale, provided news, sports, entertainment,
        business, and corporate programming to virtually all the world's broadcasters
        (including all of the stations owned by the Company) via a global 24-hour
        satellite network. Mr. Burke was Vice President of WTN from 1984 to 1995
        and
        previously worked as a reporter, producer, and manager for ABC News in
        Washington and New York from 1980 until 1984. Mr. Burke has a BA (History)
        from
        Washington University, St. Louis, Missouri.
  *Wallace
        Macmillan* ,
        age 48,
        was appointed Vice President - Finance and Chief Financial Officer in March
        2003. Prior to joining the Company, Mr. Macmillan consulted for both Bertelsmann
        and EMI. From 1999 until his departure from EMI in 2001 Mr. Macmillan was
        involved in several major projects as VP Finance for the Recorded Music
        Division. Between 1997 and 1999 he was CFO for EMI’s Virgin Sector and Latin
        American and South East Asian regions. From 1992 until 1997 he worked as
        Finance
        Director first of the Virgin and later of the EMI record companies in the
        UK,
        following the acquisition of Virgin Music Group by Thorn-EMI. Between 1990
        and
        1992 he was the International Financial Controller for Virgin Music Group
        in the
        UK. From 1988 to 1990 Mr. Macmillan worked as Director of Group Reporting
        for
        Bertelsmann Music Group in New York. From 1983 through 1987 he worked for
        the
        Bertelsmann Group in Germany in a variety of financial roles. Mr. Macmillan
        obtained his qualification as a Chartered Accountant while at Price Waterhouse
        from 1976 to 1983
 
 *Marina
        Williams* ,
        age 40,
        has served as Executive Vice President since November 2004. From 2003 until
        joining the Company, Ms. Williams served as Vice President and Managing Director
        of Newscorp with responsibility for the development of Fox channels in Central
        and Eastern Europe. From 1998 to 2003, she served as Managing Director for
        Central and Eastern Europe and Executive Director, TV Channels for Fox Kids
        Europe and was responsible for launching and managing channels and for
        pan-European advertising and sponsorship. From 1991 to 1998, Ms. Williams
        served
        as regional manager and later Vice President for European Business Development
        for Turner Broadcasting in London, England and was responsible for developing
        CNN and the Cartoon Network in Eastern Europe. She received an MA degree
        from
        St. Petersburg University in St. Petersburg, Russia.
 
  There
        is
        no arrangement or understanding between any executive officer and any other
        person regarding selection as an executive officer. Executive officers serve
        pursuant to their employment agreements. (See Item 11, Executive Compensation,
        “Employment Agreements, Termination of Employment and Change-in-Control
        Arrangements”.)
  *Page
            74*
 *Table
            of Contents*
  **ITEM
                  11.**
              **EXECUTIVE
                  COMPENSATION**
  **Summary
        Compensation Table**
  The
        following table summarizes all plan and non-plan compensation awarded to,
        earned
        by, or paid to the Company’s Chief Executive Officer, former Vice Chairman,
        President and Chief Operating Officer, Chief Financial Officer and Vice
        President - Finance, and Executive Vice President, who were the Company’s only
        executive officers (together, the “Named Executive Officers”) who either served
        as executive officers during, or were serving as executive officers at the
        end
        of, the fiscal year ended December 31, 2005, for services rendered in all
        capacities to the Company and its subsidiaries for each of the Company’s last
        three fiscal years.
 Long-Term
                    CompensationAwardsAnnual
                    Compensation
                
                SecuritiesName
                    and
                  Principal
                    Position
                
                Year
                
                Salary
                  $
                
                Bonus
                  $
                
                Other
                    Annual
                  Compensation
                  $
                
                Underlying
                  Options/SARs
                  #
                
                All
                    Other
                  Compensation
                  $Michael
                    Garin
                
                
                2005
                
                
                625,000
                
                
                950,000
                
                
                --
                
                
                30,000
                
                
                20,019(8)Chief
                    Executive Officer (1)
                
                
                2004
                
                
                572,917
                
                
                825,000
                
                
                --
                
                
                160,000
                
                
                17,359(8)2003
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                --Frederic
                    T. Klinkhammer
                
                
                2005
                
                
                142,628
                
                
                166,666
                
                
                --
                
                
                --
                
                
                15,222(8)Vice
                    Chairman (2)
                
                
                2004
                
                
                625,000
                
                
                --
                
                
                --
                
                
                --
                
                
                19,243(8)2003
                
                
                625,000
                
                
                625,000
                
                
                16,515(6)
                
                
                40,000
                
                
                1,017,620(9)Robert
                    E. Burke
                
                
                2005
                
                
                328,440
                
                
                184,257
                
                
                76,363(7)
                
                
                15,000
                
                
                5,913(8)President
                    and Chief Operating
                
                
                2004
                
                
                326,493
                
                
                425,196
                
                
                76,182(7)
                
                
                --
                
                
                8,439(8)Officer
                    (3)
                
                
                2003
                
                
                293,010
                
                
                271,528
                
                
                68,369(7)
                
                
                80,000
                
                
                6,703(8)Wallace
                    Macmillan
                
                
                2005
                
                
                355,596
                
                
                163,482
                
                
                --
                
                
                10,000
                
                
                4,865(8)Chief
                    Financial Officer and Vice
                
                
                2004
                
                
                326,493
                
                
                195,174
                
                
                --
                
                
                20,000
                
                
                6,884(8)President
                    - Finance(4)
                
                
                2003
                
                
                220,365
                
                
                --
                
                
                --
                
                
                20,000
                
                
                6,020(8)Marina
                    Williams
                
                
                2005
                
                
                364,933
                
                
                167,674
                
                
                --
                
                
                15,000
                
                
                5,602(8)Executive
                    Vice President (5)
                
                
                2004
                
                
                41,759
                
                
                42,238
                
                
                --
                
                
                20,000
                
                
                222(8)2003
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                --
  
