**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
 
 **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, 2006**
 
 ** ̈**  **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 ** ̈**
 
 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 ** ̈**
 
 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 filer**x**
              Accelerated
                  filer** ̈**
              Non-accelerated
                  filer** ̈**
 
 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, 2006 (based on the closing sale price of US$ 63.19
        of
        the registrant's Common Stock, as reported by the Nasdaq Exchange on such
        date)
        was approximately US$ 2.2 billion.
 
 Number
        of
        shares of Class A Common Stock outstanding as of February 20, 2007 :
        34,412,138
 Number
        of
        shares of Class B Common Stock outstanding as of February 20, 2007 :
        6,312,839
 
 **DOCUMENTS
        INCORPORATED BY REFERENCE**
 
 **Document**
              **Location
                  in Form 10-K in Which Document is Incorporated**Registrant's
                  Proxy Statement for the Annual General Meeting of Shareholders
                  to be held
                  on June 5, 2007
              Part
                  III
  
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              1*
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          PAGE
          INTENTIONALLY LEFT BLANK
    *Page
            2*
  **TABLE
        OF CONTENTS**
 
 Page**PART
                  I**Item
                  1
              Business
              4Item
                  1A
              Risk
                  Factors
              30Item
                  1B
              Unresolved
                  Staff Comments
              37Item
                  2
              Properties
              38Item
                  3
              Legal
                  Proceedings
              39Item
                  4
              Submission
                  of Matters to a Vote of Security
                  Holders
              42**PART
                  II**Item
                  5
              Market
                  for Registrant's Common Equity, Related Stockholder
                  Matters and Issuer Purchases of Equity Securities
              43Item
                  6
              Selected
                  Financial Data
              44Item
                  7
              Management's
                  Discussion and Analysis of Financial Condition
                  and Results of Operations
              48Item
                  7A
              Quantitative
                  and Qualitative Disclosures About Market
                  Risk
              95Item
                  8
              Financial
                  Statements and Supplementary
                  Data
              97Item
                  9
              Changes
                  in and Disagreements with Accountants on
                  Accounting and Financial Disclosure
              174Item
                  9A
              Controls
                  and Procedures
              174Item
                  9B
              Other
                  Information
              175**PART
                  III**Item
                  10
              Directors,
                  Executive Officers and Corporate
                  Governance
              176Item
                  11
              Executive
                  Compensation
              176Item
                  12
              Security
                  Ownership of Certain Beneficial Owners and
                  Management and Related Stockholder Matters
              176Item
                  13
              Certain
                  Relationships and Related Transactions, and
                  Director Independence
              176Item
                  14
              Principal
                  Accountant Fees and
                  Services
              176**PART
                  IV**Item
                  15
              Exhibits
                  and Financial Statement
                  Schedules
              177**SIGNATURES**
              182
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              3*
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              of Contents*
  
 **PART
        I**
 
 **ITEM
        1. BUSINESS**
  ***Forward-looking
        Statements***
 
 *This
        report contains forward-looking statements, including the impact of legal
        proceedings in Croatia and Ukraine, the results of additional investment
        in
        Croatia and Ukraine, the implementation of an advertising sales strategy
        in the
        Czech Republic and cost reductions in the Czech and Slovak Republics, our
        ability to develop and implement multi-channel strategies generally, the
        growth
        of television advertising in our markets, the future economic conditions
        in our
        markets, future investments in television broadcast operations, the growth
        potential of advertising spending in our markets, and other business strategies
        and commitments. For these statements and all other forward-looking statements,
        we claim the protection of the safe harbor for forward-looking statements
        contained in the Private Securities Litigation Reform Act of 1995.
        Forward-looking statements are inherently subject to risks and uncertainties,
        many of which cannot be predicted with accuracy or are otherwise beyond our
        control and some of which might not even be anticipated. Future events and
        actual results, affecting our strategic plan as well as our financial position,
        results of operations and cash flows, could differ materially from those
        described in or contemplated by the forward-looking statements. Important
        factors that contribute to such risks include, but are not limited to, the
        general regulatory environments where we operate and application of relevant
        laws and regulations, the renewals of broadcasting licenses, our ability
        to
        implement strategies regarding sales and multi-channel distribution, the
        rate of
        development of advertising markets in countries where we operate, our ability
        to
        acquire necessary programming and the ability to attract audiences, our ability
        to obtain additional frequencies and licenses, and general market and economic
        conditions in these countries as well as in the United States and Western
        Europe.*
  **GENERAL**
 
 Central
        European Media Enterprises Ltd. is a Bermuda company that, together with
        its
        subsidiaries and affiliates, invests in, develops and operates national
        commercial television channels and stations in Central and Eastern Europe.
        At
        present, we have operations in Croatia, the Czech Republic, Romania, the
        Slovak
        Republic, Slovenia and Ukraine.
 
 Our
        registered offices are located at Clarendon House, Church Street, Hamilton
        HM CX
        Bermuda, and our telephone number is 441-296-1431. Communications can also
        be
        sent c/o CME Development Corporation at Aldwych House, 81 Aldwych, London
        WC2B
        4HN, United Kingdom, telephone number +44-20-7430-5430.
 
 We
        make
        available, free of charge, on our website at http://www.cetv-net.com our
        annual
        reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
        Form
        8-K and amendments to those reports as soon as reasonably practicable after
        we
        electronically file such material with, or furnish it to, the Securities
        and
        Exchange Commission. The
        public may read and copy any materials the Company files with the SEC at the
        SEC's Public Reference Room at 100F Street, NE, Washington, DC 20549.
        Information on the operation of the Public Reference Room may be obtained
        by
        calling the SEC at 1-800-SEC-0330.
  Unless
        otherwise noted, all statistical and financial information presented in this
        report has been converted into US dollars using appropriate exchange rates.
        All
        references to “US$” or “dollars” are to US dollars, all references to “HRK” are
        to Croatian kuna, all references to “CZK” are to Czech korunas, all references
        to “RON” are to the New Romanian lei, all references to “SKK” are to Slovak
        korunas, all references to “SIT” are to Slovenian tolars, all references to
“UAH” are to Ukrainian hryvna, all references to “Euro” are to the European
        Union Euro and all references to “GBP” are to British pounds. The exchange rates
        as of December 31, 2006 used in this report are 5.58 HRK/US$; 20.88 CZK/US$;
        2.57 RON/US$; 26.25 SKK/US$; 181.93 SIT/US$; 5.05 UAH/US$; 0.76 Euro/US$
        and
        0.51 GBP/US$.


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**CORPORATE
      STRUCTURE**





Central
      European Media Enterprises Ltd. was incorporated on June 15, 1994 under the
      laws
      of Bermuda. Our assets are held through a series of Dutch and Netherlands
      Antilles holding companies. In each market in which we operate, we have
      ownership interests in license companies and operating companies. Operations
      are
      conducted either by the license companies themselves or by separate operating
      companies. License companies have been authorized by the relevant local
      regulatory authority to engage in television broadcasting in accordance with
      the
      terms of a particular license. We generate revenues primarily through acquiring
      programming for broadcast by the corresponding license company and entering
      into
      agreements with advertisers and advertising agencies on behalf of the license
      company. In Croatia, the Czech Republic, Romania and Ukraine, the license
      company also acts as an operating company; and since January 1, 2007, our
      license company in the Slovak Republic also acts as an operating company. As
      depicted in the table below, our share of profits in our license and operating
      companies corresponds with our voting interest other than in the Slovak Republic
      and Ukraine, where we are entitled by contract to a share of profits in those
      operations that does not correspond to our voting interest. Below is an overview
      of our operating structure at December 31, 2006, the type of affiliate and
      a
      chart entitled “Simplified Corporate Structure - Continuing
      Operations”.




**Company
                Name**
            **Effective
                Voting Interest**
            **Share
                of Profits**
            **Type
                of Affiliate**
            **TV
                Channels*****Croatia***License
                Company:Nova
                TV d.d. (“Nova TV (Croatia)”)
            100.0%
            100.0%
            Consolidated
                Subsidiary
            NOVA
                TV (Croatia)***Czech
                Republic***License
                Companies:CET
                21 spol s.r.o. (“CET 21”)
            100.0%
            100.0%
            Consolidated
                Subsidiary
            TV
                NOVA
              (Czech
                Republic)Galaxie
                Sport s.r.o. (“Galaxie Sport”)
            100.0%
            100.0%
            Consolidated
                Subsidiary
            GALAXIE
                SPORT***Romania***Operating
                Companies:Media
                Pro International S.A. (“MPI”)
            90.0%
            90.0%
            Consolidated
                SubsidiaryMedia
                Vision S.R.L. (“Media Vision”)
            75.0%
            75.0%
            Consolidated
                SubsidiaryLicense
                Company:Pro
                TV S.A. (“Pro TV”)
            90.0%
            90.0%
            Consolidated
                Subsidiary
            PRO
                TV, ACASA, PRO CINEMA and PRO TV INTERNATIONAL***Slovak
                Republic***Operating
                Company:Slovenska
                televizna spolocnost s r.o. (“STS”)
            89.8%
            80.0%
            Consolidated
                SubsidiaryLicense
                Company:MARKIZA-SLOVAKIAs.r.o. (“Markiza”)
            80.0%
            0.1%
            Consolidated
                Subsidiary
            MARKIZA
                TV




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Company
              Name
            Effective
                Voting Interest
            Share
                of Profits
            Type
                of Affiliate
            TV
                Channels***Slovenia***Operating
                Company:Produkcija
                Plus d.o.o. (“Pro Plus”)
            100.0%
            100.0%
            Consolidated
                SubsidiaryLicense
                Companies:Pop
                TV d.o.o. (“Pop TV”)
            100.0%
            100.0%
            Consolidated
                Subsidiary
            POP
                TVKanal
                A d.o.o. (“Kanal A”)
            100.0%
            100.0%
            Consolidated
                Subsidiary
            KANAL
                A***Ukraine***Operating
                Companies:Innova
                Film GmbH (“Innova”)
            60.0%
            60.0%
            Consolidated
                SubsidiaryInternational
                Media Services Ltd. (“IMS”)
            60.0%
            60.0%
            Consolidated
                SubsidiaryForeign
                Enterprise “Inter-Media” (“Inter-Media”)
            60.0%
            60.0%
            Consolidated
                SubsidiaryLicense
                Company:Studio
                1+1 LLC (“Studio 1+1”)
            18.0%
            60.0%
            Consolidated
                Variable Interest Entity
            STUDIO
                1+1Gravis
                LLC (“Gravis”)
            60.4%
            60.4%
            Consolidated
                Subsidiary
            KINO
                and CITI


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*Page
          7*
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          of Contents*





**OPERATING
      ENVIRONMENT**





***Market
      and Audience Share***





Our
      television channels reach an aggregate of approximately 82 million people in
      six
      countries with a combined population of approximately 90 million people. TV
      NOVA
      in the Czech Republic was ranked first in terms of national all day audience
      share in 2006, as were MARKIZA TV in the Slovak Republic and POP TV, our primary
      channel in Slovenia. PRO TV in Romania and STUDIO 1+1 in Ukraine were ranked
      second in terms of national all day audience share for 2006 in competitive
      markets. In Croatia, NOVA TV was ranked fourth in terms of national all day
      audience share in 2006.





The
      rankings of our channels in the markets in which they broadcast are reflected
      below.





**Country**
            **TV
                Channels**
            **Launch
                Date**
            **Technical
                Reach****(1)**
            **2006
                Audience Share****(2)**
            **Market
                Rank****(2)**Croatia
            NOVA
                TV (Croatia)
            August
                2000 (3)
            90%
            15%
            4Czech
                Republic
            TV
                NOVA (Czech Rep)
            February
                1994 (4)
            100%
            42%
            1GALAXIE
                SPORT
            April
                2002 (5)
            35%
                (6)
            Not
                Measured
            Not
                MeasuredRomania
            PRO
                TV
            December
                1995
            82%
            16%
            2ACASA
            February
                1998
            73%
            8%
            4PRO
                CINEMA
            April
                2004
            53%
            1%
            16Slovak
                Republic
            MARKIZA
                TV
            August
                1996
            86%
            34%
            1Slovenia
            POP
                TV
            December
                1995
            93%
            29%
            1KANAL
                A
            October
                1991(7)
            90%
            9%
            3Ukraine
            STUDIO
                1+1
            January
                1997
            95%
            18%
            2KINO
            July
                2006
            41.3%
            0.2%
            23CITI
            December
                2006
            11.7%
            0.1%
            32





(1)
            “Technical
                Reach” is a measurement of the percentage of a country’s population that
                is able to receive the signals of the indicated channels. Source:
                Internal
                estimates supplied by each country's operations. Each of our stations
                in
                the relevant country has estimated its own technical reach based
                on the
                location, power and frequency of each of its transmitters and the
                local
                population density and geography around that transmitter. The technical
                reach calculation is separate from the independent third party measurement
                that determines audience share.




(2)
                National
                    all day audience share and rank. Source: Croatia: Peoplemeters
                    AGB Media
                    Services, Czech Republic: ATO - Mediaresearch / GFK, Romania:
                    Peoplemeters
                    Taylor Nelson Sofres, Slovak Republic: PMT / TNS SK, Slovenia:
                    Peoplemeters AGB Media Services, Ukraine: Peoplemeters GFK USM.
                    There are
                    four stations ranked in Croatia, four in the Czech Republic,
                    twenty eight
                    in Romania, six in the Slovak Republic, four in Slovenia, and
                    six
                    significant stations ranked in
                    Ukraine.


(3)
            We
                acquired NOVA TV (Croatia) in July
                2004.




(4)
            We
                acquired TV NOVA (Czech Republic) in May
                2005.




(5)
            We
                acquired GALAXIE SPORT in September
                2005.




(6)
            35%
                technical reach in the Czech Republic. In addition, GALAXIE SPORT
                has a
                technical reach of 48% in the Slovak
                Republic.




(7)
            We
                acquired KANAL A in October 2000.





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The
      following table shows the population, technical reach of our primary channel,
      number of television households, per capita GDP and cable penetration for those
      countries of Central and Eastern Europe where we conduct broadcast
      operations.





**Country**
            **Population**
              **(in
                millions)**
              **(1)**
            **Technical
                Reach**
              **(in
                millions)**
              **(2)**
            **Television
                Households**
              **(in
                millions)**
              **(3)**
            **Per
                Capita GDP 2006 US$**
              **(4)**
            **Cable
                Penetration**
              **(3)**Croatia
            4.4
            4.0
            1.4
            $   
                  9,318
            16%Czech
                Republic
            10.2
            10.2
            3.9
            $   
                13,971
            26%Romania
            20.9
            17.1
            6.9
            $     
                5,458
            61%Slovak
                Republic
            5.4
            4.6
            1.6
            $   
                10,231
            39%Slovenia
            2.0
            1.9
            0.7
            $   
                18,342
            61%Ukraine
            46.7
            44.4
            18.5
            $     
                2,027
            19%**Total**
            **89.6**
            **82.2**
            **33.0**




(1)
            Source:
                National Statistical Office in each
                Country.




(2)
            Source:
                Internal estimates supplied by each country's operations. Each of
                our
                operations has estimated its own technical reach based on the location,
                power and frequency of each of its transmitters and the local population
                density and geography around that transmitter. The technical reach
                is
                separate from the independent third party measurement that determines
                audience shares.




(3)
            Source:
                Informa Telecoms and Media (August 2006 data), ZenithOptimedia. A
                Television Household is a residential dwelling with one or more television
                sets. Cable Penetration refers to the percentage of Television Households
                that subscribe to television services via cable
                channels.




(4)
            Source:
                ING (November 2006 data).




***Regulation***





In
      this
      report, we refer to broadcasting regulatory authorities or agencies in our
      operating countries as “The Media Council”. These authorities or bodies are as
      follows:





Croatia
      -
      Electronic Media Council


Czech
      Republic - The Council for Radio and Television Broadcasting


Romania
      -
      National Audio-Visual Council


Slovak
      Republic - Council of the Slovak Republic for Broadcasting and Television
      Transmission


Slovenia
      - Post and Electronic Communications Agency of the Republic of
      Slovenia


Ukraine
      -
      National Council for Television and Radio Broadcasting





Media
      Councils generally supervise broadcasters and their compliance with national
      broadcasting legislation. On accession to the European Union (the “EU”) of any
      Central or Eastern European country in which we operate, our broadcast
      operations in such country become subject to EU legislation, including
      regulations on the origin of programming content. The Czech Republic, Slovenia
      and the Slovak Republic acceded to the EU on May 1, 2004. Romania acceded to
      the
      EU on January 1, 2007.





The
      EU
      Television Without Frontiers directive (the “EU Directive”) sets out the legal
      framework for television broadcasting in the EU, which among other things,
      requires broadcasters, where “practicable and by appropriate means,” to reserve
      a majority of their broadcast time for “European works.” Such works are defined
      as originating from an EU member state or a signatory to the Council of Europe's
      Convention on Transfrontier Television, as well as written and produced mainly
      by residents of the EU or Council of Europe member states. In addition, the
      EU
      Directive requires that at least 10% of either broadcast time or programming
      budget is dedicated to programs made by European producers who are independent
      of broadcasters. News, sports, games, advertising, teletext services and
      teleshopping are excluded from the calculation of these quotas. Further, the
      EU
      Directive provides for regulations on advertising, including limits on the
      amount of time that may be devoted to advertising, including direct sales
      advertising. The adoption by Croatia, which is currently in EU accession
      negotiations, and by Romania of media legislation for privately owned
      broadcasters that is substantially in compliance with the EU Directive has
      had
      no material adverse effect on our operations.





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*License
      Renewal*





Regulatory
      bodies in each country in which we operate control access to the available
      frequencies through licensing regimes. Management believes that the licenses
      for
      our television 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 license
      may be renewed if the licensee has operated substantially in compliance with
      the
      relevant licensing regime. To date, all expiring licenses have been renewed;
      however, there can be no assurance that licenses will continue to 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.





The
      licenses to operate our terrestrial broadcast operations are effective for
      the
      following periods:





**Croatia**
            The
                license of NOVA TV (Croatia) expires in April 2010.**Czech
                Republic**
            The
                license of TV NOVA (Czech Republic) expires in January 2017. The
                GALAXIE
                SPORT license expires in March 2014.**Romania**
            Licenses
                expire on dates ranging from March 2007 to January
                2016.**Slovak
                Republic**
            The
                license of MARKIZA TV in the Slovak Republic expires in September
                2019.**Slovenia**
            The
                licenses of POP TV and KANAL A expire in August 2012.**Ukraine**
            The
                15-hour prime time and off prime time license of STUDIO 1+1 expires
                in
                December 2016. The license to broadcast for the remaining nine hours
                in
                off prime expires in August 2014. Licenses held by Ukrpromtorg expire
                on
                dates ranging from November 2008 to July
                2016.








**OPERATIONS
      BY COUNTRY**





**CROATIA**





**General**





Croatia
      is a parliamentary democracy with a population of approximately 4.4 million
      people. Per capita GDP is estimated to be US$ 9,318 in 2006 with a GDP growth
      rate of 4.8% for 2006. Technical coverage of Croatia is approximately 90%,
      and
      cable penetration is approximately 16%. According to our estimates, in local
      currency the Croatian television advertising market grew by approximately 2
      - 5%
      in 2006 and was worth approximately US$ 120 - 130 million.





In
      Croatia, we operate one national television channel NOVA TV (Croatia). The
      two
      other national broadcasters are the public broadcaster HRT, which operates
      two
      channels, and privately owned broadcaster RTL.





**Operating
      and License Companies**





We
      own
      100% of Nova TV (Croatia), which holds a national terrestrial broadcast license
      for Croatia and is responsible for our broadcasting operations in
      Croatia.





*Page
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            of Contents*





**Operations**





*NOVA
      TV (CROATIA)*





Independent
      research shows that among the main television stations in Croatia, the NOVA
      TV
      (Croatia) channel had a national all day audience share of 15.3% and a national
      prime time audience share of 17.1% for 2006.





The
      chart
      below summarizes the national all day and prime time audience share figures
      for
      NOVA TV (Croatia):





**2002**
            **2003**
            **2004**
            **2005**
            **2006**All
                day
            15.3%
            15.6%
            12.0%
            13.6%
            15.3%Prime
                time
            -
            12.7%
            10.9%
            13.3%
            17.1%Source
                : 2006, 2005, 2004 and 2003 - AGB Media ServicesSource
                : 2002 - CATI - phone recall researchNo
                independent data is available for 2002 prime
                time.





**Programming**





NOVA
      TV
      (Croatia) broadcasts approximately 21 hours per day. Its programming strategy
      is
      to appeal to a commercial audience (target group 18-49) and to a broader 15+
      audience as well through a wide range of programming. Last year NOVA TV’s
      programming focus was local production, but it broadcasts other types of
      programming, such as movies, series, sitcoms, news, soap operas and
      sports.





Approximately
      29% of NOVA TV’s (Croatia) programming is locally produced, including a Croatian
      version of Nasa Mala Klinika (Our Little Clinic), a sitcom originally produced
      by Pro Plus in Slovenia; Nad lipom 35, a music entertainment show; and
      Kviskoteka, a Croatian quiz show.




NOVA
      TV
      (Croatia) has secured exclusive broadcast rights in Croatia to a variety of
      popular American and European series, films and soap operas produced by major
      international studios, including MGM, Paramount Pictures and Walt Disney
      Television International for the NOVA TV (Croatia) channel. All foreign language
      programming is subtitled. Foreign news reports and film footage licensed from
      Reuters, APTN and SNTV are integrated into news programs on the NOVA TV
      (Croatia) channel.





The
      NOVA
      TV (Croatia) channel is required to comply with several restrictions on
      programming, including regulations on the origin of programming. These include
      the requirement that 20% of broadcast time consists of locally produced
      programming and 60% of such locally produced programming be shown during prime
      time (between 6:00pm and 10:00 p.m.).





**Advertising**





Our
      Croatia operations derive revenues principally from the sale of commercial
      advertising time on the NOVA TV (Croatia) channel, sold both through independent
      agencies and media buying groups. The NOVA TV (Croatia) channel currently serves
      approximately 260 advertisers, including multinational companies such as Johnson
      & Johnson, L’Oreal, Procter & Gamble, Vipnet and Reckitt Benckiser. Our
      top ten advertising clients contributed approximately 39% to our total
      advertising revenues in Croatia in 2006.




Within
      the Croatian advertising market, television advertising accounts for
      approximately 50% of total advertising spending. NOVA TV (Croatia) competes
      for
      advertising revenues with other media such as print, radio, outdoor advertising
      and direct mail.




*Page
          11*
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Privately
      owned broadcasters are permitted to broadcast advertising for up to 12 minutes
      per hour but not more than 15% of their daily broadcast time, with an additional
      5% of daily broadcast time that may be used for direct sales advertising. The
      public broadcaster, which is also financed through a compulsory television
      license fee, is restricted to broadcasting 9 minutes of advertising per hour.
      The public broadcaster is not permitted to broadcast spots for teleshopping.
      There are restrictions on the frequency of advertising breaks, which are
      different for public and privately owned broadcasters. There are also
      restrictions that relate to advertising content, including a ban on tobacco
      and
      alcohol advertising. Those are similar for public and private owned
      broadcasters.





**Competition**





At
      the
      beginning of 2004, NOVA TV (Croatia) and HRT, which was then operating three
      channels, were the only national broadcasters in Croatia. In April 2004, RTL
      launched a channel under a license issued by the Croatian government on the
      frequencies previously used by the public broadcaster HRT for a third channel
      which had ceased broadcasting earlier in 2004. We acquired Nova TV (Croatia)
      in
      July 2004. During 2006 NOVA TV (Croatia) achieved a national all day audience
      share of 15.3%, which made it the fourth ranked station nationally.





The
      chart
      below provides a comparison of our audience share and technical reach to our
      competitors:





**Main
                Television Channels**
            **Ownership**
            **Year
                of first transmission**
            **Signal
                distribution**
            **Audience
                share (2006)**
            **Technical
                reach**HRT
                1
            Public
                Television
            1956
            Terrestrial
                / satellite / cable
            34.3%
            99%RTL
            Bertelsmann
            2004
            Terrestrial
                / satellite / cable
            24.6%
            95%HRT
                2
            Public
                Television
            1972
            Terrestrial
                / satellite / cable
            17.8%
            99%**NOVA
                TV (Croatia)**
            **CME**
            **2000**
            **Terrestrial
                / satellite / cable**
            **15.3%**
            **90%**Others
            
            
            
            8.0%100.0%Source
                : AGB Puls and CME





During
      2006 our technical reach increased from 88% to 90%. Additional competitors
      for
      audience share include cable and satellite channels.





**Regulation
      and License Renewal**





The
      NOVA
      TV (Croatia) channel operates pursuant to a license originally granted by the
      Telecommunications Agency of Croatia and is regulated by the Croatian Media
      Council pursuant to the Electronic Media Law and the Media Law. The license
      of
      NOVA TV (Croatia) is for a period of 10 years, expiring in April 2010. According
      to the Electronic Media Law a license can be extended. The Croatian Media
      Council has the authority to decide on an extension on the basis of a request
      for a renewal of a license filed six months before its expiration if a
      broadcaster has conducted its business in accordance with law and the license.
      The Croatian Media Council may hold a public tender in connection with a request
      to extend a license.





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**CZECH
      REPUBLIC**





**General**





The
      Czech
      Republic is a parliamentary democracy with a population of 10.2 million. Per
      capita GDP in 2006 is estimated to be US$ 13,971 with a GDP growth rate in
      2006
      of 5.9%. Approximately 97% of Czech Republic households have television and
      cable penetration is approximately 26%. According to our estimates, in local
      currency the Czech Republic television advertising market remained stable and
      was worth approximately US$ 310 - 320 million in 2006.





In
      the
      Czech Republic, we operate one national television channel, TV NOVA (Czech
      Republic), as well as a cable channel, GALAXIE SPORT, both of which were
      acquired in 2005. The other two national broadcasters are the public broadcaster
      CT, operating two channels, and privately owned broadcaster TV
      Prima.





**Operating
      and License Companies**





We
      own
      100% of CET 21, which holds the national terrestrial broadcast license for
      TV
      NOVA (Czech Republic) which expires in 2017. The ownership of CET 21 is held
      through three shareholders: (i) CME
      Media
      Enterprises B.V.; (ii) Central European Media Enterprises II B.V.; and (iii)
      VILJA a.s.  VILJA
      a.s. is wholly owned by CME Media Investments s.r.o., a wholly owned subsidiary
      of Central European Media Enterprises Ltd.





Effective
      December 31, 2006, CME Media Services s.r.o. (which
      provided services related to programming, production and advertising to CET
      21) merged
      into CET 21 .





**Operations**





*TV
      NOVA (Czech Republic)*





The
      TV
      NOVA (Czech Republic) channel reaches approximately 100% of the Czech Republic's
      television households. The TV NOVA (Czech Republic) channel had an average
      all
      day audience share for 2006 of 41.6% compared to 20.3% for its nearest
      commercial competitor, TV Prima.





The
      chart
      below summarizes the national all day and prime time audience share figures
      for
      TV NOVA (Czech Republic):





**2002**
            **2003**
            **2004**
            **2005**
            **2006**All
                day
            44.2%
            43.4%
            42.2%
            40.9%
            41.6%Prime
                time
            48.3%
            45.8%
            44.9%
            42.3%
            44.5%Source:
                ATO - Mediaresearch





*Galaxie
      Sport*





The
      GALAXIE SPORT channel broadcasts via cable high quality sports and sport-related
      programming in the Czech Republic and the Slovak Republic. The GALAXIE SPORT
      channel has secured valuable broadcast license rights to some of the most
      popular sports programming in its markets, including the National Hockey League,
      Premier League (British Football), the National Basketball Association, Major
      League Baseball ,
      ATP
      Tennis tournaments, Formula
      One qualifications, motorcycle and automobile races ,
      golf
      tournaments and other competitions. The
      GALAXIE SPORT channel also produces daily sports news programs in the Czech
      and
      Slovak languages as
      well
      as studio interviews with guests prior to the start of live transmitted key
      competitions. The program schedule also contains many sport documentaries about
      the most attractive sports in the Czech Republic and Slovak
      Republic.





*Page
            13*
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The
      combined Czech Republic and Slovak Republic markets have a population of
      approximately 15.6 million people representing approximately 5.5 million
      television households. Cable passes approximately 1.6 million households in
      the
      combined markets. Galaxie Sport currently has carriage agreements with all
      of
      the largest cable distributors and with
      all
      Direct To Home distributors in the
      Czech Republic and Slovak Republic, reaching over 1 million
      subscribers.




**Programming**





The
      TV
      NOVA (Czech Republic) channel broadcasts 24 hours per day and has a programming
      strategy to appeal to a broad audience, especially during prime time, with
      news,
      movies, entertainment programs and sports highlights, and to target more
      specific demographics in off-peak broadcasting hours. Approximately 32% of
      the
      programming on TV NOVA (Czech Republic) is locally produced, including Televizni
      noviny (TV News), Cesko hleda SuperStar (Pop Idol), Ordinace v ruzove zahrade
      (an original Czech series) and Ulice (a daily soap opera). Televizni noviny,
      the
      nightly news program, achieves the highest ratings among all Czech television
      shows on a regular basis. Cesko hleda SuperStar (Pop Idol), Ordinace v ruzove
      zahrade (an original Czech series) and Ulice (a daily soap opera) are also
      among
      the top-rated shows in the Czech Republic.





The
      TV
      NOVA (Czech Republic) channel has secured exclusive broadcast rights in the
      Czech Republic to a variety of popular American and European series ,
      films
      and telenovellas produced by major international studios, including
      DreamWorks/Paramount, Sony Pictures, MGM, Universal, IFD, Carsey-Werner,
      Twentieth Century Fox, Alliance Atlantis and Walt Disney/Buena Vista
      International Television. All
      foreign language programming is dubbed into the Czech language. Foreign news
      reports and film footage licensed from CNN, Reuters, APTN and SNTV are
      integrated into news programs on the TV NOVA (Czech Republic)
      channel.





The
      TV
      NOVA (Czech Republic) channel is required to comply with certain restrictions
      on
      programming, including regulations on the origin of programming. These include
      the requirements that broadcasters shall, where practicable, reserve half of
      their broadcasting time for European productions; reserve, where practicable,
      at
      least 10% of their broadcasting time or spend 10% of their programming budget
      on
      independent European productions; and ensure, where practicable, that at least
      10% of broadcasting time is dedicated to productions made within the last five
      years.





**Advertising**





The
      TV
      NOVA (Czech Republic) channel derives revenues principally from the sale of
      commercial advertising time through media buying groups and independent
      agencies. Advertisers include large multinational firms such as Procter &
Gamble, T-Mobile, Vodafone, Telefonica O2, Laboratoires Garnier and Reckitt
      Benckiser. The top ten advertisers on the TV NOVA (Czech Republic) channel
      contributed approximately 27% of its advertising revenues in 2006.





Within
      the Czech Republic advertising market, television accounts for approximately
      40%
      of total advertising spending. The television advertising market in the Czech
      Republic has shown slow growth over the past several years compared to general
      economic growth rates. The TV NOVA (Czech Republic) channel competes for
      advertising revenues with other media, such as print, radio, outdoor
      advertising, internet and direct mail.





Privately
      owned broadcasters in the Czech Republic are permitted to broadcast advertising
      for up to 12 minutes per hour, but not more than 15% of total daily broadcast
      time. From January 1, 2007, the public broadcaster, which is also financed
      through a compulsory television license fee, is restricted to broadcasting
      advertising for a maximum of 0.5% of daily broadcast time (excluding
      teleshopping); and from January 1, 2008, the public broadcaster cannot broadcast
      advertising or teleshopping (except in respect of certain sporting or cultural
      events). There are restrictions on the frequency of advertising breaks during
      and between programs. There are also restrictions that relate to advertising
      content, including a ban on tobacco advertising and limitations on
      advertisements of alcoholic beverages.





*Page
            14*
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**Competition**





In
      addition to the TV NOVA (Czech Republic) channel, the Czech Republic is served
      by two national public television stations, CT1 and CT2, which dominated the
      ratings until the TV NOVA (Czech Republic) channel began broadcasting in 1994,
      and by the national privately owned broadcaster TV Prima (co-owned by Modern
      Times Group and local owners).





The
      chart
      below provides a comparison of our audience share and technical reach to our
      competitors:





**Main
                Television**
              **Channels**
            **Ownership**
            **Year
                of first**
              **transmission**
            **Signal**
              **distribution**
            **Audience**
              **share
                (2006)**
            **Technical**
              **reach****TV
                NOVA (Czech Republic)**
            **CME**
            **1994**
            **Terrestrial**
            **41.6%**
            **100%**CT
                1
            Public
                Television
            1953
            Terrestrial
            21.4%
            100%TV
                Prima
            Modern
                Times Group/Local owners
            1993
            Terrestrial
                / satellite
            20.3%
            95%CT
                2
            Public
                Television
            1970
            Terrestrial
            9.4%
            99%Others
            
            
            
            7.2%100.0%Source:
                CME and Ceske radiokomunikace; ATO -
                Mediaresearch





The
      TV
      NOVA (Czech Republic) channel also competes for audience with additional foreign
      terrestrial television stations located in Austria, Germany, the Slovak Republic
      and Poland, where originating signals reach the Czech Republic, as well as
      with
      foreign satellite stations.





**Regulation
      and License Renewal**





The
      broadcast operations of the TV NOVA (Czech Republic) channel are subject to
      regulations imposed by (i) the Broadcasting Act 2001, (ii) the Act on
      Advertising and (iii) conditions contained in the license granted by the Czech
      Republic Media Council pursuant to the Broadcasting Act 2001.





According
      to the Broadcasting Act 2001, a television broadcasting license can be extended
      once for an additional twelve years. The Czech Republic Media Council has
      granted one extension of the TV NOVA (Czech Republic) license, which expires
      in
      January 2017.





The
      Czech
      Republic Media Council issued a decision dated December 21, 2006 confirming
      that
      CET 21's existing analogue license (No. 001/1993) is also valid for digital
      broadcasting and permits the company to broadcast the TV NOVA (Czech Republic)
      channel in the entire territory of the Czech Republic in any electronic
      communications network designated for terrestrial digital television
      broadcasting.





The
      GALAXIE SPORT license expires in March 2014.




**ROMANIA**
 
 **General**


Romania,
      which acceded to the European Union on January 1, 2007, is a parliamentary
      democracy with a population of approximately 20.9 million people. Per capita
      GDP
      is estimated to be US$ 5,458 in 2006 with a GDP growth rate of 6.7% for 2006.
      Approximately 91% of Romanian households have television and cable penetration
      is approximately 61%. According to our estimates, the Romanian television
      advertising market grew by approximately 35 - 40% in 2006, and was worth
      approximately US$ 235 - 245 million.





*Page
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We
      operate three television channels in Romania, PRO TV, ACASA and PRO CINEMA
      as
      well as PRO TV INTERNATIONAL, a channel distributed by satellite to Romanians
      outside the country featuring programs rebroadcast from our Romanian channels.
      The two other significant national broadcasters in Romania are the public
      broadcaster TVR, operating two channels, and privately owned broadcaster Antena
      1.





**Operating
      and License Companies**





Pro
      TV,
      which holds all broadcasting licenses for the PRO TV, ACASA and PRO CINEMA
      channels, is primarily responsible for broadcasting operations for the PRO
      TV,
      ACASA, PRO TV INTERNATIONAL and PRO CINEMA channels. MPI provides various
      broadcasting services to Pro TV. Media Vision provides production, dubbing
      and
      subtitling services to our Romanian television channels.





**Operations**





*PRO
      TV, ACASA, PRO CINEMA and PRO TV INTERNATIONAL*





PRO
      TV
      was launched in December 1995. PRO TV reaches approximately 82% of the Romanian
      population, including almost 93% of urban areas. PRO TV broadcasts from studios
      located in Bucharest to terrestrial broadcast facilities and to approximately
      790 cable systems throughout Romania. The PRO TV channel is currently the
      top-rated television channel in its coverage area and had a national all day
      audience share of 15.6% during 2006, which made it second (of 28 ranked
      stations) in Romania. Advertisers, however, evaluate audience share within
      a
      channel’s coverage area (18-49) and by this measure PRO TV was ranked first.
      On June 20, 2006 PRO TV was awarded a temporary digital license for
      Bucharest.  PRO TV began to broadcast in High Definition in the Bucharest
      area on December 1, 2006 using this license and is the first
      television station in Central and Eastern Europe to do so.





The
      ACASA
      channel, a cable channel launched in 1998, reaches approximately 73% of Romanian
      television households and 85% of urban households. During 2005, ACASA had a
      national all day audience share of 7.7%, which made it fourth (of 28 ranked
      stations) in Romania. ACASA is also ranked third in terms of all day audience
      share in its coverage area (15-49 Female Urban Area).





PRO
      CINEMA, a cable channel launched in April 2004, reaches approximately 53% of
      Romanian television households and approximately 73% of urban households. In
      2006, PRO CINEMA had a national all day audience of 1.0%, which made it
      16 th (of 28
      ranked stations) in Romania.




*Page
          16*
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          of Contents*




The
      chart
      below summarizes the national all day and prime time audience share figures
      for
      our Romanian channels:





**2002**
            **2003**
            **2004**
            **2005**
            **2006****PRO
                TV**All
                day
            14.9%
            15.4%
            15.8%
            15.7%
            15.6%Prime
                time
            16.3%
            17.1%
            17.2%
            16.6%
            17.0%**ACASA**All
                day
            6.0%
            6.6%
            7.4%
            8.1%
            7.7%Prime
                time
            6.8%
            7.8%
            7.7%
            9.1%
            8.1%**PRO
                CINEMA**All
                day
            -
            -
            0.6%
            0.8%
            1.0%Prime
                time
            -
            -
            0.6%
            0.7%
            0.9%Source:
                Peoplemeters Taylor Nelson Sofres




The
      PRO
      TV INTERNATIONAL channel is a channel that rebroadcasts PRO TV and ACASA
      programs to cable and satellite operators in North America, Europe and in
      Israel, using the existing PRO TV and ACASA satellite
      infrastructure.





**Programming**





The
      PRO
      TV channel broadcasts 24 hour per day and has a programming strategy to appeal
      to a broad audience through a wide range of programming, including movies and
      series, news, sitcoms, police series, soap operas and game shows. More than
      40%
      of PRO TV's programming is comprised of locally produced programming, including
      news and sports programs as well as Dancing For A Dream and La Bloc (In the
      Apartment Block). Dancing For A Dream and La Bloc were among the top-rated
      shows
      in 2006.





The
      PRO
      TV channel has secured exclusive broadcast rights in Romania to a variety of
      popular American and European programs and films produced by such companies
      as
      Warner Bros. and DreamWorks/Paramount. The PRO TV channel also licenses foreign
      news reports and film footage from Reuters, APTN and ENEX to integrate into
      its
      news programs. All foreign language programs and films are subtitled in
      Romanian.




In
        2006,
        Pro TV was required to comply with several restrictions on programming including
        that 30% of all material be locally produced. Future requirements will include
        new regulations on the origin of programming arising from Romania’s entry into
        the European Union, including requirements that 50% of all programming be
        of
        European origin and that 10% of all programming be supplied by independent
        European producers. The Media Law stipulates that compliance with these and
        similar provisions are not required prior to January 1, 2008.




The
      ACASA
      channel broadcasts 24 hours per day and targets a female audience with
      programming including telenovellas, films and soap operas as well as news,
      daily
      local productions for women and family, talk shows and entertainment. ACASA's
      audience demographics are complementary to PRO TV's, providing an attractive
      advertising platform for advertisers across our group of channels. Approximately
      31% of ACASA’s programming is locally produced, including Iubire ca in filme
      (Movie like Romance), Povestiri Adevarate (True Stories) and Daria, iubirea
      mea
      (Daria, my Love). Lacrimi de iubire (Tears of Love), also locally produced
      ,was
      one of the top-rated shows in 2006.





PRO
      CINEMA broadcasts 24 hours per day and is focused on movies, series and
      documentaries that would not attract sufficient audiences to air them on PRO
      TV
      but are still popular among the educated, upwardly mobile urban population
      which
      is an attractive advertising target group.




*Page
          17*
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          of Contents*




**Advertising**





Our
      Romania operations derive revenues principally from the sale of commercial
      advertising time on the PRO TV, ACASA and PRO CINEMA channels, sold both through
      independent agencies and media buying groups. The PRO TV channel currently
      serves approximately 200 advertisers, including multinational companies such
      as
      Unilever, L’Oreal, Nestle, Procter & Gamble, Danone and Coca Cola. Our top
      ten advertising clients contributed approximately 31% to our total advertising
      revenues in Romania in 2006.





Within
      the Romanian advertising market, television accounts for approximately 60%
      of
      total advertising spending. Television competes for advertising revenues with
      other media such as print, radio, outdoor advertising and direct
      mail.




Privately
      owned broadcasters are permitted to broadcast advertising for up to 12 minutes
      per hour but not more then 15% of their daily broadcast time, and an additional
      5% of daily broadcast time may be used for direct sales advertising. The public
      broadcaster, which is also financed through a compulsory television license
      fee,
      is restricted to broadcasting advertising for 8 minutes per hour. There are
      also
      restrictions on the frequency of advertising breaks (for example, news and
      children's programs shorter than 30 minutes cannot be interrupted). These
      restrictions apply to both public and privately owned broadcasters. Further
      restrictions relate to advertising content, including a ban on tobacco
      advertising and restrictions on alcohol advertising and regulations on
      advertising targeted at children or during children's programming. In addition,
      members of the news department of PRO TV are prohibited from appearing in
      advertisements.





**Competition**





Prior
      to
      the launch of the PRO TV channel, TVR 1, a channel of the public broadcaster,
      was the dominant channel in Romania. During 2006, PRO TV and ACASA achieved
      national all day audience shares of 15.6% and 7.7% respectively, ranking them
      second and fourth in national all day audience share. PRO CINEMA achieved an
      audience share of 1% during 2006. TVR 1’s continued leading national position
      reflects its higher technical reach, to approximately 99% of the Romanian
      population, including areas in which it is the only significant broadcaster,
      compared to a 82% technical reach for PRO TV and 73% for ACASA (as a cable
      channel based on relevant cable penetration). Within our coverage area, PRO
      TV
      is first and ACASA is third in terms of all day audience share for 2006. Other
      competitors include the second channel of the public broadcaster, TVR 2, and
      privately owned broadcasters Antena 1 and Prima TV.





The
      chart
      below provides a comparison of our audience share and technical reach to our
      main competitors:




*Page
          18*
 *Table
          of Contents*




**Main
                Television**
              **Channels**
            **Ownership**
            **Year
                of first**
              **transmission**
            **Signal**
              **distribution**
            **Audience**
              **share
                (2006)**
            **Technical**
              **reach**TVR
                1
            Public
                Television
            1956
            Terrestrial
                / satellite / cable
            16.8%
            99%**PRO
                TV**
            **CME**
            **1995**
            **Terrestrial
                / satellite / cable**
            **15.6****%**
            **82****%**Antena
                1
            Local
                owner
            1993
            Terrestrial
                / satellite / cable
            13.4%
            82%**ACASA**
            **CME**
            **1998**
            **Satellite
                / cable**
            **7.7%**
            **73%**TVR
                2
            Public
                Television
            1968
            Terrestrial
                / satellite / cable
            5.3%
            94%Prima
                TV
            SBS
            1994
            Terrestrial
                / satellite / cable
            4.2%
            79%**PRO
                CINEMA**
            **CME**
            **2004**
            **Satellite
                / cable**
            **1.0%**
            **53%**Others
            
            
            
            36.0%100.0%Source
                : Peoplemeters Taylor Nelson Sofres





Additional
      competitors include cable and satellite stations.





**Regulation
      and License Renewal**





PRO
      TV,
      ACASA and PRO CINEMA operate pursuant to licenses and regulations issued by
      the
      Romanian Media Council. Pro TV holds all of the local television licenses for
      the PRO TV channel, the licenses for the PRO TV INTERNATIONAL channel and the
      cable broadcasting licenses for ACASA and PRO CINEMA. To date, licenses have
      been renewed as they expire. The terrestrial television license for Bucharest
      was renewed in October 2003 for a further nine years. The remaining broadcasting
      licenses expire on dates ranging from March 2007 to January 2016.




**Ownership**





We
      own a
      90% voting and economic interest in Pro TV; Adrian Sarbu, the general director
      of our Romania operations, owns the remaining 10% voting and economic interests
      of Pro TV. During 2006 we increased our voting and economic interest from 85%
      to
      90% following the sale by Adrian Sarbu of a 5% interest on February 17, 2006
      (for further information, see Item 8, Note 4, “Acquisitions and Disposals,
      Romania”).





Our
      interest in our Romania operations is generally governed by a Co-operation
      Agreement entered into by Adrian Sarbu and ourselves. The articles of Pro TV
      replicate the governing bodies and minority shareholder protective rights that
      exist in the Co-operation Agreement. We have the right to appoint three of
      the
      five members of the Council of Administration that directs the affairs of Pro
      TV
      and MPI. Although we have majority voting power in Pro TV and MPI, the
      affirmative vote of Adrian Sarbu is required with respect to certain financial
      and corporate matters. The financial and corporate matters which require
      approval of the minority shareholder are in the nature of protective rights,
      which are not an impediment to consolidation for accounting
      purposes.





We
      have a
      75% voting and economic interest in Media Vision. The remainder is owned by
      Adrian Sarbu.





We
      also
      have a put option agreement with Adrian Sarbu that grants him the right to
      sell
      us his remaining interest in Pro TV and MPI from November 12, 2009 for a
      twenty-year period thereafter.





*Page
          19*
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          of Contents*




**Media
      Pro**




On
        August
        11, 2006, we acquired a 10.0% interest in each of Media Pro B.V. and Media
        Pro
        Management S.A., the parent companies of the Media Pro group of companies
        (“Media Pro”). Substantially all of the remaining shares of Media Pro are owned
        directly or indirectly by Adrian Sarbu. Media Pro comprises a number of Romanian
        companies with operations in the fields of publishing, information, printing,
        cinema, entertainment and radio (for further information, see Item 8, Note
        6,
“Investments”).





**TV
      Sport**




On
        December 14, 2006, we acquired a 20.0% interest in Sport Radio TV Media S.R.L.
        (“TV Sport”), a male sports-oriented channel focusing on local and international
        football, international boxing and a number of local Romanian sports. On
        February 20, 2007 we acquired control of TV Sport by acquiring an additional
        50.0% interest and agreed to acquire the remaining 30.0% in March 2007, subject
        to Media Council consent. For further information, see Item 8, Note 6,
“Investments” and Item 8, Note 23, “Subsequent Events”.





**SLOVAK
      REPUBLIC**





**General**





The
      Slovak Republic is a parliamentary democracy with a population of approximately
      5.4 million people. Per capita GDP is estimated to be US$ 10,231 in 2006 with
      a
      GDP growth rate of 7.9% in 2006. Approximately 99% of households have television
      and cable penetration is 39%. According to our estimates, in local currency
      the
      Slovak Republic television advertising market grew by approximately 5 - 7%
      in
      2006 and was worth approximately US$ 105 - 115 million.





In
      the
      Slovak Republic, we operate one national television channel, MARKIZA TV. The
      two
      other significant national broadcasters are the public broadcaster STV,
      operating two channels, and privately owned broadcaster TV JOJ.




**Operating
      and License Companies**





Markiza
      holds the television broadcast license for MARKIZA TV. Markiza and our operating
      company, STS, had entered into a series of agreements pursuant to which STS
      was
      permitted to conduct certain television broadcast operations for MARKIZA TV
      in
      accordance with the license. Effective January 1, 2007, STS merged into Markiza
      to form a combined operating and license company.




**Operations**





MARKIZA
      TV was launched as a national television channel in the Slovak Republic in
      August 1996. The MARKIZA TV channel reaches approximately 86% of the Slovak
      Republic's population, including all of its major cities. The MARKIZA TV channel
      had an average national all day audience share for 2006 of 33.8% versus 18.4%
      for its nearest competitor, STV 1. In October 2004, the journal method of
      measuring audience share and ratings was replaced with peoplemeters (an
      electronic audience measurement device). The introduction of peoplemeters has
      resulted in lower audience share and ratings being recorded for all national
      broadcasters (see Item 7, “Analysis of Segment Results, Slovak Republic”). Since
      the introduction of peoplemeters, the national all day audience share of MARKIZA
      TV has fallen from 40% to 34%.





*Page
          20*
 *Table
          of Contents*




The
      chart
      below summarizes national all day and prime time audience share figures for
      MARKIZA TV:





**2002**
            **2003**
            **2004**
            **2005**
            **2006**All
                day
            48.2%
            45.8%
            39.6%
            31.1%
            33.8%Prime
                time
            47.4%
            45.5%
            40.0%
            32.8%
            35.9%Source:
                TNS





**Programming**





The
      MARKIZA TV channel broadcasts 24 hours per day and has a programming strategy
      to
      appeal to a broad audience through news, movies, entertainment and sports
      programming, with specific groups targeted in off-peak broadcasting hours.
      Approximately 31% of MARKIZA TV programming is locally produced, including
      Televizne noviny (TV News), Sportove noviny (Sports News), Let’s dance, Susedia
      (Neighbors), Nevesta pre milionara (Bachelor). Televizne noviny is consistently
      the top-ranked show in the Slovak Republic. Let’s dance and Susedia were also
      among the most popular shows in 2006.





MARKIZA
      TV channel has secured exclusive broadcast rights to a variety of popular
      American and European series, films and telenovellas produced by major
      international studios including Warner Bros, NBC Universal, CBS Paramount,
      Dreamworks/Paramount, Grandview-Castle, and Buena Vista. All foreign language
      programming (other than that in the Czech language) is dubbed into the Slovak
      language. Foreign news reports and film footage licensed from CNN, Reuters,
      APTN
      and SNTV are integrated into news programs on the MARKIZA TV
      channel.





Markiza
      is required to comply with several restrictions on programming, including
      regulations on the origin of programming. These include the requirement that
      a
      minimum of 10% of programming be public interest programming (which includes
      news and topical shows), that a minimum of 51% of first runs of films and series
      be European production, and that no more than 20% of foreign programming be
      dubbed in the Czech language.





**Advertising**





The
      MARKIZA TV channel derives revenues principally from the sale of commercial
      advertising time through media buying groups and independent agencies.
      Advertisers include large multinational firms such as T-Com / T-Mobile, Orange,
      Benckiser, Procter & Gamble, L’Oreal, Unilever, Nestle and Ferrero, though
      no one advertiser dominates the market. Our top ten advertisers contributed
      approximately 33% to our total advertising revenues in the Slovak Republic
      in
      2006.




Within
      the Slovak advertising market, television accounts for approximately 50% of
      total advertising spending. MARKIZA TV also competes for advertising revenues
      with other media, such as print, radio, outdoor advertising and direct
      mail.





Privately
      owned broadcasters are permitted to broadcast advertising for up to 12 minutes
      per hour but not more than 15% of total daily broadcast time. The public
      broadcaster, which is also financed through a compulsory license fee, is
      restricted to broadcasting 8 minutes of advertising per hour but not more than
      3% of total broadcast time. There are restrictions on the frequency of
      advertising breaks during and between programs. These restrictions are the
      same
      for public and privately owned broadcasters. There are also restrictions that
      relate to advertising content, including a ban on tobacco advertising and a
      ban
      on advertisements of alcoholic beverages (excluding beer) between 6:00 am and
      10:00 pm.





**Competition**





In
      addition to MARKIZA TV, the Slovak Republic is served by two national public
      television stations, STV1 and STV2, which dominated the ratings until the
      MARKIZA TV channel began broadcasting in 1996. STV1 reaches almost the entire
      Slovak population. MARKIZA TV also competes with the privately owned broadcaster
      TV JOJ.





*Page
          21*
 *Table
          of Contents*




The
      chart
      below provides a comparison of our audience share and technical reach to our
      competitors:





**Main
                Television**
              **Channels**
            **Ownership**
            **Year
                of first**
              **transmission**
            **Signal**
              **distribution**
            **Audience**
              **share
                (2006)**
            **Technical**
              **reach****MARKIZA
                TV**
            **CME**
            **1996**
            **Terrestrial**
            **33.8%**
            **86%**STV
                1
            Public
                Television
            1956
            Terrestrial
            18.4%
            99%TV
                JOJ
            Local
                owner
            2002
            Terrestrial
            15.6%
            73%STV
                2
            Public
                Television
            1969
            Terrestrial
            6.2%
            97%Others
            
            
            
            26.0%100.0%Source
                : Informa Telecoms and Media, Visio/
                MVK, PMT / TNS SK and CME





The
      MARKIZA TV channel also competes with additional foreign terrestrial television
      stations located in Austria, the Czech Republic and Hungary, where originating
      signals reach the Slovak Republic, and foreign satellite stations.





**Regulation
      and License Renewal**





MARKIZA
      TV’s broadcast operations are subject to regulations imposed by (i) the Act on
      Broadcasting and Retransmission of September 2000, (ii) the Act on Advertising
      and (iii) conditions contained in the license granted by the Slovak Republic
      Media Council pursuant to the Act on Broadcasting and
      Retransmission.





The
      current broadcasting license for MARKIZA TV expires in September
      2019.




**Ownership**


On
      January 23, 2006, we acquired control of our Slovak Republic operations and
      increased our economic interest from 70% to 80%. Following the merger of STS
      into Markiza on January 1, 2007, we now own an 80.0% voting and economic
      interest in Markiza (see Item 7, “Analysis by Geographic Segment, Slovak
      Republic”).





We
      appoint three of the five members of the Board of Representatives, with the
      other two members being appointed by our partners. All significant financial
      and
      operational decisions of the Board of Representatives require a simple majority
      vote. Three executives, two of whom are appointed by us, conduct the affairs
      of
      Markiza.






**SLOVENIA**





**General**





Slovenia
      is a parliamentary democracy with a population of 2.0 million people. Per capita
      GDP is estimated to be US$ 18,342 in 2006, the highest per capita GDP in Central
      and Eastern Europe, with a GDP growth rate of 5.0% for 2006. Approximately
      99%
      of Slovenian households have television and cable penetration is approximately
      61%. According to our estimates, in local currency the Slovenian television
      advertising market grew by approximately 6 - 8% during 2006 and was worth
      approximately US$ 65 - 75 million.





*Page
          22*
 *Table
          of Contents*




In
      Slovenia, we operate two national television channels, POP TV and KANAL A.
      The
      other significant national broadcasters are the public broadcaster, operating
      as
      SLO 1 and SLO 2.





**Operating
      and License Companies**





Pro
      Plus
      provides programming to and sells advertising for the broadcast license holders
      of Pop TV and Kanal A. Pop TV holds all of the licenses for the POP TV channel
      and Kanal A holds all the licenses for the KANAL A channel.





**Operations**





*POP
      TV and KANAL A*





The
      POP
      TV channel is the leading national commercial television broadcaster in Slovenia
      and reaches approximately 93% of the population, including the capital Ljubljana
      and Maribor, Slovenia's second largest city. In 2006, the POP TV channel had
      a
      national all day audience share of 28.7% the largest in Slovenia.





The
      KANAL
      A channel reaches 90% of the population, including Ljubljana and Maribor.
      Independent research shows that among main television stations in 2006, the
      KANAL A channel had an all day audience share of 9.0% making it the third most
      watched television channel in Slovenia.