 (1)
              Became
                  Chief Executive Officer on February 2,
                  2004.
 (2)
              Retired
                  on March 22, 2005 in connection with expiration of his employment
                  agreement after having served as Vice-Chairman since February 2,
                  2004;
                  previously Vice Chairman and Chief Executive Officer since March
                  2003 and
                  Chief Executive Officer and President since March
                  1999.
 (3)
              Became
                  President and Chief Operating Officer in March 2003; previously
                  Vice
                  President and Chief Operating Officer since July
                  2001.
 (4)
              Became
                  Chief Financial Officer and Vice President - Finance in March 2003.
 (5)
              Became
                  Executive Vice President on November 22,
                  2004.
 (6)
              Represents
                  an expatriate premium allowance.
 (7)
              Represents
                  a housing allowance.
 (8)
              Represents
                  life and health insurance benefits paid by the
                  Company.
 (9)
                Long-Term
                    Compensation included a $1,000,000 Special Long-Term Incentive
                    Bonus that
                    was granted to Mr. Klinkhammer pursuant to his employment agreement,
                    which
                    provided that if the fair market value of the Company's Class A
                    Common Stock on December 31, 2003 was greater than $8.125 per share
                    (the split-adjusted trading price on March 22, 1999) and the
                    percentage increase in such share price was greater than the
                    percentage
                    increase in the NASDAQ composite average during the period from
                    March 22, 1999 to December 31, 2003, he would be entitled to
                    such bonus. In addition, he received $17,620 in life and health
                    insurance
                    benefits paid by the Company.
 No
        restricted stock, stock appreciation rights or long-term incentive plan awards
        (all as defined in the proxy regulations of the Securities and Exchange
        Commission) were awarded to, earned by, or paid to the Named Executive Officers
        during the time periods described above.
  *Page
            75*
 *Table
            of Contents*
  **Option
        Grants In Last Fiscal Year**
  The
        following table sets forth information with respect to grants of options
        to
        purchase shares of Class A Common Stock granted to the Named Executive Officers
        during the fiscal year ended December 31, 2005.
 Individual
                    GrantsNumber
                    of
                  Securities
                  Underlying
                
                Percent
                    of
                  Total
                  Options
                  Granted
                    to
                  Employees
                
                Exercise
                  or
                
                
                
                Potential
                    Realizable
                  Value
                    at Assumed Annual
                  Rates
                    of Stock Price
                  Appreciation
                  For
                    Option TermOptions
                
                in
                    Fiscal
                
                BasePrice
                
                Expiration
                
                5%
                
                10%Name
                
                Granted
                
                Year
                
                ($/sh)
                    (1)
                
                Date
                    (2)
                
                ($)
                
                ($)Michael
                    Garin
                
                
                30,000
                
                
                15.42%
                
                $
                44.50
                
                
                6/1/15
                
                $
                948,303
                
                $
                2,473,911Robert
                    E. Burke
                
                
                15,000
                
                
                7.71%
                
                $
                44.50
                
                
                6/1/15
                
                $
                474,152
                
                $
                1,236,955Wallace
                    Macmillan
                
                
                10,000
                
                
                5.14%
                
                $
                44.50
                
                
                6/1/15
                
                $
                316,101
                
                $
                824,637
  (1)
                  The
                      exercise price is set by the Compensation Committee, but may
                      be not less
                      than the fair market value of the Common Stock on the date
                      of grant of the
                      option. Options for the Named Executive Officers were granted
                      on June 2,
                      2005.
 (2)
                  All
                      options granted to the Named Executive Officers will vest in
                      four equal
                      installments on each of the first four anniversaries of the
                      date of
                      grant.
 
 **Aggregated
        Option Exercises in Last Fiscal Year and Fiscal Year-End Option
        Values**
  The
        following table sets forth information with respect to each exercise of stock
        options during the fiscal year ended December 31, 2005 by the Named Executive
        Officers and the value at December 31, 2005 of unexercised stock options
        held by
        the Named Executive Officers.
 **Name**
                
                **Shares
                    Acquired**
                  **On
                    Exercise**
                  **(#)**
                
                **Value**
                  **Realized**
                  **($)**
                
                **Number
                    of Securities**
                  **Underlying**
                  **Unexercised
                    Options**
                  **At
                    Fiscal Year-end**
                  **(#)**
                  **Exercisable/Unexercisable**
                
                **Value
                    of Unexercised**
                  **In-the-Money**
                  **Options
                    at**
                  **Fiscal
                    Year-End**
                  **($)(1)**
                  **Exercisable/Unexercisable**Michael
                    Garin
                
                0
                
                0
                
                40,000/150,000
                
                $1,536,400/5,011,200Frederic
                    T. Klinkhammer
                
                486,000
                
                $20,530,912
                
                800/13,200
                
                $38,028/627,462Robert
                    E. Burke
                
                0
                
                0
                
                173,600/41,400
                
                $9,239,376/1,455,927Wallace
                    Macmillan
                
                0
                
                0
                
                20,000/30,000
                
                $894,171/969,929Marina
                    Williams
                
                0
                
                0
                
                6,600/28,400
                
                $165,600/537,340
  
  (1)
              Fair
                  market value of securities underlying the options at fiscal year
                  end minus
                  the exercise price of the options.
 (2)
              On
                  March 3, 2006 Robert E. Burke exercised 25,000 options with an
                  exercise
                  price of $2.138 per share, realizing a gain of $1,561,800 based
                  upon the
                  market price on that date of $64.61 per
                  share.
  *Page
            76*
 *Table
            of Contents*
 
 **Compensation
        of Directors**
  The
        Company pays a cash fee to each of its non-employee directors (except Messrs.
        Lauder and Zinterhofer) of $50,000 per annum.
 
 In
        addition, on the day of each annual general meeting of the Company’s
        shareholders during the term of the Amended and Restated 1995 Stock Incentive
        Plan, each non-employee director of the Company (including for these purposes
        the Chairman) who has served as a director since the last annual general
        meeting
        of shareholders will be eligible to receive either (i)non-incentive stock
        options to purchase 6,000 shares of Class A Common Stock (in the case of
        the
        Chairman, Class B Common Stock if such grant is approved by the Board) or
        (ii) a
        combination of non-incentive stock options, restricted stock and restricted
        stock units whose aggregate value is equal to the value of 6,000 non-incentive
        stock options on the date of grant. Subject to that limitation on total value,
        the Compensation Committee has discretion to determine the components the
        annual
        automatic grant. For purposes of determining the value of non-incentive stock
        options to purchase 6,000 shares of Common Stock, the Compensation Committee
        shall calculate a U.S. dollar amount using the methodology that is employed
        by
        the Company for valuing options in its most recent annual financial statements.
        For purposes of determining the number of shares of any restricted stock
        or
        restricted stock units, the U.S. dollar amount allocated to such award shall
        be
        divided by the fair market value of a share of the Company’s Class A Common
        Stock on the date of grant.
 
 For
        non-employee directors, the exercise price of options will be the closing
        price
        of a share of Class A Common Stock on the date of grant (and 105% of the
        fair
        market value of a share of Class A Common Stock in the case of an option
        to
        acquire Class B Common Stock). The options will vest over a four-year period
        from the date of grant and will expire 10 years from the date of grant.
 
 The
        Company reimburses each director for expenses in connection with attending
        meetings of the Board of Directors. Members of the Audit Committee are paid
        an
        additional annual cash fee of $12,000. Members of the Compensation Committee
        receive an additional annual cash fee of $5,000. Otherwise, no separate
        compensation is paid to any director for serving on committees. Directors
        who
        are also employees of the Company receive no additional compensation for
        service
        as a director.
 
 **Employment
        Agreements, Termination of Employment and Change-in-Control Arrangements**
 
 *Michael
        Garin*
 
 Michael
        Garin, Chief Executive Officer of the Company, has an employment Agreement
        dated
        as of February 2, 2004 with a wholly-owned subsidiary of the Company. Under
        the
        employment agreement, Mr. Garin is entitled to receive an aggregate annual
        salary of US $625,000, which may be increased annually at the discretion
        of the
        Compensation Committee. Mr. Garin has the opportunity to earn an annual cash
        bonus in an amount not to exceed his annual base salary. One-half of such
        bonus
        shall be based on objective criteria and one-half shall be based on subjective
        criteria established by the Board. Pursuant to Mr. Garin’s employment agreement,
        the Company is required to name Mr. Garin to its Board of Directors and the
        Board is required to nominate Mr. Garin for election to the Board of Directors
        of the Company for so long as he remains employed by the Company.
 
 Mr.
        Garin’s employment agreement is for a term expiring on January 31, 2008. The
        Company may terminate the employment agreement at any time. Upon early
        termination of Mr. Garin’s employment agreement by the Company (other than for
        cause or on death or disability), Mr. Garin is entitled to seek any loss
        of
        compensation or loss of other entitlements that may be available as a matter
        of
        law.
 
 Mr.
        Garin
        may terminate the agreement at any time on 90 days’ notice without further
        entitlement. In the event Mr. Garin terminates his employment agreement,
        any
        options that have become exercisable as of such termination date may be
        exercised for a period of 90 days following such date.
 
 Under
        his
        employment agreement, Mr. Garin has been granted an option to purchase 160,000
        shares of Class A Common Stock at an exercise price of $19.49 per share.
        Such
        options become exercisable in four equal annual installments on January 31,
        2005, 2006, 2007 and 2008. 80,000 options of the February 2004 grant are
        currently exercisable or will become exercisable within the next 60 days.
        Such
        options expire on February 1, 2014. In June 2005, the Company awarded Mr.
        Garin
        options to acquire 30,000 shares of Class A Common Stock at an exercise price
        of
        $44.50 per share. None of the options granted in June 2005 are currently
        exercisable. Such options expire on June 1, 2015.
  *Page
            77*
 *Table
            of Contents*
 
 In
        the
        event the Company terminates Mr. Garin’s employment agreement before the end of
        its term other than for cause, all such options held by Mr. Garin shall become
        vested and shall be exercisable for a period of 90 days from the date of
        such
        early termination.
 
 *Robert
        Burke*
 
 Robert
        Burke, President and Chief Operating Officer of the Company, has an employment
        agreement dated as of July 16, 2001 with a wholly-owned subsidiary of the
        Company. Under the employment agreement, Mr. Burke is entitled to receive
        an
        aggregate annual salary of UK £180,000, which may be increased each July at the
        Company’s discretion. In addition, Mr. Burke was entitled to a monthly UK £3,500
        allowance payable until such time as the Board of Directors of the Company
        approved an initial stock option grant to Mr. Burke. However, even after
        the
        initial stock option grant, the Compensation Committee agreed to continue
        to pay
        this amount to Mr. Burke. Mr. Burke has the opportunity to earn an annual
        cash
        bonus with a target amount of 33% and a maximum amount of 66% of yearly
        compensation, based upon the performance of the Company on a combined EBITDA
        basis in relation to budgeted goals. Mr. Burke’s employment agreement also
        contains non-competition provisions applicable for a one year period following
        the termination of the agreement, prohibits Mr. Burke from using confidential
        information of the Company during the term of the employment agreement and
        thereafter, and specifies certain benefits and perquisites that Mr. Burke
        shall
        be entitled to receive. Mr. Burke’s employment agreement is for an indefinite
        term. The Company can terminate the agreement upon 12 months written notice
        or
        at any time if the Company makes a lump sum payment in lieu of the 12 months
        notice.
 
 In
        April
        2002, the Company awarded to Mr. Burke options to acquire 120,000 shares
        of the
        Class A Common Stock at an exercise price of $2.138 per share. Such options
        are
        exercisable in three equal installments on each of the first three anniversaries
        of the date of the grant. All such options are currently exercisable and
        expire
        on April 1, 2012. In May 2003, the Company awarded Mr. Burke options to acquire
        80,000 shares of Class A Common Stock of the Company at an exercise price
        of
        $10.365 per share. Such options become exercisable in three equal installments
        on each of the first three anniversaries of the date of the grant. 53,332
        of the
        options granted in May 2003 are currently exercisable or will be become
        exercisable in the next 60 days. Such options expire on May 28, 2013. In
        June
        2005, the Company awarded Mr. Burke options to acquire 15,000 shares of Class
        A
        Common Stock at an exercise price of $44.50 per share. None of the options
        granted in June 2005 are currently exercisable. Such options expire on June
        1,
        2015.
 