The
      chart
      below summarizes the national all day and prime time audience share figures
      for
      POP TV and KANAL A:





**2002**
            **2003**
            **2004**
            **2005**
            **2006****POP
                TV**All
                day
            29.2%
            29.5%
            27.6%
            27.3%
            28.7%Prime
                time
            32.3%
            34.0%
            31.9%
            32.2%
            34.3%**KANAL
                A**All
                day
            11.0%
            10.2%
            8.3%
            8.5%
            9.0%Prime
                time
            11.0%
            10.9%
            9.4%
            9.8%
            9.9%Source:
                AGB Nielsen Media Research




**Programming**





POP
      TV
      broadcasts 18 hours per day and has a programming strategy to appeal to a broad
      audience through a wide variety of programming including series, movies, news,
      variety and game shows and features. Approximately 33% of programming is locally
      produced, including Preverjeno! (Confirmed!), Trenja (Friction), the local
      series Nasa Mala Klinika (Our Little Clinic) and the reality show The Bar.
      KANAL
      A broadcasts for 16 hours per day and has a programming strategy to complement
      that of the POP TV channel with a mixture of locally produced programs such
      as
      Extra Magazine and E+ and acquired foreign programs, including films and
      series.





Pro
      Plus
      has secured exclusive program rights in Slovenia to a variety of successful
      American and Western European programs and films produced by studios such as
      Warner Bros., Twentieth Century Fox and Paramount. Pro Plus has agreements
      with
      CNN, Reuters and APTN to receive foreign news reports and film footage to
      integrate into news programs. All foreign language programs and films are
      subtitled in Slovenian with the exception of some children’s programming that is
      dubbed.





*Page
          23*
 *Table
          of Contents*




Pop
      TV
      and Kanal A are required to comply with several restrictions on programming,
      including regulations on the origin of programming. These include the
      requirement that 20% of a station's daily programming consist of locally
      produced programming, of which at least 60 minutes must be broadcast between
      6:00 pm and 10:00 pm. Two percent of the station's annual broadcast time must
      be
      Slovenian origin audio-visual works and this amount must increase each year
      until it reaches five percent of annual broadcast time. In the future a
      majority, increased from the current 20%, of the station's annual broadcast
      time
      will be required to be European origin programming. Furthermore, 10% of the
      station’s annual broadcast time should be devoted to programs made by European
      producers who are independent of broadcasters, and 50% of such works should
      have
      been produced in the last five years.





**Advertising**





Pro
      Plus
      derives revenues from the sale of commercial advertising time on the POP TV
      and
      KANAL A channels. Current multinational advertisers include firms such as
      Reckitt Benckiser, Procter & Gamble, Mobitel, L’Oreal, Wrigley, Henkel and
      Beiersdorf, although no advertiser dominates the market. Our top ten advertisers
      contributed approximately 33% to our total advertising revenues in Slovenia
      in
      2006.





Within
      the Slovenian advertising market, television accounts for approximately 57%
      of
      total advertising spending. In addition, the POP TV and KANAL A channels compete
      for revenues with other media, such as print, radio, outdoor advertising, the
      internet and direct mail.





Privately
      owned broadcasters are allowed to broadcast advertising for up to 12 minutes
      in
      any hour and for up to 20% of daily broadcasting time (with 15% for
      advertisements only). The public broadcaster, which is also financed through
      a
      compulsory television license fee, is allowed to broadcast advertising for
      up to
      12 minutes per hour and for up to 15% of daily broadcasting time (with 10%
      for
      advertisements only), but is only permitted up to 9 minutes per hour between
      the
      hours of 6.00pm and 11.00pm.





There
      are
      restrictions on the frequency of advertising breaks during programs. There
      are
      also restrictions that relate to advertising content, including a ban on tobacco
      advertising and a prohibition on the advertising of any alcoholic beverages
      from
      7.00 am to 9.30 pm and generally for alcoholic beverages with an alcoholic
      content of more than 15%.





**Competition**





Prior
      to
      the launch of POP TV, the television market in Slovenia had been dominated
      by
      SLO 1, a channel of the public broadcaster.




*Page
          24*




The
      chart
      below provides a comparison of our audience share and technical reach to our
      competitors:





**Main
                Television**
              **Channels**
            **Ownership**
            **Year
                of first**
              **transmission**
            **Signal**
              **distribution**
            **Audience**
              **share
                (2006)**
            **Technical**
              **reach****POP
                TV**
            **CME**
            **1995**
            **Terrestrial
                / cable**
            **28.7%**
            **93%**SLO
                1
            Public
                Television
            1958
            Terrestrial
                / satellite / cable
            23.1%
            100%SLO
                2
            Public
                Television
            1967
            Terrestrial
                / satellite / cable
            8.9%
            99%**KANAL
                A**
            **CME**
            **1991**
            **Terrestrial
                / cable**
            **9.0%**
            **90%**Others
            
            
            
            30.3%100.0%Source
                : Media Services AGB and CME
                Research





The
      POP
      TV and KANAL A channels also compete with foreign television stations,
      particularly Croatian, Italian, German and Austrian stations. Cable penetration
      is 61%, which is greater than many other countries in Central and Eastern
      Europe, and approximately 18% of households have satellite
      television.





**Regulation
      and License Renewal**





The
      POP
      TV and KANAL A channels operate under licenses regulated pursuant to the Law
      on
      Media adopted in 2001 and pursuant to the Electronic Communications Act which
      came into effect on May 1, 2004.
      According to the Electronic Communications Act, the Slovenian Media Council
      may
      extend a license at the request of the broadcaster if it is in compliance with
      all the license conditions. In 2002 the
      Slovenian Media Council extended all of the licenses held by Pop TV and Kanal
      A
      until August 2012.





**Ownership**





We
      own
      100% of the voting and economic interests in Pro Plus, the operating company
      for
      our Slovenia operations. Pro Plus has a 100% voting and economic interest in
      Pop
      TV, which holds the licenses for the POP TV network, and Kanal A, which holds
      the licenses for the KANAL A network. All such licenses expire in August
      2012.




**UKRAINE**
 
 **General**


Ukraine,
      the most populous market served by us, is a parliamentary democracy with a
      population of 46.7 million people. Per capita GDP is estimated to be US$ 2,027
      in 2006, the lowest of all our markets, with a GDP growth rate in 2006 of 6.0%.
      Nearly 100% of Ukrainian households have television and cable penetration is
      approximately 19%. According to our estimates, the Ukrainian television
      advertising market grew by approximately 25 - 30% in 2006 and was worth
      approximately US$ 240 - 250 million.




In
      Ukraine, we operate one national television channel, STUDIO 1+1, and two local
      channels, KINO and CITI. The other five significant national broadcasters are
      the public broadcaster UT-1 as well as privately owned broadcasters Inter,
      Novy
      Kanal, ICTV and STB.




*Page
          25*
 *Table
          of Contents*




**Operating
      and License Companies**





The
      Studio 1+1 Group is comprised of several entities involved in the broadcasting
      operations of Studio 1+1, the license company. Innova and TV Media Planet
      provide programming and production services to Studio 1+1. The sale of Studio
      1+1’s advertising has been outsourced to Video International Group, a Ukrainian
      subsidiary of a Russian advertising sales company, in which we have neither
      an
      economic nor a voting interest. CME Cyprus Holdings provides programming to
      KINO
      and CITI.





On
      January 11, 2006, we acquired a 65.5% interest in Ukrpromtorg 2003 LLC
      (“Ukrpromtorg”), which owns (i) 92.2% of Gravis LLC, which now operates the
      local channels, KINO (which replaced CHANNEL 7) and CITI (which replaced CHANNEL
      35); (ii) 100% of Nart LLC, which holds a satellite broadcasting license; and
      (iii) 75% of Stimul LLC, which operates TV STIMUL. In July 2006, we launched
      a
      new entertainment channel, KINO, targeted at a younger demographic with coverage
      in Kiev and several regions in Ukraine, and in December 2006, we launched a
      new
      youth-oriented channel in Kiev, CITI, on the frequencies we
      acquired.





**Operations**





*STUDIO
      1+1*





The
      STUDIO 1+1 channel broadcasts programming and sells advertising under two
      licenses granted to it by the National Council for Radio and Television
      Broadcasting on Ukrainian National Frequency Two (“UT-2”) and reaches
      approximately 98% of Ukraine's population. The STUDIO 1+1 channel began
      broadcasting on UT-2 in 1995 under a license permitting 15 hours of broadcasting
      per day, primarily in prime time and off prime time. In July 2004, the station
      was awarded a second license allowing it to broadcast for the remaining nine
      hours not covered by the station's 15-hour license. STUDIO 1+1 has been
      broadcasting a full 24-hour schedule since early September 2004. The STUDIO
      1+1
      channel had a national all day audience share of 18.3% in 2006 and a 23.1%
      prime
      time audience share.





The
      chart
      below summarizes the national all day and prime time audience share figures
      for
      STUDIO 1+1:





**2002**
            **2003**
            **2004**
            **2005**
            **2006**All
                day
            22.2%
            19.1%
            20.9%
            20.0%
            18.3%Prime
                time
            27.4%
            25.8%
            26.9%
            22.2%
            23.1%Source:
                GFK USM





Both
      the
      KINO and CITI channels broadcast programming and sell advertising. The KINO
      channel holds licenses covering 8 cities for terrestrial broadcasting and a
      satellite license. The KINO channel was relaunched in July 2006, across a
      network of regional stations and cable operators, through which it reaches
      approximately 41.3% of the population. The KINO channel broadcasts for 24 hours
      per day. The CITI channel broadcasts to the city of Kiev and the Kiev region
      for
      24 hours per day.




**Programming**





STUDIO
      1+1 has a programming strategy to appeal to a broad audience through a wide
      variety of programming, including series (popular Russian police and action
      series in particular), movies and locally produced Ukrainian shows, features
      and
      news. In 2006, approximately 45% of programming for prime-time broadcasting
      hours were either in-house or out-sourced Ukranian production, which consists
      primarily of news broadcasts and news related programs, entertainment shows
      and
      TV series of various genres.




*Page
          26*
 *Table
          of Contents*





The
      Studio 1+1 Group has secured exclusive territorial or local language broadcast
      rights in Ukraine to a variety of successful high quality Russian, American
      and
      Western European programs and films from many of the major studios, including
      Warner Bros., Paramount, Universal and Columbia. Studio 1+1 has agreements
      with
      Reuters for foreign news packages and other footage to be integrated into its
      programming. Most non-Ukrainian language programs and films (including those
      in
      the Russian language) are dubbed or subtitled in Ukrainian.





KINO
      is a
      youth-orientated channel which has a programming strategy designed to attract
      a
      target demographic of 14-35. It offers feature films, series, animation and
      other entertainment programming, much of which is acquired from Western
      sources.





CITI,
      which targets the inhabitants of Kiev in the 18-50 age group, broadcasts mainly
      own-produced shows, may of which are live. This includes local news, and
      programs on Kiev culture, business and community.





Studio
      1+1, KINO and CITI are required to comply with certain restrictions on
      programming, including regulations on the origin of programming. These include
      the requirement that 75% of all
      programming must be in the Ukrainian language, dubbed or have Ukranian
      subtitles.





In
      March
      2006, amendments to the Ukrainian Media Law came into force, including
      modifications to the regulations on the origin of programming which now require
      that at least 50% of programming broadcast by Studio 1+1, KINO and CITI be
      of
      Ukrainian origin.





**Advertising**





Within
      the Ukranian advertising market, television accounts for approximately 53%
      of
      total advertising spending. STUDIO 1+1, KINO and CITI also compete for
      advertising revenues with other media, such as print, radio, outdoor advertising
      and direct mail.





The
      Studio 1+1 Group derives revenues principally from the sale of commercial
      advertising time through both media buying groups and independent agencies.
      Video International sells advertising for the Studio 1+1 Group. Advertisers
      include large multinational firms such as Procter & Gamble, Kraft Foods,
      Unilever, Samsung, Mars, Sony, L’Oreal, Nestle and Baltic Beverage Holding.
      STUDIO 1+1 top ten advertising clients contributed approximately 42% to STUDIO
      1+1’s total advertising revenues in 2006.





KINO
      and
      CITI derived approximately half of their revenues from the sale of commercial
      advertising time. KINO targets smaller national advertisers and CITI aims to
      attract Kiev-based clients.





Within
      the Ukrainian advertising market, television accounts for approximately 53%
      of
      total advertising spending. STUDIO 1+1 also competes for advertising revenues
      with other media, such as print, radio, outdoor advertising and direct
      mail.





Privately
      owned broadcasters are allowed to broadcast advertising for 15% of their total
      broadcast time. The public broadcaster, which is also financed through a
      compulsory license fee, is subject to the same restrictions on advertising
      time.
      There are restrictions on the frequency of advertising breaks both during and
      between programs. There are also restrictions that relate to advertising
      content, including a ban on tobacco advertising and a prohibition on the
      advertising of alcoholic beverages before 11:00 pm.




**Competition**




Three
      national television channels serve Ukraine: the public broadcaster UT-1, STUDIO
      1+1, and Inter, another privately owned broadcaster. In addition, ICTV, STB
      and
      Novy Kanal, which are all privately owned broadcasters, have used a series
      of
      regional frequencies to establish national networks. Inter is the main
      competitor of STUDIO 1+1.





*Page
          27*
 *Table
          of Contents*





The
      chart
      below provides a comparison of STUDIO 1+1’s audience share and technical reach
      to our competitors:





**Main
                Television**
              **Channels**
            **Ownership**
            **Year
                of first**
              **transmission**
            **Signal**
              **distribution**
            **Audience**
              **share
                (2006)**
            **Technical**
              **reach**Inter
            Local
                owners
            1996
            Terrestrial
                / satellite / cable
            20.4%
            99%**STUDIO
                1+1**
            **CME**
            **1995**
            **Terrestrial
                / satellite / cable**
            **18.3%**
            **95%**Novy
                Kanal
            Local
                owners
            1998
            Terrestrial
            8.4%
            88%ICTV
            Local
                owners
            1992
            Terrestrial
            7.3%
            90%STB
            Local
                owners
            1997
            Terrestrial
            6.0%
            89%UT-1
            Public
                Television
            1965
            Terrestrial
                / cable
            2.1%
            96%Others
            
            
            
            37.5%100.0%Source
                : GFK USM and CME Research


KINO
          and
          CITI, both of which target a youthful market have as their main competitors
          ICTV, TONIS and NTN. KINO has a technical reach of approximately 41.3%
          of the
          Ukraine population and since being launched in July 2006 has achieved a
          national
          14 - 49 prime time audience share of 0.33%, and an average share in the
          Kiev
          region of 1.87%. CITI, broadcasting to the city of Kiev and the Kiev region,
          has
          a technical reach of 11.7% of the Ukraine population. CITI began broadcasting
          in
          December 2006 and in that month achieved an average 14 - 49 prime time
          audience
          share in the Kiev region of 1.77%.
  **License
        Renewal**





Licenses
      in Ukraine are renewed by the National Council for Radio and Television
      Broadcasting in accordance with the terms of the 1993 Media Law, as amended
      in
      March 2006. On December 29, 2006, the Ukrainian Media Council issued a new
      license to Studio 1+1 that extends its main 15-hour broadcast license, covering
      prime time and off prime time, until December 29, 2016. The remaining nine
      hours
      of Studio 1+1’s off prime time schedule are broadcast pursuant to a 10-year
      broadcast license expiring in August 2014.




**Ownership**


The
      Studio 1+1 Group consists of several entities in which we hold direct or
      indirect interests. We hold a 60% ownership and economic interest in each of
      Innova, IMS and TV Media Planet. Innova owns 100% of Inter-Media, a Ukrainian
      company, which in turn holds a 30% interest in Studio 1+1.





Our
      indirect ownership interest in Studio 1+1 is 18%. On December 30, 2004, we
      entered into an additional agreement with Boris Fuchsmann, Alexander Rodnyansky
      and Studio 1+1, which re-affirms our entitlement to 60% of any distribution
      from
      Studio 1+1 to its shareholders until such time as Ukrainian legislation allows
      us to increase our voting and economic interest in Studio 1+1 to 60%. Following
      amendments to the Ukrainian Media Law in March 2006 that permit majority
      indirect foreign ownership, our partners entered into agreements with us to
      restructure the ownership of Studio 1+1 in order to permit CME to hold a 60%
      indirect interest in Studio 1+1 (see Item 3, “Legal Proceedings,
      Ukraine”). ****





*Page
          28*
 *Table
          of Contents*




**CORPORATE
      OPERATIONS**





In
      addition to group management and corporate administration, our central
      organization provides oversight and support to our television operations. The
      functions include treasury, internal audit, financial planning and analysis,
      financial control and legal services.





**SEASONALITY**





We,
      like
      other television operators, experience seasonality, with advertising sales
      tending to be lowest during the third quarter of each calendar year due to
      the
      summer holiday period (typically July and August), and highest during the fourth
      quarter of each calendar year. See Item 6, “Selected Financial Data” for further
      discussion.





**EMPLOYEES**





As
      of
      February 20, 2007, our operating companies had a total of approximately 3,300
      employees (including freelance staff and contractors) and we had a corporate
      staff of 47 employees in London and Amsterdam. None of our employees or the
      employees of any of our subsidiaries are covered by a collective bargaining
      agreement. We believe that our relations with our employees are
      good.





**FINANCIAL
      INFORMATION BY OPERATING SEGMENT AND BY GEOGRAPHICAL AREA**





For
      financial information by operating segment and geographic area, see Item 8,
      Note
      19, “Segment Data”.





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**ITEM
              1A.**
            **RISK
                FACTORS**





This
      Annual Report on Form 10-K contains forward-looking statements that involve
      risks and uncertainties. See “Forward-looking Statements” in Item 1. Our actual
      results in the future could differ materially from those anticipated in these
      forward-looking statements as a result of certain factors, including the risks
      described below and elsewhere in this Annual Report on Form 10-K.





**Risks
      Relating to our Operations**





*Our
      operations are in developing markets where there is a risk of economic
      uncertainty, biased treatment and loss of business*





Our
      revenue generating operations are located in Central and Eastern Europe. These
      markets pose different risks from those posed by investments in more developed
      markets and the impact in our markets of unforeseen circumstances on economic,
      political or social life is greater. Countries in this region have economic
      and
      political systems, legal and tax regimes, standards of corporate governance
      and
      business practices that continue to develop. Government policies may be subject
      to significant adjustments, especially in the event of a change in leadership,
      which may result in social or political instability or disruptions, potential
      political influence on the media, inconsistent application of tax and legal
      regulations, arbitrary treatment before judicial or other regulatory authorities
      and other general business risks. Other potential risks inherent in markets
      such
      as ours with changing economic and political environments include exchange
      controls, higher tariffs and other levies, as well as longer payment
      cycles.





The
      relative level of development of our markets and the influence of local parties
      also presents a potential for biased treatment of us before regulators or courts
      in our markets in the event of disputes involving our investments. If such
      a
      dispute occurs, those regulators or courts might favor local interests over
      our
      interests. Ultimately, this could lead to loss of our business operations,
      as
      occurred in the Czech Republic in 1999. We are involved in certain disputes
      with
      some of the former shareholders of our Croatia operations and some of these
      shareholders may also challenge a restructuring that we have undertaken in
      response to a request from the Croatian Media Council. The ability of certain
      of
      these shareholders to exert influence on local institutions may create a
      potential for biased treatment of us. An adverse outcome in the Global
      Communications lawsuit (see Item 3, “Legal Proceedings, Croatia”) or a
      successful challenge to the restructuring could have an adverse impact on our
      financial position, results of operations and cash flows.





*Our
      broadcasting licenses may not be renewed and may be subject to
      revocation*





We
      require broadcasting and, in some cases, other operating licenses as well as
      other authorizations from national regulatory authorities in our markets in
      order to conduct our broadcasting business. We cannot guarantee that our current
      licenses or other authorizations will be renewed or extended, or that they
      will
      not be subject to revocation, particularly in Ukraine, where there is relatively
      greater political risk as a result of less developed political and legal
      institutions. The failure to comply in all material respects with the terms
      of
      broadcasting licenses or other authorizations or with applications filed in
      respect thereto may result in such licenses or other authorizations not being
      renewed or otherwise being terminated. Furthermore, no assurances can be given
      that renewals or extensions of existing licenses will be issued on the same
      terms as existing licenses or that further restrictions or conditions will
      not
      be imposed in the future.




Our
      current broadcasting licenses expire at various times between 2007 and 2017.
      Any
      non-renewal or termination of any other broadcasting or operating licenses
      or
      other authorizations or material modification of the terms of any renewed
      licenses may have a material adverse effect on our financial position, results
      of operations and cash flows.





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*We
      do
      not have management control of our affiliate in Ukraine*





We
      own
      our operations in Ukraine jointly with our partners through subsidiaries and
      affiliates. In Studio 1+1, we hold only an indirect 18% ownership interest.
      As a
      result, we do not have an ownership interest that is sufficient to allow us
      to
      assert management control or unilaterally direct the strategies, operations
      and
      financial decisions of this company. Therefore, our ability to implement all
      financial reporting and management processes that exist in our other operations
      requires the active cooperation of our partners. Their consent is also required
      for decisions affecting the acquisition of programming, investment in
      production, retention and dismissal of key employees as well as other
      operational issues, including ensuring compliance with relevant tax and other
      obligations of Studio 1+1. Our inability to obtain any required consent may
      result in Studio 1+1 being in breach of such tax or other obligations or may
      result in decisions being adopted that do not fully reflect our strategic
      objectives, which may have an adverse impact on our financial position, results
      of operations and cashflows.




*We
      may not be aware of all related party transactions; such transactions may
      involve risks of conflicts of interest and of concluding transactions on less
      favorable terms than could be obtained in arms length
      transactions*





In
      Romania, the Slovak Republic and Ukraine, the local shareholders and/or general
      directors of our television operating companies are individuals with other
      business interests in those countries, including interests in television and
      other media related companies. Our local operating companies’ transactions with
      the businesses, whether or not we are aware that our local shareholders and
      general directors have an interest therein, may present conflicts of interests
      that may in turn result in the conclusion of transactions on terms that are
      not
      arms length. Experience has shown that some related party receivables have
      been
      collected more slowly than unrelated third party receivables, which has resulted
      in slower cash flow to our operating companies to the detriment of our
      shareholders. It is likely that our subsidiaries will continue to enter into
      related party transactions in the future. As a result, there is a risk that
      related party transactions may be entered into on terms that are not arms
      length, which may result in a negative impact on earnings or cash flows. In
      the
      event there are transactions with persons who subsequently are determined to
      be
      related parties, we may be required to make additional disclosure and, if such
      contracts are material, may not be in compliance with certain covenants under
      the Senior Notes and the EBRD Loan Agreement.





*We
      may not be able to prevent our general directors from entering into transactions
      that are outside their authority and not in the best interests of
      shareholders*




The
      general directors of our operating companies have significant management
      authority on a local level, subject to the overall supervision by the
      corresponding company board of directors. In the past, our internal controls
      have detected transactions that have been concluded by a general director acting
      outside his authority. Internal controls are not able to prevent a general
      director from acting outside his authority, particularly if a related party
      relationship remains undisclosed to us. There is therefore a risk that a general
      director may act outside his authority and that our operating companies will
      enter into transactions that are not duly authorized. Unauthorized transactions
      may not be in the best interests of our shareholders and may have an adverse
      impact on our results of operations.





*We
      may seek to make acquisitions of other stations, networks, content providers
      or
      other companies in the future, or may fail to identify suitable targets, acquire
      them on acceptable terms or successfully integrate them*





Our
      business and operations continue to experience rapid growth, including through
      acquisition. The acquisition and integration of new businesses pose significant
      risks to our existing operations, including:




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·
            Additional
                demands placed on our senior management, who are also responsible
                for
                managing our existing operations;


·
            Increased
                overall operating complexity of our business, requiring greater personnel
                and other resources;


·
            Difficulties
                of expanding beyond our core expertise, in the event that we acquire
                content providers or other ancillary
                businesses;


·
            Significant
                initial cash expenditures to acquire and integrate new businesses;
                and


·
            In
                the event that debt is incurred to finance acquisitions, additional
                debt
                service costs related thereto as well as limitations that may arise
                under
                our Senior Notes and the EBRD Loan
                Agreement.





To
      effectively manage our growth and achieve pre-acquisition performance
      objectives, we will need to integrate any new acquisitions, implement financial
      and management controls and produce required financial statements in those
      operations. The integration of new businesses may also be difficult for a
      variety of reasons, including differing cultures or management styles, poor
      internal controls and an inability to establish control over cash flows. If
      any
      acquisition and integration is not implemented successfully, our ability to
      manage our growth will be impaired and we may have to make significant
      additional expenditures to address these issues, which could harm our financial
      position, results of operations and cash flows. Furthermore, even if we are
      successful in integrating new businesses, expected synergies and cost savings
      may not materialize, resulting in lower than expected profit
      margins.


*Our
        operating results depend on our ability to generate advertising sales generally
        and, in the Czech Republic, to implement our advertising sales
        strategy*





We
      generate almost all of our revenues from the sale of advertising airtime on
      our
      television channels. Our advertising revenues in general depend on the pricing
      of our advertising time as well as other factors, including television viewing
      levels, changes in audience preferences, our stations’ technical reach,
      technological developments relating to media and broadcasting, competition
      from
      other broadcasters and other media operators, seasonal trends in the advertising
      market in the countries in which we operate, and shifts in population and other
      demographics. Advertisers generally use gross ratings points to measure
      television viewing levels. Our ability to generate gross ratings points depends
      on our offering programming which appeals to our target audiences, responding
      to
      technological developments in media, competing effectively with other
      broadcasters seeking to attract similar audiences and managing the impact of
      any
      seasonal trends.




In
      the
      Czech Republic we are continuing to implement an advertising sales strategy
      adopted during the first quarter of 2006 to capture market growth through a
      more
      sophisticated pricing policy (see Item 7, “Analysis of Segment Results, Czech
      Republic”). There can be no assurance that we will be successful in fully
      implementing this advertising sales strategy in the Czech Republic or to respond
      successfully to changes in other factors affecting advertising sales generally
      in order to maintain and increase our advertising sales. Any decline in
      advertising sales due to a failure to respond to such changes or to successfully
      implement the advertising sales strategies, particularly in the Czech Republic,
      could have a material adverse effect on our financial position, results of
      operations and cash flows.




*Our
      operating results are dependent on the importance of television as an
      advertising medium*





We
      generate almost all of our revenues from the sale of advertising airtime on
      television channels in our markets. In the advertising market, television
      competes with various other advertising media, such as print, radio, the
      internet and outdoor advertising. In all of the countries in which we operate,
      television constitutes the single largest component of all advertising spending.
      There can be no assurances that the television advertising market will maintain
      its current position among advertising media in our markets or that changes
      in
      the regulatory environment or technology will not favor other advertising media
      or other television broadcasters. Increases in competition among advertising
      media arising from the development of new forms of advertising media and
      distribution could result in a decline in the appeal of television as an
      advertising medium generally or of our channels specifically. A decline in
      television advertising spending in any period or in specific markets could
      have
      an adverse effect on our results of operations and cash flows.





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*Our
        operating results are dependent on general economic
        conditions*





The
      results of our operations rely heavily on advertising revenue and demand for
      advertising is affected by prevailing general economic conditions. Adverse
      economic conditions generally and downturns in the economies of our operating
      countries specifically are likely to negatively impact the advertising
      industries in those countries and, consequently, the results of our operations.
      In addition, disasters, acts of terrorism, civil or military conflicts or
      general political uncertainty may create economic uncertainty that reduces
      advertising spending. Although recently there has been growth in the economies
      of our operating countries, there can be no assurance that this trend will
      continue or that any such improvement in general economic conditions will
      generate increased advertising revenue for our group. Global and local downturns
      in the general economic environment may cause our customers to reduce the
      amounts they spend on advertising, which could result in a decrease in demand
      for our advertising airtime. This would adversely affect our business, financial
      condition, results of operations and cash flow.





*Our
      programming content may become more expensive to produce or acquire or we may
      not be able to develop or acquire programming content that is attractive to
      our
      audiences*





Television
      programming is one of the most significant components of our operating costs.
      The commercial success of our channels depends substantially on our ability
      to
      develop, produce or acquire syndicated television programming content that
      matches audience tastes, attracts high audience shares and generates advertising
      revenues. Our programming costs or requirements may increase in response to
      increased competition from existing and new television broadcasting channels
      for
      such programming or related talent. The costs of acquiring programming content
      attractive to our viewers, such as feature films and popular television series
      and formats, may increase as a result of such competition. In addition, our
      expenditure in respect of locally produced programming content may increase
      due
      to the implementation of new laws and regulations mandating the broadcast of
      a
      greater number of locally produced programs, changes in audience tastes in
      our
      markets in favor of locally produced content, and competition for talent. In
      addition, we typically acquire syndicated programming rights under multi-year
      commitments before we can predict whether such programming will perform. In
      the
      event any such programming does not attract adequate audience share, it may
      be
      necessary to write down the value of such programming. Any such increase in
      programming costs or write-downs could have a material adverse effect on our
      business, financial condition, results of operations and cash flow.





*Our
      operations are subject to significant changes in technology that could adversely
      affect our business*





Countries
      in which we have operations have plans to migrate from analogue terrestrial
      broadcasting to digital terrestrial broadcasting. Each country has independent
      plans with differing time frames and regulatory regimes. The specific timing
      and
      approach to implementing such plans to be employed in our markets is not fully
      known and we cannot predict the timing or effect of such migration on our
      existing operations or predict our ability to receive any additional rights
      or
      licenses to broadcast if such additional rights or licenses should be required
      under any relevant regulatory regime. We may be required to commit substantial
      financial and other resources to the implementation of new technologies. We
      may
      be required to make substantial additional capital investment in order to
      implement digital terrestrial broadcasting and the use of alternative
      distribution systems may require us to acquire additional distribution and
      content rights. In light of our increased leverage position following the
      issuance of the Senior Notes, we may not have access to resources sufficient
      to
      make such investments.





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The
      television broadcasting industry may be affected by rapid innovations in
      technology. The implementation of new technologies and the introduction of
      broadcasting distribution systems other than analogue terrestrial broadcasting,
      such as digital broadcasting, cable and satellite distribution systems, the
      internet, video-on-demand and the availability to television programming on
      portable digital devices, have fragmented television audiences in more developed
      markets and could adversely affect our businesses. In addition, compression
      techniques and other technological developments allow for expanded programming
      offerings to be offered to highly targeted audiences. Reductions in the cost
      of
      creating additional channel capacity could lower entry barriers for new channels
      and encourage the development of increasingly targeted niche programming on
      various distribution platforms. Our television broadcasting operations may
      be
      required to expend substantial financial and managerial resources on the
      implementation of new broadcasting technologies or distribution systems. In
      addition, an expansion in competition due to technological innovation may
      increase competition for audiences and advertising revenue as well as the
      competitive demand for programming. Any requirement for substantial further
      investment for digitalization or to address competition that arises on account
      of technological innovations in broadcasting may have an adverse effect on
      our
      business, financial condition, results of operations and cash
      flows.




*Our
      success depends on attracting and retaining key personnel*





Our
      success depends partly upon the efforts and abilities of our key personnel
      and
      our ability to attract and retain key personnel. Our management teams have
      significant experience in the media industry and have made an important
      contribution to our growth and success. The loss of the services of any of
      these
      individuals could have an adverse effect on our business, results of operations
      and cash flow. Although we have been successful in attracting and retaining
      such
      people in the past, competition for highly skilled individuals is intense.
      There
      can be no assurance that we will continue to be successful in attracting and
      retaining such individuals in the future.





**Risks
      Relating to our** **Financial
      Position**





*Our
      increased debt service obligations following the issuance of the Senior Notes
      may adversely affect our business*





Our
      leverage has been significantly increased with the issuance of EUR 370.0 million
      (US$ 487.3 million at December 31, 2006) fixed and floating Senior Notes (see
      Item 8, Note 7 “Senior Notes”) in connection with the acquisition of the TV Nova
      (Czech Republic) group. As a result, we have significant debt service
      obligations and we are restricted in the manner in which our business is
      conducted. We anticipate that our high leverage will continue for the
      foreseeable future. Our high leverage could have important consequences to
      our
      business and results of operations, including but not limited to the following:
      our vulnerability to a downturn in our business or economic and industry
      conditions has increased; our ability to obtain additional financing to fund
      future working capital, capital expenditures, business opportunities and other
      corporate requirements has been limited. We may have a higher level of debt
      than
      certain of our competitors, which may put us at a competitive disadvantage;
      a
      substantial portion of our cash flow from operations is required to be dedicated
      to the payment of principal of, and interest on, our indebtedness, which means
      that this cash flow is not available to fund our operations, capital
      expenditures or other corporate purposes; and our flexibility in planning for,
      or reacting to, changes in our business, the competitive environment and the
      industry in which we operate has been limited. Any of these or other
      consequences or events could have a material adverse effect on our ability
      to
      satisfy our debt obligations and would therefore have potentially harmful
      consequences for the development of our business and strategic
      plan.





*We
      may require additional external sources of capital, which may not be available
      on acceptable terms*




The
      acquisition, ownership and operation of television broadcasting operations
      requires substantial capital investment. Our total capital requirements are
      based on our estimates of future operating results, which are based on a variety
      of assumptions that may prove to be inaccurate. If our assumptions prove to
      be
      inaccurate, if our assumptions or plans change, or if our costs increase due
      to
      competitive pressures or other unanticipated developments, we may need to obtain
      additional financing. Sources of financing may include public or private debt
      or
      equity financings, proceeds from the sale of assets or other financing
      arrangements. Any additional equity or equity-linked financings may dilute
      the
      economic interest of the holders of our Common Stock. In addition, it is not
      possible to ensure that such financings will be available within the limitations
      on the incurrence of additional indebtedness contained in the Indenture pursuant
      to which our Senior Notes were issued or pursuant to the terms of the EBRD
      Loan
      Agreement (see Item 8, Note 7, “Senior Notes”, and 13 “Credit Facilities and
      Obligations Under Capital Leases”). Furthermore, such financings may not be
      available on acceptable terms, or may be subject to limits on the incurrence
      of
      indebtedness under the Indenture.





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*Under
      the Senior Notes and the EBRD Loan Agreement, we have pledged shares in our
      subsidiaries that hold substantially all of our assets and a default on our
      obligations could result in our inability to continue to conduct our
      business*





Pursuant
      to the terms of our Indenture and the EBRD Loan Agreement, we have pledged
      shares in our two principal subsidiary holding companies, which own
      substantially all of our interests in our operating companies, including the
      TV
      Nova (Czech Republic) group, Pro TV, STS (Markiza), Pro Plus and Studio 1+1.
      If
      we were to default on the Indenture or the EBRD Loan Agreement, the Indenture
      trustee or the EBRD would have the ability to sell all or a portion of all
      of
      these assets in order to pay amounts outstanding under the Indenture or the
      EBRD
      Loan Agreement.





*Our
      cash flow and capital resources may not be sufficient for future debt service
      obligations*





Our
      ability to make debt service payments under our Senior Notes and other
      indebtedness depends on our future operating performance and our ability to
      generate sufficient cash, which in turn depends in part on factors that are
      not
      within our control, including general economic, financial, competitive, market,
      legislative, regulatory and other factors. If our cash flow and capital
      resources are insufficient to fund our debt service obligations, we would face
      substantial liquidity problems and we may be obliged to reduce or delay capital
      or other material expenditures at our stations, restructure our debt, obtain
      additional debt or equity capital (if available on acceptable terms), or dispose
      of material assets or businesses to meet our debt service and other obligations.
      It may not be possible to accomplish any of these alternatives on a timely
      basis
      or on satisfactory terms, if at all.





*We
      are subject to risks relating to fluctuations in exchange
      rates*





Our
      reporting currency is the US dollar but a significant portion of our
      consolidated revenues and costs, including programming rights expenses and
      interest on debt, are in other currencies. Furthermore, the functional currency
      of our operations in Romania and Ukraine is the US dollar. This is subject
      to
      annual review and new circumstances that may be identified during these annual
      reviews may result in use of functional currencies in these markets that differ
      from our reporting currency. In addition, our Senior Notes are denominated
      in
      Euros. We have not attempted to hedge the Senior Notes; we have in the past
      and
      may therefore in the future continue to experience significant gains and losses
      on the translation of the Senior Notes into US dollars due to movements in
      exchange rates between the Euro and the US dollar.




*If
      our goodwill or amortizable intangible assets become impaired we may be required
      to record a significant charge to earnings*





We
      review
      our amortizable intangible assets for impairment when events or changes in
      circumstances indicate the carrying value may not be recoverable. Goodwill
      and
      indefinite-lived intangible assets are required to be tested for impairment
      at
      least annually. Factors that may be considered a change in circumstances
      indicating that the carrying value of our goodwill or amortizable intangible
      assets may not be recoverable include a decline in stock price and market
      capitalization, future cash flows, and slower growth rates in our industry.
      We
      may be required to record a significant charge to earnings in our financial
      statements during the period in which any impairment of our goodwill or
      amortizable intangible assets is determined resulting in a negative impact
      on
      our results of operations.





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*Our
      holding company structure may limit our access to cash*





We
      are a
      holding company and we conduct our operations through subsidiaries and
      affiliates. The primary internal source of our cash to fund our operating
      expenses as well as service our existing and future debt depends on debt
      repayments from our subsidiaries, the earnings of our operating subsidiaries,
      earnings generated from our equity interest in certain of our affiliates and
      distributions of such earnings to us. Substantially all of our assets consist
      of
      ownership of and loans to our subsidiaries and affiliates. We currently rely
      on
      the repayment of inter-company indebtedness and the declaration of dividends
      to
      receive distributions of cash from our operating subsidiaries and affiliates.
      The distribution of dividends is generally subject to conformity with
      requirements of local law, including the funding of a reserve account and,
      in
      certain instances, the affirmative vote of our partners. If our operating
      subsidiaries or affiliates are unable to distribute to us funds to which we
      are
      entitled, we may be unable to cover our operating expenses. Such inability
      would
      have a material adverse effect on our results of operations.




**Risks
      Relating to Enforcement Rights**





*We
      may not be able to enforce our indemnification rights in a timely
      manner*





Under
      the
      purchase agreement for the TV Nova (Czech Republic) group, PPF and certain
      of
      its affiliates have agreed to indemnify us for a limited period of time up
      to
      the full amount of the purchase price paid by us for the TV Nova (Czech
      Republic) group for a series of events and circumstances, including claims
      relating to taxes and claims brought by certain former shareholders of the
      TV
      Nova (Czech Republic) group. If we make an indemnification claim and we do
      not
      receive an indemnification payment or if such payment is delayed or contested,
      it may have a material adverse effect on our ability to make any required
      repayments under the terms of the Senior Notes or other indebtedness or may
      adversely affect our results of operations.





*Enforcement
      of civil liabilities and judgments may be difficult*





Central
      European Media Enterprises Ltd. is a Bermuda company, and substantially all
      of
      our assets and all of our operations are located, and all of our revenues are
      derived, outside the United States of America. In addition, several of our
      directors and officers are non-residents of the United States of America, and
      all or a substantial portion of the assets of such persons are or may be located
      outside the United States of America. As a result, investors may be unable
      to
      effect service of process within the United States of America upon such persons,
      or to enforce against them judgments obtained in the United States of America
      courts, including judgments predicated upon the civil liability provisions
      of
      the United States of America federal and state securities laws. There is
      uncertainty as to whether the courts of Bermuda and the countries in which
      we
      operate would enforce (i) judgments of United States of America courts obtained
      against us or such persons predicated upon the civil liability provisions of
      the
      United States of America federal and state securities laws or (ii) in original
      actions brought in such countries, as applicable, liabilities against us or
      such
      persons predicated upon the United States of America federal and state
      securities laws.





**Risks
      Relating to Our Common Stock**





*CME
      Holdco L.P. is in a position to decide corporate actions that require
      shareholder approval and may have interests that differ from those of other
      shareholders*




CME
        Holdco L.P. owns all our outstanding shares of Class B Common Stock, each
        of
        which carries 10 votes per share. Ronald Lauder, the chairman of our Board
        of
        Directors, is the majority owner of CME Holdco L.P. and, subject to certain
        limitations described below, is entitled to vote those shares on behalf of
        CME
        Holdco L.P. The shares over which Ronald Lauder has voting power represent
        64.8%
        of the aggregate voting power of our Common Stock. On September 1, 2006,
        Adele
        (Guernsey) L.P., a fund affiliated with Apax Partners, acquired 49.7% of
        CME
        Holdco L.P. Under the terms of the limited partnership agreement of CME Holdco
        L.P., Adele (Guernsey) L.P. has certain consent rights in respect of the
        voting
        and disposition of the shares of Class B Common Stock. CME Holdco L.P. is
        in a
        position to control the outcome of corporate actions requiring shareholder
        approval, such as the election of directors, including two recommended by
        Adele
        (Guernsey) L.P., and transactions involving a change of control. The interests
        of CME Holdco L.P. may not be the same as those of other shareholders, and
        such
        shareholders will be unable to affect the outcome of such corporate actions
        for
        so long as CME Holdco L.P. retains voting control.





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*The
      price of our Class A Common Stock is likely to remain volatile*





The
      market price of shares of our Class A Common Stock may be influenced by many
      factors, some of which are beyond our control, including those described above
      under “Risks Relating to our Business and Operations” and including the
      following: license renewals, general economic and business trends, variations
      in
      quarterly operating results, regulatory developments in our operating countries
      and the EU, the condition of the media industry in our operating countries,
      the
      volume of trading in shares of our Class A Common Stock, future issuances of
      shares of our Class A Common Stock, investor and securities analyst perception
      of us and other companies that investors or securities analysts deem comparable
      in the television broadcasting industry. In addition, the stock market in
      general has experienced extreme price and volume fluctuations that have often
      been unrelated to and disproportionate to the operating performance of
      broadcasting companies. These broad market and industry factors may materially
      reduce the market price of our Class A Common Stock, regardless of our operating
      performance.





*Our
      share price may be adversely affected by potential future issuances and sales
      of
      our shares*





As
      at
      December 31, 2006, we have a total of 1.2 million options to purchase Class
      A
      Common Stock outstanding and 0.1 million options to purchase Class B Common
      Stock outstanding. An affiliate of PPF holds 3,500,000 unregistered shares
      of
      Class A Common Stock and has the right to demand a registration of up to 100%
      of
      such shares in May 2007. We cannot predict what effect, if any, the issuance
      of
      shares underlying options, the registration of such unregistered shares or
      any
      future sales of our shares will have on the market price of our shares. However,
      if more shares are issued, the economic interest of current shareholders may
      be
      diluted and the price of our shares may be adversely affected.





The
      risks
      described here are not the only risks facing the Company. Additional risks
      and
      uncertainties not currently known to us or that we currently deem to be
      immaterial also may materially adversely affect our business, financial
      condition and / or operating results.





**ITEM1B.**
            **UNRESOLVED
                STAFF COMMENTS**





None.





*Page
            37*
 *Table
            of Contents*





**ITEM
              2.**
            **PROPERTIES**





We
      own
      and lease properties in the countries in which we operate. These facilities
      are
      fully utilized for current operations, are in good condition and are adequately
      equipped for purposes of conducting broadcasting or such other operations.
      We
      believe that suitable additional space is available on acceptable terms in
      the
      event of an expansion of our businesses. The table below provides a brief
      description of our significant properties.





**Location**
            **Property**
            **Use**Hamilton,
                Bermuda
            Leased
                office
            Registered
                Office, CorporateAmsterdam,
                Netherlands
            Leased
                office
            Corporate
                Office, CorporateLondon,
                United Kingdom
            Leased
                office
            Administrative
                Center, CorporateZagreb,
                Croatia
            Owned
                and leased buildings
            Office
                and studio space, NOVA TV (Croatia)Prague,
                Czech Republic
            Owned
                buildings and leased buildings
            Office
                and studio space, TV NOVA (Czech Republic)Bucharest
                and other key cities within Romania
            Owned
                and leased buildings
            Office
                and studio space, PRO TVBratislava,
                Slovak Republic
            Owned
                buildings
            Office
                and studio space, MARKIZA TVLjubljana,
                Slovenia
            Owned
                buildings and leased buildings
            Office
                and studio space, POP TV and KANAL AKiev,
                Ukraine
            Owned
                and leased buildings
            Office
                space, STUDIO 1+1. Office and studio space, KINO, CITIKirovograd,
                Ukraine
            Leased
                buildings
            Office
                and studio space, KINO, CITISurrounding
                suburbs of Kiev, Ukraine
            Leased
                offices
            Studio
                space, STUDIO 1+1Zug,
                Switzerland
            Leased
                office
            Office
                space, IMS


For
        further information on using our cash resources to fund these facility-related
        costs, see “Management’s Discussion and Analysis of Financial Condition and
        Results of Operations - Liquidity and Capital Resources” in Item
        7.


*Page
            38*
 *Table
            of Contents*





**ITEM
              3.**
            **LEGAL
                PROCEEDINGS**





**General**





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.





We
      present below a summary of our more significant proceedings by
      country.





*Croatia*





*Global
      Communications Dispute* *s*





On
      October 29, 2004, OK filed suit against Global Communications d.o.o. claiming
      approximately HRK 53.0 million (approximately US$ 9.5
      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
      Ivan Caleta, had provided certain goods and services to OK and Nova TV (Croatia)
      in exchange for advertising time pursuant to an agreement dated April 10, 2001
      (the “Global Agreement”). Global Communications and GRP Media were functionally
      managing the advertising inventory of Nova TV (Croatia). On December 31, 2003,
      Global Communications entered into a reconciliation 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 68.0 million
      (approximately US$ 12.2 million), claiming that the AGB data is unreliable
      and
      that it is entitled to additional seconds under the previous agreement. The
      lower commercial court issued a judgment on July 12, 2006 in favor of Global
      Communications for the full amount of the counterclaim, and we have appealed
      this decision on the basis of false and inadequate disclosure, wrongful
      application of substantive law and procedural error. Global Communications
      separately brought a claim against Nova TV (Croatia), on the same basis as
      the
      OK counterclaim. Both Global Communications and Nova TV (Croatia) requested
      the
      court to join this claim with the OK counterclaim but this request was denied.
      The lower commercial court issued a judgment on August 1, 2006 in favor of
      Global Communications for the full amount of the claim, after having denied
      submission of evidence supporting our defense. We have also appealed this
      decision.





*Page
            39*
 *Table
            of Contents*





On
      January 25, 2007, Nova TV (Croatia) filed suit against Global Communications.
      The facts underlying the claim are substantially the same as those of the
      abovementioned claims, but Nova TV (Croatia) is claiming that the Global
      Agreement and the two reconciliation agreements dated April 30, 2004 and June
      30, 2004 (the “Reconciliation Agreements”), by which OK acknowledged the number
      of seconds of advertising time to which Global Communications was purportedly
      entitled, should be declared null and void under Article 141 of the Croatian
      Obligations Act. This provision is intended to protect a contractual party
      which
      has entered into unfair bargaining terms due to its dependency on the other
      contractual party. Global Communications, OK and Nova TV (Croatia) were all
      related parties (controlled by Ivan Caleta) and the contractual terms provided
      for the provision of 1,340,280 seconds by OK to Global Communications in
      exchange for certain transmitters. These seconds were valued at an aggregate
      of
      DEM 5 million (or DEM 3.73 per second; HRK 3.91 per second at the time) whereas
      the rate card price was DEM 97.18 or HRK 380.00 per second (i.e. a price that
      was 26 times higher). Other clients (unrelated parties) sampled from this period
      were paying between 382.50 HRK to 491.85 HRK per second. Nova TV (Croatia)
      is
      arguing for voidance of this contract because of its unconscionable terms which
      were detrimental to OK and Nova TV (Croatia) and beneficial solely to Global
      Communications (which, in its capacity as an advertising agency, on-sold these
      seconds to its clients at market rates, thereby reaping an extraordinary
      profit). Nova TV (Croatia) is further claiming restitution for advertising
      seconds appropriated by Global Communications under the Global Agreement. The
      restitution amount is HRK 586.5 million (approximately US$ 105.1 million).
      Given
      that the resolution of the issues posed by this lawsuit constitutes a
      preliminary question on which appellate review of the two lawsuits previously
      mentioned above should depend, we have requested suspension of those two reviews
      until this question has been finally adjudicated.





*Former
      Shareholder Dispute*





On
      July
      21, 2005, Narval A.M. d.o.o. (a
      company wholly-owned by Ivan Caleta), Studio Millenium d.o.o. and Richard
      Anthony Sheldon, three of the former shareholders of OK, filed suit against
      Nova
      TV (Croatia) for rescission of the sale and purchase contract pursuant to which
      they sold 75% of OK to Nova TV (Croatia) in July 2004 (the “OK Sale Contract”).
      Nova TV (Croatia) acquired OK immediately prior to our acquiring Nova TV
      (Croatia). The provisions of the OK Sale Contract required Nova TV (Croatia)
      to
      make payment to the four shareholders of OK by September 1, 2004, upon receipt
      of appropriate invoices and bank account details. The fourth shareholder, Pitos
      d.o.o., issued an invoice that was duly received by Nova TV (Croatia) and
      payment was made thereunder. The other three shareholders claim that they
      hand-delivered a joint invoice to one of the former directors of Nova TV
      (Croatia), but we continue to dispute this. Under the Croatian Obligations
      Act,
      one party to a contract who has performed may unilaterally rescind a contract
      if
      the other party fails to perform after receipt of a written warning. On May
      24,
      2006, the lower commercial court decided in favor of the plaintiffs to rescind
      the OK Sale Contract and ordered the defendant to pay court costs. We have
      appealed the decision on the basis that evidence supporting our position was
      not
      allowed to be presented to the court and we continue to challenge the validity
      of the power of attorney purportedly issued by Richard Anthony Sheldon (a
      resident of the United Kingdom) to legal counsel representing the other
      plaintiffs.





On
      August
      28, 2006, we received a lower court decision of an injunction against us
      (decided without a hearing) that, inter alia, prohibits a sale or encumbrance
      of
      75% of the shares of OK. Although we appealed this decision, the appellate
      commercial court upheld the lower court’s judgment on November 21, 2006. On
      November 6, 2006, we were notified of a request for a further injunction that
      would, inter alia, prohibit us from taking any actions to decrease the value
      of
      OK and require the management of OK to report to a delegate of the former
      shareholders. We have unsuccessfully sought the removal of the presiding judge,
      Raul Dubravec (who also presided over the Global Communications lawsuit against
      Nova TV (Croatia)). Mr. Dubravec ruled against us on December 18, 2006,
      requiring imposition of a temporary director for OK, which is not a remedy
      available under Croatian law under the facts of this action. Further, the
      temporary director who has been appointed is one of the former directors of
      OK
      who countersigned the Reconciliation Agreements and is an associate of Ivan
      Caleta. We have appealed this decision. While we continue to vigorously contest
      all these actions in the face of serious concerns as to the impartiality of
      the
      Croatian judicial system, we do not expect our Croatia operations to suffer
      any
      significant loss or disruption as a consequence of these actions.




*Czech
      Republic*





*Antimonopoly
      Office*





The
      investigation of the Office for the Protection of Economic Competition of the
      Czech Republic was terminated in December 2006, and CET 21 received written
      confirmation from the Office that TV Nova’s current sales contracts and
      conditions of advertising are in compliance with Czech antimonopoly
      legislation.





*Romania*





There
      are
      no significant outstanding legal actions that relate to our business in
      Romania.




*Page
          40*
 *Table
          of Contents*




*Slovenia*





On
      November 20, 2002, we received notice of a claim filed by Zdenka Meglic, the
      founder and a former shareholder of MMTV 1 d.o.o (MMTV), against MMTV, a
      subsidiary of CME Media Enterprises B.V. In her claim against MMTV, Zdenka
      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$ 0.2 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 Zdenka 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 Kolomoisky 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”. Igor Kolomoisky is
      attempting to enforce what he alleges was a binding oral agreement with
      Alexander 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 Igor
      Kolomoisky on receipt of a prepayment of US$ 2.0 million. The lawsuit arises
      from abortive negotiations among Igor Kolomoisky, Alexander Rodnyansky and
      Boris
      Fuchsmann for the acquisition by Igor Kolomoisky of the totality of interests
      in
      the Studio 1+1 Group held by Alexander Rodnyansky and Boris Fuchsmann, subject
      to Igor Kolomoisky assuming all of their obligations under our existing
      partnership arrangements. On August 16, 2006, the district court in Kiev ruled
      in favor of Igor Kolomoisky and found that he is entitled to the 70% interest
      in
      Studio 1+1 held by Alexander Rodnyansky. Our Ukrainian affiliate Intermedia
      and
      Alexander Rodnyansky filed appeals against this decision.




At
          a hearing on October 31, 2006, the appellate court overturned the decision
          of
          the court of first instance and denied Igor Kolomoisky’s claim that he is
          entitled to a 70% interest in Studio 1+1 held by Alexander Rodnyansky.
          On
          November 3, 2006, Igor Kolomoisky filed an appeal with the Supreme Court
          of
          Ukraine, the highest court in Ukraine. At a hearing on February 28, 2007,
          the
          Supreme Court rejected this appeal. As a result, Igor Kolomoisky no longer
          has a
          basis for claiming this ownership right in Studio 1+1 on the same
          grounds.
  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
        came into force in March 2006. Our partners have acknowledged an obligation
        to
        restructure upon the entry into force of these amendments. On September 5,
        2006,
        our partners entered into certain agreements to implement the restructuring.
        Following the completion of the transactions reflected in these agreements
        and
        the registration of the charter of Studio 1+1 amended to reflect the new
        ownership of Studio 1+1, we will own 60% of Studio 1+1. Upon successful
        completion of the restructuring, we will terminate the proceedings initiated
        against our partners in December 2005.





*Page
          41*
 *Table
          of Contents*




Because
      of ongoing ancillary litigation to enjoin transactions related to the ownership
      of Studio 1+1 that have been initiated by Igor Kolomoisky, by our partners
      and
      by third parties who are not direct parties in interest to legal proceedings
      initiated by Igor Kolomoisky against Alexander Rodnyansky, the state registrar in the district administration in Kiev where
      such charter amendments are registered is presently enjoined from registering
      any amendments to the charter of Studio 1+1. Our partners are no longer seeking
      to enforce the injunction filed at their initiative; we expect that this
      injunction will be removed once the case file in this matter has been
      transferred to the appellate court and the appeal filed by Igor Kolomoisky
      in
      respect of this injunction has been scheduled.





**ITEM4.**
            **SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY
                HOLDERS**





None.


*Page
            42*
 *Table
            of Contents*
  **PART
      II**





**ITEM
              5.**
            **MARKET
                FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
                MATTERS****AND ISSUER PURCHASES OF EQUITY
                SECURITIES**





The
      Class
      A Common Stock of Central European Media Enterprises Ltd. began trading on
      the
      NASDAQ National Market on October 13, 1994 under the trading symbol
“CETV”.





On
      February 20, 2007 the last reported sales price for the Class A Common Stock
      was
      US$ 86.00.





The
      following table sets forth the high and low sales prices for the Class A Common
      Stock for each quarterly period during the last two fiscal years.