 *Wallace
        Macmillan*
 
 Wallace
        Macmillan, Chief Financial Officer and Vice President Finance of the Company
        has
        an employment agreement dated March 17, 2003 with a wholly-owned subsidiary
        of
        the Company. Under the employment agreement, Mr. Macmillan is entitled to
        receive an aggregate annual salary of UK ₤ 200,000, which may be increased each
        March at the Company’s discretion. Mr. Macmillan has the opportunity to earn an
        annual cash bonus with a target amount of 331⁄3% and a maximum amount of 662⁄3% of
        yearly compensation, and is based upon the performance of the Company on
        a
        combined EBITDA basis in relation to budgeted goals and also on personal
        performance goals. Mr. Macmillan’s employment agreement also contains
        non-competition provisions applicable for a one-year period following the
        termination of the agreement, prohibits Mr. Macmillan from using confidential
        information of the Company during the term of the employment agreement and
        thereafter, and specifies certain benefits and perquisites that Mr. Macmillan
        shall be entitled to receive. Mr. Macmillan’s employment agreement is for an
        indefinite term. However, the Company’s wholly-owned subsidiary may terminate
        the employment agreement upon 12 months written notice or at any time if
        the
        Company’s subsidiary makes a payment in lieu of notice. Mr. Macmillan may
        terminate his employment at any time for good reason or with 90 days notice
        for
        any reason.
  *Page
            78*
 *Table
            of Contents*
  In
        May
        2003, the Company awarded Mr. Macmillan options to acquire 20,000 shares
        of
        Class A Common Stock of the Company at an exercise price of $10.365 per share.
        Such options are exercisable in three equal installments on each of the first
        three anniversaries of the date of the grant. 13,332 of the options granted
        in
        May 2003 are currently exercisable or will become exercisable within the
        next 60
        days. All such options expire on May 21, 2013. In May 2004, the Company awarded
        Mr. Macmillan options to acquire 20,000 shares of Class A Common Stock of
        the
        Company at an exercise price of $18.93 per share. Such options become
        exercisable in three equal installments on each of the first three anniversaries
        of the date of the grant. 13,332 of the options granted in May 2004 are
        currently exercisable or will become exercisable within the next 60 days.
        Such
        options become exercisable in three equal installments on each of the first
        three anniversaries of the date of the grant. Such options expire on May
        4,
        2014. In June 2005, the Company awarded Mr. Macmillan options to acquire
        10,000
        shares of Class A Common Stock at an exercise price of $44.50 per share.
        None of
        the options granted in June 2005 are currently exercisable. Such options
        expire
        on June 1, 2015.
 
 *Marina
        Williams*
 
 Marina
        Williams, Executive Vice President of the Company, has an employment agreement
        dated November 22, 2004 with a wholly-owned subsidiary of the Company. Under
        the
        employment agreement, Ms. Williams is entitled to receive an aggregate annual
        salary of UK ₤ 200,000, which may be increased each November at the Company’s
        discretion. Ms. Williams has the opportunity to earn an annual cash bonus
        for a
        pro rata portion of 2004 and each full year thereafter with a target amount
        of
        331⁄3% and a maximum amount of 662⁄3% of yearly compensation, and is based upon the
        performance of the Company on a combined EBITDA basis in relation to budgeted
        goals and also on personal performance goals. If 85% of the budgeted goal
        is
        achieved, Ms. Williams will be eligible for a bonus of 50% of the Williams
        Target Amount. If EBITDA is 150% of budget, Ms. Williams be eligible for
        a bonus
        payment of up to 200% of the Williams Target Amount. Ms. Williams’ employment
        agreement also contains non-competition provisions applicable for a one-year
        period following the termination of the agreement that prohibits Ms. Williams
        from using confidential information of the Company during the term of the
        employment agreement and thereafter, and specifies certain benefits and
        perquisites that Ms. Williams shall be entitled to receive. Ms. Williams’
employment agreement is for a three-year period ending on November 21, 2007.
        The
        Company’s wholly-owned subsidiary may terminate the employment agreement at any
        time if the Company’s subsidiary makes a payment in lieu of notice. Ms. Williams
        may terminate her employment at any time on six months’ notice for any reason.
 
 On
        November 22, 2004, the Company awarded Ms. Williams options to acquire 20,000
        shares of Class A Common Stock of the Company at an exercise price of $32.80
        per
        share. Such options become exercisable in three equal installments on each
        of
        the first three anniversaries of the date of the grant. 6,666 of the options
        granted in November 2004 are currently exercisable or will become exercisable
        in
        the next 60 days. Such options expire on November 21, 2014. In June 2005,
        the
        Company awarded Ms. Williams options to acquire 15,000 shares of Class A
        Common
        Stock at an exercise price of $44.50 per share. None of the options granted
        in
        June 2005 are currently exercisable. Such options expire on June 1,
        2015.
   **ITEM
                  12.**
              **SECURITY
                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                  STOCKHOLDER MATTERS**
  The
        following table sets forth certain information as of March 6, 2006 with respect
        to the beneficial ownership of the Company’s Class A Common Stock and Class B
        Common Stock and also sets forth certain information with respect to voting
        power and percentage of ownership as of March 6, 2006, by (i) each shareholder
        known by the Company to beneficially own more than 5% of any class of the
        Company’s outstanding voting securities, (ii) each director of the Company,
        (iii) the Chief Executive Officer and the other named executive officers
        of the
        Company and (iv) all directors and executive officers of the Company as a
        group.
        Except as otherwise noted below, each of the shareholders identified in the
        table has sole voting and investment power over the shares beneficially owned
        by
        such person.
  *Page
            79*
 *Table
            of Contents*
 **Beneficial
                    Ownership of**
                
                **Beneficial
                    Ownership of**
                
                **Common
                    Stock****Name
                    of Beneficial Owner**
                
                **Class
                    A Common**
                  **Stock(a)**
                
                **Class
                    B Common**
                  **Stock**
                
                **%
                    of**
                  **Voting**
                
                **%**
                  **Owner-****Number**
                
                **Percent**
                
                **Number**
                
                **Percent**
                
                **Power(b)**
                
                **ship(b)**Ronald
                    S. Lauder(1)(8)
                
                --
                
                --
                
                6,031,965(24)
                
                85.02%
                
                59.13%
                
                15.81%Michael
                    N. Garin
                
                80,000(12)
                
                *
                
                --
                
                --
                
                *
                
                *Charles
                    R. Frank, Jr.
                
                --
                    (13)
                
                --
                
                --
                
                --
                
                *
                
                *Herbert
                    A. Granath
                
                20,000(14)
                
                
                
                --
                
                --Frederic
                    T. Klinkhammer(2)
                
                664(15)
                
                *
                
                --
                
                --
                
                *
                
                *Herbert
                    Kloiber(3)
                
                --
                
                --
                
                --
                
                --
                
                *
                
                *Alfred
                    W. Langer
                
                12,400(16)
                
                *
                
                --
                
                --
                
                *
                
                *Bruce
                    Maggin
                
                10,400(17)
                
                *
                
                --
                
                --
                
                *
                
                *Ann
                    Mather
                
                4,000
                    (18)
                
                --
                
                --
                
                --
                
                --
                
                --Eric
                    Zinterhofer
                
                4,000(19)
                
                --
                
                --
                
                --
                
                --
                
                --Robert
                    E. Burke
                
                148,332(20)
                
                *
                
                --
                
                --
                
                *
                
                *Wallace
                    Macmillan
                
                26,664(21)
                
                *
                
                --
                
                --
                
                *
                
                *Marina
                    Williams
                
                6,666(22)All
                    directors and executive officers as a group (12 persons)
                