**Price
                Period**
            **High
                (US$ / Share)**
            **Low
                (US$ / Share)****2006**First
                Quarter
            71.87
            56.73Second
                Quarter
            71.35
            52.90Third
                Quarter
            68.47
            53.62Fourth
                Quarter
            77.69
            67.50**2005**First
                Quarter
            56.08
            34.90Second
                Quarter
            50.70
            40.04Third
                Quarter
            55.79
            47.10Fourth
                Quarter
            59.00
            44.72





At
      February 20, 2007, there were 25 holders of record (including brokerage firms
      and other nominees) of the Class A Common Stock and 2 holders of record of
      the
      Class B Common Stock. There is no public market for the Class B Common Stock.
      Each share of Class B Common Stock has 10 votes.





**DIVIDEND
      POLICY**





We
      have
      not declared or paid and have no present intention to declare or pay in the
      foreseeable future any cash dividends in respect to any class of our Common
      Stock.





**PURCHASE
      OF OWN STOCK**





We
      did
      not purchase any of our own stock in 2006.





*Page
            43*
 *Table
            of Contents*





**PERFORMANCE
      GRAPH**





The
      following performance graph is a line graph comparing the change in the
      cumulative shareholder return of the Class A Common Stock against the total
      cumulative total return of the Nasdaq Composite Index and the Dow Jones World
      Broadcasting Index between December 31, 2002 and December 31, 2006.













Value
              of US$ 100 invested at December 31, 2002 as of December 31,
              2006:Central
                European Media Enterprises Ltd.
            
            $
            1,217.39NASDAQ
                Composite Index
            
            $
            209.62Dow
                Jones World Broadcasting Index(1)
            
            $
            180.85





(1) This
      index includes 69 companies, all of which are non-U.S. based. Accordingly,
      the
      Company believes that the inclusion of this index is useful in understanding
      the
      stock performance of the Company compared to companies in the television
      broadcast and cable industry.








**ITEM
              6.**
            **SELECTED
                FINANCIAL DATA**





**SELECTED
      CONSOLIDATED FINANCIAL DATA**





Our
      selected consolidated financial data should be read together with our
      consolidated financial statements and related notes included elsewhere in this
      Annual Report on Form 10-K.





The
      following tables set forth the selected consolidated financial data for each
      of
      the years in the five-year period ended December 31, 2006. The selected
      consolidated financial data is qualified in its entirety and should be read
      in
      conjunction with the Consolidated Financial Statements and related notes thereto
      set forth in Item 8 and Item 7, “Management’s Discussion and Analysis of
      Financial Condition and Results of Operations”. We have derived the consolidated
      statements of operations data for the years ended December 31, 2006, 2005 and
      2004 and the consolidated balance sheet data as of December 31, 2006 and
      December 31, 2005 from the consolidated audited financial statements included
      elsewhere in this Annual Report on Form 10-K. The consolidated statement of
      operations data for the years ended December 31, 2003 and 2002 and the balance
      sheet data as of December 31, 2004, 2003 and 2002 were derived from the
      consolidated audited financial statements that are not included in this Annual
      Report on Form 10-K, as restated under SAB 108.





*Page
            44*
 *Table
            of Contents*




**For
                the Years Ended December 31,****2006**
            
            **2005
                (as**
              **restated)**
              **(3,4)**
            
            **2004
                (as**
              **restated)**
              **(4)**
            
            **2003
                **(as****
              ****restated)****
              ****(4)****
            
            **2002
                **(as****
              ****restated)****
              ****(4)******(US$
                000’s, except per share data)****CONSOLIDATED
                STATEMENT OF OPERATIONS DATA:**Net
                revenues
            
            $
            603,115
            
            $
            400,978
            
            $
            182,339
            
            $
            124,978
            
            $
            99,143Operating
                income / (loss)
            
            
            140,674
            
            
            52,196
            
            
            18,671
            
            
            (4,410
            )
            
            1,466Net
                income / (loss) from continuing operations
            
            
            25,287
            
            
            42,835
            
            
            15,938
            
            
            (24,201
            )
            
            (25,106
            )(Loss)
                / income on discontinued operations (1)
            
            
            (4,863
            )
            
            (513
            )
            
            2,524
            
            
            370,213
            
            
            10,922**Net
                income / (loss)**
            
            **$**
            **20,424**
            
            **$**
            **42,322**
            
            **$**
            **18,462**
            
            **$**
            **346,012**
            
            **$**
            **(14,184**
            **)****PER
                SHARE DATA:**(2)Net
                income / (loss) per common share from:Continuing
                operations - basic
            
            $
            0.63
            
            $
            1.24
            
            $
            0.57
            
            $
            (0.91
            )
            $
            (0.95
            )Continuing
                operations - diluted
            
            
            0.62
            
            
            1.21
            
            
            0.55
            
            
            (0.91
            )
            
            (0.95
            )Discontinued
                operations - basic
            
            
            (0.12
            )
            
            (0.01
            )
            
            0.09
            
            
            13.97
            
            
            0.41Discontinued
                operations - diluted
            
            
            (0.12
            )
            
            (0.01
            )
            
            0.09
            
            
            13.97
            
            
            0.41Net
                income / (loss) - basic
            
            
            0.51
            
            
            1.22
            
            
            0.66
            
            
            13.06
            
            
            (0.54
            )Net
                income / (loss) - diluted
            
            $
            0.50
            
            $
            1.19
            
            $
            0.63
            
            $
            13.06
            
            $
            (0.54
            )Weighted
                average common shares used in computing per share amounts
                (000’s)Basic
            
            
            40,027
            
            
            34,664
            
            
            27,871
            
            
            26,492
            
            
            26,451Diluted
            
            
            40,600
            
            
            35,430
            
            
            29,100
            
            
            26,492
            
            
            26,451**CONSOLIDATED
                BALANCE SHEET DATA:**Current
                assets
            
            $
            413,616
            
            $
            286,926
            
            $
            265,049
            
            $
            266,891
            
            $
            109,558Non-current
                assets
            
            
            1,405,384
            
            
            1,101,924
            
            
            179,590
            
            
            101,861
            
            
            74,464**Total
                assets**
            
            $
            **1,819,000**
            
            $
            **1,388,850**
            
            $
            **444,639**
            
            $
            **368,752**
            
            $
            **184,022**Current
                liabilities
            
            
            182,961
            
            
            206,961
            
            
            109,745
            
            
            71,116
            
            
            77,156Non-current
                liabilities
            
            
            574,084
            
            
            488,099
            
            
            18,965
            
            
            23,118
            
            
            200,723Minority
                interests
            
            
            26,189
            
            
            13,237
            
            
            4,861
            
            
            994
            
            
            2,019Shareholders’
                equity / (deficit)
            
            
            1,035,766
            
            
            680,553
            
            
            311,068
            
            
            273,524
            
            
            (95,876
            )**Total
                liabilities and shareholders’ equity**
            
            **$**
            **1,819,000**
            
            **$**
            **1,388,850**
            
            **$**
            **444,639**
            
            **$**
            **368,752**
            
            **$**
            **184,022**




(1)
      In
      2003 we sold
      our
      93.2% participation interest in CNTS, our former Czech Republic operating
      company, to PPF. Our
      financial statements present our former operations in the Czech Republic as
      discontinued operations for all periods.




(2)
      All
      per share data has been adjusted for the two-for-one stock splits which occurred
      on August 22, 2002, January 10, 2003 and November 5, 2003.




(3)
      The
      Consolidated Balance Sheet and Consolidated Statements of Operations reflect
      the
      effect of our acquisition of the TV NOVA (Czech Republic) group in May
      2005.




(4)
      Our
      results for the years ended December 31, 2005, 2004, 2003 and 2002 have been
      restated to reflect the correction of certain errors relating to our historic
      accounting for the issuance of stock options. See Item 8, Note 2
”Restatement”.





*Page
            45*
 *Table
            of Contents*





The
      restatement above had the impact on our previously presented financial
      information as set out below. All amounts are in US$ 000’s except per share
      data:




**As
                    reported**
                  **previously**
                
                **Adjustment**
                
                **As
                    restated****Balance
                    Sheet (as of December 31, 2002)**Additional
                    paid-in capital at December 31, 2002
                
                $
                359,342
                
                $
                6,939
                
                $
                366,281Accumulated
                    deficit at December 31, 2002
                
                
                (452,
                    011
                )
                
                (6,939
                )
                
                (458,950
                )**Balance
                    Sheet (as of December 31, 2003)**Additional
                    paid-in capital at December 31, 2003
                
                $
                372,662
                
                $
                6,939
                
                $
                379,601Accumulated
                    deficit at December 31, 2003
                
                
                (105,999
                )
                
                (6,939
                )
                
                (112,938
                )**Balance
                    Sheet (as of December 31, 2004)**Additional
                    paid-in capital at December 31, 2004
                
                $
                387,305
                
                $
                7,008
                
                $
                394,313Retained
                    deficit at December 31, 2004
                
                
                (87,468
                )
                
                (7,008
                )
                
                (94,476
                )**Balance
                    Sheet (as of December 31, 2005)**Additional
                    paid-in capital at December 31, 2005
                
                $
                746,880
                
                $
                7,181
                
                $
                754,061Retained
                    deficit at December 31, 2005
                
                
                (44,973
                )
                
                (7,181
                )
                
                (52,154
                )
 
 **Statement
                    of Operations (for the Year Ended December 31,
                    2004)**Corporate
                    operating costs
                
                
                (29,185
                )
                
                (69
                )
                
                (29,254
                )Operating
                    income
                
                
                18,740
                
                
                (69
                )
                
                18,671Income
                    from continuing operations
                
                
                16,007
                
                
                (69
                )
                
                15,938Net
                    income
                
                
                18,531
                
                
                (69
                )
                
                18,462Net
                    income from continuing operations per share - Basic
                
                
                0.57
                
                
                0.00
                
                
                0.57Net
                    income per share - Basic
                
                
                0.66
                
                
                0.00
                
                
                0.66**Statement
                    of Operations (for the Year Ended December 31,
                    2005)**Corporate
                    operating costs
                
                
                (25,374
                )
                
                (173
                )
                
                (25,547
                )Operating
                    income
                
                
                52,369
                
                
                (173
                )
                
                52,196Income
                    from continuing operations
                
                
                43,008
                
                
                (173
                )
                
                42,835Net
                    income
                
                
                42,495
                
                
                (173
                )
                
                42,322Net
                    income from continuing operations per share - Basic
                
                
                1.24
                
                
                0.00
                
                
                1.24Net
                    income per share - Basic
                
                
                1.23
                
                
                0.00
                
                
                1.22
  *Page
            46*
 *Table
            of Contents*




The
      adjustment to Accumulated deficit and Additional paid in capital at December
      31,
      2002 represented additional stock-based compensation expense relating to the
      following years ended:




**Adjustment**
                **(US$
                  000’s)**December
                  31, 1994
              
              $
              47December
                  31, 1995
              
              
              548December
                  31, 1996
              
              
              1,632December
                  31, 1997
              
              
              2,504December
                  31, 1998
              
              
              1,719December
                  31, 1999
              
              
              400December
                  31, 2000
              
              
              89December
                  31, 2001
              
              
              -6,939


**Seasonality**





We,
      like
      other television operators, experience seasonality, with advertising sales
      tending to be lowest during the third quarter of each calendar year, which
      includes the summer holiday period (typically July and August), and highest
      during the fourth quarter of each calendar year.





*Page
            47*
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            of Contents*





**ITEM7.**
            **MANAGEMENT'S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                OPERATIONS**





The
      following discussion should be read in conjunction with the sections entitled
      “Forward-looking Statements” and “Risk Factors” in Item 1.





***Contents***





***I.***
            ***Executive
                Summary******II.***
            ***General
                Market Information******III.***
            ***Analysis
                of Segment Results******IV.***
            ***Analysis
                of the Results of Consolidated Operations******V.***
            ***Liquidity
                and Capital Resources******VI.***
            ***Critical
                Accounting Policies and Estimates******VII.***
            ***Related
                Party Matters***





***I.
      Executive Summary***





During
      2006 we delivered on our previously announced strategy:





·
            We
                improved the financial performance of our core stations (Romania,
                Slovak
                Republic, Slovenia and Ukraine) by delivering an increase in Segment
                Net
                Revenues of  30% and Segment EBITDA of 39% from
                2005;





The
      principal events since January 1, 2006 are as follows:





·
            On
                January 11, 2006, we completed the acquisition of a 65.5% interest
                in
                Ukrpromtorg 2003 LLC(“Ukrpromtorg”),
                which owns 92.2% of Gravis LLC, the operator of the GRAVIS channel
                and
                CHANNEL 7 in Kiev as well as two other local channels in Ukraine,
                for a
                total investment of approximately US$ 7.4 million (for further information
                see Item 8, Note 4, “Acquisitions and Disposals,
                Ukraine”);





·
            On
                January 23, 2006, we completed the acquisition of control of our
                Slovak
                Republic operations and increased our economic interest from 70.0%
                to
                80.0% for total consideration of approximately US$ 29.8 million.
                As a
                result of this transaction, we began consolidating the results of
                our
                Slovak Republic operations from January 2006 (for further information
                see
                Item 8, Note 4, “Acquisitions and Disposals, Slovak
                Republic”);




·
              Effective
                  February 1, 2006, Vaclav Mika was appointed General Director for
                  the
                  MARKIZA TV channel;




·
            On
                February 17, 2006, we purchased an additional 5% of Pro TV, MPI and
                Media
                Vision from Adrian Sarbu for consideration of US$ 27.2 million (for
                further information, see Item 8, Note 4, “Acquisitions and Disposals,
                Romania”). We now own a 90% voting and economic interest in Pro TV and MPI
                and a 75% voting and economic interest in Media
                Vision;





·
            On
                March 7, 2006, the Slovak Republic Media Council extended the broadcasting
                license of TV MARKIZA for an additional 12 years, until September
                2019;





·
            On
                March 29, 2006, we completed the public offering of 2,530,000 shares
                of
                our Class A Common Stock and raised net proceeds of approximately
                US$
                168.7 million;





*Page
          48*
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          of Contents*
 ·
                  On
                      July 1, 2006, we launched a new entertainment channel in Ukraine,
                      KINO,
                      targeted at a young demographic. In the period since being
                      launched, KINO
                      has secured a national 14-49 prime time audience share of approximately
                      0.33%, and an average share in the Kiev area of
                      1.87%;




·
            On
                July 19, 2006, the Ukrainian Media Council issued a decision to extend
                the
                15-hour broadcasting license of Studio 1+1 for a ten-year period
                to
                December 29, 2016;





·
            On
                August 11, 2006, we completed the acquisition of a 10.0% stake in
                Media
                Pro, a group of Romanian companies with operations in the fields
                of
                publishing, information, printing, cinema, entertainment and radio
                (for
                further information see Item 8, Note 4, “Acquisitions and Disposals,
                Romania and Note 6, “Investments”);





·
            During
                the third quarter 2006, we commenced a voluntary review of our stock
                option granting practices covering the period from 1994 to 2002.
                The
                review found certain instances of administrative and procedural
                deficiencies that occurred in the period between 1994 and 1998, but
                found
                no evidence from which it could be concluded that any errors were
                the
                result of deliberate or intentional misconduct. We have restated
                our
                historic financial statements to correct these errors (for further
                information see Item 8, Note 2 “Restatement”);
                and




·
              On
                  December 1, 2006, we launched a new entertainment channel in Ukraine,
                  CITI, targeted at a young demographic. In the period since being
                  launched,
                  CITI has secured an average 14-49 prime time audience share of
                  approximately 1.77% in the Kiev
                  region.
 
 *Management
        Changes*
  ·
              On
                  July 28, 2006, the term of Michael Garin’s employment agreement to serve
                  as Chief Executive Officer was extended from 2008 to
                  2010;
 
 ·
              On
                  August 1, 2006, we concluded an agreement with Adrian Sarbu in
                  connection
                  with his appointment in February 2006 to oversee our operations
                  in the
                  Czech and Slovak Republics in addition to his existing responsibilities
                  as
                  general director of our operations in
                  Romania;
 
 ·
              On
                  August 3, 2006, Robert E. Burke announced his intention to step
                  down as
                  the Company’s President and Chief Operating Officer effective October 1,
                  2006; and
 
 ·
              On
                  October 5, 2006, the term of Marina Williams’ agreement to serve as
                  Executive Vice President was extended from 2008 to
                  2010.




*Future
      Trends*





As
      our
      markets mature, we anticipate more intense competition for audience share and
      advertising spending from other incumbent terrestrial broadcasters and, to
      a
      lesser extent, from local cable and satellite broadcasters. We believe we are
      in
      a solid position to manage increased competition. In the near term we intend
      to
      continue to pursue further improvements in the performance of our existing
      operations in order to maximize the potential for organic growth.





Our
      priorities in this regard include:





·
            Pursuing
                sub-regional efficiencies, especially in the area of local programming
                between Slovenia and Croatia and between the Czech and Slovak
                Republics;





·
            Supporting
                the growth of television advertising in our markets through increased
                development and through the launch or acquisition of additional channels
                to expand our advertising inventory and target niche
                audiences;





*Page
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 *Table
          of Contents*


·
            Leveraging
                our existing brands and assets to develop new revenue opportunities,
                including in the creation and distribution of programming and in
                the new
                media sectors; and





·
            Continuing
                to expand our footprint into additional Central and Eastern European
                markets when financially prudent opportunities
                arise.





In
      particular, we are planning the following during 2007:





·
            Continuing
                the program of effectiveness improvements in our operations in the
                Czech
                Republic and the Slovak Republic which were identified in
                2006.





·
            Continuing
                the development of our new Ukraine channels KINO and CITI which were
                launched in 2006.





·
            Further
                development of our non-broadcast activities, in particular through
                our New
                Media project which is coordinated across our
                markets.





·
            Acquisition
                of additional shares in our operations in Ukraine, the Slovak Republic
                and
                Romania if the opportunity arises.




·
            Expansion
                of our footprint within our existing markets or in adjacent markets
                if
                suitable acquisition opportunities
                materialize.




·
            Continuing
                to invest in the development of our Croatia operations.




***II.
      General Market Information***





*Emerging
      Markets*





Our
      revenue generating operations are located in Central and Eastern Europe, namely
      Croatia, the Czech Republic, Romania, the Slovak Republic, Slovenia and Ukraine.
      These emerging economies initially adopted Western style democratic forms of
      government within the last twenty years and have legal systems, systems of
      corporate governance and business practices that continue to evolve. A lower
      level of development and experience in these areas within our Central and
      Eastern European markets, by comparison with some other Central and Eastern
      European markets and with most Western markets, increases the relative level
      of
      business risk.





One
      indicator of the rate of development and the current relative level of business
      risk associated with economic development is Coface ratings. These are an
      assessment of the relative risk of payment default in different markets. The
      table below indicates the Coface ratings for each of the countries in which
      we
      operate. For purposes of comparison with other Central and Eastern European
      markets and selected Western markets, the United States and the United Kingdom
      were both ranked A1 in 2006, Greece and Italy were ranked A2, Hungary and Poland
      were ranked A3 and Russia and Turkey were ranked B.





*Page
            50*
 *Table
            of Contents*




**Country**
            **2006**
              **Rating**
            **Detail
                of 2006 Rating**
            **2005**
              **Rating**
            **2004**
              **Rating**
            **2003**
              **Rating**Croatia
            A4
            An
                already patchy payment record could be further worsened by a deteriorating
                political and economic environment. Nevertheless, the probability
                of a
                default is still acceptable.
            A4
            A4
            A4Czech
                Republic
            A2
            Default
                probability is still weak even in the case when one country's political
                and economic environment or the payment record of companies is not
                as good
                as in A1-rated countries.
            A2
            A2
            A3Romania
            A4
            An
                already patchy payment record could be further worsened by a deteriorating
                political and economic environment. Nevertheless, the probability
                of a
                default is still acceptable.
            A4
            B
            BSlovak
                Republic
            A3
            Adverse
                political or economic circumstances may lead to a worsening payment
                record
                that is already lower than the previous categories, although the
                probability of a payment default is still low.
            A3
            A3
            A3Slovenia
            A1
            The
                steady political and economic environment has positive effects on
                an
                already good payment record of companies. Very weak default
                probability.
            A2
            A2
            A2Ukraine
            C
            A
                very unsteady political and economic environment could deteriorate
                an
                already bad payment record.
            C
            C
            C


Source:
      Coface USA. Country ratings issued by the Coface Group measure the average
      default risk on corporate payments in a given country and indicate to what
      extent a company's financial commitments are affected by the local business,
      financial and political outlook. Coface continuously monitors 140 countries
      using a spectrum of indicators incorporating political factors, risk of currency
      shortage and devaluation, ability to meet financial commitments abroad, risk
      of
      a systemic crisis in the banking sector, cyclical risk, and payment behavior
      for
      short term transactions.




*European
      Union Accession*




The
      Czech
      Republic, the Slovak Republic and Slovenia acceded to the EU in May 2004, and
      Romania acceded in January 2007. Croatia is currently in accession negotiations.
      Accession to the EU brings certain positive developments. All countries joining
      the EU become subject to EU legislation and we believe that the ongoing progress
      towards EU entry reduces the political and economic risks of operating in the
      emerging markets of Central and Eastern Europe. The reduction in political
      risk
      factors may encourage increased foreign investment that will be supportive
      of
      economic growth. Accession to the EU may also bring certain negative
      developments. The adoption of EU compliant legislation in connection with
      accession may result in the introduction of new standards affecting industry
      and
      employment, and compliance with such new standards may require increased
      spending.





*Television
      Advertising Markets*




We
      derive
      almost all of our revenue from the sale of television advertising, most of
      which
      is sold through media houses and independent agencies. Like other television
      operators, we experience seasonality, with advertising sales tending to be
      lowest during the third quarter of each calendar year due to the summer holiday
      period (July and August), and highest during the fourth quarter of each calendar
      year. For the year ended December 31, 2006, 90% of our total Segment Net Revenue
      came from television advertising.





*Page
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            of Contents*





The
      per
      capita GDP in our markets is lower than that of Western markets. As a result
      of
      the lower GDP and weaker domestic consumption, total advertising expenditure
      spending and, consequently, television advertising spending per capita tends
      to
      be lower than in Western markets. However, as a result of television being
      commercialized in our markets at the same time as other media in our markets,
      television advertising spending tends to be higher as a proportion of total
      advertising spending compared to Western markets, where newspapers and magazines
      and radio were established as advertising media well before the advent of
      television advertising.





**Country**
            
            **Population**
              **(in
                millions)**
              **(1)**
            
            **Per
                Capita**
              **GDP
                2006**
              **(2)**
            
            **Total
                Advertising**
              **Spending
                per Capita 2006 (US$)**
              **(3)**
            
            **Total
                Advertising**
              **Spending
                as a % of GDP****2006**
              **(3)**
            
            **TV****Advertising**
              **Spending**
              **per
                Capita****(US$)**
              **(3)**
            
            **TV
                Advertising Spending as**
              **a
                % of Total Advertising****Spending**
              **(3)**Croatia
            
            
            4.4
            
            $
            9,318
            
            $
            57.0
            
            
            0.61
            %
            $
            28.6
            
            
            50
            %Czech
                Republic
            
            
            10.2
            
            $
            13,971
            
            $
            77.5
            
            
            0.55
            %
            $
            30.9
            
            
            40
            %Romania
            
            
            20.9
            
            $
            5,458
            
            $
            19.1
            
            
            0.35
            %
            $
            11.4
            
            
            60
            %Slovak
                Republic
            
            
            5.4
            
            $
            10,231
            
            $
            40.3
            
            
            0.39
            %
            $
            20.1
            
            
            50
            %Slovenia
            
            
            2.0
            
            $
            18,342
            
            $
            64.0
            
            
            0.35
            %
            $
            36.5
            
            
            57
            %Ukraine
            
            
            46.7
            
            $
            2,027
            
            $
            9.9
            
            
            0.49
            %
            $
            5.3
            
            
            53
            %





(1)
            Source:
                Global Insight Country Analysis (2006
                data).




(2)
            Source:
                ING (November 2006 data).




(3)
            Source:
                CME estimates.





For
      purposes of comparison, the following table shows the advertising market
      statistics for other Central and Eastern European markets and selected Western
      markets.





**Country**
            
            **Population**
              **(in
                millions)**
              **(1)**
            
            **Per
                Capita**
              **GDP
                2006**
              **(2)**
            
            **Total
                Advertising Spending per Capita****2006
                (US$)**
              **(3)**
            
            **Total
                Advertising Spending as a % of****GDP
                2006**
              **(3)**
            
            **TV
                Advertising**
              **Spending**
              **per
                Capita (US$)**
              **(3)**
            
            **TV
                Advertising**
              **Spending
                as**
              **a
                % of Total**
              **Advertising
                Spending (3)**Greece
            
            
            11.1
            
            $
            20,802
            
            $
            235
            
            
            1.13
            %
            $
            73
            
            
            31
            %Hungary
            
            
            10.1
            
            $
            13,299
            
            $
            133
            
            
            1.00
            %
            $
            85
            
            
            64
            %Italy
            
            
            58.1
            
            $
            31,534
            
            $
            170
            
            
            0.54
            %
            $
            93
            
            
            55
            %Poland
            
            
            38.5
            
            $
            8,327
            
            $
            37
            
            
            0.44
            %
            $
            19
            
            
            51
            %Russia
            
            
            143.2
            
            $
            8,086
            
            $
            46
            
            
            0.57
            %
            $
            22
            
            
            48
            %Turkey
            
            
            73.2
            
            $
            5,522
            
            $
            26
            
            
            0.47
            %
            $
            17
            
            
            65
            %UK
            
            
            59.7
            
            $
            42,629
            
            $
            329
            
            
            0.77
            %
            $
            89
            
            
            27
            %USA
            
            
            298.2
            
            $
            45,970
            
            $
            528
            
            
            1.15
            %
            $
            196
            
            
            37
            %




(1)
            Source:
                ZenithOptimedia (December 2006)




(2)
            Source:
                ING (November 2006 data).




(3)
            Source:
                CME estimates.





*Page
            52*
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There
        is
        no objective source for reliable information on the size of television
        advertising spending in our markets. The following table sets out our current
        estimates of the development of television advertising spending by market
        (in
        US$ millions).


**Country**
                **2002**
                **2003**
                **2004**
                **2005**
                **2006**Croatia
                
                
                110
                    - 120
                115
                    - 125
                120
                    - 130Czech
                    Republic
                
                
                260
                    - 270
                285
                    - 295
                310
                    - 320Romania
                65
                    - 75
                85
                    - 95
                110
                    - 120
                165
                    - 175
                235
                    - 245Slovak
                    Republic
                40
                    - 50
                60
                    - 70
                80
                    - 90
                90
                    - 100
                105
                    - 115Slovenia
                45
                    - 55
                45
                    - 55
                55
                    - 65
                60
                    - 70
                65
                    - 75Ukraine
                85
                    - 100
                100
                    - 115
                130
                    - 140
                180
                    - 190
                240
                    - 250Market
                    sizes are quoted at US dollar exchange rates applicable at the
                    end of each
                    year.







The
      following table sets out our current estimates of the local currency growth
      of
      television advertising spending by market.




**Country**
              **2002**
              **2003**
              **2004**
              **2005**
              **2006**Croatia
              
              
              
              (1
                  - 3%)
              2
                  -
                  5%Czech
                  Republic
              
              
              
              3
                  -
                  5%
              0
                  -
                  1%Romania
              
              42
                  - 55%
              22
                  - 20%
              28
                  - 34%
              32
                  - 37%Slovak
                  Republic
              
              16
                  - 18%
              14
                  - 16%
              8
                  -10%
              5
                  -
                  7%Slovenia
              
              (11
                  - 13%)
              8
                  -
                  11%
              9
                  -
                  11%
              6
                  -
                  8%Ukraine
              
              24
                  - 29%
              11
                  - 18%
              35
                  - 42%
              28
                  - 31%





*Television
      Advertising Sales*





In
      the
      countries in which we operate, advertisers tend to allocate their television
      advertising budgets among channels based on each channel's audience share,
      audience demographic profile and pricing policy. We generally offer two
      different bases of pricing to our advertising customers. The first basis is
      cost
      per gross rating point (which we refer to as “GRP”). A GRP represents the
      percentage of audience (from the population over the age of four) reached by
      a
      television advertisement and the number of GRPs achieved for a defined time
      period is the product of the proportion of that total viewing population
      watching that television advertisement and the frequency that it is viewed
      (as
      measured by international measurement agencies using peoplemeters). The second
      basis is rate-card, which reflects the timing and duration of an advertisement.
      Whether advertising is sold on a GRP basis or a rate-card basis depends on
      the
      dynamics of a particular market and our relative audience share.





*Cost
      per GRP pricing:* Advertising
      priced on a cost per GRP basis allows an advertiser to specify the number of
      gross ratings points that it wants to achieve with an advertisement within
      a
      defined period of time. We schedule the timing of the airing of the
      advertisements during such defined period of time in a manner that enables
      us
      both to meet the advertiser's GRP target and to maximize the use and
      profitability of our available advertising programming time. The price per
      GRP
      package varies depending on the demographic group that the advertisement is
      targeting, the flexibility given to us by advertisers in scheduling their
      advertisements and the rebates offered by us to advertising agencies and their
      clients. GRP package sales generally allow for better inventory control than
      rate-card pricing and optimize the net price per GRP achieved.





*Page
            53*
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            of Contents*





*Rate-card
      pricing* :
      Advertising priced on a rate-card basis is applied to advertisements scheduled
      at a specific time. Consistent with industry practice, we provide an incentive
      rebate on rate-card prices to a number of advertising agencies and their
      clients. We recognize our advertising revenue at the time the relevant
      advertisement is broadcast net of rebates.





The
      majority of our advertising customers commit to annual minimum spending levels.
      We usually schedule specific advertisements one month in advance of broadcasting
      them. Prices paid by advertisers, whether they purchase advertising time on
      a
      GRP package or rate-card basis, tend to be higher during peak viewing months,
      particularly during the fourth quarter, than during off-peak months such as
      July
      and August.





When
      describing relative performance against other competitors in attracting audience
      we refer to ratings share, which represents the number of people watching a
      channel as a proportion of the total population, and audience share, which
      represents the share attracted by a channel of the total audience watching
      television.





For
      the
      purposes of our management discussion and analysis, total television advertising
      revenue net of rebates is referred to as “spot revenues”. Non-spot revenues
      refers to all other revenues, including those from sponsorship, game shows,
      program sales, text messaging, cable subscriptions and barter transactions.
      The
      total of spot revenues and non-spot revenues is equal to Segment Net
      Revenues.





Occasionally,
      we enter into barter transactions pursuant to which we exchange advertising
      time
      for goods and services. We record barter transactions at the fair market value
      of the goods or services received. Barter transactions represented 1% of our
      Segment Net Revenues for 2006, 2% for 2005, and 3% for 2004.





Our
      goal
      is to increase revenues from advertising in local currency year-on-year in
      every
      market through disciplined management of our advertising inventory. In any
      given
      period, revenue increases can be attributable to combinations of price
      increases, higher inventory sales, seasonal or time-of-day incentives,
      target-audience delivery of specific campaigns, introductory pricing for new
      clients or audience movements based on our competitors’ program
      schedule.








***III.
      Analysis of Segment Results***





**OVERVIEW**





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. We also consider how much of our total revenues and earnings are
      derived from our broadcast and non-broadcast operations. 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 our
      operations in the Slovak Republic which were not consolidated prior to January
      23, 2006.





We
      acquired our Czech Republic operations on May 2, 2005; therefore, we include
      only limited qualified comparisons of financial results for our Czech Republic
      operations for the year ended December 31, 2005.




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
      Revenues.





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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 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 statement
                  of
                  operations and comprehensive
                  income;
 ·
              stock-based
                  compensation charges;
 ·
              foreign
                  currency exchange gains and losses;
 ·
              change
                  in fair value of derivatives; and
 ·
              certain
                  unusual or infrequent items (e.g., extraordinary gains and losses,
                  impairments of assets or investments, gain on sale of unconsolidated
                  affiliates).




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.





For
      a
      full reconciliation of our Segment Net Revenues and Segment EBITDA by operation
      to our consolidated results for the years ended December 31, 2006, 2005 and
      2004
      see Item 8, Note 19, “Segment Data”.





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A
      summary
      of our total Segment Net Revenues, Segment EBITDA and Segment EBITDA margin
      showing the relative contribution of each Segment, is as follows.





**SEGMENT
                FINANCIAL INFORMATION****For
                the Years Ended December 31, (US$ 000’s)****2006**
            
            **(1)**
            
            **2005**
            
            **(1)**
            
            **2004**
            
            **(1)****Segment
                Net Revenues**Croatia
                (NOVA TV) (2)
            
            $
            22,310
            
            
            4
            %
            $
            22,030
            
            
            5
            %
            $
            9,757
            
            
            4
            %Czech
                Republic (TV NOVA, GALAXIE SPORT)(3)
            
            
            208,387
            
            
            34
            %
            
            154,010
            
            
            33
            %
            
            -
            
            
            -
            %Romania
                (4)
            
            
            148,616
            
            
            25
            %
            
            103,321
            
            
            22
            %
            
            76,463
            
            
            31
            %Slovak
                Republic (MARKIZA TV) (5)
            
            
            73,420
            
            
            12
            %
            
            64,266
            
            
            14
            %
            
            61,576
            
            
            25
            %Slovenia
                (POP TV and KANAL A)
            
            
            54,534
            
            
            9
            %
            
            48,770
            
            
            10
            %
            
            45,388
            
            
            18
            %Ukraine
                (STUDIO 1+1)
            
            
            96,413
            
            
            16
            %
            
            72,847
            
            
            16
            %
            
            53,351
            
            
            22
            %Ukraine
                (KINO, CITI) (7)
            
            
            1,195
            
            
            0
            %
            
            -
            
            
            -
            
            
            -
            
            
            -**Total
                Segment Net Revenues**
            
            **$**
            **604,875**
            
            
            **100**
            **%**
            **$**
            **465,244**
            
            
            **100**
            **%**
            **$**
            **246,535**
            
            
            **100**
            **%****Represented
                by:**Broadcast
                operations
            
            $
            601,885
            
            
            100
            %
            $
            463,030
            
            
            100
            %
            $
            245,970
            
            
            100
            %Non-broadcast
                operations
            
            
            2,990
            
            
            0
            %
            
            2,214
            
            
            0
            %
            
            565
            
            
            0
            %**Total
                Segment Net Revenues**
            
            **$**
            **604,875**
            
            
            **100**
            **%**
            **$**
            **465,244**
            
            
            **100**
            **%**
            **$**
            **246,535**
            
            
            **100**
            **%****Segment
                EBITDA**Croatia
                (NOVA TV) (2)
            
            $
            (14,413
            )
            
            (7
            )%
            $
            (15,866
            )
            
            (10
            )%
            $
            (3,756
            )
            
            (5
            )%Czech
                Republic (TV NOVA, GALAXIE SPORT) (3)
            
            
            100,488
            
            
            46
            %
            
            71,544
            
            
            45
            %
            
            -
            
            
            -
            %Romania
                (4)
            
            
            65,860
            
            
            30
            %
            
            43,803
            
            
            28
            %
            
            25,198
            
            
            34
            %Slovak
                Republic (MARKIZA TV) (5)
            
            
            20,805
            
            
            10
            %
            
            17,240
            
            
            11
            %
            
            18,975
            
            
            25
            %Slovenia
                (POP TV and KANAL A)
            
            
            19,842
            
            
            9
            %
            
            19,337
            
            
            12
            %
            
            19,077
            
            
            26
            %Ukraine
                (STUDIO 1+1)
            
            
            29,973
            
            
            14
            %
            
            21,803
            
            
            14
            %
            
            14,729
            
            
            20
            %Ukraine
                (KINO, CITI) (7)
            
            
            (3,713
            )
            
            (2
            %)
            
            -
            
            
            -
            
            
            -
            
            
            -**Total
                Segment EBITDA**
            
            **$**
            **218,842**
            
            
            **100**
            **%**
            **$**
            **157,861**
            
            
            **100**
            **%**
            **$**
            **74,223**
            
            
            **100**
            **%****Represented
                by:**Broadcast
                operations
            
            $
            219,128
            
            
            100
            %
            $
            157,520
            
            
            100
            %
            $
            74,195
            
            
            100
            %Non-broadcast
                operations
            
            
            (286
            )
            
            0
            %
            
            341
            
            
            0
            %
            
            28
            
            
            0
            %**Total
                Segment EBITDA**
            
            **$**
            **218,842**
            
            
            **100**
            **%**
            **$**
            **157,861**
            
            
            **100**
            **%**
            **$**
            **74,223**
            
            
            **100**
            **%****Segment
                EBITDA Margin (6)**
            
            
            **36**
            **%**
            
            
            
            
            **34**
            **%**
            
            
            
            
            **30**
            **%**


(1)
            Percentage
                of Total Segment Net Revenue / Total Segment
                EBITDA


(2)
              We
                  acquired our Croatia operations in July
                  2004
  (3)
              We
                  acquired our Czech Republic operations (TV NOVA) in May 2005 and
                  GALAXIE
                  SPORT in September 2005
  (4)
              Romanian
                  networks are PRO TV, PRO CINEMA, ACASA and PRO TV INTERNATIONAL
                  for the
                  years ended December 31, 2006 and 2005, and PRO TV, PRO CINEMA,
                  ACASA, PRO
                  TV INTERNATIONAL, PRO FM and INFOPRO for the year ended December
                  31,
                  2004
  (5)
              Our
                  Slovak Republic operations were accounted for as an equity affiliate
                  until
                  January 23, 2006
  (6)
              We
                  define Segment EBITDA margin as the ratio of Segment EBITDA to
                  Segment Net
                  Revenue
  (7)
              We
                  acquired our Ukraine (KINO, CITI) operations on January 11,
                  2006


*Page
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**ANALYSIS
      BY GEOGRAPHIC SEGMENT**





For
      the
      purposes of our management discussion and analysis, total television advertising
      revenue net of rebates is referred to as “spot revenues”. Non-spot revenues
      refers to all other revenues, including those from sponsorship, game shows,
      program sales, text messaging, cable subscriptions and barter transactions.
      The
      total of spot revenues and non-spot revenues is equal to Segment Net
      Revenues.




**(A)
      CROATIA**





**Market
      Background:** We
      acquired our Croatia operations on July 16, 2004. We estimate the television
      advertising market in Croatia has shown local currency growth of approximately
      2% - 5% in 2006 and is expected to show single digit growth during
      2007.





In
      2006,
      the national all day audience share for NOVA TV (Croatia) was 15.3% compared
      to
      13.6% for 2005. Our major competitors are the two state-owned channels HRT1
      and
      HRT2, with all day audience shares for 2006 of 34.3% and 17.8%, respectively,
      and privately owned broadcaster RTL with 24.6%.





The
      average prime time ratings for NOVA TV (Croatia) increased from 5.8% in 2005
      to
      7.3% in 2006. Prime time audience share grew from 13.3% in 2005 to 17.1% in
      2006. Prime time ratings for the whole market decreased from 43.8% in 2005
      to
      43.3% in 2006.





Performance
      in the fourth quarter of 2006, the peak advertising selling period, is of
      particular importance to our station development plan. In the three months
      to
      December 31, 2006 our prime time audience share increased to 18.4% from 12.7%
      for the same period in 2005 and our prime time ratings increased to 8.5% from
      6.2%.





In
      July
      2005, we initiated a multi-year investment plan to develop our transmission
      infrastructure and improve the quality of our programming, particularly locally
      produced content, in order to secure a larger audience share and increased
      revenues. Under this plan, we anticipated that NOVA TV (Croatia) would approach
      Segment EBITDA breakeven in 2007. While the performance of NOVA TV (Croatia)
      in
      terms of audience share and ratings has recently shown improvement, this has
      not
      yet translated into increased revenues in the timescales and amounts we
      anticipated in July 2005. As a result, we presently expect that Segment EBITDA
      breakeven will be delayed by at least one year against the 2005
      plan.





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CROATIA
                SEGMENT FINANCIAL INFORMATION**For
                the Years Ended December 31, (US$ 000's)****2006**
            
            **2005**
            
            ***Movement***
            
            **2005**
            
            **2004
                (1)**
            
            ***Movement***Spot
                revenues
            
            $
            16,442
            
            $
            15,954
            
            *$*
            *488*
            
            $
            15,954
            
            $
            5,746
            
            *$*
            *10,208*Non-spot
                revenues
            
            
            5,868
            
            
            6,076
            
            
            *(208*
            *)*
            
            6,076
            
            
            4,011
            
            
            *2,065***Segment
                Net Revenues**
            
            **$**
            **22,310**
            
            **$**
            **22,030**
            
            ***$***
            ***280***
            
            **$**
            **22,030**
            
            **$**
            **9,757**
            
            ***$***
            ***12,273*****Represented
                by**Broadcast
                operations
            
            $
            22,298
            
            $
            22,030
            
            *$*
            *268*
            
            $
            22,030
            
            $
            9,757
            
            *$*
            *12,273*Non-broadcast
                operations
            
            
            12
            
            
            -
            
            
            *12*
            
            
            -
            
            
            -
            
            
            *-***Segment
                Net Revenues**
            
            **$**
            **22,310**
            
            **$**
            **22,030**
            
            ***$***
            ***280***
            
            **$**
            **22,030**
            
            **$**
            **9,757**
            
            ***$***
            ***12,273*****Segment
                EBITDA**
            
            **$**
            **(14,413**
            **)**
            **$**
            **(15,866**
            **)**
            ***$***
            ***1,453***
            
            **$**
            **(15,866**
            **)**
            **$**
            **(3,756**
            **)**
            ***$***
            ***(12,110***
            ***)*****Represented
                by**Broadcast
                operations
            
            $
            (14,302
            )
            $
            (15,866
            )
            *$*
            *1,564*
            
            $
            (15,866
            )
            $
            (3,756
            )
            *$*
            *(12,110*
            *)*Non-broadcast
                operations
            
            
            (111
            )
            
            -
            
            
            *(111*
            *)*
            
            -
            
            
            -
            
            
            *-***Segment
                EBITDA**
            
            **$**
            **(14,413**
            **)**
            **$**
            **(15,886**
            **)**
            ***$***
            ***1,453***
            
            **$**
            **(15,886**
            **)**
            **$**
            **(3,756**
            **)**
            ***$***
            ***(12,110***
            ***)*****Segment
                EBITDA Margin**
            
            
            **(65**
            **)%**
            
            **(72**
            **)%**
            
            ***7***
            ***%***
            
            **(72**
            **)%**
            
            **(38**
            **)%**
            
            ***(34***
            ***)%***(1)
                2004 Results are presented from acquisition in July
                2004


·
              **Segment
                  Net Revenues**for the year ended December 31, 2006 increased by US$ 0.3 million,
                  or 1%,
                  compared to 2005. In local currency, Segment Net Revenues decreased
                  by 1%.
                  Spot revenues increased by US$ 0.5 million, or 3%, as a result
                  of price
                  increases which offset the impact of the lower volume of GRPs sold.
                  The
                  lower volume of GRPs sold was a result of competitor price reductions
                  and
                  the expiration of legacy deals. Non-spot revenues decreased by
                  US$ 0.2
                  million, or 3%, as a result of lower levels of barter revenues
                  as some
                  contracts were forgone in accordance with our policy to minimize
                  barter
                  transactions and decreased levels of sponsorship, which were partially
                  offset by an increase in short message service (“SMS”), teletext and
                  telesales revenues.


Segment
      Net Revenues for the year ended December 31, 2005 were US$ 22.0 million compared
      to US$ 9.8 million for the period from acquisition on July 16, 2004 to December
      31, 2004. Segment Net Revenues for the period from July 2005 fell US$ 1.0
      million, or 10%, when compared to the equivalent post acquisition period in
      2004. This reduction in revenue was attributable to lower barter revenues as
      some of these were forgone in accordance with our policy to minimize barter
      transactions. Spot revenues increased by 19% over the period from July to
      December 2005 when compared to the same period in 2004, driven principally
      by
      growth in the volume of GRPs sold.




·
              **Segment
                  EBITDA**for
                  the year ended December 31, 2006 was a loss of US$ 14.4 million,
                  compared
                  to a loss of US$ 15.9 million for the year ended December 31, 2005.
                  In
                  local currency, Segment EBITDA increased by
                  11%.




*Page
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Costs
      charged in arriving at Segment EBITDA for the year ended December 31, 2006
      decreased by US$ 1.2 million, or 3%, compared to 2005. Cost of programming
      grew
      by US$ 1.1 million, or 6%, due largely to the inclusion of salary-related costs
      of production staff within cost of programming rather than operating costs;
      excluding the impact of this change in classification, cost of programming
      decreased by US$ 2.2 million, or 11%, as a result of the decision to restrict
      expenditure on higher cost local productions. Other operating costs decreased
      by
      US$ 1.1 million, or 12%, primarily due to the difference in classification
      described above; excluding the impact of this change in classification, other
      operating costs increased by US$ 2.2 million, or 24%, due to the appreciation
      of
      the Kuna compared to the US dollar, increasing salary and wage costs as a result
      of increased headcount, and higher transmission costs as a result of an
      expansion in transmitter coverage. Selling, general and administrative expenses
      decreased by US$ 1.2 million, or 15%, primarily due to the comparative period
      including approximately US$ 0.9 million of one-time consultancy fees and
      commissions relating to program acquisitions.





Segment
      EBITDA for the year ended December 31, 2005 was a loss of US$ 15.9 million,
      which is substantially attributable to investment in programming to attract
      greater audience share.





Costs
      charged in arriving at Segment EBITDA for 2005 included US$ 20.4 million of
      programming costs, US$ 9.4 million of other operating costs and US$ 8.1 million
      of selling, general and administrative expenses.





**(B)
      CZECH REPUBLIC**





**Market
      Background:** We
      acquired our Czech Republic operations on May 2, 2005. We estimate that the
      television advertising market in the Czech Republic during 2006 remained stable
      in local currency. We expect the advertising market to show high single digit
      growth in 2007.





The
      national all day audience share of our channel, TV NOVA (Czech Republic), for
      2006 was 41.6% compared to 40.9% for 2005. The major competitors are the two
      state-owned channels CT1 and CT2, with national all day audience shares for
      2006
      of 21.5% and 9.4% respectively, and privately owned broadcaster TV Prima with
      a
      national all day audience share of 20.3%. CT2 increased its audience share
      from
      8.1% for 2005 primarily due to the increased ratings during the periods of
      broadcast of the Winter Olympics in February, World Ice Hockey Championship
      in
      May and the Soccer World Cup in June.




During
      the first quarter of 2006, we announced a new advertising sales strategy based
      on our belief that growth in the television advertising market in the Czech
      Republic has been impeded over the past several years due to broadcasters
      focusing on obtaining an increased share of revenues committed to television
      advertising rather than fostering market growth by focusing on maximizing value
      received from the sale of GRPs. The focus of the TV Nova (Czech Republic) group
      is now on the development of advertising revenues over the medium term by
      supporting and then capturing market growth through a more sophisticated pricing
      policy. In conjunction with this advertising strategy, the TV Nova (Czech
      Republic) group initiated a series of measures to reduce the costs of its
      operations, including the cancellation of poorly performing formats and
      reductions in operational costs.





As
      expected, the TV Nova (Czech Republic) group’s advertising revenues declined in
      2006 on a comparable year-on-year basis, as the positive impact of the new
      pricing policy did not compensate for the expected loss in volume. However,
      we
      have seen increased revenues in the fourth quarter of 2006 compared to the
      fourth quarter of 2005 and expect to see accelerated growth both in the revenues
      of the Czech Republic operations and in the television advertising market
      generally over the next several years.




A
      fundamental component of our strategy is continued strong audience share and
      ratings for TV NOVA (Czech Republic), which have been maintained since the
      new
      pricing policy was implemented on April 1, 2006. Performance in the fourth
      quarter of 2006, the peak advertising selling period, is of particular
      importance to this strategy. During the three months ended December 31, 2006,
      the national all day audience share of TV NOVA (Czech Republic) increased to
      42.5%, from 39.0% in 2005. The national all day audience share of TV Prima
      fell
      from 25.0% to 20.2%, CT1 fell from 22.6% to 22.3%, while the national all day
      audience share of CT2 grew from 6.9% to 7.6%.




*Page
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**CZECH
                REPUBLIC SEGMENT FINANCIAL INFORMATION****For
                the Years Ended December 31, (US$ 000's)****2006**
            
            **2005
                (1)**
            
            ***Movement***Spot
                revenues
            
            $
            181,965
            
            $
            133,250
            
            *$*
            *48,715*Non-spot
                revenues
            
            
            26,422
            
            
            20,760
            
            
            *5,662***Segment
                Net Revenues**
            
            **$**
            **208,387**
            
            **$**
            **154,010**
            
            ***$***
            ***54,377*****Represented
                by**Broadcast
                operations
            
            $
            207,671
            
            $
            153,626
            
            *$*
            *54,045*Non-broadcast
                operations
            
            
            716
            
            
            384
            
            
            *332***Segment
                Net Revenues**
            
            **$**
            **208,387**
            
            **$**
            **154,010**
            
            ***$***
            ***54,377*****Segment
                EBITDA**
            
            **$**
            **100,488**
            
            **$**
            **71,544**
            
            ***$***
            ***28,944*****Represented
                by**Broadcast
                operations
            
            $
            100,724
            
            $
            71,742
            
            *$*
            *28,982*Non-broadcast
                operations
            
            
            (236
            )
            
            (198
            )
            
            *(38*
            *)***Segment
                EBITDA**
            
            **$**
            **100,488**
            
            **$**
            **71,544**
            
            ***$***
            ***28,944*****Segment
                EBITDA Margin**
            
            
            **48**
            **%**
            
            **46**
            **%**
            
            ***2***
            ***%***


(1)
      2005
      Results are presented from acquisition on May 2, 2005




·
            **Segment
                Net Revenues**for the year ended December 31, 2006 were US$ 208.4 million compared
                to
                US$ 154.0 million for the period from acquisition to December 31,
                2005. We
                acquired the TV Nova (Czech Republic) group on May 2, 2005 and accordingly
                our results of operations for the year ended December 31, 2005 reflect
                our
                ownership from that date. Based on management estimates, we believe
                that
                Segment Net Revenues for the year ended December 31, 2005, including
                the
                period prior to our ownership from January 1, 2005 through May 1,
                2005
                were approximately US$ 235 million. This decrease in Segment Net
                Revenues
                can be primarily attributed to the initial reaction of advertisers
                to the
                implementation of our new sales policy, which led to a decrease in
                the
                number of GRPs sold.





Segment
      Net Revenues **** for
      the
      period from acquisition to December 31, 2005 were US$ 154.0 million. We acquired
      our Czech Republic operations in May 2005 and accordingly no comparative data
      from 2004 is available.




·
              **Segment
                  EBITDA**for
                  the year ended December 31, 2006 was US$ 100.5 million compared
                  to US$
                  71.5 million for the period from acquisition to December 31, 2005.




Costs
      charged in arriving at Segment EBITDA for the year ended December 31, 2006
      included US$ 60.5 million of programming costs, US$ 26.1 million of other
      operating costs and US$ 21.3 million of selling, general and administrative
      expenses.





Segment
      EBITDA for the period from May 2, 2005 to December 31, 2005 was US$ 71.5 million
      resulting in an EBITDA margin of 46%.





*Page
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Costs
      charged in arriving at Segment EBITDA for the eight months ended December 31,
      2005 included US$ 50.6 million of programming costs, US$ 14.9 million of other
      operating costs and US$ 16.9 million of selling, general and administrative
      expenses.





Based
      on
      management estimates, we believe that Segment EBITDA for the year ended December
      31, 2005, including the period prior to our ownership from January 1, 2005
      through May 1, 2005, was approximately US$ 110.8 million. Based on these
      management estimates for the year ended December 31, 2005, costs charged in
      arriving at Segment EBITDA for the year ended December 31, 2006 have decreased
      by US$ 16.3 million or 13%.




**(C)
      ROMANIA**





**Market
      Background:** We
      estimate the television advertising market grew by approximately 32% - 37%
      in US
      dollars during 2006. We expect the television advertising market to show
      continued growth in the range of 20% to 25% in 2007.





The
      combined national all day audience share of our three channels (PRO TV, ACASA,
      and PRO CINEMA) was 24.3% in 2006 compared to 24.6% in 2005. The major
      competitors are the two state-owned channels TVR1 and TVR2, with national all
      day audience shares for 2006 of 16.8% and 5.3%, respectively, and privately
      owned broadcaster Antena 1 with a national all day audience share of
      13.4%.





The
      combined average prime time ratings of our channels for 2006 were 10.3% compared
      to 10.5% for 2005. The most significant prime time ratings movement for 2006
      was
      a fall for TVR1 from 8.7% in 2005 to 7.6% in 2006, while all the other large
      channels remained broadly in line with the prior year. For the total market,
      prime time ratings for 2006 were 39.2% compared to 39.6% in 2005.





The
      functional currency for Romania is the US dollar.





**ROMANIA
                SEGMENT FINANCIAL INFORMATION****For
                the Years Ended December 31, (US$ 000's)****2006**
            
            **2005**
            
            ***Movement***
            
            **2005**
            
            **2004**
            
            ***Movement***Spot
                revenues
            
            $
            140,242
            
            $
            97,915
            
            *$*
            *42,327*
            
            $
            97,915
            
            $
            72,895
            
            *$*
            *25,020*Non-spot
                revenues
            
            
            8,374
            
            
            5,406
            
            
            *2,968*
            
            
            5,406
            
            
            3,568
            
            
            *1,838***Segment
                Net Revenues**
            
            **$**
            **148,616**
            
            **$**
            **103,321**
            
            ***$***
            ***45,295***
            
            **$**
            **103,321**
            
            **$**
            **76,463**
            
            ***$***
            ***26,858*****Represented
                by**Broadcast
                operations
            
            $
            148,616
            
            $
            103,321
            
            *$*
            *45,295*
            
            $
            103,321
            
            $
            76,463
            
            *$*
            *26,858*Non-broadcast
                operations
            
            
            -
            
            
            -
            
            
            *-*
            
            
            -
            
            
            -
            
            
            *-***Segment
                Net Revenues**
            
            **$**
            **148,616**
            
            **$**
            **103,321**
            
            ***$***
            ***45,295***
            
            **$**
            **103.321**
            
            **$**
            **76,463**
            
            ***$***
            ***26,858*****Segment
                EBITDA**
            
            **$**
            **65,860**
            
            **$**
            **43,803**
            
            ***$***
            ***22,057***
            
            **$**
            **43,803**
            
            **$**
            **25,198**
            
            ***$***
            ***18,605*****Represented
                by**Broadcast
                operations
            
            $
            65,976
            
            $
            43,803
            
            *$*
            *22,173*
            
            $
            43,803
            
            $
            25,198
            
            *$*
            *18,605*Non-broadcast
                operations
            
            
            (116
            )
            
            -
            
            
            *(116*
            *)*
            
            -
            
            
            -
            
            
            *-***Segment
                EBITDA**
            
            **$**
            **65,860**
            
            **$**
            **43,803**
            
            ***$***
            ***22,057***
            
            **$**
            **43,803**
            
            **$**
            **25,198**
            
            ***$***
            ***18,605*****Segment
                EBITDA Margin**
            
            
            **44**
            **%**
            
            **42**
            **%**
            
            ***2***
            ***%***
            
            **42**
            **%**
            
            **33**
            **%**
            
            ***9***
            ***%***


*Page
            61*
 *Table
            of Contents*




·
            **Segment
                Net Revenues**for
                the year ended December 31, 2006****increased
                by US$ 45.3 million, or 44%, compared to the year ended December
                31, 2005.
                Spot revenues increased by US$ 42.3 million or 43%, and non-spot
                revenues
                increased by US$ 3.0 million, or
                55%.