                313,126(23)
                
                *
                
                6,031,965(24)
                
                85.02%
                
                59.26%
                
                16.50%--
                
                --Leonard
                    A. Lauder(4)(9)
                
                --
                
                --
                
                721,673
                
                10.36%
                
                7.16%
                
                1.90%Federated
                    Investors, Inc.(5)(10)
                
                3,002,088
                
                9.67%
                
                --
                
                --
                
                2.98%
                
                7.90%Eric
                    Semler(6)(11)
                
                2,365,497
                
                7.62%
                
                --
                
                --
                
                2.35%
                
                6.22%--
                
                --Testora
                    Ltd(7)
                
                3,500,000
                
                11.27%
                
                --
                
                --
                
                3.47%
                
                9.20%
 
 *
              Less
                  than 1.0%
  (a)
              Does
                  not include 6,966,533 shares of Class A Common Stock issuable upon
                  conversion of shares of Class B Common Stock. Shares of Class B
                  Common
                  Stock are convertible at any time into shares of Class A Common
                  Stock for
                  no additional consideration on a share-for-share
                  basis.
 (b)
              Represents
                  the percentage of total voting power and the percentage ownership
                  of the
                  Class A Common Stock and the Class B Common Stock currently beneficially
                  owned by each identified shareholder and all directors and executive
                  officers as a group. The Class A Common Stock and the Class B Common
                  Stock
                  are the only authorized classes of the Company’s capital stock with shares
                  outstanding.
 1.
                The
                    address of Ronald S. Lauder is Suite 4200, 767 Fifth Avenue,
                    New York, New
                    York 10153.
 
 2.
                Mr.
                    Klinkhammer’s term as Vice Chairman and a member of the Board of Directors
                    ended on March 22, 2005 upon the expiration of his employment
                    agreement.
 
 3.
                Herbert
                    G. Kloiber was appointed to the Board of Directors on February
                    1, 2006.
 
 4.
                Information
                    in respect of the beneficial ownership of Leonard A. Lauder (other
                    than
                    percentage ownership) is based upon a statement on Schedule 13D
                    filed by
                    him. The address of Mr. Leonard Lauder is c/o The Estée Lauder Companies
                    Inc., 767 Fifth Avenue, New York, New York
                    10153.
 
 5.
                Information
                    in respect of the beneficial ownership of Federated Investors,
                    Inc. (other
                    than percentage ownership) is based upon a statement on Schedule
                    13G filed
                    on February 14, 2005 jointly by Federated Investors, Inc., Voting
                    Shares
                    Irrevocable Trust, John F. Donahue, Rhodora J. Donahue and J.
                    Christopher
                    Donahue. The address of Federated Investors, Inc., Voting Shares
                    Irrevocable Trust, John F. Donahue, Rhodora J. Donahue and J.
                    Christopher
                    Donahue is Federated Investors Tower, Pittsburgh, Pennsylvania
                    15222-3779.
  *Page
              80*
 *Table
              of Contents*
  6.
              Information
                  in respect of the beneficial ownership of Eric Semler (other than
                  percentage ownership) is based upon a statement on Schedule 13G/A
                  filed by
                  him on January 18, 2006. The address of Mr. Semler is 888 Seventh
                  Avenue,
                  Suite 1504, New York, New York
                  10019.
 
 7.
              Information
                  in respect of the beneficial ownership of Testora Limited (other
                  than
                  percentage ownership) is based upon a statement on Schedule 13G
                  filed by
                  it on January 11, 2006 The address of Testora Limited isGrigori
                  Afxentiou, 8, El.Pa. Livadioti, Flat/Office 401, P.C. 6023, Larnaca,
                  Cyprus.
 
 8.
              57,799
                  of the shares of Class B Common Stock listed are owned directly
                  by Ronald
                  S. Lauder, 3,385,417 of the shares of Class B Common Stock are
                  owned by
                  RSL Investments Corporation, 1,672,500 of the shares of Class B
                  Common
                  Stock are owned by RSL Capital LLC and 577,788 of the shares of
                  Class B
                  Common Stock are owned by TV Holdings Ltd., all of which are owned
                  by Mr.
                  Lauder. 210,461 of the shares of Class B Common Stock are held
                  by RAJ
                  Family Partners L.P., which Mr. Lauder may be deemed to beneficially
                  own.
                  In addition, Mr. Lauder directly owns currently exercisable options
                  to
                  purchase 128,000 shares of Class B Common
                  Stock.
 
 9.
              285,239
                  of the shares of Class B Common Stock listed are owned directly
                  by Leonard
                  A. Lauder and 436,434 of the shares of Class B Common Stock are
                  held by
                  LWG Family Partners L.P., a partnership whose managing partner
                  is a
                  corporation which is one-third owned by Mr.
                  Lauder.
 
 10.
              Federated
                  Investors, Inc. (“Parent”) is the parent holding company of Federated
                  Equity Management Company of Pennsylvania and Federated Global
                  Investment
                  Management Corp. (the “Investment Advisors”), which act as investment
                  advisors to registered investment companies and separate accounts
                  that own
                  shares of common stock in Central European Media Enterprises, Ltd.
                  The
                  Investment Advisors are wholly owned subsidiaries of FII Holdings,
                  Inc.,
                  which is a wholly owned subsidiary of Parent. All of the Parent’s
                  outstanding voting stock is held in the Voting Shares Irrevocable
                  Trust
                  for which John F. Donahue, Rhodora J. Donahue and J. Christopher
                  Donahue
                  act as trustees. The trustees have collective voting control over
                  the
                  Parent and shared voting power over the shares
                  listed.
 
 11.
              Mr.
                  Semler has sole power to vote and to dispose of these shares which
                  consists of (i) 1,459,491 Shares held for the account of TCS Capital
                  Investments; (ii) 123,405 Shares held for the account of TCS Capital;
                  (iii) 780,601 Shares held for the account of TCS Capital II; and
                  (iv)
                  2,000 Shares held for the account of TCS Select. TCS Capital Management,
                  LLC, a Delaware limited liability company (“TCS Capital Management”) is
                  the investment manager of each TCS Capital International, TCS Capital
                  and
                  TCS Capital II. Mr. Semler is the investment manager of TCS Capital
                  Management.
 