The
      increase in spot revenues was driven by double-digit advertising rate growth
      in
      each of our three channels and by an increase in the number of GRPs sold across
      each of our channels compared to 2005. Two thirds of the total volume growth
      arose in PRO CINEMA and the balance was shared between PRO TV and ACASA in
      almost equal measures. The increase in non-spot revenues was principally due
      to
      increased cable tariff revenue.





Segment
      Net **** Revenues
      for the year ended December 31, 2005 **** increased
      by US$ 26.9 million, or 35%, compared to the year ended December 31, 2004.
      Spot
      revenues increased by US$ 25.0 million or 34% and non-spot revenues increased
      by
      US$ 1.9 million, or 52%, principally due to increased cable tariff revenue.
      Excluding RADIO PRO, which was included in our results in 2004 but excluded
      in
      2005, Segment Net Revenues grew US$ 29.5 million, or 40%, principally due to
      spot revenue growth of 39%.





·
            **Segment
                EBITDA**for
                the year ended December 31, 2006 increased by US$ 22.1 million, or
                50%,
                compared to the year ended December 31, 2005, resulting in an EBITDA
                margin of 44%, compared to 42% in
                2005.





Costs
      charged in arriving at Segment EBITDA for the year ended December 31, 2006
      increased by US$ 23.2 million, or 39%, compared to the year ended December
      31,
      2005. Cost of programming grew by US$ 21.8 million, or 62%, due largely to
      the
      inclusion of salary-related costs of production staff within cost of programming
      rather than operating costs; excluding the impact of this change in
      classification, cost of programming increased by US$ 15.4 million, or 44%,
      due
      to an increase in programming syndication of US$ 10.5 million and an increase
      in
      production expenses of US$ 4.9 million. Other operating costs decreased by
      US$
      1.2 million, or 7%, primarily due to the difference in classification described
      above; excluding the impact of this change in classification, other operating
      costs increased by US$ 5.1 million, or 31%, mainly due to an increase in salary
      costs arising in part from the weakening of the US dollar against the Romanian
      Lei, the currency in which salaries are paid. Selling, general and
      administrative expenses increased by US$ 2.7 million, or 34%, primarily due
      to
      increases in consultancy fees of US$ 0.8 million, office running costs of US$
      0.6 million and marketing and research costs of US$ 0.5 million.





Segment
      EBITDA for the year ended December 31, 2005 increased by US$ 18.6 million,
      or
      74%, compared to the year ended December 31, 2004, resulting in an EBITDA margin
      of 42%, which represents a significant increase over the 33% EBITDA margin
      achieved in the prior year.





Costs
      charged in arriving at Segment EBITDA for the year ended December 31, 2005
      increased by US$ 8.3 million, or 16%, compared to the year ended December 31,
      2004. Cost of programming grew by US$ 5.5 million, or 19%, due to increased
      costs of acquired programming and increased investment in locally produced
      news
      and sport programs. Other operating costs increased by US$ 1.8 million, or
      13%,
      due to the appreciation of the New Romanian Lei, compared to the US dollar,
      increasing salary and wage costs. Selling, general and administrative expenses
      increased by US$ 0.9 million, or 13%, primarily due to increased rent and office
      costs of US$ 0.8 million.




**(D)
      SLOVAK REPUBLIC**





**Market
      Background:** We
      estimate that the television advertising market in the Slovak Republic grew
      by
      approximately 5% - 7% in local currency in 2006. We anticipate that the
      television advertising market will show high single digit growth in
      2007.





*Page
          62*
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          of Contents*




On
      January 23, 2006, we acquired control of our Slovak Republic operations and
      increased our economic interest from 70% to 80%. We have made a number of senior
      management changes and are pursuing improvements in the effectiveness of our
      operations in the Slovak Republic and have begun implementing measures to
      improve programming quality and reduce operating expenses.





MARKIZA
      TV is the leading channel in the Slovak Republic. National all day audience
      share for 2006 was 33.8% compared to 31.1% in 2005. The major competitor is
      the
      state-owned channel STV1, with a national all day audience share of 18.4% in
      2006. The national all day audience share of TV JOJ, the only other significant
      privately owned channel, was 15.6% in 2006.





The
      average prime time rating for MARKIZA TV for 2006 was 13.7% compared to 13.3%
      in
      2005. Prime time ratings for the whole market fell from 40.4% in 2005 to 38.1%
      in 2006.





The
      implementation of peoplemeters to measure audience share and ratings in late
      2004 had the anticipated effect of reducing the recorded share of all leading
      broadcasters. The all day average audience share of MARKIZA TV fell to 31.1%
      from 39.6% in 2004. The primary beneficiaries of this change in audience share
      were foreign channels with cross border reception in the Slovak Republic and
      small cable channels. The peoplemeter introduction also showed that fewer people
      watch television than had been previously been believed, with national all
      day
      ratings falling from 19.1% in 2004 to 14.3% in 2005 and prime time ratings
      falling from 62.8% in 2004 to 40.4% in 2005. This indicated that the amount
      paid
      for each rating point was higher than had previously been believed. All national
      channels showed ratings losses. For MARKIZA TV, national all day ratings
      declined from 7.6% in 2004 to 4.5% in 2005 and national prime time ratings
      fell
      from 25.3% in 2004 to 13.3% in 2005.





**SLOVAK
                REPUBLIC SEGMENT FINANCIAL INFORMATION****For
                the Years Ended December 31, (US$ 000’s)****2006**
            
            **2005**
            
            ***Movement***
            
            **2005**
            
            **2004**
            
            ***Movement***Spot
                revenues
            
            $
            69,336
            
            $
            60,004
            
            *$*
            *9,332*
            
            $
            60,004
            
            $
            57,125
            
            *$*
            *2,879*Non-spot
                revenues
            
            
            4,084
            
            
            4,262
            
            
            *(178*
            *)*
            
            4,262
            
            
            4,451
            
            
            *(189*
            *)***Segment
                Net Revenues**
            
            **$**
            **73,420**
            
            **$**
            **64,266**
            
            ***$***
            ***9,154***
            
            **$**
            **64,266**
            
            **$**
            **61,576**
            
            ***$***
            ***2,690*****Represented
                by**Broadcast
                operations
            
            $
            73,266
            
            $
            64,266
            
            *$*
            *9,000*
            
            $
            64,266
            
            $
            61,576
            
            *$*
            *2,690*Non-broadcast
                operations
            
            
            154
            
            
            -
            
            
            *154*
            
            
            -
            
            
            -
            
            
            *-***Segment
                Net Revenues**
            
            **$**
            **73,420**
            
            **$**
            **64,266**
            
            ***$***
            ***9,154***
            
            **$**
            **64,266**
            
            **$**
            **61,576**
            
            ***$***
            ***2,690*****Segment
                EBITDA**
            
            **$**
            **20,805**
            
            **$**
            **17,240**
            
            ***$***
            ***3,565***
            
            **$**
            **17,240**
            
            **$**
            **18,975**
            
            ***$***
            ***(1,735***
            ***)*****Represented
                by**Broadcast
                operations
            
            $
            20,879
            
            $
            17,240
            
            *$*
            *3,639*
            
            $
            17,240
            
            $
            18,975
            
            *$*
            *(1,735*
            *)*Non-broadcast
                operations
            
            
            (74
            )
            
            -
            
            
            *(74*
            *)*
            
            -
            
            
            -
            
            
            *-***Segment
                EBITDA**
            
            **$**
            **20,805**
            
            **$**
            **17,240**
            
            ***$***
            ***3,565***
            
            **$**
            **17,240**
            
            **$**
            **18,975**
            
            ***$***
            ***(1,735***
            ***)*****Segment
                EBITDA Margin**
            
            
            **28**
            **%**
            
            **27**
            **%**
            
            ***1***
            ***%***
            
            **27**
            **%**
            
            **31**
            **%**
            
            ***(4***
            ***)%***




·
              **Segment
                  Net Revenues**for
                  the year ended December 31, 2006 increased by US$ 9.2 million,
                  or 14%,
                  compared to the year ended December 31, 2005, due to a combination
                  of
                  favorable exchange rate movements, new entrants into the market
                  and
                  increased advertising spending from existing clients, specifically
                  health
                  insurance companies and financial service providers. In local currency,
                  Segment Net Revenues increased by 5%. The increase in Segment Net
                  Revenues
                  was due to an increase of US$ 9.3 million, or 16%, in spot revenues
                  partially offset by a decline of US$ 0.2 million, or 4%, in non-spot
                  revenues. Both the volume of advertising spots sold by MARKIZA
                  TV and the
                  average revenue per thirty-second spot increased compared to
                  2005.




*Page
          63*
 *Table
          of Contents*




Non-spot
      revenues for the year ended December 31, 2006 fell by US$ 0.2 million, or 4%,
      compared to the year ended December 31, 2005, due to lower revenues from sales
      of Markiza magazine, following increased competition, and the impact of 2005
      having enjoyed significant telephone voting sales related to the success of
      the
      reality show “Mojsejovci” that were not repeated in 2006.




Segment
      Net Revenues for the year ended December 31, 2005 increased by US$ 2.7 million,
      or 4%, compared to the year ended December 31, 2004. Spot revenues increased
      by
      US$ 2.9 million, or 5%, however, this was partially offset by a US$ 0.2 million
      or 4% decline in non-spot revenues as a result of reduced barter revenue. In
      local currency, Segment Net Revenues grew by 1% in 2005.





The
      volume of advertising spots sold by MARKIZA TV increased compared to 2004.
      The
      average revenue per thirty-second spot decreased in local currency, primarily
      as
      a result of the decline in measured audience share following the introduction
      of
      peoplemeters in late 2004, but also because two significant local productions
      did not perform as well as expected in the fourth quarter and did not achieve
      expected audience share against strong competition.





·
            **Segment
                EBITDA**for
                the year ended December 31, 2006 increased by US$ 3.6 million, or
                21%,
                compared to 2005, and the EBITDA margin increased from 27% in 2005
                to 28%
                in 2006. Local currency EBITDA increased by 21% in 2006 compared
                to
                2005.





Costs
      charged in arriving at Segment EBITDA for the year ended December 31, 2006
      increased by US$ 5.6 million, or 12%, compared to 2005. The cost of programming
      increased by US$ 5.1 million, or 23%, due to an increase in the volume of higher
      cost local productions and write-off costs for an unsuccessful show of US$
      0.4
      million. Other operating costs increased by US$ 1.4 million, or 10% primarily
      due to increased staff costs. Selling, general and administrative expenses
      were
      lower by US$ 0.9 million, or 9%, largely due to savings in taxes of US$ 0.7
      million compared to 2005.





Segment
      EBITDA for the year ended December 31, 2005 decreased by US$ 1.7 million, or
      9%,
      compared to 2004, and the EBITDA margin decreased from 31% in 2004 to 27% in
      2005. Local currency EBITDA decreased by 12% in 2005 compared to
      2004.





Costs
      charged in arriving at Segment EBITDA for the year ended December 31, 2005
      increased by US$ 4.4 million, or 10%, resulting in the reduction of Segment
      EBITDA and the corresponding Segment EBITDA Margin compared to 2004. The cost
      of
      programming increased by US$ 1.5 million, or 7%, reflecting an increase in
      the
      volume of higher cost local production and the costs of producing reality shows.
      Other operating costs increased by US$ 1.1 million, or 8%, due to increased
      staff and related costs. Selling, general and administrative expenses increased
      by US$ 1.8 million, or 22%, primarily as a result of the reversal of a US$
      1.1
      million provision in 2004 due to resolution of a disagreement with the other
      shareholders that had given rise to a provision in 2003 as well as increased
      facilities costs resulting from operating an additional studio.




**(E)
      SLOVENIA**





**Market
      Background** :
      We
      estimate the television advertising market in Slovenia showed growth of
      approximately 6% - 8% in local currency during 2006. We expect the television
      advertising market to show low single digit growth in 2007.





*Page
          64*
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          of Contents*




The
      combined national all day audience share of our two channels (POP TV and KANAL
      A) increased from 35.8% in the year ended December 31, 2005 to 37.7% in 2006.
      The major competitors are state-owned SLO1 and SLO2, with national all day
      audience shares in 2006 of 23.1% and 8.9% respectively.





The
      combined average prime time ratings for our channels for the year ended December
      31, 2006 were 14.4% compared to 13.7% in 2005. Prime time ratings for the whole
      market increased from 32.4% in 2005 to 32.7% in 2006.




**SLOVENIA
                  SEGMENT FINANCIAL INFORMATION****For
                  the Years Ended December 31, (US$ 000’s)****2006**
              
              **2005**
              
              ***Movement***
              
              **2005**
              
              **2004**
              
              ***Movement***Spot
                  revenues
              
              $
              50,682
              
              $
              45,594
              
              *$*
              *5,088*
              
              $
              45,594
              
              $
              43,765
              
              *$*
              *1,829*Non-spot
                  revenues
              
              
              3,852
              
              
              3,176
              
              
              *676*
              
              
              3,176
              
              
              1,623
              
              
              *1,553***Segment
                  Net Revenues**
              
              **$**
              **54,534**
              
              **$**
              **48,770**
              
              ***$***
              ***5,764***
              
              **$**
              **48,770**
              
              **$**
              **45,388**
              
              ***$***
              ***3,382*****Represented
                  by**Broadcast
                  operations
              
              $
              52,426
              
              $
              46,940
              
              *$*
              *5,486*
              
              $
              46,940
              
              $
              44,823
              
              *$*
              *2,117*Non-broadcast
                  operations
              
              
              2,108
              
              
              1,830
              
              
              *278*
              
              
              1,830
              
              
              565
              
              
              *1,265***Segment
                  Net Revenues**
              
              **$**
              **54,534**
              
              **$**
              **48,770**
              
              ***$***
              ***5,764***
              
              **$**
              **48,770**
              
              **$**
              **45,388**
              
              ***$***
              ***3,382*****Segment
                  EBITDA**
              
              **$**
              **19,842**
              
              **$**
              **19,337**
              
              ***$***
              ***505***
              
              **$**
              **19,337**
              
              **$**
              **19,077**
              
              ***$***
              ***260*****Represented
                  by**Broadcast
                  operations
              
              $
              19,518
              
              $
              18,797
              
              *$*
              *721*
              
              $
              18,797
              
              $
              19,049
              
              *$*
              *(252*
              *)*Non-broadcast
                  operations
              
              
              324
              
              
              540
              
              
              *(216*
              *)*
              
              540
              
              
              28
              
              
              *512***Segment
                  EBITDA**
              
              **$**
              **19,842**
              
              **$**
              **19,337**
              
              ***$***
              ***505***
              
              **$**
              **19,337**
              
              **$**
              **19,077**
              
              ***$***
              ***260*****Segment
                  EBITDA Margin**
              
              
              **36**
              **%**
              
              **40**
              **%**
              
              ***(4***
              ***)%***
              
              **40**
              **%**
              
              **42**
              **%**
              
              ***(2***
              ***)%***





·
            **Segment
                Net Revenues**for the year ended December 31, 2006 increased by US$ 5.8 million,
                or 12%,
                compared to the year ended December 31, 2005. In local currency,
                Segment
                Net Revenues increased by 10%.




Spot
        revenues increased by US$ 5.1 million, or 11%, in the year ended December
        31,
        2006 compared to the year ended December 31, 2005 as our operations benefited
        from a stronger ratings performance which led to an increase in GRPs sold
        across
        our two channels, particularly in the off prime period. The Soccer World
        Cup in
        June 2006 contributed to US$ 0.9 million of this increase. The average revenue
        per thirty-second advertising spot was largely unchanged from 2005. Non-spot
        revenues increased by US$ 0.7 million, or 21%, in the year ended December
        31,
        2006 compared to 2005 due to an increase in short message service (“SMS”)
        revenues, telesales and on-line related revenues.




Segment
      Net Revenues **** for
      the
      year ended December 31, 2005 increased by US$ 3.4 million, or 7%, compared
      to
      the year ended December 31, 2004. Net spot revenue increased by US$ 1.8 million,
      or 4%, as a run of successful locally produced programs led to an increase
      in
      the volume of thirty-second advertising spots sold across our two channels.
      The
      average revenue per thirty-second advertising spot was largely unchanged from
      2004.





Non-spot
      revenues grew by US$ 1.6 million, or 96% due to increased internet and reality
      show driven revenue from text messaging.





*Page
          65*
 *Table
          of Contents*


·
            **Segment
                EBITDA**for
                the year ended December 31, 2006 increased by US$ 0.5 million, or
                3%,
                compared to the year ended December 31, 2005. In local currency,
                Segment
                EBITDA increased by 1%. EBITDA margin decreased from 40% in 2005
                to 36% in
                2006.





Costs
      charged in arriving at Segment EBITDA for the year ended December 31, 2006
      increased by US$ 5.3 million, or 18%, compared to the year ended December 31,
      2005. Cost of programming increased by US$ 6.8 million, or 52%. This is partly
      due to the inclusion of the salary-related costs of production staff within
      cost
      of programming rather than operating costs; excluding the impact of this change
      in classification, cost of programming increased by US$ 3.2 million, or 25%,
      due
      to the additional expense of airing more higher-cost local productions than
      in
      the prior year and the cost of showing the Soccer World Cup which took place
      in
      June 2006. Other operating costs decreased by US$ 2.0 million, or 17%, primarily
      due to the difference in classification described above; excluding the impact
      of
      this change in classification, other operating costs increased by US$ 1.5
      million, or 13%, primarily due to higher bonus accruals and higher transmitter
      and associated maintenance costs. Selling, general and administrative expenses
      increased by US$ 0.5 million, or 11%, compared to the year ended December 31,
      2005 primarily due to higher marketing and promotion costs of US$ 0.2 million
      and higher office running costs.





Segment
      EBITDA for the year ended December 31, 2005 increased by US$ 0.3, million or
      1%,
      compared to the year ended December 31, 2004. In local currency Segment EBITDA
      increased by 2%. EBITDA margin decreased from 42% in 2004 to 40% in
      2005.





Costs
      charged in arriving at Segment EBITDA for the year ended December 31, 2005
      increased by US$ 3.1 million, or 12%, compared to the year ended December 31,
      2004. Cost of programming increased by US$ 0.8 million, or 7%, due to an
      increase in local production costs from producing more reality shows. Other
      operating costs increased by US$ 2.2 million, or 23%, primarily as a result
      of
      increased social insurance costs for employers of US$ 1.4 million as well as
      the
      reversal of a US$ 0.4 million provision for broadcasting transmission costs
      in
      2004 resulting in a lower than normal charge in that period. Selling, general
      and administrative expenses increased by US$ 0.1 million, or 2%, as a result
      of
      general overhead cost increases.




**(F)
      UKRAINE (STUDIO 1+1)**





**Market
      Background:** We
      estimate that the television advertising market in Ukraine, where sales are
      denominated primarily in US dollars, showed growth of approximately 28% - 31%%
      in 2006. It is expected that the television advertising market will continue
      to
      grow between 30% and 35% during 2007.





STUDIO
      1+1 had a national all day audience share of 18.3% for 2006 compared to 20.0%
      in
      2005. Our competitors include Inter, with a national all day audience share
      of
      20.4%, Novy Kanal with 8.4%, ICTV with 7.3%, and STB with 6.0%.





*Page
            66*
 *Table
            of Contents*





The
      average prime time ratings for STUDIO 1+1 for 2006 were 8.4% compared to 8.1%
      in
      2005.




**UKRAINE
                  (STUDIO 1+1) FINANCIAL INFORMATION****For
                  the Years Ended December 31, (US$ 000’s)****2006**
              
              **2005**
              
              ***Movement***
              
              **2005**
              
              **2004**
              
              ***Movement***Spot
                  revenues
              
              $
              86,042
              
              $
              63,911
              
              *$*
              *22,131*
              
              $
              63,911
              
              $
              49,982
              
              *$*
              *13,929*Non-spot
                  revenues
              
              
              10,371
              
              
              8,936
              
              
              *1,435*
              
              
              8,936
              
              
              3,369
              
              
              *5,567***Segment
                  Net Revenues**
              
              **$**
              **96,413**
              
              **$**
              **72,847**
              
              ***$***
              ***23,566***
              
              **$**
              **72,847**
              
              **$**
              **53,351**
              
              ***$***
              ***19,496*****Represented
                  by**Broadcast
                  operations
              
              $
              96,413
              
              $
              72,847
              
              *$*
              *23,566*
              
              $
              72,847
              
              $
              53,351
              
              *$*
              *19,496*Non-broadcast
                  operations
              
              
              -
              
              
              -
              
              
              *-*
              
              
              -
              
              
              -
              
              
              *-***Segment
                  Net Revenues**
              
              **$**
              **96,413**
              
              **$**
              **72,847**
              
              ***$***
              ***23,566***
              
              **$**
              **72,847**
              
              **$**
              **53,351**
              
              ***$***
              ***19,496*****Segment
                  EBITDA**
              
              **$**
              **29,973**
              
              **$**
              **21,803**
              
              ***$***
              ***8,170***
              
              **$**
              **21,803**
              
              **$**
              **14,729**
              
              ***$***
              ***7,074*****Represented
                  by**Broadcast
                  operations
              
              $
              30,045
              
              $
              21,803
              
              *$*
              *8,242*
              
              $
              21,803
              
              $
              14,729
              
              *$*
              *7,074*Non-broadcast
                  operations
              
              
              (72
              )
              
              -
              
              
              *(72*
              *)*
              
              -
              
              
              -
              
              
              *-***Segment
                  EBITDA**
              
              **$**
              **29,973**
              
              **$**
              **21,803**
              
              ***$***
              ***8,170***
              
              **$**
              **21,803**
              
              **$**
              **14,729**
              
              ***$***
              ***7,074*****Segment
                  EBITDA Margin**
              
              
              **31**
              **%**
              
              **30**
              **%**
              
              ***1***
              ***%***
              
              **30**
              **%**
              
              **28**
              **%**
              
              ***2***
              ***%***





·
            **Segment
                Net Revenues**for
                the year ended December 31, 2006 increased by US$ 23.6 million, or
                32%,
                compared to the year ended December 31, 2005. Spot revenues increased
                by
                US$ 22.1 million, or 35%, and non-spot revenues increased by US$
                1.4
                million, or 16%.




The
        increase in spot revenues reflects the significant ongoing growth of the
        market.
        The majority of the growth reflects significantly higher average revenue
        per
        thirty-second advertising spot, partially off set by a lower volume of spots
        sold. Spot revenues included US$ 8.4 million of political advertising in
        advance
        of the March 26, 2006 parliamentary elections. We believe that some of this
        advertising replaced normal commercial activity but that the majority was
        incremental revenue.





Non-spot
      revenue has increased due to a significant rise in program sponsorship, which
      has increased due to more active management. Included within non-spot revenues
      for 2005 is a one-time sale of programming of US$ 1.8 million.





Segment
      Net Revenues **** for
      the
      year ended December 31, 2005 increased by US$ 19.5 million, or 37%, compared
      to
      the year ended December 31, 2004. Net spot revenue increased by US$ 13.9
      million, or 28%, and non-spot revenue increased by US$ 5.6 million, or
      165%.





Demand
      for advertising by multinational companies seeking to establish their brands
      in
      the Ukrainian market and by mobile telephone operators helped increase the
      average revenue per thirty-second advertising spot compared to 2004. The volume
      of spots sold increased as a result of the full year impact of the additional
      nine hours of broadcast time awarded to the station from September 2004.
      Non-spot revenue increases were derived from sales of programming and increased
      management focus on generating sponsorship revenue.





*Page
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·
            **Segment
                EBITDA**for
                the year ended December 31, 2006 increased by US$ 8.2 million, or
                37%,
                compared to the year ended December 31, 2005, resulting in an EBITDA
                margin of 31% compared to 30% in
                2005.





Costs
      charged in arriving at Segment EBITDA for the year ended December 31, 2006
      increased by US$ 15.4 million, or 30%, compared to the year ended December
      31,
      2005. Cost of programming increased by US$ 10.8 million, or 36%, due to price
      inflation for Russian series, which are essential to maintaining strong ratings,
      as well as improvements to our programming schedule. Other operating costs
      increased by US$ 1.5 million, or 12%, primarily due to increases in staff costs
      as a result of the restructuring of independent contactor arrangements. Selling,
      general and administrative expenses have increased by US$ 3.1 million, or 36%,
      including US$ 0.8 million of higher withholding tax payments on increased
      programming acquisitions, US$ 0.6 million of higher cost of facilities and
      US$
      0.5 million of additional management and professional costs compared with 2005.





Segment
      EBITDA **** for
      the
      year ended December 31, 2005 increased by US$ 7.1 million, or 48%, compared
      to
      the year ended December 31, 2004, resulting in an EBITDA margin of 30% compared
      to 28% in 2004.





Costs
      charged in arriving at Segment EBITDA for the year ended December 31, 2005
      increased by US$ 12.4 million, or 32%, compared to the year ended December
      31,
      2004. Cost of programming increased by US$ 5.3 million, or 22%, as a result
      of
      the full year cost of broadcasting for an additional nine hours as well as
      increases in the cost of popular Russian series. Another component of the
      increase in programming costs was due to a US$ 1.1 million cost of writing
      down
      the value of American programming that no longer generates sufficient ratings
      in
      Ukraine. Other operating costs increased by US$ 5.0 million, or 64%, primarily
      due to salary increases of US$ 3.0 million partially due to the restructuring
      of
      independent contractor arrangements, resulting in increased employee-related
      taxation costs of approximately US$ 1.1 million, and increased transmission
      charges of US$ 0.9 million. Transmission charges from the state transmission
      agency increased due to the extra cost of transmitting for the additional nine
      hours per day as well as due to price increases for transmission. Selling,
      general and administrative expenses increased by US$ 2.1 million, or 32%, due
      to
      additional facilities costs from an extra studio being operated since May 2005
      to accommodate increased volumes of local production as well as local
      inflation.





*Page
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**(G)
      UKRAINE (KINO, CITI)**





On
      January 11, 2006, we acquired a 65.5% interest in Ukrpromtorg 2003 LLC, owner
      of
      92.2% of Gravis LLC, which operated the local channels, CHANNEL 35 and CHANNEL
      7. In July 2006, we ceased operating CHANNEL 7 and launched a new entertainment
      channel, KINO, targeted at a younger demographic. On December 1, 2006, we ceased
      operating CHANNEL 35 and launched a new youth-oriented channel, CITI, with
      a
      Kiev-wide reach.




UKRAINE
      (KINO, CITI) FINANCIAL
      INFORMATION


**For
                    the Year Ended December 31, (US$ 000's)****2006**Spot
                    revenues
                
                
                
                
                $
                549Non-spot
                    revenues
                
                
                
                
                
                646**Segment
                    Net Revenues**
                
                
                
                
                **$**
                **1,195****Represented
                    by**Broadcast
                    operations
                
                
                
                
                $
                1,195Non-broadcast
                    operations
                
                
                
                
                
                0**Segment
                    Net Revenues**
                
                
                
                
                **$**
                **1,195****Segment
                    EBITDA**
                
                
                
                
                **$**
                **(3,713**
                **)****Represented
                    by**Broadcast
                    operations
                
                
                
                
                $
                (3,713
                )Non-broadcast
                    operations
                
                
                
                
                
                -**Segment
                  EBITDA**
                
                
                
                
                **$**
                **(3,713**
                **)****Segment
                  EBITA Margin**
                
                
                
                
                
                **(311**
                **)%**




·
            **Segment
                Net Revenues**for
                KINO and CITI, for the period from acquisition on January 11, 2006
                to
                December 31, 2006, were US$ 1.2
                million.





Spot
      revenues for the period ended December 31, 2006 were US$ 0.5
      million.





Non-spot
      revenues for the period ended December 31, 2006 were US$ 0.6 million, including
      game show and music clips revenue of US$ 0.2 million, production studio rent
      revenue of US$ 0.2 million and TV shopping revenue of US$ 0.1
      million.




·
              **Segment
                  EBITDA**for
                  KINO and CITI, for the period from acquisition on January 11, 2006 to
                  December 31, 2006, was a loss of US$ 3.7 million. Costs charged
                  in
                  arriving at Segment EBITDA for the period ended December 31, 2006
                  were US$
                  4.9 million. Cost of programming was US$ 2.6 million, including
                  US$ 1.5
                  million of acquired foreign programs for the KINO channel and US$
                  0.9
                  million of production expenses for the CITI channel, mainly related
                  to the
                  salaries of production employees. Other operating costs were US$
                  1.4
                  million and comprised salary costs of US$ 0.9 million and broadcast
                  operating expenses of US$ 0.5 million. Selling, general and administrative
                  expenses amounted to US$ 0.9
                  million.




*Page
          69*
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**PROGRAMMING
      PAYMENTS AND PROGRAM AMORTIZATION**





Our
      consolidated cost of programming for 2006, 2005, and 2004 was as
      follows:





**For
                the Years Ended December 31, (US$ 000’s)****2006**
            
            **2005**
            
            **2004**Production
                expenses
            
            $
            110,948
            
            $
            67,366
            
            $
            29,458Program
                amortization
            
            
            116,561
            
            
            81,471
            
            
            42,335**Cost
                of programming**
            
            **$**
            **227,509**
            
            **$**
            **148,837**
            
            **$**
            **71,793**





Production
      expenses represent the cost of in-house productions as well as locally
      commissioned programming, such as news, current affairs and game shows. The
      cost
      of broadcasting all other purchased programming is recorded as program
      amortization.





Total
      consolidated programming costs (including amortization of programming rights
      and
      production costs) increased by US$ 78.7 million, or 53%, in the year ended
      December 31, 2006 compared to 2005 due to:





·
            The
                inclusion of US$ 25.8 million of programming costs from our Slovak
                Republic operations, which were consolidated from January 23, 2006,
                having
                previously been accounted for as an equity
                affiliate;





·
            US$
                21.8 million of additional programming costs from our Romania operations;





·
            US$
                10.8 million of additional programming costs from our Ukraine (STUDIO
                1+1)
                operations;





·
            US$
                9.8 million of additional programming costs from our Czech Republic
                operations, which are included for the entire twelve month periods
                rather
                than for the period from acquisition on May 2, 2005 in the prior
                year;





·
            US$
                6.8 million of additional programming costs from our Slovenia
                operations;




·
            US$
                2.6 million of additional programming costs from our newly acquired
                Ukraine (KINO, CITI) operations;
                and





·
            US$
                1.1 million of additional programming costs from our Croatia
                operations.




The
      amortization of acquired programming for each of our operations for 2006, 2005
      and 2004, including our operations in the Slovak Republic (MARKIZA TV) for
      the
      period prior to January 23, 2006 when they were previously accounted for as
      an
      equity affiliate, is set out in the table below. For comparison the table also
      shows the cash paid for programming by each of our operations in the respective
      periods. The cash paid for programming by our operations in Croatia, the Czech
      Republic, Romania, Slovenia, Ukraine and the Slovak Republic (for the period
      from January 23, 2006) is reflected within net cash provided by continuing
      operating activities in our consolidated statement of cash flows.




*Page
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**For
                  the Years Ended December 31, (US$ 000's)****2006**
              
              **2005**
              
              **2004****Program
                  amortization:**Croatia
                  (NOVA TV)
              
              $
              14,237
              
              $
              16,373
              
              $
              3,695Czech
                  Republic (TV NOVA, GALAXIE SPORT)
              
              
              27,170
              
              
              19,154
              
              
              -Romania
                  (PRO TV, ACASA, PRO CINEMA and PRO TV INTERNATIONAL)
              
              
              30,610
              
              
              20,132
              
              
              18,215Slovak
                  Republic (MARKIZA TV) (post-acquisition)
              
              
              7,539
              
              
              -
              
              
              -Slovenia
                  (POP TV and KANAL A)
              
              
              7,164
              
              
              5,517
              
              
              5,117Ukraine
                  (STUDIO 1+1)
              
              
              28,354
              
              
              20,295
              
              
              15,308Ukraine
                  (KINO, CITI)
              
              
              1,487
              
              
              -
              
              
              -**116,561**
              
              
              **81,471**
              
              
              **42,335**Slovak
                  Republic (MARKIZA TV) (pre-acquisition)
              
              
              1,735
              
              
              6,970
              
              
              9,038**$**
              **118,296**
              
              **$**
              **88,441**
              
              **$**
              **51,373****Cash
                  paid for programming:**Croatia
                  (NOVA TV)
              
              $
              17,165
              
              $
              16,062
              
              $
              3,076Czech
                  Republic (TV NOVA, GALAXIE SPORT)
              
              
              28,237
              
              
              26,027
              
              
              -Romania
                  (PRO TV, ACASA, PRO CINEMA and PRO TV INTERNATIONAL)
              
              
              48,277
              
              
              40,279
              
              
              22,164Slovenia
                  (POP TV and KANAL A)
              
              
              7,067
              
              
              6,200
              
              
              5,177Ukraine
                  (STUDIO 1+1)
              
              
              38,419
              
              
              27,019
              
              
              21,022Ukraine
                  (KINO, CITI)
              
              
              1,096
              
              
              -
              
              
              -**140,261**
              
              
              **115,587**
              
              
              **51,439**Slovak
                  Republic (MARKIZA TV)
              
              
              12,598
              
              
              10,692
              
              
              8,120**$**
              **152,859**
              
              **$**
              **126,279**
              
              **$**
              **59,559**




***IV.
      Analysis of the Results of Consolidated Operations***





**OVERVIEW**





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
      FIN 46 (R) (For further discussion, see Item 8, Note 3, “Summary of Significant
      Accounting Policies”). We consolidate our operations in Croatia, the Czech
      Republic, Romania, the Slovak Republic, Slovenia and Ukraine.





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. We accounted for our operations in the Slovak Republic and Radio Pro
      in
      Romania in this manner in 2005 and 2004. We disposed of our remaining investment
      in Radio Pro in August 2006 (See Item 8, Note 6, “Investments”). Following our
      acquisition of a controlling interest in our Slovak Republic operations on
      January 23, 2006, we consolidate these operations (See Item 8, Note 4,
“Acquisitions and Disposals, Slovak Republic”)





*Page
          71*
 *Table
          of Contents*




**IV
      (a) Net Revenues for the years ending December 31, 2006, 2005 and
      2004:**





**Consolidated
                Net Revenues****For
                the Years Ended December 31, (US$ 000’s)****2006**
            
            **2005**
            
            ***Movement***
            
            **2005**
            
            **2004**
            
            ***Movement***Croatia
            
            $
            22,310
            
            $
            22,030
            
            *$*
            *280*
            
            $
            22,030
            
            $
            9,757
            
            *$*
            *12,273*Czech
                Republic
            
            
            208,387
            
            
            154,010
            
            
            *54,377*
            
            
            154,010
            
            
            -
            
            
            *154,010*Romania
            
            
            148,616
            
            
            103,321
            
            
            *45,295*
            
            
            103,321
            
            
            73,843
            
            
            *29,478*Slovakia
            
            
            71,660
            
            
            -
            
            
            *71,660*
            
            
            -
            
            
            -
            
            
            *-*Slovenia
            
            
            54,534
            
            
            48,770
            
            
            *5,764*
            
            
            48,770
            
            
            45,388
            
            
            *3,382*Ukraine
                (STUDIO 1+1)
            
            
            96,413
            
            
            72,847
            
            
            *23,566*
            
            
            72,847
            
            
            53,351
            
            
            *19,496*Ukraine
                (KINO, CITI)
            
            
            1,195
            
            
            -
            
            
            *1,195*
            
            
            -
            
            
            -
            
            
            *-***Total
                Consolidated Net Revenues**
            
            **$**
            **603,115**
            
            **$**
            **400,978**
            
            ***$***
            ***202,137***
            
            **$**
            **400,978**
            
            **$**
            **182,339**
            
            ***$***
            ***218,639***





Our
      consolidated net revenues increased by US$ 202.1 million, or 50%, for the year
      ended December 31, 2006 compared to 2005 due to:





·
            A
                US$ 0.3 million increase in the net revenues of our Croatia operations
                as
                described above in Item 7, III “Analysis of Segment
                Results”;





·
            A
                US$ 54.4 million, or 35.3%, increase in the net revenues of our Czech
                Republic operations as described in Item 7, III “Analysis of Segment
                Results”;





·
            A
                US$ 45.3 million, or 43.8%, increase in the net revenues of our Romania
                operations as described above in Item 7, III “Analysis of Segment
                Results”;





·
            The
                inclusion of US$ 71.7 million of net revenues from our newly consolidated
                Slovak Republic operations as described in Item 7, III “Analysis of
                Segment Results”;




·
            A
                US$ 5.8 million, or 11.8%, increase in the net revenues of our Slovenia
                operations as described above in Item 7, III “Analysis of Segment
                Results”;





·
            A
                US$ 23.6 million, or 32.4%, increase in the net revenues of our Ukraine
                (STUDIO 1+1) operations as described above in Item 7, III “Analysis of
                Segment Results”; and





·
            The
                inclusion of US$ 1.2 million of net revenues from our newly consolidated
                Ukraine (KINO, CITI) operations as described in Item7, III “Analysis of
                Segment Results”.





Our
      consolidated net revenues increased by US$ 218.6 million, or 120% during 2005
      compared to 2004.





*Page
          72*
 *Table
          of Contents*




**IV
      (b) Total Operating Expenses for the years ending December 31, 2006, 2005 and
      2004**





**Consolidated
                Operating Expenses****For
                the Years Ended December 31, (US$ 000’s)****2006**
            
            **2005**
            
            ***Movement***
            
            **2005**
            
            **2004**
            
            ***Movement***Operating
                costs
            
            $
            90,060
            
            $
            65,138
            
            *$*
            *24,922*
            
            $
            65,138
            
            $
            33,615
            
            *$*
            *31,523*Cost
                of programming
            
            
            227,509
            
            
            148,837
            
            
            *78,672*
            
            
            148,837
            
            
            71,793
            
            
            *77,044*Station
                selling, general and administrative expenses
            
            
            65,412
            
            
            46,382
            
            
            *19,030*
            
            
            46,382
            
            
            22,112
            
            
            *24,270*Depreciation
                of station property, plant and equipment
            
            
            25,795
            
            
            16,367
            
            
            *9,428*
            
            
            16,367
            
            
            6,429
            
            
            *9,938*Amortization
                of broadcast licenses and other intangibles
            
            
            18,813
            
            
            11,180
            
            
            *7,633*
            
            
            11,180
            
            
            465
            
            
            *10,715*Corporate
                operating costs
            
            
            34,104
            
            
            25,547
            
            
            *8,557*
            
            
            25,547
            
            
            29,254
            
            
            *(3,707*
            *)*Impairment
                Charge
            
            
            748
            
            
            35,331
            
            
            *(34,583*
            *)*
            
            35,331
            
            
            **-**
            
            
            *35,331***Total
                Operating Expenses**
            
            **$**
            **462,441**
            
            **$**
            **348,782**
            
            ***$***
            ***113,659***
            
            **$**
            **348,782**
            
            **$**
            **163,668**
            
            ***$***
            ***185,114***




Total
      operating expenses increased by US$ 113.7 million, or 32%, in 2006 compared
      to
      2005.





For
      the
      year ended December 31, 2005 total operating expenses increased by US$ 185.1
      million, or 113%, compared to 2004.





Further
      detail on the change in the components of Total Operating Expenses is provided
      below:





**Operating
      Costs:** Total
      consolidated station operating costs (excluding programming costs, depreciation
      of station property, plant and equipment, amortization of broadcast licences
      and
      other intangibles as well as station selling, general and administrative
      expenses) increased by US$ 24.9 million, or 38%, in 2006 compared to 2005
      primarily due to:




·
            A
                US$ 1.1 million, or 12%, decrease in the station operating costs
                of our
                Croatia operations as described in Item 7, III “Analysis of Segment
                Results”;





·
            Operating
                costs of our Czech Republic operations increasing by US$ 11.1 million,
                or
                74.8%, as described in Item 7, III “Analysis of Segment
                Results”;





·
            Operating
                costs of our Romania operations decreasing by US$ 1.2 million, or
                7%, as
                described in Item 7, III “Analysis of Segment
                Results”;





·
            The
                inclusion of US$ 15.2 million of additional station operating costs
                relating to our newly consolidated Slovak Republic
                operations;





·
            Operating
                costs of our Slovenia operations decreasing by US$ 2.0 million, or
                17%, as
                described in Item 7, III “Analysis of Segment
                Results”;





·
            Operating
                costs of our Ukraine (STUDIO 1+1) operations increasing by
                US$ 1.5 million, or 11.9%, as described in Item 7, III “Analysis of
                Segment Results”; and


·
              The
                  inclusion of US$ 1.4 million of additional station operating costs
                  relating to our new Ukraine (KINO, CITI)
                  operations.


Total
      consolidated station operating costs increased by US$ 31.5 million, or 94%,
      in
      2005 compared to 2004.





*Page
          73*
 *Table
          of Contents*




**Cost
      of Programming:** Total
      consolidated programming costs (including amortization of programming rights
      and
      production costs) increased by US$ 78.7 million or 52.9% in 2006 compared to
      2005 primarily due to:





·
            A
                US$ 1.1 million, or 5%, increase in the programming costs of our
                Croatia
                operations as described in Item 7, III “Analysis of Segment
                Results”;




·
            A
                US$ 9.9 million, or 19.6%, increase in the programming costs of our
                Czech
                Republic operations as described in Item 7, III “Analysis of Segment
                Results;





·
            A
                US$ 21.7 million, or 61.8%, increase in the programming costs of
                our
                Romania operations as described in Item 7, III “Analysis of Segment
                Results”;





·
            The
                inclusion of US$ 25.8 million of additional programming costs relating
                to
                our newly consolidated Slovak Republic
                operations;





·
            A
                US$ 6.8 million, or 52.3%, increase in the programming costs of our
                Slovenia operations station operating costs and expenses of our Slovenia
                operations as described in Item 7, III “Analysis of Segment Results”;
                and





·
            A
                US$ 10.8 million, or 36.3%, increase in the programming costs of our
                Ukraine (STUDIO 1+1) operations as described in Item 7, III “Analysis of
                Segment Results”; and





·
            The
                inclusion of US$ 2.6 million of additional programming costs from our
                new Ukraine (KINO, CITI) operations as described in Item 7, III “Analysis
                of Segment Results”.





Total
      consolidated programming costs (including amortization of programming rights
      and
      production costs) increased by US$ 77.0 million, or 107%, in 2005 compared
      to
      2004.





**Station
      Selling, General and Administrative Expenses:** Total
      consolidated station selling, general and administrative expenses increased
      by
      US$ 19.0 million, or 41%, in 2006 compared to 2005 primarily due
      to:





·
            A
                US$ 1.2 million, or 15%, decrease in the station selling, general
                and
                administrative expenses of our Croatia operations as described in
                Item 7,
                III “Analysis of Segment Results”;




·
            A
                US$ 4.4 million, or 26.3%, increase in the station selling, general
                and
                administrative expenses of our Czech Republic operations as described
                in
                Item 7, III “Analysis of Segment
                Results”;





·
            A
                US$ 2.7 million, or 33.8%, increase in the station selling, general
                and
                administrative expenses of our Romania operations as described in
                Item 7,
                III “Analysis of Segment Results”;





·
            The
                inclusion of US$ 8.5 million of station selling, general and
                administrative expenses from our newly consolidated Slovak Republic
                operations;





·
            A
                US$ 0.5 million, or 10.9%, increase in the station selling, general
                and
                administrative expenses of our Slovenia operations as described in
                Item 7,
                III “Analysis of Segment Results”;





·
            A
                US$ 3.1 million, or 35.9%, increase in the station selling, general
                and administrative expenses of our Ukraine (STUDIO 1+1) operations
                as
                described in Item 7, III “Analysis of Segment Results”;
                and





·
            The
                inclusion of US$ 0.9 million of station selling, general and
                administrative expenses from our new Ukraine (KINO, CITI) operation
                as
                described in Item 7, III “Analysis of Segment Results”;




Total
      consolidated station selling, general and administrative expenses increased
      by
      US$ 24.3 million, or 110%, in 2005 compared to 2004.





*Page
          74*
 *Table
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**Depreciation
      of Station Property, Plant and Equipment:** Total
      consolidated depreciation of station property, plant and equipment increased
      by
      US$ 9.4 million, or 57.6%, in 2006 compared to 2005 primarily due
      to:





·
            A
                US$ 2.2 million, or 38%, increase in the depreciation costs of our
                Czech
                Republic due to depreciation of newly acquired production equipment
                assets;





·
            A
                US$ 1.3 million, or 38%, increase in the depreciation costs of our
                Romania
                operations due to depreciation of newly acquired production equipment
                assets;





·
            The
                inclusion of US$ 3.2 million of additional depreciation relating
                to our
                newly consolidated Slovak Republic
                operations;





·
            A
                US$ 1.1 million, or 36%, increase in the depreciation costs of our
                Slovenia operations as a result of depreciation of newly acquired
                digital
                production and editing equipment
                assets;





·
            A
                US$ 1.2 million, or 76%, increase in the depreciation costs of our
                Ukraine (STUDIO 1+1) operations due to depreciation of newly acquired
                studio equipment assets; and





·
            The
                inclusion of US$ 0.4 million of additional depreciation costs of our
                newly acquired Ukraine (KINO, CITI)
                operations.




Total
      consolidated depreciation of station property, plant and equipment increased
      by
      US$ 9.9 million, or 154.6%, in 2005 compared to 2004.





**Amortization
      of Broadcast Licenses and Other Intangibles:** Total
      consolidated amortization of broadcast licenses and other intangibles increased
      by US$ 7.6 million in 2006 compared to 2005 primarily as a result of the
      amortization of the broadcast license and customer relationships of our newly
      consolidated Slovak Republic operations.





Total
      consolidated amortization of broadcast licenses and other intangibles increased
      from US$ 0.5 million to US$ 11.2 million in 2005 compared to 2004.




**Corporate
      operating costs (including non-cash stock-based
      compensation)** for the
      years ending December 31, 2006, 2005, and 2004 were as follows:





**For
                the Years Ended December 31, (US$ 000’s)****2006**
            
            **2005**
            
            ***Movement***
            
            **2005**
            
            **2004**
            
            ***Movement***Corporate
                operating costs (excluding non-cash stock-based
                compensation)
            
            $
            30,529
            
            $
            22,420
            
            *$*
            *8,109*
            
            $
            22,420
            
            $
            19,083
            
            *$*
            *3,337*Non-cash
                stock-based compensation(1)
            
            
            3,575
            
            
            3,127
            
            
            *448*
            
            
            3,127
            
            
            10,171
            
            
            *(7,044*
            *)***Corporate
                operating costs (including non-cash stock-based
                compensation)**
            
            **$**
            **34,104**
            
            **$**
            **25,547**
            
            ***$***
            ***8,557***
            
            **$**
            **25,547**
            
            **$**
            **29,254**
            
            *$*
            ***(3,707***
            ***)***


(1)
      The
      amounts charged in the years ended December 31, 2005 and 2004 have been restated
      (for further information, see Item 8, Note 2, “Restatement”).




The
      increase in corporate operating costs (excluding non-cash stock-based
      compensation) of US$ 8.1 million in 2006 compared to 2005 was principally due
      to:





·
            an
                increase in legal expenses in connection with our investments in
                Ukraine
                and legal proceedings in respect of our Ukraine operations;





·
            professional
                fees incurred in reviewing our historic stock option granting
                practices;





*Page
          75*
 *Table
          of Contents*


·
            an
                increase in staff-related costs caused by an increase in corporate
                staff
                as we brought in-house, certain activities that had previously been
                outsourced; and





·
            an
                increase in business development expenses.





Included
      within corporate operating costs is a lease-exit charge of approximately US$
      1.6
      million (including additional depreciation of US$ 0.3 million) incurred
      following relocation of our London office;





The
      increase in corporate costs (excluding non-cash stock-based compensation) in
      2005 compared to 2004 was primarily due to:





·
            an
                increase in staff-related costs caused by an increase in corporate
                staff ,
                and temporary staff costs relating to the acquisition of the TV Nova
                (Czech Republic) group; and





·
            an
                increase in professional fees in respect of legal, tax and press
                and
                public relations expenses relating to advice in connection with our
                investment in Ukraine, legal proceedings in respect of our Ukraine
                operations and in connection with the acquisition of our Czech Republic
                operations and subsequent listing on the Prague Stock Exchange together
                with an increase in investor relations activity;





partly
      off-set by:





·
            a
                decrease in business development expenses.





The
      increase in the charge for non-cash stock-based compensation in 2006 compared
      to
      2005 reflects an increase in the number of stock options issued during 2006
      compared to 2005 as well as an increase in the fair value of our stock options
      as our stock price has increased. The reduction in the charge for non-cash
      stock-based compensation in 2005 compared to 2004 reflects a reduction in the
      charge for the options accounted for under FASB interpretation 44, the last
      of
      which were exercised on December 15, 2005 (see Item 8, Note 17, “Stock-Based
      Compensation”).




**Impairment
      charge:** In the
      year ended December 31, 2006, we recognized an impairment charge of US$ 0.7
      million with respect to our Croatia operations.





When
      we
      updated our medium-term forecast models at June 30, 2006, we determined that
      the
      forecast future cash flows of our Croatia operations had decreased compared
      to
      our previous forecast. We therefore reviewed the carrying value of the
      intangible assets with indefinite lives to determine whether the assets are
      impaired. As a result of our analysis, we recognized an impairment charge of
      US$
      0.7 million to write down the carrying value of goodwill to US$
      nil.





We
      performed a similar review of our Croatia operations in late June 2005 and
      recorded an impairment charge of US$ 35.3 million at that time, of which US$
      18.6 million was attributable to the broadcast license, US$ 7.0 million to
      trademarks and US$ 9.7 million to goodwill. Included in the provision for income
      taxes for the year ended December 31, 2005 is a US$ 5.1 million credit
      representing a release of deferred tax relating to the impairment charge on
      the
      license and trademark.





**IV
      (c) Operating Income for the years ending December 31, 2006, 2005 and
      2004**





**For
                the Years Ended December 31, (US$ 000’s)****2006**
            
            **2005**
            
            ***Movement***
            
            **2005**
            
            **2004**
            
            ***Movement***Operating
                income
            
            $
            140,674
            
            $
            52,196
            
            $
            *88,478*
            
            $
            52,196
            
            $
            18,671
            
            $
            *33,525*





Operating
      income increased by US$ 88.5 million, or 170%, in the year ended December 31,
      2006 compared to 2005. Operating margin was 23% compared to 13% in
      2005.





*Page
          76*
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Operating
      income increased by US$ 33.5 million, or 180%, in the year ended December 31,
      2005 compared to 2004. Operating margin was 13% compared to 10% in
      2004.




**IV
      (d) Other expense items for the years ending December 31, 2006, 2005 and
      2004**





**For
                the Years Ended December 31, (US$ 000’s)****2006**
            
            **2005**
            
            ***Movement***
            
            **2005**
            
            **2004**
            
            ***Movement***Interest
                income
            
            $
            6,365
            
            $
            4,124
            
            *$*
            *2,241*
            
            $
            4,124
            
            $
            4,318
            
            *$*
            *(194*
            *)*Interest
                expense
            
            
            (44,228
            )
            
            (29,387
            )
            
            *(14,841*
            *)*
            
            (29,387
            )
            
            (1,203
            )
            
            *(28,184*
            *)*Foreign
                currency exchange (loss)/gain, net
            
            
            (44,908
            )
            
            37,968
            
            
            *(82,876*
            *)*
            
            37,968
            
            
            (574
            )
            
            *38,542*Other
                income/(expense)
            
            
            3,038
            
            
            (4,705
            )
            
            *7,743*
            
            
            (4,705
            )
            
            (698
            )
            
            *(4,007*
            *)*Change
                in fair value of derivatives
            
            
            (12,539
            )
            
            -
            
            
            *(12,539*
            *)*
            
            -
            
            
            -
            
            
            -Provision
                for income taxes
            
            
            (14,962
            )
            
            (16,691
            )
            
            *1,729*
            
            
            (16,691
            )
            
            (11,089
            )
            
            *(5,602*
            *)*Minority
                interest in income of consolidated subsidiaries
            
            
            (13,602
            )
            
            (8,908
            )
            
            *(4,694*
            *)*
            
            (8,908
            )
            
            (4,106
            )
            
            *(4,802*
            *)*Equity
                in (loss)/income of unconsolidated affiliates
            
            
            (730
            )
            
            8,238
            
            
            *(8,968*
            *)*
            
            8,238
            
            
            10,619
            
            
            *(2,381*
            *)*Gain
                on sale of unconsolidated affiliate
            
            
            6,179
            
            
            -
            
            
            *6,179*
            
            
            -
            
            
            -
            
            
            *-*Discontinued
                operations
            
            
            (4,863
            )
            
            (513
            )
            
            *(4,350*
            *)*
            
            (513
            )
            
            2,524
            
            
            *(3,037*
            *)*





**Interest
      income** increased by US$ 2.2 million in 2006 compared to 2005 primarily as a result
      of
      our maintaining a higher average cash balance in 2006. Interest income decreased
      by US$ 0.2 million in 2005 compared to 2004 primarily as a result of our
      maintaining a lower average cash balance in 2005 compared to 2004 and
      investments in short-term securities.




*Page
            77*
 *Table
            of Contents*




**Interest
      expense** increased by US$ 14.8 million in 2006 compared to 2005 primarily as a result
      of
      a full year interest charge relating to our Senior Notes issued in May 2005
      (see
      Item 8, Note 7, “Senior Notes”). Interest expense increased by US$ 28.2 million
      in 2005 compared to 2004.





**Foreign
      currency (loss)/gain:** During
      2006, we recognized a US$ 44.9 million loss primarily as a result of the
      strengthening of the Euro against the US dollar over that period. Our fixed
      and
      floating rate Senior Notes are denominated in Euros, and we incurred a
      transaction loss of approximately US$ 50.8 million on the Senior Notes due
      to
      movements in the spot rate between December 31, 2005 and December 31, 2006.





In
      2005
      we recognized a foreign currency exchange gain of US$ 38.0 million compared
      to a
      loss of US$ 0.6 million in 2004. This was primarily due to the strengthening
      of
      the US dollar between May 2005, when we issued our Senior Notes, and December
      31, 2005.





**Other
      income/(expense):** We
      recognized income of US$ 3.0 million in 2006 following the release of provisions
      against certain historic tax contingencies within our Romania
      operations.





The
      expense of US$ 4.7 million in 2005 was primarily a result of a US$ 3.4 million
      fee incurred to secure bridge financing for our acquisition of the TV NOVA
      (Czech Republic) group in May 2005. We did not ultimately utilize this bridge
      financing.





**Change
      in fair value of derivatives** :
      During
      2006, we incurred a US$ 12.5 million loss as a result of the change in the
      fair
      value of the currency swaps entered into on April 27, 2006. For further
      information, see Item 8, Note 14, “Financial Instruments”.





**Provision
      for income taxes:** Provision
      for income taxes was US$ 15.0 million in 2006, at an effective tax rate of
      30.9%, compared to US$ 16.7 million, at an effective tax rate of 27.8%, in
      2005.
      In 2006 our stations paid income taxes at rates ranging from 16.0% in Romania
      to
      25.0% in Slovenia and Ukraine. Our effective tax rate in 2005 benefited from
      a
      deferred tax credit of US$ 5.1 million with respect to the impairment of our
      Croatia operations (For further information see Item 8, Note 5, “Goodwill and
      Intangible Assets, Impairment”). We recorded a provision for income taxes of US$
      11.1 million in 2004. For further information on taxes, see Item 8, Note 16,
      “Income Taxes”.





**Minority
      interest in income of consolidated subsidiaries:** Minority
      interest in the income of consolidated subsidiaries was US$ 13.6 million in
      2006
      compared to US$ 8.9 million in 2005 and US$ 4.1 million in 2004. This is as
      a
      result of higher profitability of our Romania, Slovak Republic and Ukraine
      operations.





**Equity
      in (loss)/income of unconsolidated affiliates:** As
      explained in Item 1, “Business”, some of our broadcasting licenses were held by
      unconsolidated affiliates over which we had minority blocking rights but not
      majority control. These affiliates were accounted for using the equity
      method.





Our
      Slovak Republic operations ceased to be accounted for as an equity affiliate
      on
      January 23, 2006, when we acquired majority control of the license company
      via
      our acquisition of ARJ (for further information see Item 8, Note 4,
“Acquisitions and Disposals, Slovak Republic”). We disposed of our Romanian
      equity affiliate on August 11, 2006 (for further information see Item 8, Note
      6,
“Investments”).





**For
                the Years Ended December 31, (US$ 000’s)****2006**
            
            **2005**
            
            ***Movement***
            
            **2005**
            
            **2004**
            
            ***Movement***Slovak
                Republic operations
            
            $
            (737
            )
            $
            8,240
            
            *$*
            *(8,977*
            *)*
            $
            8,240
            
            $
            10,382
            
            *$*
            *(2,142*
            *)*Romania
                operations
            
            
            7
            
            
            (2
            )
            
            *9*
            
            
            (2
            )
            
            237
            
            
            *(239*
            *)*Slovenia
                operations
            
            
            -
            
            
            -
            
            
            *-*
            
            
            -
            
            
            -
            
            
            *-***Equity
                in (loss)/income of unconsolidated affiliates**
            
            **$**
            **(730**
            **)**
            **$**
            **8,238**
            
            ***$***
            ***(8,968***
            ***)***
            **$**
            **8,238**
            
            **$**
            **10,619**
            
            ***$***
            ***(2,381***
            ***)***




**Gain
        on sale of unconsolidated affiliate:** We
        recognized a gain of US$ 6.2 million on the sale of our investment in Radio
        Pro
        to Media Pro, a company controlled by Adrian Sarbu on August 11, 2006. For
        further information, see Item 8, Note 6, “Investments”.


**Discontinued
      operations:** The
      amounts charged to the consolidated statements of operations in respect of
      discontinued operations are as follows:





**For
                the Years Ended December 31, (US$ 000’s)****2006**
            
            **2005**
            
            ***Movement***
            
            **2005**
            
            **2004**
            
            ***Movement***Gain
                on disposal of discontinued operations
            
            $
            -
            
            $
            164
            
            *$*
            *(164*
            *)*
            $
            164
            
            $
            146
            
            *$*
            *18*Tax
                on disposal of discontinued operations
            
            
            (4,863
            )
            
            (677
            )
            
            *(4,186*
            *)*
            
            (677
            )
            
            2,378
            
            
            *(3,055*
            *)***Discontinued
                operations**
            
            **$**
            **(4,863**
            **)**
            **$**
            **(513**
            **)**
            ***$***
            ***(4,350***
            ***)***
            **$**
            **(513**
            **)**
            **$**
            **2,524**
            
            ***$***
            ***(3,037***
            ***)***





On
      June
      19, 2003, our Board of Directors decided to withdraw from operations in the
      Czech Republic. On October 23, 2003 we sold our 93.2% participation interest
      in
      CNTS, our former Czech Republic operating company, for US$ 53.2
      million.





*Page
          78*
 *Table
          of Contents*




The
      revenues and expenses of our former Czech Republic operations and the award
      income and related legal expenses have therefore all been treated as
      discontinued operations for each year. The
      amounts charged to discontinued operations in 2006 largely represent revised
      estimates of additional payments we expect to make to the Dutch tax authorities
      pursuant to the agreement we entered into on February 9, 2004.





For
      additional information, see Item 8, Note 20, “Discontinued
      Operations”.




**IV
      (e) Consolidated Balance Sheet as at December 31, 2006 compared to December
      31,
      2005**





The
      principal components of our Consolidated Balance Sheet at December 31, 2006
      have
      increased compared to December 31, 2005. These increases are summarized
      below:





**Summarized
                Consolidated Balance Sheet (US$ 000’s)**
            
            **December
                31,**
              **2006**
            
            **December
                31,**
              **2005**
            
            **Movement**Current
                assets
            
            $
            413,616
            
            $
            286,926
            
            $
            126,690,Non-current
                assets
            
            
            1,405,384
            
            
            1,101,924
            
            
            303,460Current
                liabilities
            
            
            182,961
            
            
            206,961
            
            
            (24,000
            )Non-current
                liabilities
            
            
            574,084
            
            
            488,099
            
            
            85,985Minority
                interests in consolidated subsidiaries
            
            
            26,189
            
            
            13,237
            
            
            12,952Shareholders’
                equity
            
            
            1,035,766
            
            
            680,553
            
            
            355,213




**Current
      assets:** Current
      assets have increased US$ 126.7 million at December 31, 2006 compared to
      December 31, 2005, primarily as a result of the receipt of the cash proceeds
      from the offering of 2,530,000 shares of Class A Common Stock completed on
      March
      29, 2006, partially offset by the use of cash to fund acquisitions and reduce
      amounts drawn under credit facilities. Accounts receivable increased by US$
      55.1
      million, as our operations in the Czech Republic and Romania enjoyed strong
      growth, and approximately US$ 22.4 million of the increase in the value of
      our
      current assets was due to consolidation of our Slovak Republic operations
      following our acquisition of ARJ on January 23, 2006.




**Non-current
      assets:** Non-current assets have increased US$ 303.5 million at December 31, 2006
      compared to December 31, 2005, primarily as a result of the impact of the
      weakening US dollar on the retranslation of our Czech Crown-denominated assets
      in the Czech Republic, as well as the recognition of additional goodwill and
      other intangible assets following the acquisition of an additional 5% stake
      in
      our Romania operations. Of the increase in the value of our non-current assets,
      approximately US$ 40.5 million was due to the consolidation of the non-curent
      assets of our Slovak Republic operations following the acquisition of ARJ on
      January 23, 2006.





**Current
      liabilities:** Current
      liabilities have decreased US$ 24.0 million at December 31, 2006 compared to
      December 31, 2005, primarily as a result of the repayment of US$ 25.1 million
      of
      amounts due under credit facilities in the Czech Republic, and the payment
      of
      deferred consideration of US$ 24.4 million relating to the acquisition of our
      Czech Republic operations, partially offset by an increase of US$ 25.9 million
      in accounts payable and an additional US$ 13.4 million of accrued programming
      liabilities. Consolidation of the liabilities of our Slovak Republic operations
      following the acquisition of ARJ on January 23, 2006 has increased the value
      of
      our current liabilities by approximately US$ 12.7 million.





**Non-current
      liabilities:** Non-current liabilities have increased US$ 86.0 million at December 31, 2006
      compared to December 31, 2005, reflecting a US$ 50.9 million increase in the
      value of our Senior Notes as a result of the movement in the spot rate between
      December 31, 2005 and December 31, 2006, as well as recognition of an additional
      US$ 15.9 million of deferred tax liabilities and a liability of US$ 12.5 million
      on the revaluation of the currency swaps entered into in April
      2006.





**Minority
      interests in consolidated subsidiaries:** Minority
      interests in consolidated subsidiaries have increased US$ 13.0 million at
      December 31, 2006 compared to December 31, 2005, primarily as a result of the
      recognition of a minority interest in our newly consolidated Slovak Republic
      operations, which had previously been reported as an equity accounted affiliate,
      as well as improved profitability of our Romania and Ukraine
      operations.





*Page
          79*
 *Table
          of Contents*




**Shareholders’
      equity:** Total
      shareholders’ equity has increased US$ 355.2 million at December 31, 2006
      compared to December 31, 2005, primarily as a result of the sale in a public
      offering of 2,530,000 shares of Class A Common Stock on March 29, 2006 for
      net
      proceeds of approximately US$ 168.7 million.


The
        remaining movement in shareholders’ equity relates to an increase in Accumulated
        Other Comprehensive Income (US$ 157.5 million), proceeds from the exercise
        of
        stock options (US$ 3.7 million), stock-based compensation charge (US$ 4.9
        million), and net income for the year ended December 31, 2006 of US$ 20.4
        million.




***V.
      Liquidity and Capital Resources***





**V
      (a) Summary of cash flows:**





Cash
      and
      cash equivalents increased by US$ 74.2 million during the year ended December
      31, 2006. The change in cash and cash equivalents is summarized as
      follows:





**(US$
                000’s)**
            
            **For
                the Years Ended December 31,****2006**
            
            **2005**
            
            **2004**Net
                cash generated from continuing operating activities
            
            $
            73,395
            
            $
            3,544
            
            $
            2,415Net
                cash used in continuing investing activities
            
            
            (126,955
            )
            
            (298,803
            )
            
            (57,009
            )Net
                cash received from financing activities
            
            
            132,400
            
            
            225,359
            
            
            1,886Net
                cash used in discontinued operations - operating
                activities
            
            
            (1,690
            )
            
            (2,000
            )
            
            (9,463
            )Net
                cash received from discontinued operations - investing
                activities
            
            
            -
            
            
            -
            
            
            20,349Impact
                of exchange rate fluctuations on cash
            
            
            (2,904
            )
            
            (9,010
            )
            
            2,144**Net
                increase****/
                (decrease) in cash and cash equivalents**
            
            **$**
            **74,246**
            
            **$**
            **(80,910**
            **)**
            **$**
            **(39,678**
            **)**


*Operating
      Activities*





Cash
      generated from continuing operations in 2006 increased US$ 69.9 million to
      US$
      73.4 million. This reflects (i) the level of cash generated by our Czech
      Republic operations, which has been consolidated for a full year in 2006 rather
      than for the period from acquisition on May 2, 2005; (ii) consolidation of
      our
      Slovak Republic operations; and (iii) improved station performance in Romania,
      Slovenia and Ukraine (Studio 1+1), partially offset by negative cash flows
      of
      our Croatia and Ukraine (KINO, CITI) operations.




Cash
        generated from continuing operations was reduced in 2006 by US$ 10.0 million,
        and in 2005 by US$ 41.6 million, by repayment of the settlement liability
        of the
        TV Nova (Czech Republic) group, described in greater detail below. Excluding
        these repayments, cash generated from continuing operating activities increased
        by US$ 41.5 million in 2006.
 
 Cash
        generated from continuing operations in 2005 increased US$ 1.1 million to
        US$
        3.5 million, despite having made a US$ 41.6 million partial repayment of
        the
        settlement liability of the TV Nova (Czech Republic) group. The
        settlement liability represented an amount owed by CET 21 under a
        settlement agreement among CET 21, Ceska nezavisla televizni spolecnost,
        spol. s.r.o. (“CNTS”) and  the PPF Group dated December 19, 2003. This
        liability was assumed as part of the TV Nova (Czech Republic) group acquisition
        and has been refinanced at lower interest rates using our credit facilities
        from
        Ceska Sporitelna, a.s. The income from refinancing appears within net cash
        received from financing operations and the remaining US$ 10.0 million was
        settled in January 2006.
  *Page
            80*
 *Table
            of Contents*


Excluding
      the payment of the settlement liability, cash generated from operating
      activities was US$ 45.2 million. This reflects the level of cash generated
      by
      our Czech Republic operations, improved station performance in Romania and
      Ukraine, and an increase in dividends received from our Slovak Republic
      operations. These were partially offset by negative cash flows of our Croatia
      operations.





In
      2004,
      net cash generated by continuing operations of US$ 2.4 million was after
      decreases in working capital for increased accounts receivable (US$ 9.1
      million), increased investment in program rights (US$ 45.4 million) and other
      assets (US$ 4.6 million) and decreased accounts payable and accrued liabilities
      (US$ 13.6 million).




*Investing
      Activities*




Cash
        used
        in investing activities decreased US$ 171.8 million from 2005 to US$ 127.0
        million in 2006. Our investing cash flows in 2006 were primarily comprised
        of:
 
 ·
              Capital
                  expenditure of US$ 60.4 million, largely in respect of the expansion
                  of
                  our broadcasting facilities and equipment in Romania and the Czech
                  Republic;
 
 ·
              A
                  payment of US$ 30.1 million in connection with our acquisition
                  of ARJ (see
                  Item 8, Note 4, “Acquisitions and Disposals, Slovak
                  Republic”);
 
 ·
              A
                  payment of US$ 27.2 million in connection with the 5% increase
                  in our
                  holding of our Romanian operations (see Item 8, Note 4, “Acquisitions and
                  Disposals, Romania”);
 
 ·
              A
                  payment of EUR 8.0 million (approximately US$ 10.3 million) in
                  connection
                  with our acquisition of our 10% stake in Media Pro (see Item 8,
                  Note 6,
                  “Investments”); and
 
 ·
              A
                  payment of a further US$ 2.0 million following completion of our
                  acquisition of a 65.5% stake in Ukrpromtorg-2003 LLC (see Item
                  8, Note 4,
                  “Acquisitions and Disposals,
                  Ukraine”).




In
        2005,
        net cash used in investing activities of US$ 298.8 million consisted primarily
        of the following:




·
              Total
                  cash payments of US$ 218.1 million (net of cash acquired of US$
                  35.6
                  million) for the acquisition of the TV Nova (Czech Republic) group
                  in May
                  2005 (see item 8, Note 4, “Acquisitions and Disposals, Czech Republic”).
                  The remainder of the total purchase price of US$ 909.5 million
                  consisted
                  of non-cash items, including:
 
 ·
              the
                  issuance of 3.5 million shares of Class A Common Stock (US$ 120.9
                  million);
 
 ·
              the
                  incurrence of US$ 491.7 million of short-term indebtedness to PPF
                  (which
                  was repaid in cash on May 5, 2005);
 
 ·
              forgiveness
                  of a US$ 18.5 million balance categorized as “Other Receivable” in our
                  Consolidated Balance Sheet as at December 31, 2004;
                  and
 
 ·
              the
                  placement of US$ 24.7 million of cash into escrow as the second
                  and final
                  payment to Mr. Krsak;




·
            A
                payment of US$ 20.0 million in connection with the 5% increase in
                our
                holding of our Romania operations;





·
            A
                payment of US$ 2.1 million in connection with our acquisition of
                Galaxie
                Sport;





·
            A
                payment of Euro 4.7 million (approximately US$ 5.7 million) to acquire
                the
                remaining 3.15% interest in Pro Plus;





*Page
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          of Contents*


·
            Advance
                payments of US$ 5.1 million with respect to our acquisition of a
                65.5%
                interest in Ukrpromtorg 2003 LLC (see Item 8, Note 4, “Acquisitions and
                Disposals, Ukraine”);




·
            Capital
                expenditures of approximately US$ 26.5 million, primarily related
                to
                upgrades of broadcasting facilities and production equipment;
                and





·
            A
                net increase in restricted cash of US$ 18.6 million, of which US$
                24.6
                million was a result of the acquisition of the TV Nova (Czech Republic)
                group, US$ 0.7 million of other increases, and a reduction of US$
                6.7
                million being the second payment for our acquisition of our Croatia
                operations.





In
      2004,
      net cash used in investing activities of US$ 57.0 million was due to investments
      in subsidiaries and unconsolidated affiliates, primarily in Croatia and Romania,
      of US$ 35.8 million, investment in property, plant and equipment of US$ 10.8
      million, and increased restricted cash of US$ 10.1 million relating to cash
      held
      in escrow for the acquisition of our Croatia operations.




*Financing
      Activities*





Net
      cash
      received from financing activities decreased US$ 93.0 million from 2005 to
      US$
      132.4 million in 2006. Net proceeds from financing activities in 2006 consisted
      primarily of the following:





·
            Receipt
                of approximately US$ 168.7 million (net of fees) from a public offering
                of
                2,530,000 shares of our Class A Common Stock;





·
            Receipts
                of US$ 36.7 million from drawing on credit facilities in Czech Republic
                and Slovenia, largely to finance the acquisition of ARJ and the increased
                investment in our Romania operations;
                and





·
            Repayment
                of US$ 75.3 million of amounts drawn under the same credit
                facilities.




Net
      proceeds from financing activities of US$ 225.4 million in 2005 consisted
      primarily of the following:


·
            Net
                proceeds of approximately US$ 465.1 million from the issuance of
                our
                Senior Notes (see Item 8, Note 7, “Senior Notes”). The proceeds from this
                loan were used to finance part of the acquisition of the TV Nova
                (Czech
                Republic) group;




·
            Net
                proceeds from the issuance of Class A Common Stock of approximately
                US$
                236.5 million, of which US$ 230.6 million was raised from the issuance
                of
                5.4 million shares of Class A Common Stock, the proceeds of which
                were
                used for our acquisition of the TV Nova (Czech Republic) group and
                approximately US$ 5.9 million from stock option
                exercises;





·
            Proceeds
                from borrowing of our Czech Republic operations (US$ 42.7 million)
                and our
                Slovenia operations (US$ 23.2 million). US$ 41.6 million of the proceeds
                from the borrowings of our Czech Republic operations were used to
                repay
                the settlement liability discussed in Operating Activities above;





·
            Repayments
                of indebtedness by our Czech Republic operations (US$ 8.0 million),
                our
                Slovenia operations (US$ 31.7 million) and our Croatia operations
                (US$ 0.3
                million); and





·
            Repayments
                of short-term indebtedness to PPF for the purchase of the TV Nova
                (Czech
                Republic) group (US$ 491.7 million) and Galaxie Sport (US$ 3.0
                million).





In
      2004,
      net cash received from financing activities of US$ 1.9 million was due to the
      issuance of shares of Class A Common Stock of US$ 4.2 million relating to
      warrants and stock options being exercised, offset by net repayments under
      certain credit facilities and capital leases (US$ 2.3 million).




*Page
          82*
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          of Contents*




*Discontinued
      Operations*





Pursuant
      to the agreement we entered into with the Dutch tax authorities on February
      9,
      2004, we paid US$ 1.7 million in 2006 compared to US$ 2.0 million during
      2005.


In
        2004,
        we paid taxes of US$ 9.0 to the Dutch tax authorities pursuant to this agreement
        and incurred US$ 0.5 of other expenses in connection with the disposal of
        our
        former Czech Republic operations. We also received a second payment (of US$
        20.3
        million) from PPF in respect of the sale of CNTS, our former Czech Republic
        operating company.




**V
      (b) Sources and Uses of Ca** **sh**





We
      believe that our current cash resources are sufficient to allow us to continue
      operating for at least the next 12 months and we do not anticipate additional
      cash requirements in the near future subject to the matters disclosed under
      “Contractual Obligations, Commitments and Off-Balance Sheet Arrangements” and
“Cash Outlook”, below.





Our
      ongoing source of cash at the operating stations is primarily the receipt of
      payments from advertisers and advertising agencies. This may be supplemented
      from time to time by local borrowing. Surplus cash generated in this manner,
      after funding the ongoing station operations, may be remitted to us, or to
      other
      shareholders where appropriate. Surplus cash is remitted to us in the form
      of
      debt interest payments and capital repayments, dividends, and other
      distributions and loans from our subsidiaries.





Corporate
      law in the Central and Eastern European countries in which we operate stipulates
      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. Except as set forth
      below, our voting power is sufficient to compel the making of distributions.





In
      the
      case of Nova TV (Croatia), distributions may be paid from net profits subject
      to
      a reserve of 5% of annual profits until the aggregate reserves equal 5% of
      the
      registered capital of Nova TV (Croatia). In the case of CET 21, distributions
      may be paid from net profits subject to a reserve of 5% of net profits until
      the
      aggregate reserves equal 10% of the registered capital of CET 21. In the case
      of
      Pro TV, distributions may be paid from the profits of Pro TV subject to a
      reserve of 5% of annual profits until the aggregate reserves equal 20% of Pro
      TV's registered capital. A majority vote is required in order for Pro TV to
      make
      distributions and we have sufficient voting power to compel distributions of
      dividends. 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. As of January 23, 2006, we had a sufficient majority to
      compel the distributions of dividends by STS. In the case of Pro Plus,
      distributions may be paid from the profits of Pro Plus, subject to a reserve
      equal to 10% of registered capital being established from accumulated profits.
      In the case of Studio 1+1, distributions may be paid from net profits subject
      to
      a reserve of 5% of net profits until the aggregate reserves equals 25% of the
      registered capital of Studio 1+1. We do not have a sufficient majority in Studio
      1+1 to compel the distribution of dividends. In the case of Intermedia, Innova
      and IMS, distributions may be paid from their profits and there is no reserve
      requirement for these companies. Our voting power in Innova and IMS is
      sufficient to compel the distribution of dividends.




STS
      made
      dividend distributions to us in 2006, 2005, and 2004; Pro TV made dividend
      distributions to us in 2006 and 2005, and Pro Plus made dividend distributions
      to us in 2006 and 2004. We also received payments of loan principal and interest
      from our operations in the Czech Republic, Romania and Ukraine.





*Page
          83*
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          of Contents*




As
      at
      December 31, 2006 and 2005 the operations had the following unsecured
      intercompany balances owing to their respective holding companies:




**Operating
                  segment (US$ 000's)**
              
              **December
                  31,**
                **2006**
              
              **December
                  31,**
                **2005**Croatia
              
              $
              67,623
              
              $
              40,166Czech
                  Republic
              
              
              434,897
              
              
              441,569Romania
              
              
              25,620
              
              
              28,873Slovak
                  Republic
              
              
              23,670
              
              
              88Slovenia
              
              
              -
              
              
              39Ukraine
                  (STUDIO 1+1)
              
              
              -
              
              
              10,617Ukraine
                  (KINO, CITI)
              
              
              4,621
              
              
              -**Total**
              
              **$**
              **556,431**
              
              **$**
              **521,352**




**V
      (c) Contractual Obligations, Commitments and Off-Balance Sheet
      Arrangements**





Our
      future contractual obligations as at December 31, 2006 are as
      follows:





**Contractual
                Obligations**
            
            **Payments
                due by period (US$ 000’s)****Total**
            
            **Less
                than 1 year**
            
            **1-3
                years**
            
            **3-5
                years**
            
            **More
                than 5 years**Long-Term
                Debt - principal
            
            $
            501,816
            
            $
            12,350
            
            $
            1,870
            
            $
            305
            
            $
            487,291Long-Term
                Debt - interest
            
            
            266,857
            
            
            41,895
            
            
            83,839
            
            
            83,635
            
            
            57,488Capital
                Lease Obligations
            
            
            6,735
            
            
            998
            
            
            1,450
            
            
            864
            
            
            3,423Operating
                Leases
            
            
            7,729
            
            
            3,983
            
            
            2,567
            
            
            1,179
            
            
            -Unconditional
                Purchase Obligations
            
            
            124,895
            
            
            115,668
            
            
            9,064
            
            
            13
            
            
            150Other
                Long-Term Obligations
            
            
            25,089
            
            
            21,981
            
            
            3,108
            
            
            -
            
            
            -Total
                Contractual Obligations
            
            **$**
            **933,121**
            
            **$**
            **196,875**
            
            **$**
            **101,898**
            
            **$**
            **85,996**
            
            **$**
            **548,352**





*Long-Term
      Debt*





As
      at
      December 31, 2006 we had the following debt outstanding:




**December
                31, 2006****(US$
                000’s)**Corporate
            
            
            (1)
                - (2)
            
            $
            487,291Croatia
                operations
            
            
            (3)
            
            
            847Czech
                Republic operations
            
            
            (4)
                - (6)
            
            
            11,975Slovenia
                operations
            
            
            (7)
            
            
            -Ukraine
                operations
            
            
            (8)
            
            
            1,703**Total**
            
            
            
            
            $
            501,816





(1)
            In
                May 2005, we issued Senior Notes in the aggregate principal amount
                of EUR
                370.0 million consisting of EUR 245.0 million of 8.25% Senior Notes
                due
                May 2012 and EUR 125.0 million of floating rate Senior Notes due
                May 2012,
                which bear interest at six-month Euro Inter-Bank Offered Rate (“EURIBOR”)
                plus 5.50% (9.23% was applicable at December 31, 2006). Interest
                is
                payable semi-annually in arrears on each May 15 and November
                15.





*Page
          84*
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          of Contents*




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 these 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 35.0% 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 60th 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 101.0%
      of
      the principal amount of the Senior Notes plus accrued and unpaid interest to
      the
      date of purchase.





At
      any
      time prior to May 15, 2008, we may redeem up to 35.0% of the fixed rate Senior
      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 Senior Notes at a redemption price equal to 100.0% of
      the
      principal amount of such notes, plus a “make-whole” premium and accrued and
      unpaid interest, if any, to the redemption date.





As
      of
      December 31, 2006, Standard & Poor’s senior unsecured debt rating for our
      Senior Notes remained unchanged from December 31, 2005 at B+, with a corporate
      credit rating of BB- / stable. At December 31, 2006, Moody’s Investors Service’s
      rating of both our corporate credit rating and our Senior Notes due 2012 was
      Ba3
      stable.





(2)
            On
                July 21, 2006, we entered into a five-year revolving loan agreement
                for
                EUR 100.0 million (approximately US$ 131.7 million) arranged by the
                European Bank for Reconstruction and Development (the “Loan”). ING Bank
                N.V. (“ING”) and Ceska Sporitelna, a.s. (“CS”) are participating in the
                facility for up to EUR 50.0 million in aggregate. Initial drawings
                up to
                EUR 100.0 million will be used for certain specified projects in
                Central
                and Eastern Europe.





The
      Loan
      bears interest at a rate of three-month EURIBOR plus 2.75% on the drawn amount.
      The available amount of the Loan amortizes by 7.5% every six months from May
      2008 to November 2009, then by 15% in May 2010 and November 2010, and by 40%
      in
      May 2011. There were no drawings under this facility as at December 31,
      2006.





Covenants
      contained in the Loan are in line with those contained in our Senior Notes
      (see
      Item 8, Note 7, “Senior Notes"). In addition, the Loan’s covenants restrict us
      from making principal repayments on other debt of greater than US$ 20.0 million
      per year for the life of the Loan. This restriction is not applicable to our
      existing facilities with ING or CS or to any refinancing of our Senior
      Notes.




The
      Loan
      is a secured senior obligation and ranks pari passu with all existing and future
      senior indebtedness, including the Senior Notes, and is effectively subordinated
      to all existing and future indebtedness of our subsidiaries. The amount drawn
      is
      guaranteed by certain of our subsidiaries and is secured by a pledge of shares
      of those subsidiaries and an assignment of certain contractual rights. The
      terms
      of the Loan 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.





(3)
            A
                total of EUR 0.6 million(approximately
                US$ 0.8 million) was drawn down under two loan agreements our Croatia
                operations have with Hypo Alpe-Adria-Bank d.d.These
                loans bear a variable interest rate of three-month EURIBOR plus 2.50%
                and
                are repayable in quarterly instalments until April 1, 2011. As at
                December
                31, 2006, an aggregate rate of 6.00% applied to these loans.These loan facilities are secured by certain fixed assets of OK,
                which as
                at September 30, 2006 have a carrying amount of approximately US$
                0.1
                million.





*Page
          85*
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          of Contents*


(4)
            CET
                21 has a four-year credit facility of CZK 1.2 billion (approximately
                US$
                57.5 million) with Ceska Sporitelna, a.s. (“CS”). The final repayment date
                is October 31, 2009. This facility may, at the option of CET 21,
                be drawn
                in CZK, US$ or EUR and bears interest at the three-month, six-month
                or
                twelve-month London Inter-Bank Offered Rate (“LIBOR”), EURIBOR or Prague
                Inter-Bank Offered Rate (“PRIBOR”) rate plus 1.95%. This facility is
                secured by a pledge of receivables, which are also subject to a factoring
                arrangement with Factoring Ceska Sporitelna, a.s., a subsidiary of
                CS. As
                at December 31, 2006, there were no drawings under this facility.





(5)
            CET
                21 has a working capital credit facility of CZK 250.0 million
                (approximately US$ 12.0 million) with CS, which matures on April
                30, 2007.
                This working capital facility bears interest at the three-month PRIBOR
                rate plus 1.65%. A preliminary agreement has been reached to extend
                this
                facility for 12 months from maturity. This facility is secured by
                a pledge
                of receivables, which are also subject to a factoring arrangement
                with
                Factoring Ceska Sporitelna, a.s. As at December 31, 2006, the full
                CZK
                250.0 million (approximately US$ 12.0 million) was drawn under this
                facility bearing interest at an aggregate 4.20% (the applicable
                three-month PRIBOR rate at December 31, 2006 was
                2.55%).





(6)
            As
                at December 31, 2006, there were no drawings under a CZK 600.0 million
                (approximately US$ 28.7 million) factoring facility with Factoring
                Ceska
                Sporitelna, a.s., a subsidiary of CS. This facility is available
                until
                March 31, 2010 and bears interest at the rate of one-month PRIBOR
                plus
                1.40% for the period that actively assigned accounts receivable are
                outstanding.





(7)
            A
                revolving five-year facility agreement was entered into by Pro Plus
                for up
                to EUR 37.5 million (approximately US$ 49.4 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 10.0% each year for four years commencing
                one
                year after signing, with 60.0% 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 at a rate of EURIBOR for the
                period
                of drawing plus a margin of between 2.10% and 3.60% that varies according
                to the ratio of consolidated net debt to consolidated broadcasting
                cash
                flow for Pro Plus. As at December 31, 2006, there were no drawings
                under
                this revolving facility.




(8)
              On
                  August 16, 2006 and November 6, 2006, our Ukraine (KINO, CITI)
                  operations
                  entered into US$ 0.9 million and US$ 0.6 million, three-year loans
                  withGlavred-Media,
                  LLC,
                  the minority shareholder in Ukrpromtorg. These loans are unsecured
                  and
                  bear interest at 9.0%. Our partners have also extended short-term
                  non-interest bearing loans to our Ukraine (KINO, CITI) operations
                  amounting to US$ 0.2 million.




*Capital
      Lease Obligations*





Capital
      lease obligations include future interest payments of US$ 1.8 million. For
      more
      information on our capital lease obligations see Item 8, Note 13, “Credit
      Facilities and Obligations under Capital Leases”





*Operating
      Leases*





For
      more
      information on our operating lease commitments see Item 8, Note 21, “Commitments
      and Contingencies, Commitments”.




*Unconditional
        Purchase Obligations*
 
 Unconditional
        purchase obligations largely comprise future programming commitments. At
        December 31, 2006, we had commitments in respect of future programming of
        US$
        98.0 million (December 31, 2005: US$ 51.8 million). This includes contracts
        signed with license periods starting after December 31, 2006. For more
        information on our programming commitments see Item 8, Note 21, “Commitments and
        Contingencies, Commitments”.
 
 *Page
            86*
 *Table
            of Contents*
  *Other
        Long-Term Obligations*
 Included
          in Other Long-Term Obligations are our commitments to the Dutch tax authorities
          of US$ 5.5 million (see Item 8, Note 21, “Commitments and
          Contingencies”) .


In
      addition to the amounts disclosed above, Mr. Sarbu has the right to sell his
      remaining 10.0% 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
      1.0% interest sold. A put option of 5.21% of this 10.0% shareholding is
      exercisable from November 12, 2009 for a twenty-year period thereafter. Mr.
      Sarbu’s right to put the remaining 4.79% shareholding is also exercisable from
      November 12, 2009, provided that we have not enforced a pledge over this 4.79%
      shareholding which Mr. Sarbu granted as security for our right to put our 10.0%
      in Media Pro. As at December 31 2006, we consider the fair value of this put
      option to be approximately US$ nil (2005: US$ nil).





**V
      (d) Cash Outlook**





The
      issuance of the EUR 370.0 million (approximately US$ 480.0 million at the time
      of issuance) Senior Notes for the acquisition of the TV Nova (Czech Republic)
      group in May 2005 increased our leverage and we have significant debt service
      obligations in respect of the Senior Notes. In addition, 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. Net cash proceeds from the
      issuance of new shares of our Class A Common Stock of US$ 168.7 million in
      March
      2006 significantly reduced our net debt and provides a useful source of funds
      to
      allow investment flexibility, including acquisitions better suited to equity
      rather than debt financing. On July 21, 2006, we entered into a five-year EUR
      100.0 million revolving loan facility, which, once fully drawn, can be used
      for
      general corporate purposes to further increase our financing flexibility, and
      will reduce our average cost of debt.




Our
        future cash needs will depend on our overall financial performance, our ability
        to service the indebtedness incurred under the Senior Notes as well as other
        indebtedness incurred by us and any future acquisition, investment and
        development decisions. Our ability to raise further funds through external
        debt
        facilities depends on our satisfaction of a leverage ratio under the Senior
        Notes. In the short-term we are able to fund our operations from cash generated
        from operations, our current cash resources (US$ 145.9 million, at December
        31,
        2006) and available undrawn credit facilities (US$ 239.0 million, at December
        31, 2006).
 
 We
        expect
        to invest US$ 60-70 million on capital expenditure in 2007, and approximately
        US$ 10 million furthering the development of our non-broadcast
        operations.
 
 Our
        Croatia operations continue to require funding to improve our ratings
        performance and increase our market share. We expect the funding required
        to
        support Nova TV (Croatia) to be in excess of US$ 26.0 million during 2007,
        and
        have provided US$ 7.2 million in cash funding to Nova TV (Croatia) in the
        three
        months ended December 31, 2006.




*Page
          87*
 *Table
          of Contents*




**V
      (e) Tax Inspections**




Pro
        Plus
        has been the subject of an income tax inspection by the Republic of Slovenia
        tax
        authorities for the years 1995 to 1998. As a result of these inspections
        the
        Slovenian tax authorities had levied an assessment seeking unpaid income
        taxes,
        customs duties and interest charges of SIT 1,073.0 million (approximately
        US$
        5.3 million). The Slovenian authorities have asserted that capital contributions
        and loans made by us to Pro Plus in 1995 and 1996 should be extraordinary
        revenue to Pro Plus. On this basis, the Slovenian authorities claim that
        Pro
        Plus made a profit in 1995 and 1996 for which it owes income taxes and interest.
        Additionally, the Slovenian tax authorities claim that the fixed assets imported
        as capital contributions were subject to customs duties, which were not paid.
        On
        February 9, 2001, the Slovenian tax authorities concluded that the cash capital
        contributions for 1995 and 1996 were not extraordinary income. This has reduced
        the assessment to SIT 636.8 million (approximately US$ 3.1 million) in aggregate
        principal amount. Pro Plus appealed this decision to the Administrative Court
        in
        Ljubljana and requested the tax authorities to defer the demand for payment
        until a final judgment has been issued, and the tax authorities have so agreed.
        On April 18, 2005, the Administrative Court issued a decision in favor of
        Pro
        Plus and dismissed the claims of the tax authorities. The tax authorities
        filed
        an appeal with the Slovenian Supreme Court in May 2005. We do not have a
        provision in our financial statements in relation to this legal
        action.




**V
      (f) Off-Balance Sheet Arrangements**





None.





***VI.
      Critical Accounting Policies and Estimates***





Our
      accounting policies affecting our financial condition and results of operations
      are more fully described in Note 3 to our consolidated financial statements
      that
      are included in Item 8. The preparation of these financial statements requires
      us to make judgments in selecting appropriate assumptions for calculating
      financial estimates, which inherently contain some degree of uncertainty. We
      base our estimates on historical experience and on various other assumptions
      that are believed to be reasonable under the circumstances, the results of
      which
      form the basis of making judgments about the carrying values of assets and
      liabilities and the reported amounts of revenues and expenses that are not
      readily apparent from other sources. Actual results may differ from these
      estimates under different assumptions or conditions.





We
      believe the following critical accounting policies affect our more significant
      judgments and estimates used in the preparation of our consolidated financial
      statements:




*Program
      Rights*





Program
      rights consist of programming acquired from third parties and programming
      produced locally and forms an important component of our station broadcasting
      schedules. Program rights and the related liabilities are recorded at their
      gross value when the license period begins and the programs are available for
      use. Program rights are amortized on a systematic basis over their expected
      useful lives. Both films and series are amortized as shown with the amortization
      charged in respect of each airing calculated in accordance with a schedule
      that
      reflects our estimate of the relative economic value of each run. For program
      rights acquired under a standard two-run license, we generally amortize 65%
      after the first run and 35% after the second run. The program library is
      evaluated at least annually to determine if expected revenues are sufficient
      to
      cover the unamortized portion of each program. To the extent that the revenues
      we expect to earn from broadcasting a program are lower than the book value,
      the
      program rights are written down to their net realizable value by way of
      recording an additional amortization charge. Accordingly, our estimates of
      future advertising and other revenues, and our future broadcasting schedules
      have a significant impact on the value of our program rights on the Consolidated
      Balance Sheet and the annual programming amortization charge recorded in the
      Consolidated Statement of Operations.





*Page
          88*
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*Goodwill
      and intangible assets*





In
      accordance with SFAS No. 141, “Business Combinations,” we allocate the purchase
      price of our acquisitions to the tangible assets, liabilities and identifiable
      intangible assets acquired based on their estimated fair values, with the excess
      purchase price over those fair values being recorded as goodwill.





The
      fair
      value assigned to identifiable intangible assets acquired is supported by
      valuations that involve the use of a large number of estimates and assumptions
      provided by management. To assist in the valuation process, we have on occasion
      utilized the services of independent valuation consulting firms. If we had
      made
      different estimates and assumptions, the valuations of identifiable intangible
      assets could have changed, and the amount of purchase price attributable to
      these assets could have changed, and led to a corresponding change in the value
      of goodwill.





The
      assumptions and estimates that we have applied vary according to the date,
      location and type of assets acquired for each of our acquisitions. For example,
      some of the assumptions and estimates that we have used in determining the
      value
      of acquired broadcast licenses are as follows: methodology applied in valuation,
      discount rate (being the weighted average cost of capital and applicable risk
      factor), useful life of license (definite or indefinite) and probability of
      renewal, audience share growth and advertising market share, power ratio and
      growth, revenue growth for the forecast period and then in perpetuity, operating
      margin growth, future capital expenditure and working capital requirements,
      future cost saving as a result of the switch from an analog to a digital
      environment, inflation, and workforce cost, among others.





All
      assumptions and estimates applied were based on best estimates at the respective
      acquisition dates.





We
      assess
      the carrying value of intangible assets with indefinite lives and goodwill
      on an
      annual basis, or more frequently if events or changes in circumstances indicate
      that such carrying value may not be recoverable. Other than our annual review,
      factors we consider important which could trigger an impairment review are:
      under-performance of operating segments or changes in projected results, changes
      in the manner of utilization of the asset, and negative market conditions or
      economic trends. Therefore, our judgment as to the future prospects of each
      business has a significant impact on our results and financial condition. We
      believe that our assumptions are appropriate. If future cash flows do not
      materialize as expected or there is a future adverse change in market
      conditions, we may be unable to recover the carrying amount of an asset,
      resulting in future impairment losses.





Impairment
      tests are performed at the reporting unit level. If potential for goodwill
      impairment exists, the fair value of the reporting unit is subsequently measured
      against the fair value of its underlying assets and liabilities, excluding
      goodwill, to estimate an implied fair value of the reporting unit’s goodwill.
      Determination of a reporting unit requires judgment, and if we were to change
      our business structure we could change the number and nature of the reporting
      units we use to assess potential impairment. An impairment loss is recognized
      for any excess of the carrying value of the reporting unit’s goodwill over the
      implied fair value.




The
      fair
      value of goodwill is determined using an income methodology estimating projected
      future cash flows related to each reporting unit, which we determine to be
      our
      business segments (Croatia, Czech Republic, Romania, Slovak Republic, Slovenia
      and Ukraine). These projected future cash flows are discounted back to the
      valuation date. Significant assumptions inherent in the methodology employed
      include estimates of discount rates, future revenue growth rates and a number
      of
      other factors, all of which are based on our assessment of the future prospects
      and the risks inherent at the respective reporting units.





A
      change
      in these assumptions resulting in an hypothetical 10% decrease to the fair
      values of each reporting unit would not result in any of our reporting units
      having a fair value that is less than the carrying value of the reporting unit
      on our balance sheet. If fair value were less than carrying value, we would
      be
      required to record a charge for the impairment of goodwill related to the
      impaired reporting unit. We recognized impairment losses during 2006 and 2005
      in
      our Croatia operations. There was no such impairment in any of our operations
      during 2004.





*Page
          89*
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          of Contents*




*Impairment
      or disposal of long-lived assets*





Long-lived
      assets, such as property, plant and equipment and intangible assets subject
      to
      amortization, including customer relationships and certain broadcast licenses,
      are reviewed for impairment whenever events or changes in circumstances indicate
      that the carrying amount of an asset may not be recoverable. Factors that are
      considered important which could trigger an impairment review include the
      following: significant underperformance relative to expected historical or
      projected future operating results, significant changes in the manner of the
      use
      of the acquired assets or the strategy for the overall business, and significant
      negative industry or economic trends.





Recoverability
      of assets to be held and used is measured by a comparison of the carrying amount
      of an asset to estimated undiscounted future cash flows expected to be generated
      by the respective asset. The same estimates are also used in planning for our
      long- and short-range business planning and forecasting. We assess the
      reasonableness of the inputs and outcomes of our undiscounted cash flow analysis
      against available comparable market data. If the carrying amount of an asset
      exceeds its estimated undiscounted future cash flows, an impairment charge
      is
      recognized by the amount by which the carrying amount exceeds the fair value
      of
      the respective asset.





Assets
      to
      be disposed are required to be separately presented in the Consolidated Balance
      Sheet and reported at the lower of the carrying amount or fair value less costs
      to sell, and are no longer depreciated. The assets and liabilities of a disposal
      group classified as held-for-sale are required to be presented separately in
      the
      appropriate asset and liability sections of the Consolidated Balance
      Sheet.





Reviewing
      long-lived assets for impairment requires considerable judgment. Estimating
      the
      future cash flows requires significant judgment. If future cash flows do not
      materialize as expected or there is a future adverse change in market
      conditions, we may be unable to recover the carrying amount of an asset,
      resulting in future impairment losses.





*Revenue
      Recognition*





Net
      revenues primarily comprise revenues from the sale of advertising time less
      discounts and agency commissions. Net revenues are recognized when the
      advertisement is aired as long as there is persuasive evidence that an
      arrangement with a customer exists, the price of the delivered advertising
      time
      is fixed or determinable, and collection of the arrangement fee is reasonably
      assured. Agency
      commissions, where applicable, are calculated based on a stated percentage
      applied to gross billing revenue. Advertisers remit the gross billing amount
      to
      the agency and the agency remits gross billings, less their commission, to
      us
      when the advertisement is not placed directly by the advertiser. Payments
      received in advance of being earned are recorded as deferred
      income.




We
      maintain a bad debt provision for estimated losses resulting from the inability
      of our customers to make required payments. If the financial condition of our
      customers were to deteriorate additional allowances may be required in future
      periods. We periodically review the accounts receivable balances and our
      historical bad debt, customer concentrations and customer creditworthiness
      when
      evaluating the adequacy of our provision.





*Income
      Taxes*





The
      provision for income taxes includes local and foreign taxes. Deferred tax assets
      and liabilities are recognized for the estimated future tax consequences of
      temporary differences between the financial statement carrying amounts and
      their
      respective tax bases. Deferred tax assets and liabilities are measured using
      enacted tax rates expected to apply to taxable income in the year in which
      the
      temporary differences are expected to be recovered or settled. We evaluate
      the
      realizability of our deferred tax assets and establish a valuation allowance
      when it is more likely than not that all or a portion of deferred tax assets
      will not be realized.





*Page
          90*
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          of Contents*




The
      realization of our deferred tax assets is primarily dependent on future
      earnings. Any reduction in estimated forecasted results may require that we
      record additional valuation allowances against our deferred tax assets. Once
      a
      valuation allowance has been established, it will be maintained until there
      is
      sufficient positive evidence to conclude that it is more likely than not that
      such assets will be realized. An ongoing pattern of sustained profitability
      will
      generally be considered as sufficient positive evidence. If the allowance is
      reversed in a future period, our income tax provision will be reduced to the
      extent of the reversal. Accordingly, the establishment and reversal of valuation
      allowances has had and could continue to have a significant negative or positive
      impact on our future earnings.





We
      measure deferred tax assets and liabilities using enacted tax rates that, if
      changed, would result in either an increase or decrease in the provision for
      income taxes in the period of change.





*Foreign
      exchange*





Our
      reporting currency and functional currency is the US dollar but a significant
      portion of our consolidated revenues and costs are in other currencies,
      including programming rights expenses and interest on debt. In addition, our
      Senior Notes are denominated in Euros. Our operations in Romania and Ukraine,
      which account for approximately 41% of our 2006 consolidated revenues, and
      our
      corporate holding companies, have a functional currency of the US dollar however
      all our other operations have functional currencies other than the US dollar.





We
      record
      assets and liabilities denominated in a currency other than our functional
      currency using the exchange rate prevailing at each balance sheet date, with
      any
      change in value between reporting periods being recognized as a transaction
      gain
      or loss in our Consolidated Statement of Operations; we recognized a transaction
      gain of US$ 38.0 million in 2005 and a transaction loss of US$ 44.9 million
      in
      2006, largely as a result of the change in the US dollar value of our
      EUR-denominated Senior Notes.





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.





Determination
      of the functional currency of an entity requires considerable management
      judgment, which is essential and paramount in this determination. This includes
      our assessment of a series of indicators, such as the currency in which a
      majority of sales transactions are negotiated, expense incurred or financing
      secured. If the nature of our business operations changes, such as by changing
      the currency in which sales transactions are denominated or by incurring
      significantly more expenditure in a different currency, we may be required
      to
      change the functional currency of some or all of our operations, potentially
      changing the amounts we report as transaction gains and losses in the
      Consolidated Statement of Operations as well as the Translational gains and
      losses charged or credited to Accumulated Other Comprehensive Income/(Loss).
      In
      establishing that policy, specific facts and circumstances should be considered
      carefully, and judgment should be exercised as to what types of information
      might be most useful to investors.





On
      May 2,
      2005, we made a loan of US$ 465.5 million to a 100% wholly-owned subsidiary
      holding our operations in the Czech Republic. This loan was converted to CZK
      11,425 million during the second quarter of 2005 and CZK 738 million (US$ 30.5
      million at the date of conversion) of this balance was capitalized as equity
      on
      August 25, 2005. The loan has a balance of CZK 10,687 million (US$ 511.9
      million) as at December 31, 2006.





During
      the year ended December 31, 2006, a foreign exchange adjustment of US$ 77.2
      million arose on inter-company foreign currency transactions, primarily
      consisting of this inter-company loan. As these transactions are long-term
      in
      nature as contemplated by FAS 52 “Foreign Currency Translation” paragraph 20(b),
      the foreign exchange adjustments are reported in the same manner as translation
      adjustments in “Other Comprehensive Income”, a separate component of equity.
      Foreign exchange adjustments on inter-company transactions that are not
      long-term in nature are included in our determination of net income, and
      accordingly if we determined that the loan was no longer long-term in nature
      we
      would be required to record subsequent foreign exchange adjustments as income
      or
      expense in our Consolidated Statement of Operations.





*Page
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*Contingencies*





We
      are
      currently involved in certain legal proceeding and, as required, accrue our
      estimate of the probable costs for the resolution for these claims. These
      estimates have been developed in consultation with legal counsel and are based
      upon an analysis of potential results, assuming a combination of litigation
      and
      settlement strategies. It is possible, however, that future results of
      operations for any particular period could be materially affected by changes
      in
      our assumptions or the effectiveness of our strategies related to these
      proceedings. See Item 8, Note 21, “Commitments and Contingencies” for more
      detailed information on litigation exposure.





***VII.
      Related party matters***





***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 57 “Related Party
      Disclosures” transactions involving related parties cannot necessarily 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.





**Related
      Party Transactions**





***Croatia***





We
      contract with Concorde Media Beteiligungsgesellschaft mbH for the purchase
      of
      program rights. This is a company connected to Dr. Herbert Kloiber, a Director
      of Central European Media Enterprises Ltd. Our total purchases from Concorde
      Media Beteiligungsgesellschaft mbH during 2006 were US$ 0.3 million (2005:
      US$
      nil, 2004: US$ nil).




***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 2006 were
        approximately US$ 23.4 million (2005: 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 2006 were approximately
        US$ 2.5 million (2005: US$ 0.4 million, 2004: US$ 0.1 million).  At
        December 31, 2006, companies connected to Mr. Sarbu had an outstanding balance
        due to us of US$ 2.1 million (2005: US$ 1.4 million). At December 31, 2006,
        companies related to Mr. Sarbu had an outstanding balance due to them of
        US$ 0.8
        million (2005: US$ 0.5 million, 2004: US$ 0.6 million).
  *Page
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  In
        addition, we purchased land with a value of US$ 8.5 million (EUR 6.5 million)
        (as determined by an independent appraisal) from a company controlled by
        Adrian
        Sarbu in December 2006. The investment represents an opportunity to secure
        suitable accommodation for Pro TV at a time when the real estate market is
        experiencing significant growth. It will enable future growth in a location
        housing both office space and the newly built digital studios. At December
        31,
        2006, US$ 8.3 million was recorded as a payable to this company.
 
 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 Item 8, Note 4, “Acquisitions and Disposals, Romania”). 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 Item 8, Note 4, “Acquisitions and Disposals, Romania”). Under
        a put option agreement with Mr. Sarbu entered into in July 2004, Mr. Sarbu
        has
        the right to sell his remaining shareholding in Pro TV and MPI to us at a
        price,
        to 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
        November 12, 2009 for a twenty-year period thereafter.
 
 On
        March
        29, 2004, we acquired an additional 14% share in each of our consolidated
        subsidiaries MPI and Pro TV from a company controlled by Mr. Sarbu, for purchase
        consideration of US$ 20.3 million.
 
 We
        now
        own a 90% voting and economic interest in Pro TV and MPI and a 75% voting
        and
        economic interest in Media Vision.
 Until
          March 29, 2004, we held a 44.0% interest in Radio Pro, a radio broadcaster
          in
          Romania. In order to comply with Romanian Media Council regulations following
          our acquisition of an additional 14.0% interest in MPI and Pro TV, it was
          necessary to reduce our holding in Radio Pro to 20.0%, which we achieved
          by
          selling 24.0% of our stake to Mr. Sarbu, for consideration of US$ 0.04
          million
          with a resulting loss on disposal of US$ 0.02 million. The consideration
          was
          determined by an independent valuation of Radio Pro.
 On
        August
        11, 2006 we acquired a 10.0% interest in Media Pro. The remaining 90.0% of
        Media
        Pro is held by Mr. Sarbu. In consideration for the purchase of this interest,
        we
        paid EUR 8.0 million (approximately US$ 10.1 million at the date of acquisition)
        in cash and transferred our existing 20.0% investment in Radio Pro. As a
        result
        of this transaction, we recorded a gain of US$ 6.2 million on
        disposal.
  We
        have
        the right to put our investment in Media Pro to Mr. Sarbu for a three-month
        period from August 12, 2009 at a price equal to the greater of EUR 13.0 million
        (approximately US$ 16.5 million) and the value of our investment, as determined
        by an independent valuer. This put option is secured by a pledge of a 4.79%
        shareholding in Pro TV held by Mr. Sarbu. For more information, see Item
        8, Note
        4, “Acquisitions and Disposals, Romania”.
  ***Slovenia***




We
      have
      no related party transactions in Slovenia during 2006. 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***




STS,
      our
      former operating company in the Slovak Republic that was merged into Markiza
      on
      January 1, 2007, had 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 were for the production of programs
      that required specialist studios and specific broadcast rights. Total purchases
      from these companies in 2006 amounted to US$ 0.8 million (2005: US$ 0.5 million,
      2004: US$ 0.4 million).





*Page
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STS
        also
        purchased advertising space relating to print media from companies connected
        with Mr Kovacik in 2006 with a value of US$ 1.5 million during 2006.
  STS
        also
        sold advertising time through an advertising agency controlled by Jan Kovacik.
        The total 2006 advertising sales of STS placed through Mr. Kovacik’s advertising
        agency were US$ 0.4 million (2005: US$ 0.2 million, 2004: US$ 1.9 million),
        and
        the total amount due to STS from this agency at December 31, 2006 was US$
        0.1
        million (2005: US$ nil: 2004 US$ 0.4 million).
  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 time 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%.


***Ukraine***





Prior
      to
      2006, we contracted with Contact Film Studios for the production of certain
      television programs. This company was connected to Boris Fuchsmann, the 40%
      shareholder in, 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 2006 were US$ nil (2005: US$ 0.1 million, 2004: US$ 0.1
      million).





In
      1998
      we made a loan to Mr. Fuchsmann with a total balance outstanding at December
      31,
      2006 of US$ 2.2 million (2005: US$ 2.5 million). The interest rate on this
      loan
      is US$ three-month LIBOR+3%, subject to a minimum of 5%.





We
      contract with Vabank for the provision of banking services. This is a bank
      connected to Boris Fuchsmann through his presence on the bank’s Supervisory
      Board. Our balance on the current account with the bank was US$ 9.4 million
      as
      of December 31, 2006 (2005: US$ 5.0 million). Commission and other expenses
      incurred by us in respect of the banking services rendered by Vabank amount
      to
      US$ 0.2 million for the twelve months ended December 31, 2006. Interest of
      US$
      0.4 million was earned on funds on deposit with Vabank.





Innova
      Marketing is a company 100% owned and managed by Boris Fuchsmann. Innova
      Marketing renders consulting services to Innova. The amount of such services
      provided in 2006 was US$ 0.1 million (2005: US$ 0.1 million).





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 2006 were US$ 0.1 million (2005: US$ 0.2 million,
      2004: US$ 0.1 million). In addition, we recorded revenue of US$ 0.8 million
      during 2006 from CTC relating to production of programming.


In
        addition to the above, we contract with Sablock, a company connected to Mr.
        Rodnyansky, for license rights costs. Our total purchases during 2006 were
        US$
        4.0 million. At December 31, 2006, we have recorded a liability to Sablock
        of
        US$ 1.3 million.





We
      contract with Kino-Kolo, a magazine that is 75% owned by Alexander Rodnyansky,
      for advertising Studio 1+1. Purchases of services from Kino-Kolo in 2006
      amounted to US$ 0.1 million. (2005: US$ 0.1).





We
      purchase legal and consulting services from LLC Legal Company Varlamov and
      Partners, a company headed by the Deputy General Director of Studio 1+1. The
      total amount of services rendered by the company in 2006 was US$ 0.3 million
      (2005: US$ 0.3 million).




*Page
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**ITEM
              7A.**
            **QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**





We
      engage
      in activities that expose us to various market risks, including the effects
      of
      changes in foreign currency, exchange rates and interest rates. We do not
      regularly engage in speculative transactions, nor do we regularly hold or issue
      financial instruments for trading purposes.