 12.
              Consists
                  of 80,000 shares of Class A Common Stock underlying options which
                  are
                  currently exercisable at an exercise price of $19.49 per share
                  and which
                  expire on February 1, 2014. Does not include (i) 80,000 shares
                  of Class A
                  Common Stock underlying options with an exercise price of $19.49
                  per share
                  which are not currently exercisable and will not become exercisable
                  within
                  60 days and expire on February 1, 2014, and (ii) 30,000 shares
                  of Class A
                  Common Stock underlying options with an exercise price of $44.50
                  per share
                  which are not currently exercisable and will not become exercisable
                  within
                  60 days and expire on June 1, 2015.
 
 13.
              Does
                  not include (i) 6,400 shares of Class A Common Stock underlying
                  options
                  with an exercise price of $1.958 per share which are not currently
                  exercisable and will not become exercisable within 60 days and
                  expire on
                  May 15, 2012; (ii) 9,600 shares of Class A Common Stock underlying
                  options
                  with an exercise price of $10.897 per share which are not currently
                  exercisable and will not become exercisable within 60 days and
                  expire on
                  May 21, 2013; (iii) 12,000 shares of Class A Common Stock underlying
                  options with an exercise price of $22.11 per share which are not
                  currently
                  exercisable and will not become exercisable within 60 days and
                  expire on
                  June 1, 2014; and (iv) 6,000 shares of Class A Common Stock underlying
                  options with an exercise price of $44.50 per share which are not
                  currently
                  exercisable and will not become exercisable within 60 days and
                  expire on
                  June 1, 2015.
  *Page
            81*
 *Table
            of Contents*
  14.
              Consists
                  of (i) 9,600 shares of Class A Common Stock underlying options
                  which are
                  currently exercisable, or will become exercisable within 60 days,
                  at an
                  exercise price of $1.958 per share and which expire on May 15,
                  2012; and
                  (ii) 6,400 shares of Class A Common Stock underlying options which
                  are
                  currently exercisable, or will become exercisable within 60 days,
                  at a
                  price of $10.897 per share and which expire on May 21, 2013; and
                  (iii)
                  4,000 shares of Class A Common Stock underlying options which are
                  currently exercisable, or will become exercisable within 60 days,
                  at an
                  exercise price of $22.11 per share and which expire on June 1,
                  2014. Does
                  not include (i) 6,400 shares of Class A Common Stock underlying
                  options
                  with an exercise price of $1.958 per share are not currently exercisable
                  and will not become exercisable within 60 days and expire on May
                  15, 2012;
                  (ii) 9,600 shares of Class A Common Stock underlying options with
                  an
                  exercise price of $10.897 per share which are not currently exercisable
                  and will not become exercisable within 60 days and expire on May
                  21, 2013;
                  and (iii) 12,000 shares of Class A Common Stock underlying options
                  with an
                  exercise price of $22.11 per share which are not currently exercisable
                  and
                  will not become exercisable within 60 days and expire on June 1,
                  2014; and
                  (iv) 6,000 shares of Class A Common Stock underlying options with
                  an
                  exercise price of $44.50 per share which are not currently exercisable
                  and
                  will not become exercisable within 60 days and expire on June 1,
                  2015.
 
 15.
              Consists
                  of 664 shares of Class A Common Stock underlying options which
                  are
                  currently exercisable or will become exercisable within 60 days,
                  at an
                  exercise price of $10.365 per share and which expire on May 28,
                  2013. Does
                  not include 13,336 shares of Class A Common Stock underlying options
                  with
                  an exercise price of $10.365 per share are not currently exercisable
                  and
                  will not become exercisable within 60 days and expire on May 28,
                  2013.
 
 16.
              Consists
                  of (i) 2,000 shares of Class A Common Stock underlying options
                  which are
                  currently exercisable, or will become exercisable within 60 days,
                  at an
                  exercise price of $0.294 per share and which expire on April 18,
                  2011;
                  (ii) 3,200 shares of Class A Common Stock underlying options which
                  are
                  currently exercisable, or will become exercisable within 60 days,
                  at an
                  exercise price of $1.958 per share and which expire on May 15,
                  2012; (iii)
                  3,200 shares of Class A Common Stock underlying options which will
                  become
                  exercisable within 60 days, at an exercise price of $10.897 per
                  share and
                  which expire on May 21, 2013; and (iv) 4,000 shares of Class A
                  Common
                  Stock underlying options which are currently exercisable, or will
                  become
                  exercisable within 60 days, at an exercise price of $22.11 per
                  share and
                  which expire on June 1, 2014. Does not include (i) 2,000 shares
                  of Class A
                  Common Stock underlying options with an exercise price of $0.294
                  per share
                  which are not currently exercisable and will not become exercisable
                  within
                  60 days and expire on April 18, 2011; (ii) 6,400 shares of Class
                  A Common
                  Stock underlying options with an exercise price of $1.958 per share
                  which
                  are not currently exercisable and will not become exercisable within
                  60
                  days and expire on May 15, 2012; (iii) 9,600 shares of Class A
                  Common
                  Stock underlying options with an exercise price of $10.897 per
                  share which
                  are not currently exercisable and will not become exercisable within
                  60
                  days and expire on May 21, 2013; (iv) 12,000 shares of Class A
                  Common
                  Stock underlying options with an exercise price of $22.11 per share
                  which
                  are not currently exercisable and will not become exercisable within
                  60
                  days, and expire on June 1, 2014; and (v) 6,000 shares of Class
                  A Common
                  Stock underlying options with an exercise price of $44.50 per share
                  which
                  are not currently exercisable and will not become exercisable within
                  60
                  days and expire on June 1, 2015.
 
 17.
              Consists
                  of (i) 6,400 shares of Class A Common Stock underlying options
                  which are
                  currently exercisable, or will become exercisable within 60 days,
                  at an
                  exercise price of $10.897 per share and which expire on May 21,
                  2013; and
                  (ii) 4,000 shares of Class A Common Stock underlying options which
                  are
                  currently exercisable at, or will become exercisable within 60
                  days, an
                  exercise price of $22.11 per share and which expire on June 1,
                  2014. Does
                  not include (i) 9,600 shares of Class A Common Stock underlying
                  options
                  with an exercise price of $10.897 per share which are not currently
                  exercisable and will not become exercisable within 60 days and
                  expire on
                  May 21, 2013; (ii) 12,000 shares of Class A Common Stock underlying
                  options with an exercise price of $22.11 per share which are not
                  currently
                  exercisable and will not become exercisable within 60 days and
                  expire on
                  June 1, 2014; and (iii) 6,000 shares of Class A Common Stock underlying
                  options with an exercise price of $44.50 which are not currently
                  exercisable and will not become exercisable within 60 days and
                  expire on
                  June 1, 2015.
  *Page
            82*
 *Table
            of Contents*
  18.
              Consists
                  of 4,000 shares of Class A Common Stock underlying options which
                  are
                  currently exercisable, or will become exercisable within 60 days,
                  at a
                  price of $22.11 per share and which expire on June 1, 2014. Does
                  not
                  include (i) 12,000 shares of Class A Common Stock underlying options
                  with
                  an exercise price of $22.11 per share which are not currently exercisable
                  and will not become exercisable within 60 and expire on June 1,
                  2014; and
                  (ii) 6,000 shares of Class A Common Stock underlying options with
                  an
                  exercise price of $44.50 per share which are not currently exercisable
                  and
                  will not become exercisable within 60 days and expire on June 1,
                  2015.
 