**Foreign
      Currency Exchange Risk Management**





We
      conduct business in a number of foreign currencies and our Senior Notes are
      denominated in Euros. As a result, we are subject to foreign currency exchange
      rate risk due to the effects that foreign exchange rate movements of these
      currencies have on our costs and on the cash flows we receive from certain
      subsidiaries. In limited instances, we enter into forward foreign exchange
      contracts to minimize foreign currency exchange rate risk.





We
      have
      not attempted to hedge the Senior Notes and therefore may continue to experience
      significant gains and losses on the translation of the Senior Notes into US
      dollars due to movements in exchange rates between the Euro and the US
      dollar.





On
      April
      27, 2006, we entered into currency swap agreements with two counterparties
      whereby we swapped a fixed annual coupon interest rate (of 9.0%) on notional
      principal of CZK 10.7 billion (approximately US$ 512.6 million), payable on
      July
      15, October 15, January 15, and April 15, to the termination date of April
      15,
      2012, for a fixed annual coupon interest rate (of 9.0%) on EUR 375.9 million
      (approximately US$ 495.1 million) receivable on July 15, October 15, January
      15,
      and April 15, to the termination date of April 15, 2012.





The
      fair
      value of these financial instruments as at December 31, 2006 was a US$ 12.5
      million liability.




These
      currency swap agreements reduce our exposure to movements in foreign exchange
      rates on a part of the CZK-denominated cash flows generated by our Czech
      Republic operations that is approximately equivalent in value to the
      EUR-denominated interest payments on our Senior Notes (see Item 8, Note 7,
      “Senior Notes”). They are financial instruments that are used to minimize
      currency risk and are considered an economic hedge of foreign exchange rates.
      These instruments have not been designated as hedging instruments as defined
      under SFAS No. 133, “Accounting for Derivative Instruments and Hedging
      Activities”, and so changes in their fair value are recorded in the consolidated
      statement of operations and in the consolidated balance sheet in other
      non-current liabilities.




**Interest
      Rate Risk Management**





As
      at
      December 31, 2006, we have eight tranches of debt that provide for interest
      at a
      spread above a base rate of EURIBOR, LIBOR or PRIBOR, and two tranches of debt,
      which were maintained with a fixed interest rate. A significant rise in the
      EURIBOR, LIBOR or PRIBOR base rate would have an adverse effect on our business
      and results of operations.





*Page
          95*
 *Table
          of Contents*




*Interest
      Rate Table as at December 31, 2006*





**Expected
                Maturity Dates**
            
            **2007**
            
            **2008**
            
            **2009**
            
            **2010**
            
            **2011**
            
            **Thereafter***Total
                Debt in Euro (000's)*Fixed
                Rate
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            245,000Average
                Interest Rate
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            8.25
            %Variable
                Rate
            
            
            130
            
            
            137
            
            
            144
            
            
            153
            
            
            80
            
            
            125,000Average
                Interest Rate
            
            
            5.50
            %
            
            5.50
            %
            
            5.50
            %
            
            5.50
            %
            
            5.50
            %
            
            8.57
            %*Total
                Debt in US$ (000's)*Fixed
                Rate
            
            
            
            
            
            
            
            
            1,500Average
                Interest Rate
            
            
            
            
            
            
            
            
            2.74
            %*Total
                Debt in CZK (000's)*Fixed
                RateAverage
                Interest RateVariable
                Rate
            
            
            250,000Average
                Interest Rate
            
            
            4.20
            %




*Variable
      Interest Rate Sensitivity as at December 31, 2006*





**Yearly
                interest charge if interest rates increase by**
              **(US$
                000s):****Value
                of Debt as at December 31, 2006 (US$ 000's)**
            
            **Interest
                Rate as at December 31, 2006**
            
            **Yearly
                Interest**
              **Charge**
              **(US$
                000’s)**
            
            **1%**
            
            **2%**
            
            **3%**
            
            **4%**
            
            **5%**165,472
              (EUR
                125.6 million)
            
            
            4.73%
                - 8.57
            %
            
            15,242
            
            
            16,896
            
            
            18,551
            
            
            20,206
            
            
            21,860
            
            
            23,51511,975
              (CZK
                250.0 million)
            
            
            4.20
            %
            
            503
            
            
            623
            
            
            742
            
            
            862
            
            
            982
            
            
            1,102**Total**
            
            
            
            
            
            **15,745**
            
            
            **17,519**
            
            
            **19,293**
            
            
            **21,068**
            
            
            **22,842**
            
            
            **24,617**


*Page
            96*
 *Table
            of Contents*




**ITEM8.**
            **FINANCIAL
                STATEMENTS AND SUPPLEMENTARY
                DATA**





(Financial
      Statements and Supplementary data begin on the following page and end on the
      page immediately preceding Item 9.)





**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, 2006 and
      2005, 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, 2006. 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, 2006 and 2005, and the results of their
      operations and their cash flows for each of the three years in the period ended
      December 31, 2006, 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.





As
      discussed in Note 2, the accompanying 2005 and 2004 consolidated financial
      statements have been restated for stock based compensation.





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, 2006, 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, 2007 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, 2007





*Page
            97*
 *Table
            of Contents*





**CENTRAL
      EUROPEAN MEDIA ENTERPRISES LTD.**


**CONSOLIDATED
      BALANCE SHEETS**


**(US$
      000’s)**




**December
                31,**
              **2006**
            
            **December
                31,**
              **2005**(as
                restated, seeNote
                2)**ASSETS****Current
                assets**Cash
                and cash equivalents
            
            $
            145,904
            
            $
            71,658Restricted
                cash (Note 8)
            
            
            4,954
            
            
            34,172Accounts
                receivable, net (Note 9)
            
            
            152,505
            
            
            97,396Income
                taxes receivable
            
            
            3,053
            
            
            9,930Program
                rights
            
            
            59,645
            
            
            34,914Other
                current assets (Note 10)
            
            
            47,555
            
            
            38,856**Total
                current assets**
            
            
            **413,616**
            
            
            **286,926****Non-current
                assets**Investments
                (Note 6)
            
            
            19,214
            
            
            23,936Acquisition
                costs (Note 4)
            
            
            -
            
            
            5,118Property,
                plant and equipment, net (Note 11)
            
            
            115,805
            
            
            58,897Program
                rights
            
            
            76,638
            
            
            33,081Goodwill
                (Note 5)
            
            
            905,580
            
            
            746,583Broadcast
                licenses, net (Note 5)
            
            
            198,730
            
            
            171,591Other
                intangible assets, net (Note 5)
            
            
            71,942
            
            
            47,658Other
                non-current assets (Note 10)
            
            
            17,475
            
            
            15,060**Total
                non-current assets**
            
            
            **1,405,384**
            
            
            **1,101,924****Total
                assets**
            
            **$**
            **1,819,000**
            
            **$**
            **1,388,850**




*The
      accompanying notes are an integral part of these consolidated financial
      statements.*





*Page
            98*
 *Table
            of Contents*





**CENTRAL
      EUROPEAN MEDIA ENTERPRISES LTD.**


**CONSOLIDATED
      BALANCE SHEETS (continued)**


**(US$
      000’s)**





**December
                31,**
              **2006**
            
            **December
                31,**
              **2005**(as
                restated, see Note 2)**LIABILITIES
                AND SHAREHOLDERS’ EQUITY****Current
                liabilities**Accounts
                payable and accrued liabilities (Note 12)
            
            $
            119,717
            
            $
            84,849Duties
                and other taxes payable
            
            
            31,707
            
            
            27,654Income
                taxes payable (Note 16)
            
            
            12,434
            
            
            21,894Credit
                facilities and obligations under capital leases (Note 13)
            
            
            13,057
            
            
            43,566Deferred
                consideration - Croatia (Note 8)
            
            
            4,010
            
            
            3,591Deferred
                consideration - Czech Republic (Note 4)
            
            
            -
            
            
            24,402Deferred
                consideration - Ukraine (Note 4)
            
            
            200
            
            
            -Deferred
                tax (Note 16)
            
            
            1,836
            
            
            1,005**Total
                current liabilities**
            
            
            **182,961**
            
            
            **206,961****Non-current
                liabilities**Credit
                facilities and obligations under capital leases (Note 13)
            
            
            6,359
            
            
            4,740Senior
                Notes (Note 7)
            
            
            487,291
            
            
            436,424Income
                taxes payable (Note 16)
            
            
            3,000
            
            
            681Deferred
                tax (Note 16)
            
            
            58,092
            
            
            42,149Other
                non-current liabilities
            
            
            19,342
            
            
            4,105**Total
                non-current liabilities**
            
            
            **574,084**
            
            
            **488,099**Commitments
                and contingencies (Note 21)**Minority
                interests in consolidated subsidiaries**
            
            
            **26,189**
            
            
            **13,237****SHAREHOLDERS'
                EQUITY (Note 15):**Nil
                shares of Preferred Stock of $0.08 each (2005 - nil)
            
            
            -
            
            
            -34,412,138
                shares of Class A Common Stock of $0.08 each (2005 - 31,032,994)
            
            
            2,753
            
            
            2,4826,312,839
                shares of Class B Common Stock of $0.08 each (2005 -
                6,966,533)
            
            
            505
            
            
            558Additional
                paid-in capital
            
            
            931,108
            
            
            754,061Accumulated
                deficit
            
            
            (31,730
            )
            
            (52,154
            )Accumulated
                other comprehensive income / (loss)
            
            
            133,130
            
            
            (24,394
            )**Total
                shareholders’ equity**
            
            
            **1,035,766**
            
            
            **680,553****Total
                liabilities and shareholders’ equity**
            
            **$**
            **1,819,000**
            
            **$**
            **1,388,850**





*The
      accompanying notes are an integral part of these consolidated financial
      statements.*





*Page
            99*
 *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,****2006**
            
            **2005**
            
            **2004**(as
                restated, see Note 2)
            
            (as
                restated, see Note 2)**Net
                revenues**
            
            **$**
            **603,115**
            
            **$**
            **400,978**
            
            **$**
            **182,339**Operating
                costs
            
            
            90,060
            
            
            65,138
            
            
            33,615Cost
                of programming
            
            
            227,509
            
            
            148,837
            
            
            71,793Depreciation
                of station property, plant & equipment
            
            
            25,795
            
            
            16,367
            
            
            6,429Amortization
                of broadcast licenses and other intangibles (Note 5)
            
            
            18,813
            
            
            11,180
            
            
            465**Cost
                of revenues**
            
            
            **362,177**
            
            
            **241,522**
            
            
            **112,302**Station
                selling, general and administrative expenses
            
            
            65,412
            
            
            46,382
            
            
            22,112Corporate
                operating costs
            
            
            34,104
            
            
            25,547
            
            
            29,254Impairment
                charge (Note 5)
            
            
            748
            
            
            35,331
            
            
            -**Operating
                income**
            
            
            **140,674**
            
            
            **52,196**
            
            
            **18,671**Interest
                income
            
            
            6,365
            
            
            4,124
            
            
            4,318Interest
                expense
            
            
            (44,228
            )
            
            (29,387
            )
            
            (1,203
            )Foreign
                currency exchange (loss) / gain, net
            
            
            (44,908
            )
            
            37,968
            
            
            (574
            )Change
                in fair value of derivatives
            
            
            (12,539
            )
            
            -
            
            
            -Other
                income / (expense)
            
            
            3,038
            
            
            (4,705
            )
            
            (698
            )**Income
                before provision for income taxes, minority interest, equity in income
                of
                unconsolidated affiliates and discontinued
                operations**
            
            
            **48,402**
            
            
            **60,196**
            
            
            **20,514**Provision
                for income taxes (Note 16)
            
            
            (14,962
            )
            
            (16,691
            )
            
            (11,089
            )**Income
                before minority interest, equity in income of unconsolidated affiliates
                and discontinued operations**
            
            
            **33,440**
            
            
            **43,505**
            
            
            **9,425**Minority
                interest in income of consolidated subsidiaries
            
            
            (13,602
            )
            
            (8,908
            )
            
            (4,106
            )Equity
                in (loss) / income of unconsolidated affiliates (Note 6)
            
            
            (730
            )
            
            8,238
            
            
            10,619Gain
                on sale of unconsolidated affiliate (Note 6)
            
            
            6,179
            
            
            -
            
            
            -**Net
                income from continuing operations**
            
            
            **25,287**
            
            
            **42,835**
            
            
            **15,938****Discontinued
                operations (Note 20):**Pre-tax
                income from discontinued operations (Czech Republic)
            
            
            -
            
            
            164
            
            
            146Tax
                on disposal of discontinued operations (Czech Republic)
            
            
            (4,863
            )
            
            (677
            )
            
            2,378**Net
                (loss) / income from discontinued operations**
            
            
            **(4,863**
            **)**
            
            **(513**
            **)**
            
            **2,524****Net
                income**
            
            **$**
            **20,424**
            
            **$**
            **42,322**
            
            **$**
            **18,462**Currency
                translation adjustment, net
            
            
            157,524
            
            
            (33,354
            )
            
            4,228**Total
                comprehensive income**
            
            **$**
            **177,948**
            
            **$**
            **8,968**
            
            **$**
            **22,690**




*The
      accompanying notes are an integral part of these consolidated financial
      statements.*





*Page
            100*
 *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,****2006**
            
            **2005**
            
            **2004**(as
                restated, see Note 2)
            
            (as
                restated, see Note 2)**PER
                SHARE DATA (****Note
                18):***Net
                income/(loss) per share:*Continuing
                operations - Basic
            
            $
            0.63
            
            $
            1.24
            
            $
            0.57Continuing
                operations - Diluted
            
            
            0.62
            
            
            1.21
            
            
            0.55Discontinued
                operations - Basic
            
            
            (0.12
            )
            
            (0.01
            )
            
            0.09Discontinued
                operations - Diluted
            
            
            (0.12
            )
            
            (0.01
            )
            
            0.09Net
                income - Basic
            
            
            0.51
            
            
            1.22
            
            
            0.66Net
                income - Diluted
            
            $
            0.50
            
            $
            1.19
            
            $
            0.63*Weighted
                average common shares used in computing per share amounts
                (000’s):*Basic
            
            
            40,027
            
            
            34,664
            
            
            27,871Diluted
            
            
            40,600
            
            
            35,430
            
            
            29,100




*The
      accompanying notes are an integral part of these consolidated financial
      statements.*





*Page
            101*
 *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****BALANCE,
                  December 31, 2003 (as restated, See Note 2)**
              
              
              **19,269,766**
              
              **$**
              **1,542**
              
              
              **7,334,768**
              
              **$**
              **587**
              
              **$**
              **379,601**
              
              **$**
              **(112,938**
              **)**
              **$**
              **4,732**
              
              **$**
              **273,524**Stock-based
                  Compensation
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              10,171
              
              
              -
              
              
              -
              
              
              10,171Stock
                  options exercised
              
              
              1,083,634
              
              
              87
              
              
              -
              
              
              -
              
              
              2,853
              
              
              -
              
              
              -
              
              
              2,940Warrants
                  exercised
              
              
              696,000
              
              
              55
              
              
              -
              
              
              -
              
              
              1,688
              
              
              -
              
              
              -
              
              
              1,743Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              18,462
              
              
              -
              
              
              18,462Currency
                  translation adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              4,228
              
              
              4,228**BALANCE,
                  December 31, 2004 (as restated, See Note 2)**
              
              
              **21,049,400**
              
              **$**
              **1,684**
              
              
              **7,334,768**
              
              **$**
              **587**
              
              **$**
              **394,313**
              
              **$**
              **(94,476**
              **)**
              **$**
              **8,960**
              
              **$**
              **311,068**Stock-based
                  Compensation
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              3,127
              
              
              -
              
              
              -
              
              
              3,127Shares
                  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
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              42,322
              
              
              -
              
              
              42,322Currency
                  translation adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (33,354
              )
              
              (33,354
              )**BALANCE,
                  December 31, 2005 (as restated, See Note 2)**
              
              
              **31,032,994**
              
              **$**
              **2,482**
              
              
              **6,966,533**
              
              **$**
              **558**
              
              **$**
              **754,061**
              
              **$**
              **(52,154**
              **)**
              **$**
              **(24,394**
              **)**
              **$**
              **680,553**Stock-based
                  Compensation
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              4,898
              
              
              -
              
              
              -
              
              
              4,898Shares
                  issued, net of fees
              
              
              2,530,000
              
              
              202
              
              
              -
              
              
              -
              
              
              168,452
              
              
              -
              
              
              -
              
              
              168,654Stock
                  options exercised
              
              
              95,450
              
              
              8
              
              
              100,000
              
              
              8
              
              
              3,697
              
              
              -
              
              
              -
              
              
              3,713Conversion
                  of Class B to Class A Common Stock
              
              
              753,694
              
              
              61
              
              
              (753,694
              )
              
              (61
              )
              
              -
              
              
              -
              
              
              -
              
              
              -Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              20,424
              
              
              -
              
              
              20,424Currency
                  translation adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              157,524
              
              
              157,524**BALANCE,
                  December 31, 2006**
              
              
              **34,412,138**
              
              **$**
              **2,753**
              
              
              **6,312,839**
              
              **$**
              **505**
              
              **$**
              **931,108**
              
              **$**
              **(31,730**
              **)**
              **$**
              **133,130**
              
              **$**
              **1,035,766**




*The
      accompanying notes are an integral part of these consolidated financial
      statements.*


*Page
            102*
 *Table
            of Contents*






**THIS
      PAGE INTENTIONALLY LEFT BLANK**






*Page
          103*
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          of Contents*




**CENTRAL
      EUROPEAN MEDIA ENTERPRISES LTD.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(US$
      000’s)**




**For
                  the Years Ended December 31,****2006**
              
              **2005**
              
              **2004**(as
                  restated, see Note 2)
              
              (as
                  restated, see Note 2)**CASH
                  FLOWS FROM OPERATING ACTIVITIES:****Net
                  income**
              
              **$**
              **20,424**
              
              **$**
              **42,322**
              
              **$**
              **18,462**Adjustments
                  to reconcile net income to net cash generated from/(used in) operating
                  activities:(Income)/loss
                  from discontinued operations (Note 20)
              
              
              4,
                  863
              
              
              513
              
              
              (2,524
              )Equity
                  in income of unconsolidated affiliates, net of dividends
                  received
              
              
              730
              
              
              3,454
              
              
              (4,340
              )Gain
                  on sale of unconsolidated affiliate (Note 6)
              
              
              (6,179
              )
              
              -
              
              
              -Depreciation
                  and amortization
              
              
              164,479
              
              
              110,846
              
              
              49,357Impairment
                  charge (Note 5)
              
              
              748
              
              
              35,331
              
              
              -Loss
                  on disposal of fixed assets
              
              
              1,292
              
              
              685
              
              
              18Stock-based
                  compensation (Note 17)
              
              
              3,575
              
              
              3,127
              
              
              10,171Minority
                  interest in income of consolidated subsidiaries
              
              
              13,602
              
              
              8,908
              
              
              4,106Change
                  in fair value of derivative instruments (Note 14)
              
              
              12,539
              
              
              -
              
              
              -Foreign
                  currency exchange loss / (gain), net
              
              
              44,908
              
              
              (37,968
              )
              
              574Net
                  change in (net of effects of acquisitions and disposals of
                  businesses):Accounts
                  receivable
              
              
              (42,270
              )
              
              1,693
              
              
              (9,100
              )Program
                  rights
              
              
              (173,345
              )
              
              (110,364
              )
              
              (45,446
              )Other
                  assets
              
              
              (6,417
              )
              
              11,989
              
              
              (4,912
              )Settlement
                  liability (Note 12)
              
              
              (10,007
              )
              
              (41,606
              )
              
              -Other
                  accounts payable and accrued liabilities
              
              
              26,915
              
              
              (13,642
              )
              
              (13,611
              )Income
                  taxes payable
              
              
              (1,697
              )
              
              9,597
              
              
              548Deferred
                  taxes
              
              
              9,705
              
              
              (17,271
              )
              
              -VAT
                  and other taxes payable
              
              
              9,530
              
              
              (4,070
              )
              
              (888
              )**Net
                  cash generated from continuing operating
                  activities**
              
              
              **73,395**
              
              
              **3,544**
              
              
              **2,415****CASH
                  FLOWS USED IN INVESTING ACTIVITIES:**Net
                  change in restricted cash
              
              
              5,516
              
              
              (19,521
              )
              
              (10,145
              )Purchase
                  of property, plant and equipment
              
              
              (60,387
              )
              
              (26,548
              )
              
              (10,808
              )Proceeds
                  from disposal of property, plant and equipment
              
              
              19
              
              
              125
              
              
              72Investments
                  in subsidiaries and unconsolidated affiliates
              
              
              (72,603
              )
              
              (35,305
              )
              
              (35,800
              )Partial
                  consideration for acquisition of TV Nova (Czech Republic)
                  group
              
              
              -
              
              
              (218,054
              )
              
              -Proceeds
                  from partial disposal of investment
              
              
              -
              
              
              -
              
              
              42Repayment
                  of loans and advances to related parties
              
              
              500
              
              
              500
              
              
              400License
                  costs, other assets and intangible assets
              
              
              -
              
              
              -
              
              
              (770
              )**Net
                  cash used in continuing investing activities**
              
              
              **(126,955**
              **)**
              
              **(298,803**
              **)**
              
              **(57,009**
              **)**





*The
      accompanying notes are an integral part of these consolidated financial
      statements.*


*Page
            104*
 *Table
            of Contents*




**CENTRAL
      EUROPEAN MEDIA ENTERPRISES LTD.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS (continued)**


**(US$
      000’s)**




**For
                  the Years Ended December 31,****2006**
              
              **2005**
              
              **2004**(as
                  restated, see Note 2)
              
              (as
                  restated, see Note 2)**CASH
                  FLOWS FROM FINANCING ACTIVITIES:**Net
                  proceeds from issuance of Senior Notes
              
              
              -
              
              
              465,120
              
              
              -Proceeds
                  from credit facilities
              
              
              36,681
              
              
              65,902
              
              
              -Payment
                  of credit facilities and capital leases
              
              
              (75,263
              )
              
              (41,243
              )
              
              (2,797
              )Repayment
                  of loans from unconsolidated affiliates
              
              
              -
              
              
              (5,827
              )
              
              -Repayment
                  of notes for acquisition of TV Nova (Czech Republic) group
              
              
              -
              
              
              (491,703
              )
              
              -Repayment
                  of liabilities on acquisition of Galaxie Sport
              
              
              -
              
              
              (3,000
              )
              
              -Proceeds
                  from exercise of stock options and warrants
              
              
              3,713
              
              
              5,903
              
              
              4,683Issuance
                  of Class A Common Stock
              
              
              168,654
              
              
              230,604
              
              
              -Dividends
                  paid to minority shareholders
              
              
              (1,385
              )
              
              (397
              )
              
              -**Net
                  cash received from financing activities**
              
              
              **132,400**
              
              
              **225,359**
              
              
              **1,886**NET
                  CASH USED IN DISCONTINUED OPERATIONS-OPERATING
              
              
              (1,690
              )
              
              (2,000
              )
              
              (9,463
              )NET
                  CASH RECEIVED FROM DISCONTINUED OPERATIONS-INVESTING
              
              
              -
              
              
              -
              
              
              20,349**Impact
                  of exchange rate fluctuations on cash**
              
              
              **(2,904**
              **)**
              
              **(9,010**
              **)**
              
              **2,144**Net
                  increase/(decrease) in cash and cash equivalents
              
              
              74,246
              
              
              (80,910
              )
              
              (39,678
              )**CASH
                  AND CASH EQUIVALENTS, beginning of year**
              
              
              **71,658**
              
              
              **152,568**
              
              
              **192,246****CASH
                  AND CASH EQUIVALENTS, end of year**
              
              **$**
              **145,904**
              
              **$**
              **71,658**
              
              **$**
              **152,568****SUPPLEMENTAL
                  DISCLOSURE OF CASH FLOW INFORMATION:**Cash
                  paid for interest
              
              $
              41,038
              
              $
              19,402
              
              $
              581Cash
                  paid for income taxes (net of refunds)
              
              $
              35,831
              
              $
              10,066
              
              $
              18,920**SUPPLEMENTAL
                  DISCLOSURE OF NON-CASH FINANCING AND INVESTING
                  ACTIVITIES:**Exchange
                  of 3.5 million shares of Class A Common Stock (Note 4)
              
              $
              -
              
              $
              120,883
              
              $
              -Notes
                  taken out for acquisition of TV Nova (Czech Republic) group (Note
                  4)
              
              $
              -
              
              $
              491,703
              
              $
              -Exchange
                  of Other receivable (Note 4)
              
              $
              -
              
              $
              18,541
              
              $
              -Purchase
                  of Krsak interest financed with payable (Note 4)
              
              $
              27,591
              
              $
              24,683
              
              $
              -Purchase
                  of share of Romania operations through settlement of loans receivable
                  (Note 4)
              
              $
              -
              
              $
              -
              
              $
              3,400Acquisition
                  of property, plant and equipment under capital lease
              
              $
              702
              
              $
              4,967
              
              $
              333





*The
      accompanying notes are an integral part of these consolidated financial
      statements.*





*Page
          105*
 *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,
      2006, we have operations in Croatia, the Czech Republic, Romania, the Slovak
      Republic, Slovenia and Ukraine .





Our
      principal subsidiaries, equity-accounted affiliates and cost investments as
      at
      December 31, 2006 were:





**Company
                Name**
            **Effective**
              **Voting
                Interest**
            **Jurisdiction
                of Organization**
            **Type
                of Affiliate (1)**Nova
                TV d.d. (“Nova TV (Croatia)”)
            100.0%
            Croatia
            SubsidiaryOperativna
                Kompanija d.o.o. (“OK”)
            100.0%
            Croatia
            SubsidiaryMedia
                House d.o.o.
            100.0%
            Croatia
            SubsidiaryCME
                Media Investments s.r.o.
            100.0%
            Czech
                Republic
            SubsidiaryVILJA
                a.s. (“Vilja”)
            100.0%
            Czech
                Republic
            SubsidiaryCET
                21 spol. s.r.o. (“CET 21”)
            100.0%
            Czech
                Republic
            SubsidiaryERIKA,
                a.s.
            100.0%
            Czech
                Republic
            SubsidiaryMEDIA
                CAPITOL, a.s.
            100.0%
            Czech
                Republic
            SubsidiaryNOVA-V.I.P.,
                a.s.
            100.0%
            Czech
                Republic
            Subsidiary
                (in liquidation)HARTIC,
                a.s.
            100.0%
            Czech
                Republic
            SubsidiaryGalaxie
                Sport s.r.o. (“Galaxie Sport”)
            100.0%
            Czech
                Republic
            SubsidiaryMedia
                Pro International S.A. (“MPI”)
            90.0%
            Romania
            SubsidiaryMedia
                Vision S.R.L. (“Media Vision”)
            75.0%
            Romania
            SubsidiaryMPI
                Romania B.V.
            90.0%
            Netherlands
            SubsidiaryPro
                TV S.A. (“Pro TV”)
            90.0%
            Romania
            SubsidiarySport
                Radio TV Media S.R.L. (“TV Sport”)
            18.0%
            Romania
            Equity-Accounted
                AffiliateMedia
                Pro B.V
            10.0%
            Netherlands
            Cost
                investmentMedia
                Pro Management S.A.
            10.0%
            Romania
            Cost
                investmentA.R.J.,
                a.s. (“ARJ”)
            100.0%
            Slovak
                Republic
            SubsidiarySlovenska
                televizna spolocnost, s.r.o. (“STS”)
            89.8%
            Slovak
                Republic
            SubsidiaryMARKIZA-SLOVAKIA,
                spol. s.r.o. (“Markiza”)
            80.0%
            Slovak
                Republic
            SubsidiaryGAMATEX,
                spol. s.r.o.
            89.8%
            Slovak
                Republic
            Subsidiary
                (in liquidation)A.D.A.M.
                a.s.
            89.8%
            Slovak
                Republic
            Subsidiary
                (in liquidation)





*Page
            106*
 *Table
            of Contents*





**CENTRAL
      EUROPEAN MEDIA ENTERPRISES LTD.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Tabular
      amounts in US$ 000’s, except share data)**




**Company
                Name**
            **Effective**
              **Voting
                Interest**
            **Jurisdiction
                of Organization**
            **Type
                of Affiliate (1)**MMTV
                1 d.o.o.
            100.0%
            Slovenia
            SubsidiaryProdukcija
                Plus d.o.o. (“Pro Plus”)
            100.0%
            Slovenia
            SubsidiaryPOP
                TV d.o.o. (“Pop TV”)
            100.0%
            Slovenia
            SubsidiaryKanal
                A d.o.o. (“Kanal A”)
            100.0%
            Slovenia
            SubsidiaryEuro
                3 TV d.o.o
            42.0%
            Slovenia
            Equity-Accounted
                AffiliateMTC
                Holding d.o.o.
            24.0%
            Slovenia
            Equity-Accounted
                Affiliate (in liquidation)International
                Media Services Ltd. (“IMS”)
            60.0%
            Bermuda
            SubsidiaryInnova
                Film GmbH (“Innova”)
            60.0%
            Germany
            SubsidiaryForeign
                Enterprise “Inter-Media” (“Inter-Media”)
            60.0%
            Ukraine
            SubsidiaryTV
                Media Planet Ltd.
            60.0%
            Cyprus
            SubsidiaryStudio
                1+1 LLC (“Studio 1+1”)
            18.0%
            Ukraine
            Consolidated
                Variable Interest EntityUkrainianMedia
                  Services LLC
            99.0%
            Ukraine
            SubsidiaryUkrpromtorg
                -2003 LLC
            65.5%
            Ukraine
            SubsidiaryGravis
                LLC
            60.4%
            Ukraine
            SubsidiaryDelta
                JSC
            60.4%
            Ukraine
            SubsidiaryNart
                LLC
            65.5%
            Ukraine
            SubsidiaryTV
                Stimul LLC
            49.1%
            Ukraine
            Equity-Accounted
                AffiliateCME
                Media Enterprises B.V.
            100.0%
            Netherlands
            SubsidiaryCME
                Czech Republic II B.V.
            100.0%
            Netherlands
            SubsidiaryCME
                Romania B.V.
            100.0%
            Netherlands
            SubsidiaryCentral
                European Media Enterprises N.V.
            100.0%
            Netherlands
                Antilles
            SubsidiaryCentral
                European Media Enterprises II B.V.
            100.0%
            Netherlands
                Antilles
            SubsidiaryCME
                SR d.o.o.
            100.0%
            Serbia
            SubsidiaryCME
                Ukraine Holding GmbH
            100.0%
            Austria
            SubsidiaryCME
                Cyprus Holding Ltd.
            100.0%
            Cyprus
            SubsidiaryCME
                Development Corporation
            100.0%
            Delaware
            Subsidiary




(1)
            All
                subsidiaries have been consolidated in our Consolidated Financial
                Statements. All equity-accounted affiliates have been accounted for
                using
                the equity method. All cost investments have been accounted for using
                the
                cost method.




(2)
            For
                further information, see Note 3, “Summary of Significant Accounting
                Policies”.  *Page
            107*
 *Table
            of Contents*


**CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**




**2.
      RESTATEMENT**





Subsequent
      to the issuance of our financial statements as of and for the period ended
      June
      30, 2006 we initiated a voluntary review of our historical stock option granting
      practices for the period from 1994 to 2002. Our Audit Committee conducted the
      review with the assistance of independent legal counsel and an independent
      accounting firm. The Audit Committee found certain instances of administrative
      and procedural deficiencies that resulted in incorrect accounting measurement
      dates and other incorrect accounting, but found no evidence from which it could
      be concluded that the errors were the result of deliberate or intentional
      misconduct. These accounting errors resulted from grants made to grantees where
      the list of grantees and/or shares allocated to them were not sufficiently
      definitive for the grant to be deemed final as of the reported measurement
      date
      as well as from a small number of grants made to employees and non-employees
      that had been accounted for incorrectly. Errors were discovered in the
      accounting for grants made in the period between 1994 and 1998; we believe
      the
      impact of these instances to be immaterial for each prior year and they neither
      relate to nor have an impact on the current period.




However,
      we concluded that correcting the error in the financial statements for the
      year
      ended December 31, 2006 would be material; therefore, in accordance with SAB
      108, we have restated our historic financial statements. The restatement is
      immaterial to the prior years.




The
      restatement above had the impact on our previously presented financial
      information as set out below. All amounts are in US$ 000’s except per share
      data:





**As
                reported previously**
            
            **Adjustment**
            
            **As
                restated****Balance
                Sheet (as of December 31, 2003)**Additional
                paid-in capital at December 31, 2003
            
            $
            372,662
            
            $
            6,939
            
            $
            379,601Accumulated
                deficit at December 31, 2003
            
            
            (105,999
            )
            
            (6,939
            )
            
            (112,938
            )**Balance
                Sheet (as of December 31, 2004)**Additional
                paid-in capital at December 31, 2004
            
            $
            387,305
            
            $
            7,008
            
            $
            394,313Accumulated
                deficit at December 31, 2004
            
            
            (87,468
            )
            
            (7,008
            )
            
            (94,476
            )**Balance
                Sheet (as of December 31, 2005)**Additional
                paid-in capital at December 31, 2005
            
            
            746,880
            
            
            7,181
            
            
            754,061Accumulated
                deficit at December 31, 2005
            
            
            (44,973
            )
            
            (7,181
            )
            
            (52,154
            )**Statement
                of Operations (for the Year Ended December 31,
                2004)**Corporate
                operating costs
            
            
            (29,185
            )
            
            (69
            )
            
            (29,254
            )Operating
                income
            
            
            18,740
            
            
            (69
            )
            
            18,671Income
                from continuing operations
            
            
            16,007
            
            
            (69
            )
            
            15,938Net
                income
            
            
            18,531
            
            
            (69
            )
            
            18,462Net
                income from continuing operations per share - Basic
            
            
            0.57
            
            
            0.00
            
            
            0.57Net
                income per share - Basic
            
            
            0.66
            
            
            0.00
            
            
            0.66




*Page
          108*
 *Table
          of Contents*


**CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**




**As reported
                previously**
            ****
            **Adjusted**
            ****
            **As
                restated****Statement
                of Operations (for the Year Ended December 31,
                2005)**Corporate
                operating costs
            
            
            (25,374
            )
            
            (173
            )
            
            (25,547
            )Operating
                income
            
            
            52,369
            
            
            (173
            )
            
            52,196Income
                from continuing operations
            
            
            43,008
            
            
            (173
            )
            
            42,835Net
                income
            
            
            42,495
            
            
            (173
            )
            
            42,322Net
                income from continuing operations per share - Basic
            
            
            1.24
            
            
            0.00
            
            
            1.24Net
                income per share - Basic
            
            
            1.23
            
            
            0.00
            
            
            1.22





**3.
      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 Ukraine 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,**
              **2006**
            
            **December
                31,**
              **2005****Balance
                Sheet:**Current
                assets
            
            $
            22,802
            
            $
            18,475Non-current
                assets
            
            
            5,126
            
            
            1,315Current
                liabilities
            
            
            (10,534
            )
            
            (9,678
            )Non-current
                liabilities
            
            
            -
            
            
            (106
            )Minority
                interest
            
            
            (6,958
            )
            
            (4,002
            )**Net
                Assets**
            
            **$**
            **10,436**
            
            **$**
            **6,004**





**For
                the year ended****December
                31,**
              **2006**
            
            **December
                31,**
              **2005**
            
            **December
                31,**
              **2004****Statement
                of Operations:**Net
                revenues
            
            $
            83,759
            
            $
            62,586
            
            $
            43,903Operating
                income
            
            
            11,816
            
            
            12,401
            
            
            6,001Net
                income
            
            $
            4,428
            
            $
            5,423
            
            $
            2,985


*Page
            109*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**


**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.


Discounts
      and agency commissions are recognized at the point when the advertising is
      broadcast and are reflected as a reduction to gross revenue.





*Subscription
      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 is recognized as income when
      advertisements are broadcast. 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$ 8.2 million, US$
      7.0 million and US$ 5.7 million for the years ending December 31,
      2006, 2005, and 2004, 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


*Page
            110*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **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.





**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.





No
      impairment has been recognized for any long-lived assets in 2006, 2005, or
      2004.





**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:




**Type
                  of programming**
              
              **Amortization
                  %**Run
                  1
              
              Run
                  2
              
              Run
                  3
              
              Run
                  4
              
              Run
                  5Special
                  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.





*Page
            111*
 *Table
            of Contents*





**CENTRAL
      EUROPEAN MEDIA ENTERPRISES LTD.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Tabular
      amounts in US$ 000’s, except share data)**





**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, except that we consider our Ukraine operating
      segment to contain two reporting units, namely Studio 1+1 and the KINO and
      CITI
      channels.





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” (“FAS 109”). 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, 2006, a translation gain of US$ 77.3 million (December
      31, 2005: a loss of US$ 17.8 million) related to intercompany financing that
      is
      a long-term investment in nature is included in Accumulated Other Comprehensive
      Income/(Loss).





*Page
            112*
 *Table
            of Contents*





**CENTRAL
      EUROPEAN MEDIA ENTERPRISES LTD.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Tabular
      amounts in US$ 000’s, except share data)**





*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.





**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.





**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 7, “Senior Notes”.




*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 and currency swaps 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, 2006 is considered to be US$ nil.





*Page
            113*
 *Table
            of Contents*





**CENTRAL
      EUROPEAN MEDIA ENTERPRISES LTD.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Tabular
      amounts in US$ 000’s, except share data)**




**Stock-Based
      Compensation**





On
      January 1, 2006, we adopted FAS No. 123(R), “Share-Based Payment” (“FAS
      123(R)”), which requires the recognition of stock-based compensation at fair
      value, using the modified prospective transition method. Under that method,
      we
      recognized compensation cost for the requisite service rendered in the year
      ended December 31, 2006, for (a) awards granted prior to, but not vested as
      of,
      January 1, 2006, based on the grant-date fair value of those awards as
      calculated for either recognition or pro forma disclosures under FAS 123,
      Accounting for Stock-Based Compensation (“FAS 123”) and (b) awards granted after
      January 1, 2006, based on the grant-date fair value estimated in accordance
      with
      the provisions of FAS 123(R). We did not restate prior periods. Our adoption
      of
      FAS 123(R) did not have a material impact on our Consolidated Statements of
      Operations or Cash Flows because we had previously adopted the fair value
      recognition provisions of FAS 123 prospectively for employee stock option awards
      granted, modified, or settled beginning January 1, 2003, as contemplated by
      FAS
      148, “Accounting for Stock-Based Compensation - Transition & Disclosure”.
      Prior to January 1, 2003, we used the intrinsic method of accounting as defined
      in APB 25, “Accounting for Stock Issued to Employees”.





**Pro
      Forma Disclosures**





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(R) for the year ended December 31, 2006, 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 change
      on a
      pro forma basis as follows:





**For
                the Years Ended December 31,****2005**
            
            **2004****Net
                income**
            
            
            **As
                Reported**
            
            **$**
            **42,322**
            
            **$**
            **18,462**Add:
                Stock-based compensation expense included in reported net income,
                net of
                related tax effects
            
            
            As
                Reported
            
            
            3,127
            
            
            10,171Deduct:
                Total stock-based compensation expense determined under fair value
                based
                method for all awards, net of related tax effects
            
            
            Pro
                Forma Expense
            
            
            (3,196
            )
            
            (10,384
            )**Net
                income**
            
            
            **Pro
                Forma**
            
            **$**
            **42,253**
            
            **$**
            **18,249**Net
                income per share - Basic:
            
            
            As
                Reported
            
            $
            1.22
            
            $
            0.66Pro
                Forma
            
            $
            1.22
            
            $
            0.65Net
                income per share - Diluted:
            
            
            As
                Reported
            
            $
            1.19
            
            $
            0.63Pro
                Forma
            
            $
            1.19
            
            $
            0.63








**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.





**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.




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 20,
“Discontinued Operations”).





*Page
            114*
 *Table
            of Contents*





**CENTRAL
      EUROPEAN MEDIA ENTERPRISES LTD.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Tabular
      amounts in US$ 000’s, except share data)**





**Advertising
      Costs**





Advertising
      costs are expensed as incurred. Advertising expense incurred for the years
      ending December 31, 2006, 2005 and 2004 totaled US$ 10.2 million, US$
      6.6 million and US$ 2.6 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.





**Recent
      Accounting Pronouncements**





In
      May
      2005, the FASB issued Statement of Financial Accounting Standards No. 154,
      “Accounting for Changes and Error Corrections” (“FAS 154”), which replaces APB
      Opinion No. 20 “Accounting Changes” (“APB 20”), and Statement of Financial
      Accounting Standards 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 adopted
      the
      provisions of FAS 154 on January 1, 2006 and it did not have a material impact
      on our financial position or results of operations.





In
      July
      2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes - an interpretation of FASB Statement No. 109” (“FIN 48”), which
      clarifies the accounting for uncertainty in tax positions. The evaluation of
      a
      tax position under FIN 48 is a two-step process. The first step is recognition:
      Tax positions taken or expected to be taken in a tax return should be recognized
      only if those positions are more likely than not to be sustained upon
      examination, based on the technical merits of the position. In evaluating
      whether a tax position has met the more likely than not recognition threshold,
      it should be presumed that the position will be examined by the relevant taxing
      authority that would have full knowledge of all relevant information. The second
      step is measurement: Tax positions that meet the recognition criteria are
      measured at the largest amount of benefit that is greater than 50 percent likely
      of being recognized upon ultimate settlement.




FIN
        48
        also provides guidance on derecognition, classification, interest and penalties,
        accounting in interim periods, disclosure and transition. FIN 48 is effective
        for fiscal years beginning after December 15, 2006 and we will adopt it in
        the
        first quarter of the year beginning January 1, 2007. We are currently assessing
        FIN 48 and we expect the
        adoption of FIN 48 to have the following impact on our financial position
        and
        results of operations:
  An
        increase in non-current liabilities in the consolidated Balance Sheet and a
        corresponding reduction in retained earnings of between US$ 0.0 million and
        US$
        2.0 million as a result of the recognition of unrecognized tax benefits
        recorded following the adoption of FIN 48.  In addition an increase in
        non-current liabilities of between US$ 0.0 million and US$ 2.0 million and
        a
        corresponding reduction in retained earnings as a result of the recognition
        of
        estimated interest and penalties recorded following the adoption of FIN
        48.


*Page
            115*
 *Table
            of Contents*


**CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**


In
        September 2006, the FASB issued Statement of Financial Accounting Standards
        No.
        157, “Fair Value Measurements” (“FAS 157”). FAS 157 addresses the need for
        increased consistency in fair value measurements, defining fair value as
        the
        price that would be received to sell an asset or paid to transfer a liability
        in
        an orderly transaction between market participants at the measurement date.
        It
        also establishes a framework for measuring fair value and expands disclosure
        requirements. FAS 157 is effective for us beginning January 1, 2008. We are
        currently evaluating the impact of the adoption of FAS 157 on our financial
        position and results of operations.
 
 In
        September 2006, the SEC issued Staff Accounting Bulletin No. 108 Section
        N to
        Topic 1, “Considering the Effects of Prior Year Misstatements in Current Year
        Financial Statements” (“SAB 108”). SAB 108 requires the evaluation of prior-year
        Misstatements using both the balance sheet approach and the income statement
        approach. In the initial year of adoption, should either approach result
        in
        quantifying an error that is material in light of quantitative and qualitative
        factors, SAB 108 guidance allows for a one-time cumulative-effect adjustment
        to
        opening retained earnings. In years subsequent to adoption, previously
        undetected misstatements deemed material shall result in the restatement
        of
        previously issued financial statements in accordance with Statement of Financial
        Accounting Standards No. 154 “Accounting changes and error corrections”. We
        adopted SAB 108 in the third quarter of 2006 and concluded that there was
        no
        impact of adoption.
 In
          February 2007, the FASB issued Statement No. 159, "The Fair Value Option
          for
          Financial Assets and Financial Liabilities" ("FAS 159"). FAS 159 gives
          entities
          the option to prospectively measure many financial instruments and certain
          other
          items at fair value in the balance sheet with changes in the fair value
          recognized in the income statement. FAS 159 is effective for fiscal years
          beginning after November 15, 2008, although entities electing to adopt
          the
          statement early, which is permissible for us from January 1, 2007, may
          designate
          certain items retrospectively. We are currently evaluating the impact of
          adoption on our financial position and results of
          operations.





**4.
      ACQUISITIONS AND DISPOSALS**





**Czech
      Republic**





On
      April
      3, 2006, the Czech Republic Media Council approved the transfer of the 1.25%
      interest in CET 21 held by Ceska Sporitelna, a.s. to Vilja and the transfer
      of
      the 1.25% interest in CET 21 held by CEDC to PPF (Cyprus) Ltd. (“PPF”). On May
      5, 2006 the Czech Republic Media Council approved the transfer of the PPF
      interest to Vilja and on May 16, 2006, Vilja acquired such interest after
      fulfillment of all conditions precedent set forth in the relevant transfer
      agreement. We now have a voting and economic interest in CET 21 of 100%. Both
      of
      these transactions took place for nominal consideration.





On
      May
      26, 2006, following the registration of our subsidiary CME Media Enterprises
      B.V. as the owner of 16.67% of CET 21, formerly owned by Peter Krsak, we paid
      the final CZK 600.0 million (approximately US$ 27.3 million at the payment
      date)
      instalment of the consideration due to Mr. Krsak. This amount had been held
      in
      escrow, and disclosed in restricted cash (see Note 8 “Restricted Cash”) since
      May 27, 2005, with a corresponding amount reported as deferred
      consideration.




*2005
      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$ 27.6 million at the date of payment) was paid on
      May
      26, 2006.




*Page
            116*
 *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.
   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 were
        charged to goodwill following the acquisition of the TV Nova (Czech Republic)
        group.





*Page
            117*
 *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
            
            
            60,839
            
            
            36,153Net
                income
            
            
            60,326
            
            
            38,677Per
                Share Data:Net
                income-Basic
            
            $
            1.60
            
            $
            1.05Net
                income - Diluted
            
            $
            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 was 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 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.




*2005
      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 -* *Pro
      TV, MPI and Media Vision*





On
      February 17, 2006, we purchased an additional 5.0% of Pro TV, MPI and Media
      Vision from Adrian Sarbu, the general director of our Romania operations, for
      consideration of US$ 27.2 million. We now own a 90.0% voting and economic
      interest in Pro TV and MPI and a 75.0% voting and economic interest in Media
      Vision. We completed a fair value exercise to allocate the purchase price to
      the
      acquired assets and liabilities and identified separately identifiable assets.
      The following table summarizes the fair values of the assets acquired and
      liabilities assumed at the date of acquisition:





*Page
            118*
 *Table
            of Contents*


**CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**


**Fair
                Value on Acquisition**Intangible
                assets subject to amortization (1)
            
            $
            4,655Intangible
                assets not subject to amortization (2)
            
            
            12,947Goodwill
            
            
            11,376Deferred
                tax liability
            
            
            (2,816
            )Minority
                interest
            
            
            1,038**Total
                purchase price**
            
            **$**
            **27,200**





(1)
      The
      intangible assets subject to amortization comprise customer relationships,
      which
      are being amortized over one to ten years (weighted average: 8.3
      years).




(2)
      Intangible assets not subject to amortization comprise approximately US$ 6.5
      million in trademarks and US$ 6.5 million relating to television broadcast
      licenses.





Mr.
      Sarbu
      has the right to sell his remaining 10.0% 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 1.0% interest sold. A put option of 5.21% of this 10.0%
      shareholding is exercisable from November 12, 2009 for a twenty-year period
      thereafter. Mr. Sarbu’s right to put the remaining 4.79% shareholding is also
      exercisable from November 12, 2009, provided that we have not enforced a pledge
      over this 4.79% shareholding which Mr. Sarbu granted as security for our right
      to put our 10.0% in Media Pro to him. For more information, see Item 8, Note
      6,
“Investments”. As at December 31, 2006, we consider the fair value of this put
      option to be approximately US$ nil.





*2005
      Acquisition of additional interest - MPI and Pro TV*





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 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 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 amortized on a straight-line basis over, eight years. An amount
      of US$ 8.0 million was recognized as goodwill.




**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 100.0% of
      the
      share capital of ARJ. ARJ owns 46.0% of the voting rights in
      Markiza.





*Page
            119*
 *Table
            of Contents*





**CENTRAL
      EUROPEAN MEDIA ENTERPRISES LTD.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Tabular
      amounts in US$ 000’s, except share data)**





This
      acquisition consisted of our acquiring a 34.0% 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 81.0 million (US$ 2.6 million
      at the date of acquisition) was paid on April 25, 2006. In addition, we acquired
      the remaining 66.0% in ARJ from Media Partners s.r.o. and Salis s.r.o. for
      consideration of approximately US$ 11.0 million, of which EUR 7.0 million
      (approximately US$ 8.5 million at the date of acquisition) was paid on closing
      and SKK 78.0 million (approximately US$ 2.5 million at the date of acquisition)
      was paid on May 2, 2006.





As
      of
      January 23, 2006, we held an 80.0% voting interest in Markiza and an 89.8%
      voting interest in STS and increased our economic interest in our Slovak
      Republic operations from 70.0% to 80.0%. 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 have been consolidated from the date of
      acquisition of ARJ. STS was merged into Markiza on January 1, 2007.





We
      completed a fair value exercise to allocate the purchase price to the acquired
      assets and liabilities and identified separately identifiable assets. The
      following table summarizes the fair values of the assets acquired and
      liabilities assumed at the date of acquisition:




**Fair
                Value on Acquisition**Property,
                plant and equipment
            
            $
            870Program
                library
            
            
            185Other
                assets
            
            
            733Intangible
                assets subject to amortization (1)
            
            
            8,128Intangible
                assets not subject to amortization (2)
            
            
            530Goodwill
            
            
            21,288Deferred
                tax liability
            
            
            (1,893
            )**Total
                purchase price (3)**
            
            **$**
            **29,841**





(1)
      The
      intangible assets subject to amortization comprise approximately US$ 7.2 million
      in customer relationships, which are being amortized over three to fourteen
      years (weighted average: 13.8 years), and US$ 0.9 million relating to television
      broadcast licenses, which are being amortized over fourteen years.




(2)
      Intangible assets not subject to amortization comprise trademarks.




(3)
      Total
      purchase price includes US$ 0.3 million of capitalized acquisition
      costs.




**Slovenia**





*2005
      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.





*Page
            120*
 *Table
            of Contents*





**CENTRAL
      EUROPEAN MEDIA ENTERPRISES LTD.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Tabular
      amounts in US$ 000’s, except share data)**





**Ukraine**





*Acquisition
      - Ukrpromtorg-2003 LLC*





On
      January 11, 2006, we completed the acquisition of a 65.5% interest in
      Ukrpromtorg-2003 LLC (“Ukrpromtorg”), which owns 92.2% of Gravis LLC, the
      operator of the GRAVIS television channel in Kiev, as well as two other local
      channels in Ukraine, for consideration of approximately US$ 7.4 million
      including acquisition costs. US$ 5.1 million of the consideration was paid
      in
      2005 and reported as acquisition costs on the consolidated balance sheet as
      at
      December 31, 2005, US$ 2.0 million was paid during 2006. The remainder of the
      purchase price was outstanding at December 31, 2006.





We
      completed a fair value exercise to allocate the purchase price to the acquired
      assets and liabilities and identified separately identifiable assets. The
      following table summarizes the fair values of the assets acquired and
      liabilities assumed at the date of acquisition:





**Fair
                Value on Acquisition**Property,
                plant and equipment
            
            $
            2,615Intangible
                assets subject to amortization (1)
            
            
            968Other
                assets
            
            
            239Goodwill
            
            
            4,627Deferred
                tax liability
            
            
            (724
            )Other
                liabilities
            
            
            (373
            )**Total
                purchase price (2)**
            
            **$**
            **7,352**





(1)
      The
      intangible assets subject to amortization comprise approximately US$ 0.6 million
      relating to television broadcast licenses, which are being amortized over nine
      years, approximately US$ 0.3 million relating to a favorable lease contract,
      which is being amortized over 19 years, and approximately US$ 0.1 million
      relating to order backlog, which was amortized during the year.




(2)
      Total
      purchase price includes US$ 0.4 million of capitalized acquisition
      costs.





*Page
            121*
 *Table
            of Contents*





**CENTRAL
      EUROPEAN MEDIA ENTERPRISES LTD.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Tabular
      amounts in US$ 000’s, except share data)**





**5.
      GOODWILL AND INTANGIBLE ASSETS**





Our
      goodwill and intangible asset additions are the result of acquisitions in
      Croatia, the Czech Republic, Romania, the Slovak Republic, Slovenia and Ukraine
      (see Note 4, “Acquisitions and Disposals”). No goodwill is expected to be
      deductible for tax purposes.





*Goodwill:*





Goodwill
      by operating segment as at December 31, 2006, 2005, and 2004 is summarized
      as
      follows:





**Balance**
              **Dec
                31, 2004**
            
            **Additions**
            
            **Allocation
                / Adjustment (1)**
            
            **Impairment
                charge (2)**
            
            **Foreign
                currency movement**
            
            **Balance**
              **Dec
                31, 2005**Croatia
            
            **$**
            **31,446**
            
            $
            -
            
            $
            (18,817
            )
            $
            (9,706
            )
            $
            (2,228
            )
            **$**
            **695**Czech
                Republic
            
            
            **-**
            
            
            727,282
            
            
            -
            
            
            -
            
            
            (20,332
            )
            
            **706,950**Romania
            
            
            **8,826**
            
            
            10,928
            
            
            -
            
            
            -
            
            
            -
            
            
            **19,754**Slovakia
            
            
            **-**
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            **-**Slovenia
            
            
            **14,724**
            
            
            2,300
            
            
            -
            
            
            -
            
            
            (1,936
            )
            
            **15,088**Ukraine
                (STUDIO 1+1)
            
            
            **4,096**
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            **4,096****Total**
            
            **$**
            **59,092**
            
            **$**
            **740,510**
            
            **$**
            **(18,817**
            **)**
            **$**
            **(9,706**
            **)**
            **$**
            **(24,496**
            **)**
            **$**
            **746,583**





**Balance**
              **Dec
                31, 2005**
            
            **Additions**
            
            **Allocation
                / Adjustment (1)**
            
            **Impairment
                charge (2)**
            
            **Foreign
                currency movement**
            
            **Balance**
              **Dec
                31, 2006**Croatia
            
            **$**
            **695**
            
            $
            -
            
            $
            -
            
            $
            (748
            )
            $
            53
            
            **$**
            **-**Czech
                Republic
            
            
            **706,950**
            
            
            -
            
            
            (7,580
            )
            
            -
            
            
            124,416
            
            
            **823,786**Romania
            
            
            **19,754**
            
            
            11,376
            
            
            -
            
            
            -
            
            
            -
            
            
            **31,130**Slovakia
            
            
            **-**
            
            
            21,288
            
            
            -
            
            
            -
            
            
            4,195
            
            
            **25,483**Slovenia
            
            
            **15,088**
            
            
            -
            
            
            -
            
            
            -
            
            
            1,370
            
            
            **16,458**Ukraine
                (STUDIO 1+1)
            
            
            **4,096**
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            **4,096**Ukraine
                (KINO, CITI)
            
            
            **-**
            
            
            4,627
            
            
            -
            
            
            -
            
            
            -
            
            
            **4,627****Total**
            
            **$**
            **746,583**
            
            **$**
            **37,291**
            
            **$**
            **(7,580**
            **)**
            **$**
            **(748**
            **)**
            **$**
            **130,034**
            
            **$**
            **905,580**




(1)
            At
                the year end, 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,
                part of
                this balance was allocated to other asset and liability
                accounts.




(2)
            When
                  we updated our medium-term forecast models at June 30, 2006 and
                  2005, we
                  determined that the forecast future cash flows of our Croatia operations
                  had decreased compared to our previous forecast. In such circumstances,
                  SFAS 142 “Goodwill and Other Intangible Assets” requires that the carrying
                  value of the intangible assets with indefinite lives are compared
                  to their
                  fair value to determine whether an impairment exists. If an asset
                  is
                  determined to be impaired, the loss is measured as the excess of
                  the
                  carrying value over the fair value. As a result of our analysis,
                  we
                  recognized an impairment charge of US$ 0.7 million (2005: US$ 9.7
                  million)relating
                  to goodwill. A further impairment charge relating to other Long-Lived
                  Assets was not deemed necessary under the requirements of SFAS
                  144
                  “Accounting for the Impairment or Disposal of Long-Lived
                  Assets”.  *Page
            122*
 *Table
            of Contents*


**CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**


*Broadcast
      licenses:*





The
      net
      book value of our broadcast licenses as at December 31, 2006, 2005, and 2004
      is
      summarized as follows:





**Indefinite-lived
                broadcast licenses**
            
            **Amortized
                broadcast licenses**
            
            **Total****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 (2)
            
            
            (18,604
            )
            
            -
            
            
            (18,604
            )Foreign
                currency movements
            
            
            (1,153
            )
            
            (4,780
            )
            
            (5,933
            )**Balance,
                December 31, 2005**
            
            **$**
            **18,936**
            
            **$**
            **152,655**
            
            **$**
            **171,591**Additions
            
            
            6,475
            
            
            9,033
            
            
            15,508Amortization
            
            
            -
            
            
            (15,758
            )
            
            (15,758
            )Foreign
                currency movements
            
            
            933
            
            
            26,456
            
            
            27,389**Balance,
                December 31, 2006**
            
            **$**
            **26,344**
            
            **$**
            **172,386**
            
            **$**
            **198,730**





(1)
            At
                the year end, 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,
                part of
                this balance was allocated to other asset and liability
                accounts.




(2)
            When
                  we updated our medium-term forecast models at June 30, 2006 and
                  2005, we
                  determined that the forecast future cash flows of our Croatia operations
                  had decreased compared to our previous forecast. In such circumstances,
                  SFAS 142 “Goodwill and Other Intangible Assets” requires that the carrying
                  value of the intangible assets with indefinite lives are compared
                  to their
                  fair value to determine whether an impairment exists. If an asset
                  is
                  determined to be impaired, the loss is measured as the excess of
                  the
                  carrying value over the fair value. As a result of our analysis,
                  we
                  recognized an impairment charge of US$ 18.6 million relating to
                  broadcast
                  licenses. A further impairment charge relating to other Long-Lived
                  Assets
                  was not deemed necessary under the requirements of SFAS 144 “Accounting
                  for the Impairment or Disposal of Long-Lived
                  Assets”.





With
      the
      exception of our broadcast licenses in the Czech Republic, the Slovak 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, between 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 license in
      the
      Slovak Republic has an economic life of, and is amortized on a straight-line
      basis over, thirteen years.




The
      gross
      value and accumulated amortization of amortized broadcast licenses was as
      follows at December 31, 2006 and 2005:





**December
                31,**
              **2006**
            
            **December
                31,**
              **2005**Gross
                value
            
            $
            201,994
            
            $
            163,628Accumulated
                amortization
            
            
            (29,608
            )
            
            (10,973
            )**Total
                net book value**
            
            **$**
            **172,386**
            
            **$**
            **152,655**


*Page
            123*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**


*Other
      intangible assets:*





The
      net
      book value of our other intangible assets as at December 31, 2006, 2005, and
      2004 is summarized as follows:





**Trademarks**
            
            **Customer
                relationships**
            
            **Other**
            
            **Total****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 (2)
            
            
            (7,021
            )
            
            -
            
            
            -
            
            
            (7,021
            )Foreign
                currency movements
            
            
            (953
            )
            
            (196
            )
            
            -
            
            
            (1,149
            )**Balance,
                December 31, 2005**
            
            **$**
            **32,560**
            
            **$**
            **15,098**
            
            **$**
            **-**
            
            **$**
            **47,658**Additions
            
            
            7,695
            
            
            11,975
            
            
            817
            
            
            20,487Amortization
            
            
            -
            
            
            (2,941
            )
            
            (114
            )
            
            (3,055
            )Foreign
                currency movements
            
            
            3,771
            
            
            3,081
            
            
            -
            
            
            6,852**Balance,
                December 31, 2006**
            
            **$**
            **44,026**
            
            **$**
            **27,213**
            
            **$**
            **703**
            
            **$**
            **71,942**




(1)
            At
                the year end, 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,
                part of
                this balance was allocated to other asset and liability
                accounts.




(2)
            When
                we updated our medium-term forecast models at June 30, 2006 and 2005,
                we
                determined that the forecast future cash flows of our Croatia operations
                had decreased compared to our previous forecast. In such circumstances,
                SFAS 142 “Goodwill and Other Intangible Assets” requires that the carrying
                value of the intangible assets with indefinite lives are compared
                to their
                fair value to determine whether an impairment exists. If an asset
                is
                determined to be impaired, the loss is measured as the excess of
                the
                carrying value over the fair value. As a result of our analysis,
                we
                recognized an impairment charge of US$ 7 million relating to trademarks.
                A
                further impairment charge relating to other Long-Lived Assets was
                not
                deemed necessary under the requirements of SFAS 144 “Accounting for the
                Impairment or Disposal of Long-Lived
                Assets”.




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, 2006 and 2005:





**December
                31,**
              **2006**
            
            **December
                31,**
              **2005**Gross
                value
            
            $
            31,852
            
            $
            17,038Accumulated
                amortization
            
            
            (4,639
            )
            
            (1,940
            )**Total
                net book value**
            
            **$**
            **27,213**
            
            **$**
            **15,098**





The
      estimated total annual amortization expense for our existing amortized broadcast
      licenses and customer relationships will be approximately US$ 20 million for
      2007 and for each of the years 2008 - 2011.




*Impairment*





In
      the
      year ended December 31, 2006, we recognized an impairment charge of US$ 0.7
      million with respect to our Croatia operations.





*Page
            124*
 *Table
            of Contents*





**CENTRAL
      EUROPEAN MEDIA ENTERPRISES LTD.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Tabular
      amounts in US$ 000’s, except share data)**





When
      we
      updated our medium-term forecast models at June 30, 2006, we determined that
      the
      forecast future cash flows of our Croatia operations had decreased compared
      to
      our previous forecast. We therefore reviewed the carrying value of the
      intangible assets with indefinite lives to determine whether the assets are
      impaired. As a result of our analysis, we recognized an impairment charge of
      US$
      0.7 million to write down the carrying value of goodwill to US$
      nil.





We
      performed a similar review of our Croatia operations in late June 2005 and
      recorded an impairment charge of US$ 35.3 million at that time, of which US$
      18.6 million was attributable to the broadcast license, US$ 7.0 million to
      trademarks and US$ 9.7 million to goodwill. Included in the provision for income
      taxes for the year ended December 31, 2005 is a US$ 5.1 million credit
      representing a release of deferred tax relating to the impairment charge on
      the
      license and trademark.




**6.
      INVESTMENTS**




We
      hold
      the following investments in unconsolidated affiliates:


**Type
                  of Affiliate**
              
              **Effective**
                **Voting
                  interest**
              
              **December
                  31,**
                **2006**
              
              **December
                  31,**
                **2005**STS
              
              Equity-Accounted
                  Affiliate
              
              
              49%
              
              $
              -
              
              $
              23,886Radio
                  Pro
              
              Equity-Accounted
                  Affiliate
              
              
              Various
              
              
              -
              
              
              50Media
                  Pro
              
              Cost
                  Method Investment
              
              
              10%
              
              
              16,569
              
              
              -TV
                  Sport
              
              Equity-Accounted
                  Affiliate
              
              
              18%
              
              
              2,645
              
              
              -**$**
              **19,214**
              
              **$**
              **23,936**
 
 *STS*
 
 Our
        share
        of income from Unconsolidated Affiliates in respect of STS (MARKIZA TV) was
        US$
        (0.7) million, US$ 8.2 million and US$ 10.4 million for the years ended December
        31, 2006, 2005 and 2004, respectively. In the years ended December 31, 2006,
        2005 and 2004 we received dividends of US$ 11.8 million, US$ 11.7 million
        and
        US$ 6.3 million, respectively, from STS (MARKIZA TV). On January 23, 2006,
        we
        acquired control of STS through our purchase of ARJ and consequently STS
        is
        accounted for as a consolidated subsidiary from that date.




The
      following is a summary of significant balance sheet and income statement items
      of STS (MARKIZA TV) at December 31 2005, and for the years ending December
      31,
      2005 and 2004:





**STS
                (MARKIZA TV)****December
                31, 2005**Current
                assets
            
            $
            23,261Non-current
                assets
            
            
            18,612Current
                liabilities
            
            
            (12,673
            )Non-current
                liabilities
            
            
            (125
            )Minority
                interest
            
            
            (635
            )**Net
                Assets**
            
            **$**
            **28,440**





**STS
                (MARKIZA TV)****For
                the Years Ended December 31,****2005**
            
            **2004**Net
                revenues
            
            $
            64,266
            
            $
            61,576Operating
                income
            
            
            14,641
            
            
            15,790Net
                income
            
            
            11,771
            
            
            13,868Currency
                translation adjustment
            
            $
            (3,226
            )
            $
            4,760


*Page
            125*
 *Table
            of Contents*
  **CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**


*Radio
      Pro and Media Pro*




Until
      March 29, 2004, we held a 44.0% interest in Radio Pro, a radio broadcaster
      in
      Romania. In order to comply with Romanian Media Council regulations following
      our acquisition of an additional 14.0% interest in MPI and Pro TV, it was
      necessary to reduce our holding in Radio Pro to 20.0%, which we achieved by
      selling 24.0% of our stake to Adrian Sarbu, the general director of our Romania
      operations for consideration of US$ 0.04 million with a resulting loss on
      disposal of US$ 0.02 million. The consideration was determined by an independent
      valuation of Radio Pro.


On
        August
        11, 2006 we acquired a 10.0% interest in Media Pro which is accounted for
        using
        the cost method. The remaining 90% of Media Pro is held by Adrian
        Sarbu.
 
 In
        consideration for the purchase of this interest, we paid EUR 8.0 million
        (approximately US$ 10.1 million at the date of acquisition) in cash and
        transferred our remaining 20.0% investment in Radio Pro. As a result of this
        transaction, we recorded a gain of US$ 6.2 million on disposal.
 
 We
        have
        the right to put our investment in Media Pro to Mr. Sarbu for a three-month
        period from August 12, 2009 at a price equal to the greater of EUR 13.0 million
        (approximately US$ 16.5 million) and the value of our investment, as determined
        by an independent valuer. This put option is secured by a pledge of a 4.79%
        shareholding in Pro TV held by Mr. Sarbu. For more information, see Note
        4,
“Acquisitions and Disposals, Romania”. On acquisition, we determined the fair
        value of this put option to be US$ nil.




*TV
      Sport*





On
      December 14, 2006 we acquired 20.0% of TV Sport from Silviu Prigoana for cash
      consideration of Euro 2.0 million (US$ 2.6 million). TV Sport is a male
      sports-oriented channel focusing on local and international football,
      international boxing and a number of local Romanian sports.




**7.
      SENIOR NOTES**





Our
      Senior Notes consist of the following:




**Carrying
                value**
            
            **Fair
                value****December
                31,**
              **2006**
            
            **December
                31,**
              **2005**
            
            **December
                31,**
              **2006**
            
            **December
                31,**
              **2005**Eur
                245.0 million 8.25% Senior Notes
            
            $
            322,666
            
            $
            288,984
            
            $
            353,722
            
            $
            323,737Eur
                125.0 million floating rate Senior Notes
            
            
            164,625
            
            
            147,440
            
            
            170,181
            
            
            156,324**$**
            **487,291**
            
            **$**
            **436,424**
            
            **$**
            **523,903**
            
            **$**
            **480,061**




On
      May 5,
      2005, we issued Senior Notes in the aggregate principal amount of Eur 370.0
      million consisting of Eur 245.0 million of 8.25% Senior Notes due May 2012
      and
      Eur 125.0 million of floating rate Senior Notes due May 2012, which bear
      interest at six-month Euro Inter-Bank Offered Rate (“EURIBOR”) plus 5.50% (9.23%
      at December 31, 2006). 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, 2006 and December 31, 2005 was calculated by
      multiplying the outstanding debt by the traded market price.





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.





*Page
            126*
 *Table
            of Contents*





**CENTRAL
      EUROPEAN MEDIA ENTERPRISES LTD.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Tabular
      amounts in US$ 000’s, except share data)**





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 35.0% 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 60th  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 101.0% 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:**
            **Eur
                245.0 million 8.25%**
              **Senior
                Notes**
              **Redemption
                Price**
            
            **From:**
            **Eur
                125.0 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 35.0% 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 100.0% 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.





**8.
      RESTRICTED CASH**





Restricted
      cash consists of the following at December 31, 2006 and 2005:





**December
                31,**
              **2006**
            
            **December
                31,**
              **2005**Czech
                Republic
            
            $
            -
            
            $
            24,554Croatia
            
            
            4,183
            
            
            3,640Directors’
                and officers’ insurance
            
            
            -
            
            
            5,285Other
            
            
            771
            
            
            693**Total****restricted cash**
            
            **$**
            **4,954**
            
            **$**
            **34,172**




The
      restricted cash balances in Czech Republic and Croatia at December 31, 2005
      represented amounts held in escrow that are payable to certain former owners
      of
      our businesses in those countries. The amount due to one of the former owners
      of
      our Czech Republic operations was paid on May 26, 2006 and the amount due to
      the
      former owners of our Croatia operations remains payable at December 31, 2006.
      Directors’ and officers’ insurance related to a balance held in a captive
      insurance company to underwrite a part of our directors’ and officers’ insurance
      program that was no longer required under the program in
      2006.




*Page
            127*
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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)**





**9.
      ACCOUNTS RECEIVABLE**





Accounts
      receivable consist of the following at December 31, 2006 and 2005:


**December
                31,**
              **2006**
            
            **December
                31,**
              **2005*****Trading:***Third-party
                customers
            
            $
            156,701
            
            $
            103,921Less:
                allowance for bad debts and credit notes
            
            
            (11,472
            )
            
            (8,612
            )Related
                parties
            
            
            7,655
            
            
            2,034Less:
                allowance for bad debts and credit notes
            
            
            (798
            )
            
            (265
            )**Total
                trading**
            
            **$**
            **152,086**
            
            **$**
            **97,078*****Other:***Third-party
                customers
            
            $
            359
            
            $
            257Less:
                allowance for bad debts and credit notes
            
            
            (103
            )
            
            (83
            )Related
                parties
            
            
            454
            
            
            434Less:
                allowance for bad debts and credit notes
            
            
            (291
            )
            
            (290
            )**Total
                other**
            
            **$**
            **419**
            
            **$**
            **318****Total
                accounts receivable**
            
            **$**
            **152,505**
            
            **$**
            **97,396**





Bad
      debt
      expense for the years ending December 31, 2006, 2005 and 2004 was US$ 2.0
      million, US$ 1.8 million and US$ 0.3 million, respectively.


At
        December 31, 2006, CZK 600.0 million (approximately US$ 28.7 million) (2005:
        CZK
        516.7 million, approximately US$ 21.0 million at December 31, 2005) of
        receivables in the Czech Republic were pledged as collateral subject to a
        factoring agreement (see Note 13, “Credit Facilities and Obligations Under
        Capital Leases”).


*Page
            128*
 *Table
            of Contents*





**CENTRAL
      EUROPEAN MEDIA ENTERPRISES LTD.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Tabular
      amounts in US$ 000’s, except share data)**





**10.
      OTHER ASSETS**





Other
      current and non-current assets consist of the following at December 31, 2006
      and
      2005:





**December
                31,**
              **2006**
            
            **December
                31,**
              **2005****Current:**Prepaid
                programming
            
            $
            23,072
            
            $
            17,534Other
                prepaid expenses
            
            
            13,177
            
            
            6,009Deferred
                tax (Note 16)
            
            
            2,124
            
            
            3,025VAT
                recoverable
            
            
            2,562
            
            
            7,888Loan
                to related party (Note 22)
            
            
            600
            
            
            600Capitalized
                debt costs
            
            
            2,908
            
            
            2,250Assets
                held-for-sale
            
            
            -
            
            
            341Other
            
            
            3,112
            
            
            1,209**Total
                other current assets**
            
            **$**
            **47,555**
            
            **$**
            **38,856****Non-current:**Capitalized
                debt costs
            
            $
            11,264
            
            $
            11,618Loan
                to related party (Note 22)
            
            
            1,603
            
            
            1,910Deferred
                tax (Note 16)
            
            
            3,443
            
            
            779Other
            
            
            1,165
            
            
            753**Total
                other non-current assets**
            
            **$**
            **17,475**
            
            **$**
            **15,060**





Capitalized
      debt costs primarily comprise the costs incurred in connection with the issuance
      of our Senior Notes in May 2005 (see Note 7, “Senior Notes”), and are being
      amortized over the term of the Senior Notes using the effective interest method.
      The assets held-for-sale at December 31, 2005, related to land and buildings
      in
      our Croatia operations.





**11.
      PROPERTY, PLANT & EQUIPMENT**


Property,
        plant and equipment consists of the following at December 31, 2006 and
        2005:
 
 **December
                  31,**
                **2006**
              
              **December
                  31,**
                **2005**Land
                  and buildings
              
              $
              52,212
              
              $
              17,548Station
                  machinery, fixtures and equipment
              
              
              115,238
              
              
              72,017Other
                  equipment
              
              
              21,980
              
              
              20,447Software
                  licenses
              
              
              15,495
              
              
              8,360Construction
                  in progress
              
              
              4,070
              
              
              5,180**Total
                  cost**
              
              
              **212,995**
              
              
              **123,552**Less:
                  Accumulated depreciation
              
              
              (97,190
              )
              
              (64,655
              )**Total
                  net book value**
              
              **$**
              **115,805**
              
              **$**
              **58,897****Assets
                  held under capital leases (included in the above)**Land
                  and buildings
              
              $
              5,541
              
              $
              4,980Station
                  machinery, fixtures and equipment
              
              
              2,330
              
              
              1,434**Total
                  cost**
              
              
              **7,871**
              
              
              **6,414**Less:
                  Accumulated depreciation
              
              
              (1,877
              )
              
              (1,167
              )**Net
                  book value**
              
              **$**
              **5,994**
              
              **$**
              **5,247**
 
 For
        further information on capital leases, see Note 13, “Credit Facilities and
        Obligations under Capital Leases”.
  Depreciation
        expense for the years ending December 31, 2006, 2005 and 2004 was US$ 26.6
        million, US$ 16.7 million and US$ 6.4 million, respectively. This includes
        corporate depreciation expense for the years ending December 31, 2006, 2005
        and
        2004 of US$ 0.8 million, US$ 0.4 million and US$ 0.1 million, respectively,
        which are included in corporate operating costs.


*Page
            129*
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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)**





**12.
      ACCOUNTS PAYABLE AND ACCRUED LIABILITIES**





Accounts
      payable and accrued liabilities consist of the following at December 31, 2006
      and 2005:





**December
                31,**
              **2006**
            
            **December
                31,**
              **2005**Accounts
                payable
            
            $
            47,447
            
            $
            21,533Programming
                liabilities
            
            
            32,316
            
            
            18,891Deferred
                income
            
            
            3,212
            
            
            7,202Settlement
                liability
            
            
            -
            
            
            10,007Accrued
                staff costs
            
            
            12,947
            
            
            9,402Accrued
                production costs
            
            
            7,435
            
            
            5,882Accrued
                interest payable
            
            
            5,375
            
            
            4,483Accrued
                legal costs
            
            
            3,619
            
            
            3,620Accrued
                rent costs
            
            
            1,163
            
            
            82Other
                accrued liabilities
            
            
            6,203
            
            
            3,747**Total
                accounts payable and accrued liabilities**
            
            **$**
            **119,717**
            
            **$**
            **84,849**





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
      and was fully repaid in January 2006.





The
      accrued interest payable balance relates primarily to interest calculated on
      our
      Senior Notes (see Note 7, “Senior Notes”).




**13.
      CREDIT FACILITIES AND OBLIGATIONS UNDER CAPITAL LEASES**





Group
      loan obligations and overdraft facilities consist of the following at December
      31, 2006 and 2005:





**December
                31,**
              **2006**
            
            **December
                31,**
              **2005****Credit
                facilities:**Corporate
            
            
            (a)
            
            $
            -
            
            $
            -Croatia
                operations
            
            
            (b)
            
            
            847
            
            
            1,135Czech
                Republic operations
            
            
            (c)
                - (e)
            
            
            11,975
            
            
            42,703Slovenia
                operations
            
            
            (f)
            
            
            -
            
            
            -Ukraine
                operations
            
            
            (g)
            
            
            1,703
            
            
            -**Total
                credit facilities**
            
            
            
            
            **$**
            **14,525**
            
            **$**
            **43,838****Capital
                leases:**Croatia
                operations, net of interest
            
            
            
            
            $
            19
            
            $
            132Czech
                Republic operations, net of interest
            
            
            
            
            
            -
            
            
            6Romania
                operations, net of interest
            
            
            
            
            
            495
            
            
            290Slovak
                Republic operations, net of interest
            
            
            
            
            
            154
            
            
            -Slovenia
                operations, net of interest
            
            
            
            
            
            4,223
            
            
            4,040**Total
                capital leases**
            
            
            
            
            **$**
            **4,891**
            
            **$**
            **4,468****Total
                credit facilities and capital leases**
            
            
            
            
            **$**
            **19,416**
            
            **$**
            **48,306**Less
                current maturities
            
            
            
            
            
            (13,057
            )
            
            (43,566
            )**Total
                non-current maturities**
            
            
            
            
            **$**
            **6,359**
            
            **$**
            **4,740**




*Page
          130*
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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)**


**Corporate**





(a)
      On
      July 21, 2006, we entered into a five-year revolving loan agreement for EUR
      100.0 million (approximately US$ 131.7 million) arranged by the European Bank
      for Reconstruction and Development (the “Loan”). ING Bank N.V. (“ING”) and Ceska
      Sporitelna, a.s. (“CS”) are participating in the facility for up to EUR 50.0
      million in aggregate. Initial drawings up to EUR 100.0 million will be used
      for
      certain specified projects in Central and Eastern Europe.





The
      Loan
      bears interest at a rate of three-month EURIBOR plus 2.75% on the drawn amount.
      The available amount of the Loan amortizes by 7.5% every six months from May
      2008 to November 2009, then by 15% in May 2010 and November 2010, and by 40%
      in
      May 2011.




Covenants
      contained in the Loan are in line with those contained in our Senior Notes
      (see
      Note 7, “Senior Notes”). In addition, the Loan’s covenants restrict us from
      making principal repayments on other debt of greater than US$ 20.0 million
      per
      year for the life of the Loan. This restriction is not applicable to our
      existing facilities with ING or CS or to any refinancing of our Senior
      Notes.




The
      Loan
      is a secured senior obligation and ranks pari passu with all existing and future
      senior indebtedness, including the Senior Notes, and is effectively subordinated
      to all existing and future indebtedness of our subsidiaries. The amount drawn
      is
      guaranteed by certain of our subsidiaries and is secured by a pledge of shares
      of those subsidiaries and an assignment of certain contractual rights. The
      terms
      of the Loan 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.





There
      were no drawings under this facility as at December 31, 2006.


*Page
            131*
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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)**


**Croatia**





(b)
      A
      total of EUR 0.6 million (approximately US$ 0.8 million) was drawn down under
      two agreements our Croatia operations have with Hypo Alpe-Adria-Bank d.d. These
      loans bear a variable interest rate of three-month EURIBOR plus 2.50% and are
      repayable in quarterly instalments until April 1, 2011. As at December 31,
      2006,
      an aggregate rate of 6.00% applied to these loans. These loans are secured
      by
      certain fixed assets of OK, which as at December 31, 2006 have a carrying value
      of approximately US$ 0.1 million.





**Czech
      Republic**





(c)
      As at
      December 31, 2006, there were no drawings by CET 21 under a four-year credit
      facility of CZK 1.2 billion (approximately US$ 57.5 million) available until
      October 31, 2009 with Ceska Sporitelna, a.s. (“CS”) This facility may, at the
      option of CET 21, be drawn in CZK, US$ or EUR and bears interest at the
      three-month, six-month or twelve-month London Inter-Bank Offered Rate (“LIBOR”),
      EURIBOR or Prague Inter-Bank Offered Rate (“PRIBOR”) rate plus 1.95%. This
      facility is secured by a guarantee and a pledge of receivables, which are also
      subject to a factoring arrangement with Factoring Ceska Sporitelna, a.s., a
      subsidiary of CS.




(d)
      CZK
      250.0 million (approximately US$ 12.0 million), the full amount of the facility,
      has been drawn by CET 21 under a working capital facility agreement with CS
      which matures on April 30, 2007 and bears interest at the three-month PRIBOR
      plus 1.65% (three-month PRIBOR relevant to drawings under this facility at
      December 31, 2006 was 2.55%). A preliminary agreement has been reached to extend
      this facility for 12 months from maturity. This facility is secured by a pledge
      of receivables, which are also subject to a factoring arrangement with Factoring
      Ceska Sporitelna, a.s.





(e)
      As at
      December 31, 2006, there were no drawings under a CZK 600.0 million
      (approximately US$ 28.7 million) factoring facility with Factoring Ceska
      Sporitelna, a.s. available until March 31, 2010. The facility bears interest
      at
      one-month PRIBOR plus 1.40% for the period that actively assigned accounts
      receivable are outstanding.





**Slovenia**





(f)
      On
      July 29, 2005, Pro Plus entered into a revolving facility agreement for up
      to
      EUR 37.5 million (approximately US$ 49.4 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 10.0%
      each
      year for four years commencing one year after signing, with 60.0% 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 at a rate of EURIBOR for
      the
      period of drawing plus a margin of between 2.10% and 3.60% that varies according
      to the ratio of consolidated net debt to consolidated broadcasting cash flow
      for
      Pro Plus. As at December 31, 2006, there were no drawings under this revolving
      facility.





**Ukraine**





(g)
      On
      August 16, 2006 and November 6, 2006, our Ukraine (KINO, CITI) operations
      entered into US$ 0.9 million and US$ 0.6 million, three-year loans with Glavred-Media,
      LLC ,
      the
      minority shareholder in Ukrpromtorg. These loans are unsecured and bear interest
      at 9%. Our partners have also extended short-term non-interest bearing loans
      to
      our Ukraine (KINO, CITI) operations amounting to US$ 0.2 million.





*Page
          132*
 *Table
          of Contents*


**CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**


*Total
      Group*





At
      December 31, 2006, the maturity of our debt (including our Senior Notes) is
      as
      follows:





2007
            
            $
            12,3502008
            
            
            1802009
            
            
            1,6902010
            
            
            3052011
                and thereafter
            
            
            487,291**Total**
            
            **$**
            **501,816**




*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, 2006:




2007
            
            $
            9982008
            
            
            8062009
            
            
            6442010
            
            
            4322011
            
            
            4322012
                and thereafter
            
            
            3,423**6,735**Less:
                amount representing interest
            
            
            (1,844
            )**Present
                value of net minimum lease payments**
            
            **$**
            **4,891**




**14.
      FINANCIAL INSTRUMENTS**





On
      April
      27, 2006, we entered into currency swap agreements with two counterparties
      whereby we swapped a fixed annual coupon interest rate (of 9.0%) on notional
      principal of CZK 10.7 billion (approximately US$ 512.6 million), payable on
      July
      15, October 15, January 15, and April 15, to the termination date of April
      15,
      2012, for a fixed annual coupon interest rate (of 9.0%) on notional principal
      of
      EUR 375.9 million (approximately US$ 495.1 million) receivable on July 15,
      October 15, January 15, and April 15, to the termination date of April 15,
      2012.





The
      fair
      value of these financial instruments as at December 31, 2006 was a US$ 12.5
      million liability.





These
      currency swap agreements reduce our exposure to movements in foreign exchange
      rates on a part of the CZK-denominated cash flows generated by our Czech
      Republic operations that is approximately equivalent in value to the
      Euro-denominated interest payments on our Senior Notes (see Note 7, “Senior
      Notes”). They are financial instruments that are used to minimize currency risk
      and are considered an economic hedge of foreign exchange rates. These
      instruments have not been designated as hedging instruments as defined under
      SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”,
      and so changes in their fair value are recorded in the consolidated statement
      of
      operations and in the consolidated balance sheet in other non-current
      liabilities.





**15.
      SHAREHOLDERS’ EQUITY**





*Preferred
      Stock*




5,000,000
      shares of Preferred Stock, with a $0.08 par value, were authorized as at
      December 31, 2006 and 2005.  None were issued and outstanding as at
      December 31, 2006 and 2005.




*Page
          133*
 *Table
          of Contents*


**CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**


*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, 2006 and 2005.  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.





On
      March
      29, 2006, we sold 2,530,000 shares of our Class A Common Stock (including
      330,000 sold pursuant to an underwriters’ option) and received net proceeds of
      approximately US$ 168.7 million.





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.





On
      May 3,
      2006, EL/RSLG Media Inc. converted 336,000 shares of Class B Common Stock,
      on
      May 9, 2006, Leonard A. Lauder converted 140,000 and LWG Family Partners L.P.
      converted 215,000 shares of Class B Common Stock, on May 11, 2006, EL/RSLG
      Media
      Inc. converted 4,895 shares of Class B Common Stock, and on June 23, 2006,
      Ronald Lauder converted 57,799 shares of Class B Common Stock into a combined
      total of 753,694 shares of Class A Common Stock.




On
      August
      28, 2006, Ronald Lauder exercised options over 100,000 shares of Class B Common
      Stock.





**16** **.
      INCOME TAXES**





As
      our
      investments are predominantly owned by Dutch holding companies, the
      components of the provision for income taxes and of the income 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
      before provision for income taxes, minority interest, equity in income of
      unconsolidated affiliates and discontinued operations:*





The
      Netherlands and non-Netherlands components of income from continuing operations
      before income taxes are:




**For
                the Years Ended December 31,****2006**
            
            **2005**
            
            **2004**Domestic
            
            $
            (43,777
            )
            $
            (2,270
            )
            $
            5,127Foreign
            
            
            92,179
            
            
            62,466
            
            
            15,387**$**
            **48,402**
            
            **$**
            **60,196**
            
            **$**
            **20,514**





*Page
          134*
 *Table
          of Contents*


**CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**


Total
      tax
      charge for the years ended December 31, 2006, 2005 and 2004 was allocated as
      follows:





**For
                the Years Ended December 31,****2006**
            
            **2005**
            
            **2004**Income
                tax expense from continuing operations
            
            $
            14,962
            
            $
            16,691
            
            $
            11,089Income
                tax expense/(benefit) from discontinued operations
            
            
            4,863
            
            
            677
            
            
            (2,378
            )Currency
                translation adjustment in accumulated other comprehensive
                loss
            
            
            22,878
            
            
            (3,266
            )
            
            **-****Total
                tax charge**
            
            **$**
            **42,703**
            
            **$**
            **14,102**
            
            **$**
            **8,711**





*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,****2006**
            
            **2005**
            
            **2004**Current
                Income tax expense:Domestic
            
            $
            (22,745
            )
            $
            186
            
            $
            2,104Foreign
            
            
            36,009
            
            
            25,512
            
            
            9,047**$**
            **13,264**
            
            **$**
            **25,698**
            
            **$**
            **11,151**Deferred
                tax expense / (benefit):Domestic
            
            
            1,467
            
            $
            (1,467
            )
            $
            -Foreign
            
            
            231
            
            
            (7,540
            )
            
            (62
            )**$**
            **1,698**
            
            **$**
            **(9,007**
            **)**
            **$**
            **(62**
            **)****Provision
                for income taxes**
            
            **$**
            **14,962**
            
            **$**
            **16,691**
            
            **$**
            **11,089**





*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, 2006,
      2005 and 2004:





**For
                the Years Ended December 31,****2006**
            
            **2005**
            
            **2004**Income
                taxes at Netherlands rates (2006: 29.6%, 2005: 31.5%; 2004: 34.5%)
            
            $
            14,326
            
            $
            18,961
            
            $
            7,078Jurisdictional
                differences in tax rates
            
            
            (10,432
            )
            
            (15,685
            )
            
            393Tax
                effect of Croatian goodwill impairment
            
            
            149
            
            
            1,983
            
            
            -Effect
                of change in tax law relating to investment allowances claimed in
                previous
                years
            
            
            (2,065
            )
            
            -
            
            
            -Interest
                expense disallowed under thin capitalisation provisions
            
            
            6,508
            
            
            -
            
            
            -Tax
                effect of other permanent differences
            
            
            (656
            )
            
            4,921
            
            
            6,209Effect
                of change in tax rates
            
            
            89
            
            
            620
            
            
            (858
            )Change
                in valuation allowance
            
            
            6,107
            
            
            5,115
            
            
            (1,366
            )Other
            
            
            936
            
            
            776
            
            
            (367
            )**Provision
                for income taxes**
            
            **$**
            **14,962**
            
            **$**
            **16,691**
            
            **$**
            **11,089**





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
          135*
 *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, 2006 and 2005:




**December
                31,**
              **2006**
            
            **December
                31,**
              **2005****Assets:**Tax
                benefit of loss carry-forwards and other tax credits
            
            $
            16,880
            
            $
            17,748Programming
                rights
            
            
            4,098
            
            
            1,220Property,
                plant and equipment
            
            
            995
            
            
            527Accrued
                expense
            
            
            4,205
            
            
            2,807Other
            
            
            691
            
            
            722**Gross
                deferred tax assets**
            
            
            **26,869**
            
            
            **23,024**Valuation
                allowance
            
            
            (16,574
            )
            
            (11,934
            )**Net
                deferred tax assets**
            
            **$**
            **10,295**
            
            **$**
            **11,090****Liabilities:**Broadcast
                licenses, trademarks and customer relationships
            
            $
            (57,036
            )
            $
            (42,674
            )Property,
                plant and equipment
            
            
            (2,936
            )
            
            (4,057
            )Undistributed
                reserves not permanently reinvested
            
            
            -
            
            
            (1,944
            )Temporary
                difference due to timing
            
            
            (4,684
            )
            
            (1,765
            )**Total
                deferred tax liabilities**
            
            **$**
            **(64,656**
            **)**
            **$**
            **(50,440**
            **)****Net
                deferred income tax liability**
            
            **$**
            **(54,361**
            **)**
            **$**
            **(39,350**
            **)**





Deferred
      tax is recognized on the Consolidated Balance Sheet as follows:





**December
                31,**
              **2006**
            
            **December
                31,**
              **2005**Current
                deferred tax assets
            
            $
            2,124
            
            $
            3,025Non-current
                deferred tax assets
            
            
            3,443
            
            
            779$
            5,567
            
            $
            3,804Current
                deferred tax liabilities
            
            
            (1,836
            )
            
            (1,005
            )Non-current
                deferred tax liabilities
            
            
            (58,092
            )
            
            (42,149
            )$
            (59,928
            )
            $
            (43,154
            )**Net
                deferred income tax liability**
            
            **$**
            **(54,361**
            **)**
            **$**
            **(39,350**
            **)**





We
      provided a valuation allowance against potential deferred tax assets of US$
      16.6
      million and US$ 11.9 million as at December 31, 2006 and 2005, 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,
      2006, US$ 0.8 million would reverse through goodwill.





*Page
          136*
 *Table
          of Contents*


**CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**


During
      2006, we had the following movements on valuation allowances:




**Balance
                at December 31, 2005**
            
            **$**
            **11,934**Charged
                to costs and expenses
            
            
            6,107Credited
                to other accounts
            
            
            (1,168
            )Foreign
                exchange
            
            
            (299
            )**Balance
                at December 31, 2006**
            
            **$**
            **16,574**




As
      of
      December 31, 2006 we have operating loss carry-forwards that will expire in
      the
      following periods:





**Year**
            **Total**
            **Austria**
            **Croatia**
            **Czech
                Republic**
            **Netherlands**
            **Slovenia**
            **UK**
            **Cyprus**
            **Ukraine**2007
            9,716
            
            
            
            
            9,7162008
            1,064
            
            
            21
            
            1,0432009
            1,594
            
            13
            1,434
            
            1472010
            3,729
            
            440
            3,2892011
            8,861
            
            8,822
            39Indefinite
            15,125
            11,491
            
            
            
            
            198
            96
            3,340




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, Czech Republic, Netherlands, Slovenia, Cyprus and Ukraine
      as
      we consider it more likely than not that we will fail to utilize these
      losses.




In
      addition there is a ruling deficit in the Netherlands of US$ 30.4 million which
      is available to offset future taxable profits in excess of the minimum amounts
      agreed with the Netherlands tax authorities. The ruling deficit is subject
      to a
      nine year statute of limitations.


We
        have
        not provided income taxes or withholding taxes on US$ 227.0 million (2005:
        US$
        119.0 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.




**1** **7.
      STOCK-BASED COMPENSATION**




4,500,000
      shares are available for the issuance of shares in respect of equity awards
      under a stock based compensation plan (“the plan”). Under the plan, awards
      (“options”) are made to employees at the discretion of the Compensation
      Committee and to directors pursuant to an annual automatic grant under the
      plan.
      Grants of options allow the holders to purchase CME stock at an exercise price,
      which is generally the market price prevailing at the date of the grant with
      vesting over three, four or five years.


When
          options are vested, holders may exercise them at any time up to the maximum
          contractual life of the instrument which is specified in the option agreement.
          The fair value of options vesting during 2006 was US$ 3.5 million (2005:
          US$ 3.2
          million, 2004: 2.1 million). At December 2006, the maximum contractual
          life of
          options issued was 10 years. Upon providing the appropriate written
          notification, holders pay the exercise price and receive the stock. Stock
          delivered under the option plan comes from the issuance of new shares.
          For the
          year ended December 31, 2006, US$ 3.7 million was received on exercise
          of
          options under the plan. The intrinsic value of awards exercised during
          2006 was
          US$ 8.2 million (2005: US$ 24.7 million, 2004: US$ 12.2 million).
  *Page
            137*
 *Table
            of Contents*


**CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**


The
      charge for stock-based compensation in our Consolidated Statements of Operations
      is as follows:




**For
                  the Years Ended December 31,****2006**
              
              **2005**
              
              **2004**Stock-based
                  compensation charged under FIN 44
              
              $
              -
              
              $
              918
              
              $
              9,046Stock-based
                  compensation charged under FAS 123(R) (2005 and 2004: FAS
                  123)
              
              
              3,575
              
              
              2,209
              
              
              1,125**Total
                  stock-based compensation**
              
              **$**
              **3,575**
              
              **$**
              **3,127**
              
              **$**
              **10,171**


The
        charge for stock based compensation cost related to awards that are not yet
        exercisable, and which have not yet been recognized in our Consolidated
        Statements of Operations at December 31, 2006 was US$ 14.8 million and the
        weighted average period over which it will be recognized is 4.15
        years.
  *Stock-based
        compensation under FIN 44*
 
 For
        certain options issued in 1998 and 2000, our stock-based compensation charge
        was
        calculated according to FASB Interpretation 44, “Accounting for Certain
        Transactions involving Stock Compensation” (“FIN 44”). This requires that
        compensation costs for modified or variable 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 December 15, 2005. The amounts charged have been
        presented following the conclusion of our review of historic stock option
        grants
        (for further information see Note 3, “Summary of Significant Accounting
        Polices”).




*Stock-based
        compensation under FAS 123(R)*





Under
      the
      provisions of FAS 123(R), the fair value of stock options that are expected
      to
      vest is estimated on the grant date using the Black-Scholes option-pricing
      model
      and recognized ratably over the requisite servicing period. The calculation
      of
      compensation cost requires the use of several significant assumptions which
      are
      calculated as follows:




·
              *Expected
                  forfeitures.*FAS
                  123(R) requires that compensation cost only be calculated on those
                  instruments that are expected to vest in the future. The number
                  of options
                  that actually vest will usually differ from the total number issued
                  because employees forfeit options when they do not meet the service
                  conditions stipulated in the agreement. Since all forfeitures result
                  from
                  failure to meet service conditions, we have calculated the forfeiture
                  rate
                  by reference to the historical employee turnover rate.
 ·
              *Expected
                  volatility.*Expected
                  volatility has been calculated based on an analysis of the historical
                  stock price volatility of the company and its peers for the preceeding
                  6.5
                  years.
 ·
              *Expected
                  term.*The
                  expected term of options granted has been calculated following
                  the
                  “shortcut” method as outlined in section D 2, question 6 of SEC Staff
                  Accounting Bulletin No.107“Share
                  Based Compensation” because our options meet the definition of “plain
                  vanilla” therein.




*Page
          138*
 *Table
          of Contents*


**CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**


The
      weighted average assumptions used in the Black-Scholes model for grants made
      in
      the years ending December 31, 2006, 2005 and 2004 were as follows:





**For
                the Years Ended December 31,****2006**
            
            **2005**
            
            **2004**Risk-free
                interest rate
            
            
            4.76
            %
            
            4.00
            %
            
            3.50
            %Expected
                term (years)
            
            
            5.89
            
            
            6.25
            
            
            6.00Expected
                volatility
            
            
            43.44
            %
            
            50.56
            %
            
            51.50
            %Dividend
                yield
            
            
            0
            %
            
            0
            %
            
            0
            %Weighted-average
                fair value
            
            $
            31.67
            
            $
            26.29
            
            $
            12.51





The
      following table summarizes information about stock option activity during 2006,
      2005, and 2004:





**2006**
            
            **2005**
            
            **2004****Shares**
            
            **Weighted
                Average Exercise Price (US$)**
            
            **Shares**
            
            **Weighted
                Average Exercise Price (US$)**
            
            **Shares**
            
            **Weighted
                Average Exercise Price (US$)****Outstanding
                at beginning of year**
            
            
            **1,118,275**
            
            **$**
            **22.23**
            
            
            **1,705,017**
            
            **$**
            **12.89**
            
            
            **2,527,717**
            
            **$**
            **7.10**Awards
                granted
            
            
            388,500
            
            
            65.19
            
            
            194,500
            
            
            49.23
            
            
            419,500
            
            
            23.84Awards
                exercised
            
            
            (195,450
            )
            
            18.54
            
            
            (685,359
            )
            
            8.08
            
            
            (1,083,634
            )
            
            2.74Awards
                forfeited
            
            
            (22,750
            )
            
            40.38
            
            
            (95,883
            )
            
            11.90
            
            
            (158,566
            )
            
            19.11**Outstanding
                at end of year**
            
            
            **1,288,575**
            
            **$**
            **35.51**
            
            
            **1,118,275**
            
            **$**
            **22.23**
            
            
            **1,705,017**
            
            **$**
            **12.89**





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, 2006:


**Options
                  outstanding****Range
                  of exercise prices**
              
              **Shares**
              
              **Average
                  remaining contractual life (years)**
              
              **Aggregate
                  intrinsic value (US$)**
              
              **Weighted
                  average exercise price (US$)**$1.00-9.99
              
              
              153,800
              
              
              5.20
              
              $
              10,471
              
              $
              1.92$10.00-19.99
              
              
              345,400
              
              
              6.80
              
              
              18,842
              
              
              15.45$20.00-29.99
              
              
              138,000
              
              
              6.45
              
              
              6,518
              
              
              22.76$30.00-39.99
              
              
              75,375
              
              
              7.89
              
              
              2,793
              
              
              32.94$40.00-49.99
              
              
              122,000
              
              
              8.42
              
              
              3,098
              
              
              44.61$50.00-59.99
              
              
              179,500
              
              
              9.22
              
              
              2,219
              
              
              57.64$60.00-69.99
              
              
              98,500
              
              
              5.27
              
              
              863
              
              
              61.24$70.00-79.99
              
              
              176,000
              
              
              9.95
              
              
              (361
              )
              
              72.05**Total**
              
              
              **1,288,575**
              
              
              **7.45**
              
              $
              **44,443**
              
              **$**
              **35.51****Expected
                  to vest**
              
              
              **699,623**
              
              
              **8.08**
              
              **$**
              **15,562**
              
              **$**
              **47.76**
  *Page
            139*
 *Table
            of Contents*
 **CENTRAL
          EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
          amounts in US$ 000’s, except share data)**
  The
        following table summarizes information about stock options exercisable at
        December 31, 2006:
 
 **Options
                  exercisable****Range
                  of exercise prices**
              
              **Shares**
              
              **Average
                  remaining contractual life (years)**
              
              **Aggregate
                  intrinsic value (US$)**
              
              **Weighted
                  average exercise price (US$)**$1.00-9.99
              
              
              141,000
              
              
              5.19
              
              $
              9,599
              
              $
              1.92$10.00-19.99
              
              
              223,400
              
              
              6.73
              
              
              12,401
              
              
              14.49$20.00-29.99
              
              
              78,667
              
              
              5.71
              
              
              3,703
              
              
              22.94$30.00-39.99
              
              
              38,958
              
              
              7.89
              
              
              1,444
              
              
              32.92$40.00-49.99
              
              
              30,500
              
              
              8.42
              
              
              774
              
              
              44.61$50.00-59.99
              
              
              16,375
              
              
              8.97
              
              
              213
              
              
              57.00$60.00-69.99
              
              
              -
              
              
              -
              
              
              -
              
              
              -$70.00-79.99
              
              
              -
              
              
              -
              
              
              -
              
              
              -**Total**
              
              
              **528,900**
              
              
              **6.42**
              
              **$**
              **28,134**
              
              **$**
              **16.81**


The
      impact of adopting FAS 123(R) for the first time on January 1, 2006 was not
      material to our Consolidated Statements of Operations because we had already
      been recognizing compensation cost under FAS 123.




**18.
      EARNINGS PER SHARE**





The
      components of basic and diluted earnings per share are as follows:





**For
                the Years Ended December 31,****2006**
            
            **2005**
            
            **2004****Net
                income available for common shareholders**
            
            **$**
            **20,424**
            
            **$**
            **42,322**
            
            **$**
            **18,462****Weighted
                average outstanding shares of common stock (000’s)**
            
            
            **40,027**
            
            
            **34,664**
            
            
            **27,871**Dilutive
                effect of employee stock options (000’s)
            
            
            573
            
            
            766
            
            
            1,229**Common
                stock and common stock equivalents**
            
            **$**
            **40,600**
            
            **$**
            **35,430**
            
            **$**
            **29,100****Earnings
                per share:**Basic
            
            $
            0.51
            
            $
            1.22
            
            $
            0.66Diluted
            
            $
            0.50
            
            $
            1.19
            
            $
            0.63




At
        December 31, 2006, 319,435 (2005: 194,500, 2004: 60,543) 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.




**19.
      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 for each year
      include our operations in the Slovak Republic which were not consolidated prior
      to January 23, 2006. Segment Net Revenues and Segment EBITDA for the year ended
      December 31, 2004 also include Radio Pro in Romania, which was not consolidated.





*Page
          140*
 *Table
          of Contents*


**CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**


We
      acquired our Croatia operations on July 16, 2004; therefore, comparable 2004
      financial information is included from the date of acquisition only. We acquired
      our Czech Republic operations on May 2, 2005; therefore, 2005 results are from
      the date of acquisition.





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 and comprehensive
                income;




·
            stock-based
                compensation charges;




·
            foreign
                currency exchange gains and losses;




·
            change
                in fair value of derivatives; and




·
            certain
                unusual or infrequent items (e.g., extraordinary gains and losses,
                impairments on assets or investments, gain on sale of unconsolidated
                affiliates).





*Page
            141*
 *Table
            of Contents*





**CENTRAL
      EUROPEAN MEDIA ENTERPRISES LTD.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Tabular
      amounts in US$ 000’s, except share data)**





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 results for the years ending December 31, 2006,
      2005
      and 2004 for consolidated statement of operations data and as at December 31,
      2006 and 2005 for balance sheet data:




**SEGMENT
                FINANCIAL INFORMATION****For
                the Years Ended December 31,****Segment
                Net Revenues (1)**
            
            **Segment
                EBITDA****2006**
            
            **2005**
            
            **2004**
            
            **2006**
            
            **2005**
            
            **2004****Country**Croatia
                (NOVA TV) (2)
            
            $
            22,310
            
            $
            22,030
            
            $
            9,757
            
            $
            (14,413
            )
            $
            (15,866
            )
            $
            (3,756
            )Czech
                Republic (TV NOVA, GALAXIE SPORT) (3)
            
            
            208,387
            
            
            154,010
            
            
            -
            
            
            100,488
            
            
            71,544
            
            
            -Romania
                (4)
            
            
            148,616
            
            
            103,321
            
            
            76,463
            
            
            65,860
            
            
            43,803
            
            
            25,198Slovak
                Republic (MARKIZA TV)
            
            
            73,420
            
            
            64,266
            
            
            61,576
            
            
            20,805
            
            
            17,240
            
            
            18,975Slovenia
                (POP TV and KANAL A)
            
            
            54,534
            
            
            48,770
            
            
            45,388
            
            
            19,842
            
            
            19,337
            
            
            19,077Ukraine
                (STUDIO 1+1)
            
            
            96,413
            
            
            72,847
            
            
            53,351
            
            
            29,973
            
            
            21,803
            
            
            14,729Ukraine
                (KINO, CITI) (5)
            
            
            1,195
            
            
            **-**
            
            
            **-**
            
            
            (3,713
            )
            
            **-**
            
            
            **-****Total
                Segment Data**
            
            **$**
            **604,875**
            
            **$**
            **465,244**
            
            **$**
            **246,535**
            
            **$**
            **218,842**
            
            **$**
            **157,861**
            
            **$**
            **74,223****Reconciliation
                to Consolidated Statement of Operations and Comprehensive
                Income:****Consolidated
                Net Revenues / Income before provision for income taxes, minority
                interest, equity in income of unconsolidated affiliates and discontinued
                operations**
            
            **$**
            **603,115**
            
            **$**
            **400,978**
            
            **$**
            **182,339**
            
            **$**
            **48,402**
            
            **$**
            **60,196**
            
            **$**
            **20,514**Corporate
                operating costs
            
            
            -
            
            
            -
            
            
            -
            
            
            34,104
            
            
            25,547
            
            
            29,254Impairment
                charge
            
            
            -
            
            
            -
            
            
            -
            
            
            748
            
            
            35,331
            
            
            -Unconsolidated
                equity affiliates (6)
            
            
            1,760
            
            
            64,266
            
            
            64,196
            
            
            (1,292
            )
            
            17,240
            
            
            19,404Depreciation
                of station property, plant & equipment
            
            
            -
            
            
            -
            
            
            -
            
            
            25,795
            
            
            16,367
            
            
            6,429Amortization
                of broadcast licenses and other intangibles
            
            
            -
            
            
            
            
            
            
            
            
            18,813
            
            
            11,180
            
            
            465Interest
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            (6,365
            )
            
            (4,124
            )
            
            (4,318
            )Interest
                expense
            
            
            -
            
            
            -
            
            
            -
            
            
            44,228
            
            
            29,387
            
            
            1,203Change
                in fair value of derivatives
            
            
            -
            
            
            -
            
            
            -
            
            
            12,539
            
            
            -
            
            
            -Foreign
                currency exchange loss / (gain), net
            
            
            -
            
            
            -
            
            
            -
            
            
            44,908
            
            
            (37,968
            )
            
            574Other
                (income) / expense
            
            
            -
            
            
            -
            
            
            -
            
            
            (3,038
            )
            
            4,705
            
            
            698**Total
                Segment Data**
            
            **$**
            **604,875**
            
            **$**
            **465,244**
            
            **$**
            **246,535**
            
            **$**
            **218,842**
            
            **$**
            **157,861**
            
            **$**
            **74,223**




(1)
      All
      net revenues are derived from external customers. There are no inter-segmental
      revenues.




(2)
      We
      acquired our Croatia operations in July 2004.




(3)
We
      acquired our TV NOVA (Czech Republic) operations in May 2005 and GALAXIE SPORT
      in September 2005.




(4)
      Romanian networks are PRO TV, PRO CINEMA, ACASA and PRO TV INTERNATIONAL for
      the
      years ended December 31, 2006 and 2005 and PRO TV, PRO CINEMA, ACASA, PRO TV
      INTERNATIONAL, PRO FM and INFOPRO for the year ended December 31,
      2004.




(5)
      We
      acquired our Ukraine (KINO, CITI) operations in January 2006.




(6)
      Unconsolidated equity affiliates are STS and Markiza in the Slovak Republic
      and
      Radio Pro in Romania.




*Page
            142*
 *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:**
            
            **2006**
            
            **2005**
            
            **2004**Croatia
            
            $
            2,920
            
            $
            2,951
            
            $
            1,173Czech
                Republic
            
            
            24,274
            
            
            15,960
            
            
            -Romania
            
            
            5,811
            
            
            3,829
            
            
            2,843Slovak
                Republic
            
            
            4,070
            
            
            2,599
            
            
            1,735Slovenia
            
            
            4,004
            
            
            2,947
            
            
            1,654Ukraine
                (STUDIO 1+1)
            
            
            3,216
            
            
            1,860
            
            
            1,224Ukraine
                (KINO, CITI)
            
            
            490
            
            
            **-**
            
            
            **-****Total**
            
            **$**
            **44,785**
            
            **$**
            **30,146**
            
            **$**
            **8,629****Reconciliation
                to Consolidated Statement of Operations:**Unconsolidated
                equity affiliates
            
            
            (177
            )
            
            (2,599
            )
            
            (1,735
            )**Total
                consolidated depreciation and amortization**
            
            
            **44,608**
            
            
            **27,547**
            
            
            **6,894**Represented
                as follows:Depreciation
                of station property, plant & equipment
            
            
            25,795
            
            
            16,367
            
            
            6,429Amortization
                of broadcast licenses and other intangibles
            
            
            18,813
            
            
            11,180
            
            
            465




**As
                at December 31,****Total
                assets (1):**
            
            **2006**
            
            **2005**
            
            **2004**Croatia
            
            $
            30,394
            
            $
            25,017
            
            $
            52,905Czech
                Republic
            
            
            1,200,894
            
            
            1,018,253
            
            
            -Romania
            
            
            206,850
            
            
            123,699
            
            
            79,622Slovak
                Republic
            
            
            86,872
            
            
            41,873
            
            
            42,467Slovenia
            
            
            67,919
            
            
            62,926
            
            
            64,044Ukraine
                (STUDIO 1+1)
            
            
            75,020
            
            
            49,438
            
            
            32,706Ukraine
                (KINO, CITI)
            
            
            13,293
            
            
            **-**
            
            
            **-****Total
                segment assets**
            
            **$**
            **1,681,242**
            
            **$**
            **1,321,206**
            
            **$**
            **271,744****Reconciliation
                to Consolidated Balance Sheet:**Unconsolidated
                equity affiliates
            
            
            -
            
            
            (41,873
            )
            
            (42,467
            )Corporate
            
            
            137,758
            
            
            109,517
            
            
            215,362**Total
                assets**
            
            **$**
            **1,819,000**
            
            **$**
            **1,388,850**
            
            **$**
            **444,639**


(1)
      Segment assets exclude any inter-company investments, loans, payables and
      receivables.