 19.
              Consists
                  of 4,000 shares of Class A Common Stock underlying options which
                  are
                  currently exercisable, or will be exercisable within 60 days, at
                  a price
                  of $22.11 per share and which expire on June 1, 2014. Does not
                  include (i)
                  12,000 shares of Class A Common Stock underlying options with an
                  exercise
                  price of $22.11 per share which are not currently exercisable and
                  will not
                  become exercisable within 60 days and expire on June 1, 2014; and
                  (ii)
                  6,000 shares of Class A Common Stock underlying options with an
                  exercise
                  price of $44.50 per share which are not currently exercisable and
                  will not
                  become exercisable within 60 days and expire on June 1,
                  2015.
 
 20.
              Consists
                  of (i) 95,000 shares of Class A Common Stock underlying options
                  which are
                  currently exercisable at an exercise price of $2.1375 per share
                  and which
                  expire on April 1, 2012; and (ii) 53,332 shares of Class A Common
                  Stock
                  underlying options which are currently exercisable, or will become
                  exercisable within 60 days, at an exercise price of $10.365 per
                  share and
                  which expire on May 28, 2013. Does not include (i) 26,668 shares
                  of Class
                  A Common Stock underlying options with an exercise price of $10.365
                  per
                  share which are not currently exercisable and will not become exercisable
                  within 60 days and expire on May 28, 2013; and (ii) 15,000 shares
                  of Class
                  A Common Stock underlying options with an exercise price of $44.50
                  per
                  share which are not currently exercisable and will not become exercisable
                  within 60 days and expire on June 1, 2015.
 
 21.
              Consists
                  of (i) 13,332 shares of Class A Common Stock underlying options
                  which are
                  currently exercisable, or will become exercisable within 60 days,
                  at an
                  exercise price of $10.365 per share and which expire on May 21,
                  2013; and
                  (ii) 13,332 shares of Class A Common Stock underlying options which
                  are
                  currently exercisable, or will become exercisable within 60 days,
                  at an
                  exercise price of $18.93 per share and which expire on May 4, 2014.
                  Does
                  not include (i) 6,668 shares of Class A Common Stock underlying
                  options
                  with an exercise price of $10.365 per share which are not currently
                  exercisable and will not become exercisable within 60 days and
                  expire on
                  May 21, 2013; (ii) 6,668 shares of Class A Common Stock underlying
                  options
                  with an exercise price of $18.93 per share which are not currently
                  exercisable and will not become exercisable within 60 days and
                  expire on
                  May 4, 2014; and (ii) 10,000 shares of Class A Common Stock underlying
                  options with an exercise price of $44.50 per share which are not
                  currently
                  exercisable and will not become exercisable within 60 days and
                  which
                  expire on June 1, 2015.
 
 22.
              Consists
                  of 6,666 shares of Class A Common Stock underlying options which
                  are
                  currently exercisable, or will become exercisable within 60 days,
                  at an
                  exercise price of $32.80 per share and which expire on November
                  21, 2014.
                  Does not include (i) 13,334 shares of Class A Common Stock underlying
                  options with an exercise price of $32.80 per share which are not
                  currently
                  exercisable and will not become exercisable within 60 days and
                  expire on
                  November 21, 2014; and (ii) 15,000 shares of Class A Common Stock
                  underlying options with an exercise price of $44.50 per share and
                  which
                  are not currently execisable and will not become exercisable within
                  60
                  days and expire on June 1, 2015.
 
 23.
              Consists
                  of 313,126 shares of Class A Common Stock underlying options which
                  are
                  currently exercisable or will become exercisable within 60 days.
                  Does not
                  include 399,074 shares of Class A Common Stock underlying options
                  which
                  are not currently exercisable and will not become exercisable within
                  60
                  days.
  *Page
            83*
 *Table
            of Contents*
  24.
              Includes
                  (i) 100,000 shares of Class B Common Stock underlying options which
                  are
                  currently exercisable at an exercise price of $23.925 per share
                  and which
                  expire on August 1, 2007; (ii) 8,000 shares of Class B Common Stock
                  underlying options which are currently exercisable, or will become
                  exercisable within 60 days, at a price of $0.2625 per share and
                  which
                  expire on May 18, 2011; (iii) 9,600 shares of Class B Common Stock
                  underlying options which are currently exercisable, or will become
                  exercisable within 60 days, at a price of $2.0558 per share and
                  which
                  expire on May 15, 2012; (iv) 6,400 shares of Class B Common Stock
                  underlying options which are currently exercisable, or will become
                  exercisable within 60 days, at a price of $11.44 per share and
                  which
                  expire on May 21, 2013; and (v) 4,000 shares of Class B Common
                  Stock
                  underlying options which are currently exercisable, or will become
                  exercisable within 60 days, at an exercise price of $23.22 per
                  share and
                  which expire on June 1, 2014. Does not include (i) 2,000 shares
                  of Class B
                  Common Stock underlying options with an exercise price of $0.2625
                  per
                  share which are not currently exercisable and will not become exercisable
                  within 60 days and expire on May 18, 2011; (ii) 6,400 shares of
                  Class B
                  Common Stock underlying options with an exercise price of $2.0558
                  per
                  share which are not currently exercisable and will not become exercisable
                  within 60 days, and expire on May 15, 2012; and (iii) 9,600 shares
                  of
                  Class B Common Stock underlying options with an exercise price
                  of $11.44
                  per share which are not currently exercisable and will not become
                  exercisable within 60 days, and expire on May 21, 2013; (iv) 12,000
                  shares
                  of Class B Common Stock underlying options with an exercise price
                  of
                  $23.22 per share which are not currently exercisable and will not
                  become
                  exercisable within 60 days, and expire on June 1, 2014;and (v)
                  6,000
                  shares of Class B Common Stock underlying options with an exercise
                  price
                  of $46.725 which are not currently exercisable and will not become
                  exercisable within 60 days and expire on June 1,
                  2015.
 
 
 **Equity
        Compensation Plan Information**
 
 The
        following table provides information as of December 31, 2005, about Common
        Stock
        that may be issued upon the exercise of options, warrants and rights under
        all
        of our existing equity compensation plans.
 
 Equity
                  Compensation Plan Information(a)
              
              (b)
              
              (c)Plan
                  Category
              
              Number
                  of Securities
                to
                  be issued upon
                exercise
                  of
                outstanding
                  options,
                warrants
                  and rights
              
              Weighted
                  average
                exercise
                  price of
                outstanding
                  options,
                warrants
                  and rights
              
              Number
                  of securities
                remaining
                  available for
                future
                  issuance under
                equity
                  compensation
                plans
                  (excluding securities
                reflected
                  in column (a))Equity
                  compensation plans approved by security holders
              
              
              1,118,275(1)
              
              
              $22.23
              
              
              1,392,088(2)Equity
                  compensation plans not approved by security holders
              
              
              0(3)
              
              
              --
              
              
              1,000,000Total
              
              
              1,118,275
              
              
              $22.23
 
 (1)
              This
                  number consists of options outstanding at December 31, 2005 under
                  the
                  Company’s 1994 Stock Option Plan and under the Amended and Restated 1995
                  Stock Incentive Plan.
 (2)
              This
                  number includes the aggregate number of shares of Common Stock
                  that
                  remains available for future issuance, at December 31, 2005 under
                  the
                  Company’s shareholder approved equity compensation plans, consisting of
                  1,392,088 shares available under the Amended and Restated 1995
                  Stock
                  Incentive Plan. The term of the 1994 Stock Option Plan expired
                  on July 11,
                  2004. Any option outstanding under the 1994 Stock Option Plan at
                  the time
                  of the termination of the Plan will remain outstanding until such
                  option
                  has been exercised or has expired in accordance with its
                  terms.
 (3)
              The
                  Company’s 1998 Stock Appreciation Rights Plan (the “SAR Plan”) allows the
                  Company to grant up to 1,000,000 SARs. The SARs are subject to
                  substantially the same general conditions as apply to options granted
                  under the Amended and Restated 1995 Stock Incentive Plan. When
                  SARs are
                  exercised, the grantee will receive in cash the amount by which
                  the
                  Company’s stock price exceeds a base price fixed by the Compensation
                  Committee at the time of grant. There were no SARs outstanding
                  at December
                  31, 2005.
 
 
 **ITEM
                  13.**
              **CERTAIN
                  RELATIONSHIPS AND RELATED TRANSACTIONS**
 
 **NONE**
  *Page
            84*
 *Table
            of Contents*
  **ITEM
                  14.**
              **PRINCIPAL
                  ACCOUNTANT FEES AND SERVICES**
  Deloitte
        & Touche LLP is the Company’s independent registered public accounting firm.
  **Audit
        Fees**
  Deloitte
        & Touche LLP’s audit fees for auditing the Company’s annual consolidated
        financial statements for the and reviewing the Company’s interim financial
        statements included in the Company’s Forms 10-Q for the year ended December 31,
        2005 were $2,077,000 (2004 : $2,005,000).
  **Audit
        Related Fees**
  Deloitte
        & Touche LLP’s audit-related fees for the year ended December 31, 2005 were
        $1,161,000 (2004 : $847,000). Audit-related fees in 2005 were incurred in
        respect of services provided in connection with our debt and equity offerings.
        Audit-related fees in 2004 were incurred in respect of services relating
        to the
        purchase of an additional 14% interest in our operations in Romania, a Section
        404 “dummy” attestation, general advice regarding compliance with recently
        enacted regulatory and accounting rules in the United States and work related
        to
        business development projects.
  **Tax
        Fees**
  Deloitte
        & Touche LLP’s tax fees for the year ended December 31, 2005 were $156,000
        (2004 : $425,000). Tax fees in 2005 were incurred for advice provided in
        respect
        of restructuring related to our operations in Ukraine. Tax fees in 2004 were
        incurred for advice provided in respect of general tax advice and tax compliance
        matters, including advice in respect of tax compliance in the Netherlands
        and
        restructuring related to operations in Ukraine.
  **All
        other Fees**
  There
        were no other fees paid to Deloitte & Touche LLP for the year ended December
        31, 2004 or the year ended December 31, 2005.
  The
        Audit
        Committee of the Board of Directors has considered whether the provision
        of the
        services in respect of Audit-related Fees, Tax Fees and All Other Fees is
        compatible with maintaining Deloitte & Touche LLP’s independence prior to
        the incurrence of such Fees in accordance with the Charter of the Audit
        Committee. All engagements of the auditors are approved in advance by the
        Audit
        Committee. At the beginning of the fiscal year, management presents for approval
        by the Audit Committee a range of services to be provided by the auditors
        and
        estimated fees for such services for the current year. Any services to be
        provided by the auditors that are not included within such range of services
        are
        approved on a case-by-case basis by the Audit Committee. Management provides
        reports to the Audit Committee on at least a quarterly basis on the status
        of
        the services provided and the level of fees incurred in respect of each service.
        The Company did not approve the incurrence of any fees pursuant to the
        exceptions to the pre-approval requirements set forth in 17 CFR
        210.2-01(c)(7)(i)(C).
  *Page
              85*
 *Table
              of Contents*
 
 **EXHIBIT
        INDEX**
 
 **Exhibit**
                **Number**
              
              **Description**23.01
              
              Consent
                of Deloitte & Touche LLP23.02
              
              Consent
                of Deloitte Audit s.r.o.31.01
              
              Sarbanes-Oxley
                  Certification s.302 CEO, dated March 15, 200631.02
              
              Sarbanes-Oxley
                  Certification s.302 CFO, dated March 15, 200632.01
              
              Sarbanes-Oxley
                  Certification - CEO and CFO, dated March 15, 2006 (furnished
                  only)
 
 
 
 **SIGNATURES**
 
 Pursuant
        to the requirements of Section 13 or 15(d) of the Securities Exchange Act
        of
        1934, the Registrant has duly caused this report to be signed on its behalf
        by
        the undersigned, thereunto duly authorized.
 
 Central
                  European Media Enterprises Ltd.By:
                  /s/ Wallace MacmillanWallace
                  MacmillanVice
                  President - Finance(Principal
                  Financial Officer and Accounting Officer)March
                  15, 2006
   Page
        86