*Page
            143*
 *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):**
            
            **2006**
            
            **2005**
            
            **2004**Croatia
            
            $
            6,804
            
            $
            6,264
            
            $
            6,775Czech
                Republic
            
            
            28,002
            
            
            16,027
            
            
            -Romania
            
            
            32,312
            
            
            13,154
            
            
            9,081Slovak
                Republic
            
            
            19,498
            
            
            14,245
            
            
            12,818Slovenia
            
            
            15,595
            
            
            15,523
            
            
            11,834Ukraine
                (STUDIO 1+1)
            
            
            7,965
            
            
            7,127
            
            
            3,153Ukraine
                (KINO, CITI)
            
            
            3,674
            
            
            **-**
            
            
            **-****Total
                long-lived assets**
            
            **$**
            **113,850**
            
            **$**
            **72,340**
            
            **$**
            **43,661****Reconciliation
                to Consolidated Balance Sheet:**Unconsolidated
                equity affiliates
            
            
            -
            
            
            (14,245
            )
            
            (12,818
            )Corporate
            
            
            1,955
            
            
            802
            
            
            705**Total
                Long-lived assets**
            
            **$**
            **115,805**
            
            **$**
            **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.




**20.
      DISCONTINUED OPERATIONS**




**For
                the Years Ended December 31,****2006**
            
            **2005**
            
            **2004**Arbitration
                related costs
            
            $
            -
            
            $
            164
            
            $
            146**Income
                on disposal of discontinued operations**
            
            
            **-**
            
            
            **164**
            
            
            **146**Tax
                on disposal of discontinued operations
            
            
            (4,863
            )
            
            (677
            )
            
            2,378**Net
                income/(loss) from discontinued operations**
            
            **$**
            **(4,863**
            **)**
            **$**
            **(513**
            **)**
            **$**
            **2,524**





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 Republic
      operations and the award income and related legal expenses have therefore all
      been accounted for as discontinued operations for all periods
      presented.





On
      October 23, 2003 we sold our 93.2% participation interest in CNTS, our former
      Czech Republic 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.





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 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 agreed to a minimum payment of US$ 2.0 million
      per year for the years 2004 - 2008 and US$ 1.0 million for 2009.





*Page
            144*
 *Table
            of Contents*


**CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**


We
      have
      re-evaluated our forecasts of the amount of taxable income we expect to earn
      in
      the Netherlands in the period to 2009. As the tax payable on this income is
      lower than the minimum amounts agreed with the Dutch tax authorities we have
      provided for the shortfall. In our consolidated statement of operations, we
      recognized a charge of US$ 4.9 million through discontinued operations for
      the
      year ended December 31, 2006 (2005: US$ 0.7 million, 2004: a benefit of US$
      2.4
      million).





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.





The
      settlement with the Dutch tax authorities has also resulted in a deductible
      temporary difference in the form of a ruling deficit against which a full
      valuation allowance has been recorded.





**21.
      COMMITMENTS AND CONTINGENCIES**





*Commitments*





*a)* *Station
      Programming Rights Agreements*





At
      December 31, 2006, we had the following commitments in respect of future
      programming, including contracts signed with license periods starting after
      the
      balance sheet date:





**December
                31, 2006**Croatia
            
            $
            9,916Czech
                Republic
            
            
            34,657Romania
            
            
            19,426Slovak
                Republic
            
            
            10,427Slovenia
            
            
            5,589Ukraine
                (STUDIO
                1+1)
            
            
            16,859Ukraine
                (KINO, CITI)
            
            
            1,094**Total**
            
            **$**
            **97,968**





Of
        the
        US$ 98.0 million in the table above, US$ 89.6 million is payable within one
        year.


*Page
            145*
 *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, 2006, 2005, and 2004 we incurred aggregate
      rent
      on all facilities of US$ 9.7 million, US$ 5.9 million and US$ 1.6 million.
      Future minimum operating lease payments at December 31, 2006 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, 2006**2007
            
            $
            3,9832008
            
            
            1,4272009
            
            
            1,1402010
            
            
            7852011
            
            
            3942012
                and thereafter
            
            
            -**Total**
            
            **$**
            **7,729**





*c)* *Acquisition
      of minority shareholdings*





Mr.
      Sarbu
      has the right to sell his 10.0% 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
      1.0% interest sold. A put option of 5.21% of this 10.0% shareholding is
      exercisable from November 12, 2009 for a twenty-year period thereafter. Mr.
      Sarbu’s right to put the remaining 4.79% is also exercisable from November 12,
      2009, provided that we have not enforced a pledge over this 4.79% shareholding
      which Mr. Sarbu granted as security for our right to put our 10.0% in Media
      Pro.
      As at December
      31 ,
      2006,
      we consider the fair value of this put option to be approximately US$
      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 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, 2006 we provided US$ 5.5 million (US$ 3.0 million in non-current
      liabilities and US$ 2.5 million in current liabilities) and 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) 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 recognized
      a
      charge of US$ 4.9 million (2005: US$ 0.7 million, 2004:
      a benefit of US$ 2.4 million) through discontinued operations in our
      Consolidated Statement of Operations for the year ended December 31,
      2006.





*Czech
      Republic - Factoring of Trade Receivables*





CET
      21
      has a working capital credit facility of CZK 250 million (approximately US$
      12.0
      million) with Ceska Sporitelna, a.s. This facility is secured by a pledge of
      receivables under the factoring agreement with Factoring Ceska Sporitelna.





The
      transfer 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 we retain the
      risks of ownership.





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        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**


*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*





*Global
      Communications Dispute* *s*





On
      October 29, 2004, OK filed suit against Global Communications d.o.o. claiming
      approximately HRK 53.0 million (approximately US$ 9.5 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 pursuant
      to an agreement dated April 10, 2001 (the “Global Agreement”) .
      Global
      Communications and GRP Media were functionally managing the advertising
      inventory of Nova TV (Croatia). On December 31, 2003, Global Communications
      entered into a reconciliation 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 68.0 million (approximately US$ 12.2 million), claiming that the AGB data
      is
      unreliable and that it is entitled to additional seconds under the previous
      agreement. The lower commercial court issued a judgment on July 12, 2006 in
      favor of Global Communications for the full amount of the counterclaim, and
      we
      have appealed this decision on the
      basis of false and inadequate disclosure, wrongful application of substantive
      law and procedural error .
      Global
      Communications separately brought a claim against Nova TV (Croatia), on the
      same
      basis as the OK counterclaim. Both Global Communications and Nova TV (Croatia)
      requested the court to join this claim with the OK counterclaim but this request
      was denied. The lower commercial court issued a judgment on August 1, 2006
      in
      favor of Global Communications for the full amount of the claim, after having
      denied submission of evidence supporting our defense. We have also appealed
      this
      decision.





On
      January 25, 2007, Nova TV (Croatia) filed suit against Global Communications.
      The facts underlying the claim are substantially the same as those of the
      abovementioned claims, but Nova TV (Croatia) is claiming that the Global
      Agreement and the two reconciliation agreements dated April 30, 2004 and June
      30, 2004 (the “Reconciliation Agreements”), by which OK acknowledged the number
      of seconds of advertising time to which Global Communications was purportedly
      entitled, should be declared null and void under Article 141 of the Croatian
      Obligations Act. This provision is intended to protect a contractual party
      which
      has entered into unfair bargaining terms due to its dependency on the other
      contractual party. Global Communications, OK and Nova TV (Croatia) were all
      related parties (controlled by Ivan Caleta) and the contractual terms provided
      for the provision of 1,340,280 seconds by OK to Global Communications in
      exchange for certain transmitters. These seconds were valued at an aggregate
      of
      DEM 5 million (or DEM 3.73 per second; HRK 3.91 per second at the time) whereas
      the rate card price was DEM 97.18 or HRK 380.00 per second (i.e. a price that
      was 26 times higher). Other clients (unrelated parties) sampled from this period
      were paying between 382.50 HRK to 491.85 HRK per second. Nova TV (Croatia)
      is
      arguing for voidance of this contract because of its unconscionable terms which
      were detrimental to OK and Nova TV (Croatia) and beneficial solely to Global
      Communications (which, in its capacity as an advertising agency, on-sold these
      seconds to its clients at market rates, thereby reaping an extraordinary
      profit). Nova
      TV
      (Croatia) is further claiming restitution for advertising seconds appropriated
      by Global Communications under the Global Agreement. The restitution amount
      is
      HRK 586.5 million (approximately US$ 105.1 million). Given
      that the resolution of the issues posed by this lawsuit constitutes a
      preliminary question on which appellate review of the two lawsuits previously
      mentioned above should depend, we have requested suspension of those two reviews
      until this question has been finally adjudicated.





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        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**


*Former
      Shareholder Dispute*





On
      July
      21, 2005, Narval A.M. d.o.o. (a
      company wholly-owned by Ivan Caleta) ,
      Studio
      Millenium d.o.o. and Richard Anthony Sheldon, three of the former shareholders
      of OK, filed suit against Nova TV (Croatia) for rescission of the sale and
      purchase contract pursuant to which they sold 75% of OK to Nova TV (Croatia)
      in
      July 2004 (the “OK Sale Contract”). Nova TV (Croatia) acquired OK immediately
      prior to our acquiring Nova TV (Croatia). The provisions of the OK Sale Contract
      required Nova TV (Croatia) to make payment to the four shareholders of OK by
      September 1, 2004, upon receipt of appropriate invoices and bank account
      details. The fourth shareholder, Pitos d.o.o., issued an invoice that was duly
      received by Nova TV (Croatia) and payment was made thereunder. The other three
      shareholders claim that they hand-delivered a joint invoice to one of the former
      directors of Nova TV (Croatia), but we continue to dispute this. Under the
      Croatian Obligations Act, one party to a contract who has performed may
      unilaterally rescind a contract if the other party fails to perform after
      receipt of a written warning. On May 24, 2006, the lower commercial court
      decided in favor of the plaintiffs to rescind the OK Sale Contract and ordered
      the defendant to pay court costs. We have appealed the decision on the basis
      that evidence supporting our position was not allowed to be presented to the
      court and we
      continue to challenge the validity of the power of attorney purportedly issued
      by Richard Anthony Sheldon (a resident of the United Kingdom) to legal counsel
      representing the other plaintiffs .





On
      August
      28, 2006, we received a lower court decision of an injunction against us
      (decided without a hearing) that, inter alia, prohibits a sale or encumbrance
      of
      75% of the shares of OK. Although we appealed this decision, the appellate
      commercial court upheld the lower court’s judgment on November 21, 2006. On
      November 6, 2006, we were notified of a request for a further injunction that
      would, inter alia, prohibit us from taking any actions to decrease the value
      of
      OK and require the management of OK to report to a delegate of the former
      shareholders. We have unsuccessfully sought the removal of the presiding judge,
      Raul Dubravec (who also presided over the Global Communications lawsuit against
      Nova TV (Croatia)). Mr. Dubravec ruled against us on December 18, 2006,
      requiring imposition of a temporary director for OK, which is not a remedy
      available under Croatian law under the facts of this action. Further, the
      temporary director who has been appointed is one of the former directors of
      OK
      who countersigned the Reconciliation Agreements and is an associate of Ivan
      Caleta. We have appealed this decision. While we continue to vigorously contest
      all these actions in the face of serious concerns as to the impartiality of
      the
      Croatian judicial system, we do not expect our Croatia operations to suffer
      any
      significant loss or disruption as a consequence of these actions.





*Czech
      Republic*





*Antimonopoly
      Office*





The
      investigation of the Office for the Protection of Economic Competition of the
      Czech Republic was terminated in December 2006, and CET 21 received written
      confirmation from the Office that TV Nova’s current sales contracts and
      conditions of advertising are in compliance with Czech antimonopoly
      legislation.





*Romania*





There
      are
      no significant outstanding legal actions that relate to our business in
      Romania.





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        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 B.V. In her claim against MMTV, Mrs. Meglic
      is seeking an amount equal to SIT 190.0 million (approximately US$ 1.0 million)
      for repayment of monies advanced to MMTV from 1992 to 1994 (in the amount of
      approximately SIT 29.0 million (approximately US$ 0.2 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 190.0 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 Kolomoisky 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”. Igor Kolomoisky is attempting to enforce what he alleges was a binding oral agreement
      with Alexander Rodnyansky to purchase the latter’s 70.0% interest in Studio 1+1
      for consideration of US$ 70.0 million and to transfer that interest to Igor Kolomoisky on receipt of a prepayment of US$ 2.0 million. The lawsuit arises
      from abortive negotiations among Igor Kolomoisky, Alexander Rodnyansky and Boris Fuchsmann for the acquisition by Igor Kolomoisky of the totality of interests in the Studio 1+1 Group held by
      Alexander Rodnyansky and Boris Fuchsmann, subject to Igor Kolomoisky assuming all of their obligations under our existing partnership
      arrangements. On
      August
      16, 2006, the district court in Kiev ruled in favor of Igor Kolomoisky and
      found
      that he is entitled to the 70% interest in Studio 1+1 held by Alexander Rodnyansky.
      Our Ukrainian affiliate Intermedia and Alexander Rodnyansky filed appeals against this decision.


At
        a hearing on October 31, 2006, the appellate court overturned the decision
        of
        the court of first instance and denied Igor Kolomoisky’s claim that he is
        entitled to a 70% interest in Studio 1+1 held by Alexander Rodnyansky. On
        November 3, 2006, Igor Kolomoisky filed an appeal with the Supreme Court
        of
        Ukraine, the highest court in Ukraine. At a hearing on February 28, 2007,
        the
        Supreme Court rejected this appeal. As a result, Igor Kolomoisky no longer
        has a
        basis for claiming this ownership right in Studio 1+1 on the same
        grounds.




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
      came into force in March 2006. Our partners have acknowledged an obligation
      to
      restructure upon the entry into force of these amendments. On September 5,
      2006,
      our partners entered into certain agreements to implement the restructuring.
      Following the completion of the transactions reflected in these agreements
      and
      the registration of the charter of Studio 1+1 amended to reflect the new
      ownership of Studio 1+1, we will own 60% of Studio 1+1. Upon successful
      completion of the restructuring, we will terminate the proceedings initiated
      against our partners in December 2005.





Because
      of ongoing ancillary litigation to enjoin transactions related to the ownership
      of Studio 1+1 that have been initiated by Igor Kolomoisky, by our partners
      and
      by third parties who are not direct parties in interest to legal proceedings
      initiated by Igor Kolomoisky against Alexander Rodnyansky, the state registrar in the district administration in Kiev where
      such charter amendments are registered is presently enjoined from registering
      any amendments to the charter of Studio 1+1. Our partners are no longer seeking
      to enforce the injunction filed at their initiative; we expect that this
      injunction will be removed once the case file in this matter has been
      transferred to the appellate court and the appeal filed by Igor Kolomoisky
      in
      respect of this injunction has been scheduled.





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        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**


*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.





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. The
                GALAXIE
                SPORT license expires in March 2014.Romania
            Licenses
                expire on dates ranging from March 2007 to February 2016.****Slovak
                Republic
            The
                license of MARKIZA TV in the Slovak Republic expires in September
                2019.Slovenia
            The
                licenses of POP TV and KANAL A expire in August 2012.Ukraine
            The
                15-hour prime time and off prime time license of STUDIO 1+1 expires
                in
                December 2016. The license to broadcast for the remaining nine hours
                in
                off prime expires in August 2014. Licenses held by Ukrpromtorg expire
                on
                dates ranging from November 2008 to July
                2016.





*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, 2006.




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 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**


**2** **2.
      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.




**Related
      Party Transactions**





***Croatia***





We
      contract with Concorde Media Beteiligungsgesellschaft mbH for the purchase
      of
      program rights. This is a company connected to Dr. Herbert Kloiber, a Director
      of Central European Media Enterprises Ltd. Our total purchases from Concorde
      Media Beteiligungsgesellschaft mbH during 2006 were US$ 0.3 million (2005:
      US$
      nil, 2004: US$ nil).





***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 2006 were
      approximately US$ 23.4 million (2005: 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 2006 were approximately
      US$ 2.5 million (2005: US$ 0.4 million, 2004: US$ 0.1 million).  At
      December 31, 2006, companies connected to Mr. Sarbu had an outstanding balance
      due to us of US$ 2.1 million (2005: US$ 1.4 million). At December 31, 2006,
      companies related to Mr. Sarbu had an outstanding balance due to them of US$
      0.8
      million (2005: US$ 0.5 million, 2004: US$ 0.6 million).




In
          addition, we have purchased land with a value of US$ 8.5 million (as determined
          by an independent appraisal) (EUR 6.5 million) from a company controlled
          by
          Adrian Sarbu in December 2006. The investment represents an opportunity
          to
          secure suitable accommodation for Pro TV at a time when the real estate
          market
          is experiencing significant growth. It will enable future growth in a location
          housing both office space and the newly built digital studios. At December
          31,
          2006, US$ 8.3 million was recorded as a payable to this company.


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 Item 8, Note 4, “Acquisitions and Disposals, Romania”). 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 Item 8, Note 4, “Acquisitions and Disposals, Romania”). Under
        a put option agreement with Mr. Sarbu entered into in July 2004, Mr. Sarbu
        has
        the right to sell his remaining shareholding in Pro TV and MPI to us at a
        price,
        to 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
        November 12, 2009 for a twenty-year period thereafter.
 
 On
        March
        29, 2004, we acquired an additional 14% share in each of our consolidated
        subsidiaries MPI and Pro TV from a company controlled by Mr. Sarbu, for purchase
        consideration of US$ 20.3 million.
 
 *Page
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 **NOTES
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 **(Tabular
          amounts in US$ 000’s, except share data)**
 We
        now
        own a 90% voting and economic interest in Pro TV and MPI and a 75% voting
        and
        economic interest in Media Vision.
 Until
          March 29, 2004, we held a 44.0% interest in Radio Pro, a radio broadcaster
          in
          Romania. In order to comply with Romanian Media Council regulations following
          our acquisition of an additional 14.0% interest in MPI and Pro TV, it was
          necessary to reduce our holding in Radio Pro to 20.0%, which we achieved
          by
          selling 24.0% of our stake to Mr. Sarbu for consideration of US$ 0.04 million
          with a resulting loss on disposal of US$ 0.02 million. The consideration
          was
          determined by an independent valuation of Radio Pro.
  On
          August
          11, 2006 we acquired a 10.0% interest in Media Pro. The remaining 90.0%
          of Media
          Pro is held by Mr. Sarbu. In consideration for the purchase of this interest,
          we
          paid EUR 8.0 million (approximately US$ 10.1 million at the date of acquisition)
          in cash and transferred our existing 20.0% investment in Radio Pro. As
          a result
          of this transaction, we recorded a gain of US$ 6.2 million on
          disposal.


We
        have
        the right to put our investment in Media Pro to Mr. Sarbu for a three-month
        period from August 12, 2009 at a price equal to the greater of EUR 13.0 million
        (approximately US$ 16.5 million) and the value of our investment, as determined
        by an independent valuer. This put option is secured by a pledge of a 4.79%
        shareholding in Pro TV held by Mr. Sarbu. For more information, see Item
        8, Note
        4, “Acquisitions and Disposals, Romania”.
 
 We
        received contractual management fees from Radio Pro. The value of these fees
        was
        US$ 0.2 million in 2006 and US$ 0.2 million in each of 2005 and 2004.




***Slovenia***




We
      have
      no related party transactions in Slovenia during 2006. 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***




STS,
      our
      former operating company in the Slovak Republic that was merged into Markiza
      on
      January 1, 2007, had 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 were for the production of programs
      that required specialist studios and specific broadcast rights. Total purchases
      from these companies in 2006 amounted to US$ 0.8 million (2005: US$ 0.5 million,
      2004: US$ 0.4 million).


STS
        also
        purchased advertising space relating to print media from companies connected
        with Mr Kovacik in 2006 with a value of US$ 1.5 million during 2006.
  STS
        also
        sold advertising time through an advertising agency controlled by Jan Kovacik.
        The total 2006 advertising sales of STS placed through Mr. Kovacik’s advertising
        agency were US$ 0.4 million (2005: US$ 0.2 million, 2004: US$ 1.9 million),
        and
        the total amount due to STS from this agency at December 31, 2006 was US$
        0.1
        million (2005: US$ nil, 2004: US$ 0.4 million).
  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 time 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%.




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 **NOTES
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 **(Tabular
        amounts in US$ 000’s, except share data)**


***Ukraine***





Prior
      to
      2006, we contracted with Contact Film Studios for the production of certain
      television programs. This company was connected to Boris Fuchsmann, the 40%
      shareholder in 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 2006 were US$ nil (2005: US$ 0.1 million, 2004: US$ 0.1
      million).





We
      contract with Vabank for the provision of banking services. This is a bank
      connected to Boris Fuchsmann through his presence on the bank’s Supervisory
      Board. Our balance on the current account with the bank was US$ 9.4million
      as of
      December 31, 2006 (2005: US$ 5.0 million). Commission and other expenses
      incurred by us in respect of the banking services rendered by Vabank amount
      to
      US$ 0.2 million for the twelve months ended December 31, 2006. Interest of
      US$
      0.4 million was earned on funds on deposit with Vabank.





Innova
      Marketing is a company 100% owned and headed by Boris Fuchsmann. Innova
      Marketing renders consulting services to Innova. The amount of such services
      provided in 2006 was US$ 0.1 million (2005: US$ 0.1 million).





In
      1998
      we made a loan to Mr. Fuchsmann with a total balance outstanding at December
      31,
      2006 of US$ 2.2 million (2005: US$ 2.5 million). The interest rate on this
      loan
      is US$ three-month 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 2006 were US$ 0.1 million (2005: US$ 0.2 million,
      2004: US$ 0.1 million). In addition, we recorded revenue of US$ 0.8 million
      during 2006 from CTC relating to production of programming.




In
      addition to the above, we contract with Sablock, a company connected to Mr.
      Rodnyansky, for license rights costs. Our total purchases during 2006 were
      US$
      4.0 million. At December 31, 2006, we have recorded a liability to Sablock
      of
      US$ 1.3 million.


We
          contract with Kino-Kolo, a magazine that is 75% owned by Alexander Rodnyansky,
          for advertising Studio 1+1. Purchases of services from Kino-Kolo in 2006
          amounted to US$ 0.1 million (2005: US$ 0.1).


We
      purchase legal and consulting services from LLC Legal Company Varlamov and
      Partners, a company headed by the Deputy General Director of Studio 1+1. The
      total amount of services rendered by the company in 2006 was US$ 0.3 million
      (2005: US$ 0.3 million).




**23.
      SUBSEQUENT EVENTS**




On
      February 20, 2007 we acquired control of TV Sport by acquiring an additional
      50.0 % interest from Nolsom Limited for cash consideration of Euro 4.2 million
      (approximately US$ 5.5 million) . We have also agreed to acquire the remaining
      30.0 % of TV Sport from Nolsom Limited in March 2007 for cash consideration
      of
      Euro 2.5 million (approximately US$ 3.3 million), subject to Media Council
      consent. For further information, see Note 6, “Investments”.





*Page
          153*
 *Table
          of Contents*


**CENTRAL
        EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**


**24.
      QUARTERLY FINANCIAL DATA**




The
        unaudited quarterly results presented below reflect the restatement of our
        previously issued consolidated financial statements as discussed above in
        Note
        2. As a result, the quarterly data presented herein does not agree to previously
        issued quarterly statements. Selected quarterly financial data for the years
        ended December 31, 2006 and 2005 is as follows:





**For
                the Year ended December 31, 2006****First
                Quarter**
              **(Unaudited)**
            
            **Second
                Quarter**
              **(Unaudited)**
            
            **Third
                Quarter**
              **(Unaudited)**
            
            **Fourth
                Quarter**
              **(Unaudited)****(US$
                000’s, except per share data)****Consolidated
                Statement of Operations data:**Net
                revenues
            
            $
            119,754
            
            $
            156,589
            
            $
            112,482
            
            $
            214,290Cost
                of revenue
            
            
            81,424
            
            
            89,571
            
            
            81,088
            
            
            110,094Operating
                income / (loss)
            
            
            16,183
            
            
            44,033
            
            
            6,571
            
            
            73,887Net
                income / (loss)
            
            
            (18,264
            )
            
            8,522
            
            
            3,934
            
            
            26,232**Net
                income / (loss) per share:**Basic
                EPS
            
            $
            (0.48
            )
            $
            0.21
            
            $
            0.09
            
            $
            0.64Effect
                of dilutive securities
            
            
            -
            
            
            -
            
            
            -
            
            
            -Diluted
                EPS
            
            $
            (0.48
            )
            $
            0.21
            
            $
            0.09
            
            $
            0.64




**For
                  the Year ended December 31, 2005 (1)****First
                  Quarter**
                **(Unaudited,**
                **as
                  restated)**
              
              **Second
                  Quarter**
                **(Unaudited,**
                **as
                  restated)**
              
              **Third
                  Quarter**
                **(Unaudited,**
                **as
                  restated)**
              
              **Fourth
                  Quarter**
                **(Unaudited,**
                **as
                  restated)****(US$
                  000’s, except per share data)****Consolidated
                  Statement of Operations data:**Net
                  revenues
              
              $
              48,304
              
              $
              113,109
              
              $
              87,067
              
              $
              152,498Cost
                  of revenue
              
              
              35,897
              
              
              54,903
              
              
              64,709
              
              
              86,013Operating
                  income / (loss)
              
              
              (2,353
              )
              
              6,877
              
              
              4,752
              
              
              42,920Net
                  income / (loss)
              
              
              (8,050
              )
              
              25,474
              
              
              (9,654
              )
              
              34,552**Net
                  income / (loss) per share:**Basic
                  EPS
              
              $
              (0.28
              )
              $
              0.74
              
              $
              (0.25
              )
              $
              0.91Effect
                  of dilutive securities
              
              
              -
              
              
              (0.02
              )
              
              -
              
              
              (0.01
              )Diluted
                  EPS
              
              $
              (0.28
              )
              $
              0.72
              
              $
              (0.25
              )
              $
              0.90


*Page
            154*
  **CENTRAL
          EUROPEAN MEDIA ENTERPRISES LTD.**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
          amounts in US$ 000’s, except share data)**
  The
        restatement above had the impact on our previously presented financial
        information as set out below. All amounts are in US$ 000’s:




**As
                  reported previously**
              
              **Adjustment**
              
              **As
                  restated****Statement
                  of Operations (for the Three Months Ended March 31,
                  2005)**Operating
                  loss
              
              
              (2,252
              )
              
              (101
              )
              
              (2,353
              )Net
                  loss
              
              
              (7,949
              )
              
              (101
              )
              
              (8,050
              )**Statement
                  of Operations (for the Three Months Ended June 30,
                  2005)**Operating
                  income
              
              
              6,862
              
              
              15
              
              
              6,877Net
                  income
              
              
              25,459
              
              
              15
              
              
              25,474**Statement
                  of Operations (for the Three Months Ended September 30,
                  2005)**Operating
                  income
              
              
              4,792
              
              
              (40
              )
              
              4,752Net
                  loss
              
              
              (9,614
              )
              
              (40
              )
              
              (9,654
              )**Statement
                  of Operations (for the Three Months Ended December 31,
                  2005)**Operating
                  income
              
              
              42,967
              
              
              (47
              )
              
              42,920Net
                  income
              
              
              34,599
              
              
              (47
              )
              
              34,552




*Page
            155*
 *Table
            of Contents*





**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





To
      the
      Board of Directors and Shareholders of


Markiza-
      SLOVAKIA, spol. s r.o. (legal successor to 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 to which the date is 7 February
      2007





*Page
            156*
 *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 4)
            
            
            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 9)
            
            
            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
            157*
 *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
            158*
 *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
            159*
 *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
            160*
 *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
            161*
 *Table
            of Contents*


**SLOVENSKA
        TELEVIZNA SPOLOCNOST, S.R.O.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**




**1.
      ORGANIZATION AND BUSINESS**




Slovenska
        televizna spolocnost, s.r.o. (STS) is a Slovak limited liability partnership
        (without shares), having its legal seat in Okružná
        18/10, 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, spol. s.r.o., 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. Approval from the Slovak Republic Media Council granting
        extension of our license for an additional 12 years was delivered to STS
        on
        March 22, 2006.


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,
                  spol.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".




**Subsequent
        events**




During
      2006, Markiza acquired 100% ownership and control of STS. Effective 1 January
      2007 all assets, liabilities and operations of STS were transferred to Markiza.
      At the same time, STS was wound up without liquidation and its legal existence
      ceased. These transactions have no material impact on the accompanying financial
      statements.




**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:




*Page
            162*
 *Table
            of Contents*


**SLOVENSKA
        TELEVIZNA SPOLOCNOST, S.R.O.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**




**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.





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
            163*
 *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*





Revenue
      is recognized when there is persuasive evidence of an arrangement, delivery
      of
      products has occurred or services have been rendered, the seller’s price to the
      buyer 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
      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
            164*
 *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.





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”).





*Page
            165*
 *Table
            of Contents*


**SLOVENSKA
        TELEVIZNA SPOLOCNOST, S.R.O.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**




*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.




**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.





*Page
            166*
 *Table
            of Contents*


**SLOVENSKA
        TELEVIZNA SPOLOCNOST, S.R.O.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**




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.




**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.





*Page
            167*
 *Table
            of Contents*


**SLOVENSKA
        TELEVIZNA SPOLOCNOST, S.R.O.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**




**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
            168*
 *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
            169*
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            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
            170*
 *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**





*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**




*Page
            171*
 *Table
            of Contents*


**SLOVENSKA
          TELEVIZNA SPOLOCNOST, S.R.O.**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
          amounts in US$ 000’s, except share data)**


**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**




**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.




*Page
            172*
 *Table
            of Contents*


**SLOVENSKA
        TELEVIZNA SPOLOCNOST, S.R.O.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts in US$ 000’s, except share data)**




**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.





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
            173*
 *Table
            of Contents*





**ITEM
              9.**
            **CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                DISCLOSURE**





None.




**ITEM9A.**
            **CONTROLS
                AND PROCEDURES**





**Evaluation
      of Disclosure Controls and Procedures**




We
      have
      established disclosure controls and procedures to ensure that information
      required to be disclosed in our Annual Report on Form 10-K is recorded,
      processed, summarized and reported within the allowable time periods and to
      ensure that information required to be disclosed is accumulated and communicated
      to the issuer's management, including the Chief Executive Officer and Chief
      Financial Officer to allow timely decisions regarding required
      disclosure.




Our
      Chief
      Executive Officer and Chief Financial Officer evaluated the effectiveness of
      the
      design and operation of our disclosure controls and procedures as of December
      31, 2006 and concluded that our disclosure controls and procedures are effective
      as of that date.




**Management’s
      Report on Internal Control Over Financial Reporting**




Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting. We have performed an assessment of the design
      and operating effectiveness of our internal control over financial reporting
      as
      of December 31, 2006. This assessment was performed under the direction and
      supervision of our Chief Executive Officer and Chief Financial Officer, and
      utilized the framework established in “Internal Control - Integrated Framework”
issued by the Committee of Sponsoring Organizations of the Treadway Commission
      (COSO).




Based
      on
      that evaluation, we concluded that as of December 31, 2006, our internal control
      over financial reporting was effective. Our independent registered public
      accounting firm, Deloitte & Touche LLP, has audited our financial statements
      and issued an attestation report on our assessment of our internal control
      over
      financial reporting, which is included herein.




**Changes
      in Internal Controls**




There
      were no changes in our internal controls over financial reporting during the
      three month period ended December 31, 2006 that have materially affected, or
      are
      reasonably likely to materially affect, our internal control over financial
      reporting.




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





To
      the
      Board of Directors and Shareholders of Central European Media Enterprises Ltd.





We
      have
      audited management's assessment, included in the accompanying Management’s
      Report on Internal Control over Financial Reporting, that Central European
      Media
      Enterprises Ltd. and subsidiaries (the “Company”) maintained effective internal
      control over financial reporting as of December 31, 2006, based on criteria
      established in Internal Control—Integrated Framework issued by the Committee of
      Sponsoring Organizations of the Treadway Commission. The Company's management
      is
      responsible for maintaining effective internal control over financial reporting
      and for its assessment of the effectiveness of internal control over financial
      reporting. Our responsibility is to express an opinion on management's
      assessment and an opinion on the effectiveness of the Company's internal control
      over financial reporting based on our audit.





We
      conducted our audit 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 effective
      internal control over financial reporting was maintained in all material
      respects. Our audit included obtaining an understanding of internal control
      over
      financial reporting, evaluating management's assessment, testing and evaluating
      the design and operating effectiveness of internal control, and performing
      such
      other procedures as we considered necessary in the circumstances. We believe
      that our audit provides a reasonable basis for our opinions.





*Page
            174*
 *Table
            of Contents*




A
        company's internal control over financial reporting is a process designed
        by, or
        under the supervision of, the company's principal executive and principal
        financial officers, or persons performing similar functions, and effected
        by the
        company's board of directors, management, and other personnel to provide
        reasonable assurance regarding the reliability of financial reporting and
        the
        preparation of financial statements for external purposes in accordance with
        generally accepted accounting principles. A company's internal control over
        financial reporting includes those policies and procedures that (1) pertain
        to
        the maintenance of records that, in reasonable detail, accurately and fairly
        reflect the transactions and dispositions of the assets of the company; (2)
        provide reasonable assurance that transactions are recorded as necessary
        to
        permit preparation of financial statements in accordance with generally accepted
        accounting principles, and that receipts and expenditures of the company
        are
        being made only in accordance with authorizations of management and directors
        of
        the company; and (3) provide reasonable assurance regarding prevention or
        timely
        detection of unauthorized acquisition, use, or disposition of the company's
        assets that could have a material effect on the financial
        statements.




Because
      of the inherent limitations of internal control over financial reporting,
      including the possibility of collusion or improper management override of
      controls, material misstatements due to error or fraud may not be prevented
      or
      detected on a timely basis. Also, projections of any evaluation of the
      effectiveness of the internal control over financial reporting to future periods
      are subject to the risk that the controls may become inadequate because of
      changes in conditions, or that the degree of compliance with the policies or
      procedures may deteriorate.





In
      our
      opinion, management's assessment that the Company maintained effective internal
      control over financial reporting as of December 31, 2006, is fairly stated,
      in
      all material respects, based on the criteria established in Internal
      Control—Integrated Framework issued by the Committee of Sponsoring Organizations
      of the Treadway Commission. Also in our opinion, the Company maintained, in
      all
      material respects, effective internal control over financial reporting as of
      December 31, 2006, based on the criteria established in Internal
      Control—Integrated Framework issued by the Committee of Sponsoring Organizations
      of the Treadway Commission.





We
      have
      also audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the consolidated financial statements and
      financial statement schedules as of and for the year ended December 31, 2006
      of
      the Company and our report dated February 28, 2007, expressed an unqualified
      opinion on those financial statements and financial statement schedules and
      included an explanatory paragraph regarding the restatement for stock based
      compensation described in Note 2.








DELOITTE
      & TOUCHE LLP


London,
      United Kingdom


February
      28, 2007




**ITEM
              9B.**
            **OTHER
                INFORMATION**





None




*Page
            175*
 *Table
            of Contents*





**PART
      III**





**ITEM
              10.**
            **DIRECTORS****,
                EXECUTIVE OFFICERS AND CORPORATE
                GOVERNANCE**





The
      information required by Item 10 is incorporated herein by reference to the
      section entitled “Election of Directors and Executive Officers” and “Committees
      of the Board” in our Proxy Statement for the 2007 Annual General Meeting of
      Shareholders.





We
      have
      adopted a Code of Conduct and Ethics applicable to all employees and Board
      members.





The
      Code
      of Conduct and Ethics is posted on our website, www.cetv-net.com. In order
      to
      access this portion of our website, click on the “About CME” tab, then select
“Company Policies and Charters” from the available options. Any amendments to,
      or waivers of, the Code of Conduct and Ethics will be disclosed on our website
      promptly following the date of such amendment or waiver. Copies of our Code
      of
      Conduct and Ethics are available free of charge by e-mailing a request to postmaster@cme-net.com .




**ITEM11.**
            **EXECUTIVE
                COMPENSATION**





The
      information required by Item 11 is incorporated herein by reference to the
      sections entitled “Executive Compensation”, “Compensation Discussion and
      Analysis”, “Compensation Committee Report” and “Director Compensation” in our
      Proxy Statement for the 2007 Annual General Meeting of
      Shareholders.




**ITEM
                12.**
              **SECURITY
                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT****AND RELATED STOCKHOLDER
                  MATTERS**





The
      information required by Item 12 is incorporated herein by reference to the
      sections entitled “Security Ownership of Certain Beneficial Owners and
      Management” and “Equity Compensation Plan Information” in our Proxy Statement
      for the 2007 Annual General Meeting of Shareholders.




**ITEM13.**
            **CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONS****,
                AND DIRECTOR INDEPENDENCE**





The
      information required by Item 13 is incorporated herein by reference to the
      section entitled “Certain Relationships and Related Transactions” and “Director
      Independence” in our Proxy Statement for the 2007 Annual General Meeting of
      Shareholders.





**ITEM
              14.**
            **PRINCIPAL
                ACCOUNTANT FEES AND
                SERVICES**





The
      information required by Item 14 is incorporated herein by reference to the
      section entitled “Principal Accountant Fees and Services” in our Proxy Statement
      for the 2007 Annual General Meeting of Shareholders.




*Page
            176*
 *Table
            of Contents*





**PART
      IV**





**ITEM15.**
            **EXHIBITS
                AND FINANCIAL STATEMENT
                SCHEDULES**





(a)(1)
      The following Financial Statements of Central European Media Enterprises Ltd.
      are included in Part II, Item 8 of this Report:





Report
      of
      Independent Registered Public Accountants





Consolidated
      Balance Sheets as of December 31, 2006 and 2005





Consolidated
      Statements of Operations and Comprehensive Income for the years ended December
      31, 2006, 2005 and 2004





Consolidated
      Statement of Shareholders' Equity for the years ended December 31, 2006, 2005
      and 2004





Consolidated
      Statements of Cash Flows for the years ended December 31, 2006, 2005 and
      2004





Notes
      to
      Consolidated Financial Statements





The
      following Financial Statements of Slovenska televizna spolocnost, s.r.o. are
      included in Part II, Item 8 of this Report:





Report
      of
      Independent Registered Public Accountants





Consolidated
      Balance Sheets as of December 31, 2005 and 2004





Consolidated
      Statements of Operations and Comprehensive Income for the years ended December
      31, 2005, 2004 and 2003





Consolidated
      Statement of Shareholders' Equity for the years ended December 31, 2005, 2004
      and 2003





Consolidated
      Statements of Cash Flows for the years ended December 31, 2005, 2004 and
      2003





Notes
      to
      Consolidated Financial Statements




(a)(2)
      Financial Statement Schedules (included at pages S-1 to S-3 of this Annual
      Report on Form 10-K)





(a)(3)
      The following exhibits are included in this report:




*Page
            177*
 *Table
            of Contents*





**EXHIBIT
      INDEX**





**Exhibit
                Number**
            
            **Description**3.01*
            
            Memorandum
                of Association (incorporated by reference to Exhibit 3.01 to the
                Company's
                Registration Statement No. 33-80344 on Form S-1, filed June 17,
                1994).3.02*
            
            Bye-Laws
                of Central European Media Enterprises Ltd., as amended, dated as
                of May
                25, 2000 (incorporated by reference to Exhibit 3.02 to the Company’s
                Annual Report on Form 10-K for the fiscal year ending December 31,
                2000).3.03*
            
            Memorandum
                of Increase of Share Capital (incorporated by reference to Exhibit
                3.03 to
                Amendment No. 1 to the Company's Registration Statement No. 33-80344
                on
                Form S-1, filed August 19, 1994).3.04*
            
            Memorandum
                of Reduction of Share Capital (incorporated by reference to Exhibit
                3.04
                to Amendment No. 2 to the Company's Registration Statement No. 33-80344
                on
                Form S-1, filed September 14, 1994).3.05*
            
            Certificate
                of Deposit of Memorandum of Increase of Share Capital executed by
                Registrar of Companies on May 20, 1997 (incorporated by reference
                to
                Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the
                quarterly period ended September 30, 1997).4.01*
            
            Specimen
                Class A Common Stock Certificate (incorporated by reference to Exhibit
                4.01 to Amendment No. 1 to the Company's Registration Statement No.
                33-80344 on Form S-1, filed August 19, 1994).10.01A+*
            
            Central
                European Media Enterprises Ltd. 1995 Stock Incentive Plan, as amended
                and
                restated to April 11, 2004 (incorporated by reference to Exhibit
                A to the
                Company's Proxy Statement dated May 9, 2005).10.02*
            
            Cooperation
                Agreement among CME Media Enterprises B.V., Ion Tiriac and Adrian
                Sarbu
                (incorporated by reference to Exhibit 10.27 to the Company's Registration
                Statement No.33 - 96900 on Form S-1 filed September 13,
                1995).10.8*
            
            Agreement
                by and between International Media Services Ltd and Innova Film GmbH,
                dated January 23, 1997 (incorporated by reference to Exhibit 10.65
                to the
                Company's Annual Report on Form 10-K for the fiscal year ended December
                31, 1996).10.10*
            
            Amended
                and Restated Charter of the Broadcasting Company 'Studio 1+1', dated
                January 23, 1997 (incorporated by reference to Exhibit 10.67 to the
                Company's Annual Report on Form 10-K for the fiscal year ended December
                31, 1996).10.11*
            
            Amended
                and Restated Foundation Agreement on the Establishment and Operation
                of
                the Broadcasting Company 'Studio 1+1,' dated January 23, 1997
                (incorporated by reference to Exhibit 10.68 to the Company's Annual
                Report
                on Form 10-K for the fiscal year ended December 31,
                1996).10.12*
            
            Protocol
                of the Participants' Assembly of the Broadcasting Company 'Studio
                1+1,'
                dated January 23, 1997 (incorporated by reference to Exhibit 10.69
                to the
                Company's Annual Report on Form 10-K for the fiscal year ended December
                31, 1996).10.13*
            
            Marketing,
                Advertising and Sales Agreement by and between International Media
                Services Ltd and Innova Film GmbH, dated January 23, 1997 (incorporated
                by
                reference to Exhibit 10.70 to the Company's Annual Report on Form
                10-K for
                the fiscal year ended December 31, 1996).10.13A*
            
            Amendment
                Agreement to Marketing, Advertising and Sales Agreement between Innova
                Film GmbH and International Media Services Limited, dated May 7,
                1997
                (incorporated by reference to Exhibit 10.1 to the Company's Quarterly
                Report on Form 10-Q for the quarterly period ended March 31,
                1997).10.16*
            
            Advertising
                Sales Agency Agreement between Studio 1+1 and Servland Continental
                S.A.
                dated March 14, 2001 (incorporated by reference to Exhibit 10.47
                to the
                Company’s Annual Report on Form 10-K for the fiscal year ending December
                31, 2000).10.18*+
            
            Employment
                Agreement between CME Development Corporation and Robert E. Burke
                dated
                July 6, 2001 (incorporated by reference to Exhibit 10.1 to the Company's
                Quarterly Report on Form 10-Q for the quarterly period ended June
                30,
                2001).10.19*
            
            Exclusive
                Contract of Providing and Broadcasting of Television Signal between
                Markiza-Slovakia s.r.o. and Slovenska Televizna Spolocnost s.r.o.
                dated
                August 30, 1996 (incorporated by reference to Exhibit 10.4 to the
                Company's Quarterly Report on Form 10-Q for the quarterly period
                ended
                September 30, 2001).





*Page
            178*
 *Table
            of Contents*




10.20*
            
            Exclusive
                Rights Transfer Agreement between Markiza-Slovakia s.r.o and Slovenska
                Televizna Spolocnost s.r.o. dated October 3, 2001 (incorporated by
                reference to Exhibit 10.5 to the Company's Quarterly Report on Form
                10-Q
                for the quarterly period ended September 30, 2001).10.21*
            
            Key
                Agreement Boris Fuchsmann, Alexander Rodniansky, Studio 1+1 Ltd,
                Innova
                Film GmbH, International Media Services Ltd, Ukraine Advertising
                Holding,
                CME Ukraine GmbH and CME Ukraine B.V entered into as of December
                23, 1998
                (incorporated by reference to Exhibit 10.43 to the Company’s Annual Report
                on Form 10-K for the fiscal year ending December 31,
                2001).10.22*
            
            Memorandum
                of Association of Slovenska televizna spolocnost s.r.o (incorporated
                by
                reference to Exhibit 10.44 to the Company’s Annual Report on Form 10-K for
                the fiscal year ending December 31, 2001).10.23*
            
            Articles
                of Association of Slovenska televizna spolocnost s.r.o (incorporated
                by
                reference to Exhibit 10.45 to the Company’s Annual Report on Form 10-K for
                the fiscal year ending December 31, 2001).10.24*
            
            Amended
                Memorandum of Association Markiza - Slovakia spol. s.r.o (incorporated
                by
                reference to Exhibit 10.46 to the Company’s Annual Report on Form 10-K for
                the fiscal year ending December 31, 2001).10.25*
            
            Loan
                arrangement between Vseobecna userova banka a.s and S.T.S. s.r.o,,
                dated
                July 24, 2002 (incorporated by reference to Exhibit 10.50 to the
                Company's
                Quarterly Report on Form 10-Q for the quarterly period ended June
                30,
                2002).10.26*+
            
            Employment
                Agreement between CME Development Corporation and Wallace Macmillan
                dated
                March 17, 2003 (incorporated by reference to Exhibit 10.63 to the
                Company's Quarterly Report on Form 10-Q for the quarterly period
                ended
                March 30, 2003).10.27*+
            
            Employment
                Agreement between Central European Media Enterprises Ltd and Fred
                T.
                Klinkhammer dated October 21, 2003 (incorporated by reference to
                Exhibit
                10.63 to the Company's Quarterly Report on Form 10-Q for the quarterly
                period ended September 30, 2003).10.28*+
            
            Employment
                Agreement between CME Development Corporation and Michael Garin dated
                March 30, 2004 (incorporated by reference to Exhibit 10.63 to the
                Company's Quarterly Report on Form 10-Q for the quarterly period
                ended
                March 30, 2004).10.29*
            
            Agreement
                between CME Media Enterprises BV and the Tax and Customs Administration
                of
                the Netherlands dated March 24, 2004 (incorporated by reference to
                the
                Company's Quarterly Report on Form 10-Q for the quarterly period
                ended
                March 31, 2004).10.30*
            
            CME
                Romania BV - Adrian Sarbu Funding and Share Sale Agreement, dated
                March
                12, 2004 (incorporated by reference to the Company's Quarterly Report
                on
                Form 10-Q for the quarterly period ended March 31,
                2004).10.31*
            
            Share
                sale and purchase agreement of Nova TV d.d. (Croatia), dated July
                7, 2004.
                (incorporated by reference to the Company's Quarterly Report on Form
                10-Q
                for the quarterly period ended June 30, 2004).10.32*
            
            Pro
                TV SA put-option between CME Romania BV, Adrian Sarbu and Rootland
                Trading
                Ltd (incorporated by reference to the Company's Quarterly Report
                on Form
                10-Q for the quarterly period ended September 30,
                2004).10.33*
            
            MPI
                SA put-option between CME Romania BV, Adrian Sarbu and Rootland Trading
                Ltd (incorporated by reference to the Company's Quarterly Report
                on Form
                10-Q for the quarterly period ended September 30,
                2004).10.34*+
            
            Employee
                Stock Option Form (a management contract) (incorporated by reference
                to
                the Company's Quarterly Report on Form 10-Q for the quarterly period
                ended
                September 30, 2004).10.35*+
            
            Employment
                Agreement between CME Development Corporation and Marina Williams
                dated
                November 22, 2004.10.36*
            
            Framework
                Agreement CME Media Enterprises BV, Central European Media Enterprises
                Ltd. and PPF (Cyprus) Ltd. dated December 13, 2004. (incorporated
                by
                reference to the Company's Annual Report on Form 10-K for the period ended
                December 31, 2004).10.37*
            
            Agreement
                on Settlement of Disputes and Transfer of Ownership Interest, dated
                February 24, 2005. (incorporated by reference to the Company's Annual
                Report on Form 10-K for the period ended December 31,
                2004).





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10.38*
            
            Subscription
                Agreement between Central European Media Enterprises Ltd. and PPF
                (Cyprus)
                Ltd. dated May 2, 2005. (incorporated by reference to the Company's
                Quarterly Report on Form 10-Q for the quarterly period ended March
                30,
                2005).10.39*
            
            Registration
                Rights Agreement between Central European Media Enterprises Ltd.
                and PPF
                (Cyprus) Ltd. dated May 2, 2005. (incorporated by reference to the
                Company's Quarterly Report on Form 10-Q for the quarterly period
                ended
                March 30, 2005).10.40*
            
            Deed
                of Guarantee among PPF a.s., Central European Media Enterprises Ltd.
                and
                CME Media Enterprises B.V. dated May 2, 2005. (incorporated by reference
                to the Company's Quarterly Report on Form 10-Q for the quarterly
                period
                ended March 30, 2005).10.41*
            
            PPF
                Group Guarantee among PPF Group N.V., Central European Media Enterprises
                Ltd. and CME Media Enterprises B.V. dated May 2, 2005. (incorporated
                by
                reference to the Company's Quarterly Report on Form 10-Q for the
                quarterly
                period ended March 30, 2005).10.42*
            
            Indenture
                among Central European Media Enterprises Ltd., Central European Media
                Enterprises N.V., and CME Media Enterprises B.V. J.P. Morgan Chase
                Bank
                N.A., London Branch and J.P. Morgan Bank Luxembourg S.A. dated May
                5,
                2005. (incorporated by reference to the Company's Quarterly Report
                on Form
                10-Q for the quarterly period ended March 30, 2005).10.43*
            
            Euro
                37.5 million facility agreement, dated July 29, 2005, between Produkcija
                Plus Storitveno Podjetje d.o.o. and ING Bank N.V., Nova Ljubljanska
                banka
                d.d., and Bank Austria Creditanstalt d.d. (incorporated by reference
                to
                the Company's Quarterly Report on Form 10-Q for the quarterly period
                ended
                June 30, 2005).10.44*
            
            Credit
                line agreement No. 2644/05/LCD between Ceska Sporitelna a.s. and
                CET 21
                spol. s r.o. dated October 27, 2005. (incorporated by reference to
                the
                Company's Annual Report on Form 10-K for the period ended December
                31,
                2005).10.45*
            
            Agreement
                for the sale of shares in A.R.J., a.s. between PhDr. Pavol Rusko
                and CME
                Media Enterprises B.V. dated October 28, 2005. (incorporated by reference
                to the Company's Annual Report on Form 10-K for the period ended
                December
                31, 2005).10.46*
            
            Agreement
                for the sale of shares in A.R.J., a.s. among Media Partner, spol.
                s r.o.,,
                Salis, s.r.o., CME Media Enterprises B.V., Ing. Milan Fil’o and Mr. Jan
                Kovacik dated October 31, 2005. (incorporated by reference to the
                Company's Annual Report on Form 10-K for the period ended December
                31,
                2005).10.47*
            
            Sale-Purchase
                Contract for Shares of Media Pro International S.A. between CME Romania
                B.V. and Adrian Sarbu dated February 17, 2006. (incorporated by reference
                to the Company's Annual Report on Form 10-K for the period ended
                December
                31, 2005).10.48*
            
            Sale-Purchase
                Contract for Shares of Pro TV S.A. between CME Romania B.V. and Adrian
                Sarbu dated February 17, 2006. (incorporated by reference to the
                Company's
                Annual Report on Form 10-K for the period ended December 31,
                2005).10.49*
            
            Sale-Purchase
                Contract for Shares of Media Vision SRL between CME Romania B.V.
                and Media
                Pro Pictures S.A. dated February 17, 2006. (incorporated by reference
                to
                the Company's Annual Report on Form 10-K for the period ended December
                31,
                2005).10.50*
            
            Underwriting
                Agreement, dated March 23, 2006(incorporated
                by reference to the Company's Quarterly Report on Form 10-Q for the
                quarterly period ended March 31, 2006).10.51*
            
            Loan
                Agreement between Central European Media Enterprises Ltd. and European
                Bank for Reconstruction and Development, dated July 21, 2006(incorporated
                by reference to the Company's Quarterly Report on Form 10-Q for the
                quarterly period ended June 30, 2006).10.52*
            
            Pledge
                Agreement on Shares in Central European Media Enterprises N.V. among
                Central European Media Enterprises Ltd., European Bank for Reconstruction
                and Development and Central European Media Enterprises N.V., dated
                July
                21, 2006(incorporated
                by reference to the Company's Quarterly Report on Form 10-Q for the
                quarterly period ended June 30, 2006).10.53*
            
            Pledge
                of Shares in CME Media Enterprises B.V. among Central European Media
                Enterprises N.V., European Bank for Reconstruction and Development
                and CME
                Media Enterprises B.V., dated July 21, 2006(incorporated
                by reference to the Company's Quarterly Report on Form 10-Q for the
                quarterly period ended June 30,
                2006).





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10.54*
            
            Deed
                of Guarantee and Indemnity between Central European Media Enterprises
                N.V.
                and European Bank for Reconstruction and Development, dated July
                21, 2006(incorporated
                by reference to the Company's Quarterly Report on Form 10-Q for the
                quarterly period ended June 30, 2006).10.55*
            
            Deed
                of Guarantee and Indemnity between CME Media Enterprises B.V. and
                European
                Bank for Reconstruction and Development, dated July 21, 2006(incorporated
                by reference to the Company's Quarterly Report on Form 10-Q for the
                quarterly period ended June 30, 2006).10.56*
            
            Contract
                Assignment between CME Media Enterprises B.V., Central European Media
                Enterprises Ltd. and European Bank for Reconstruction and Development,
                dated July 21, 2006(incorporated
                by reference to the Company's Quarterly Report on Form 10-Q for the
                quarterly period ended June 30, 2006).10.57*+
            
            Amendment
                of Employment Agreement (dated March 30, 2004) between Michael Garin
                and
                CME Development Corporation, dated July 28, 2006(incorporated
                by reference to the Company's Quarterly Report on Form 10-Q for the
                quarterly period ended June 30, 2006).10.58*+
            
            Contract
                for the Performance of the Office between CET 21 s.r.o. and Adrian
                Sarbu,
                dated August 1, 2006(incorporated
                by reference to the Company's Quarterly Report on Form 10-Q for the
                quarterly period ended June 30, 2006).10.59*+
            
            Letter
                Agreement between Central European Media Enterprises Ltd. and Adrian
                Sarbu, dated August 1, 2006(incorporated
                by reference to the Company's Quarterly Report on Form 10-Q for the
                quarterly period ended June 30, 2006).10.60*+
            
            Amended
                and Restated Contract of Employment between Marina Williams, Executive
                Vice President, and CME Development Corporation, dated October 5,
                2006(incorporated
                by reference to the Company's Quarterly Report on Form 10-Q for the
                quarterly period ended September 30, 2006).10.61*+
            
            Amended
                and Restated Contract of Employment between Wallace Macmillan, Chief
                Financial Officer, and CME Development Corporation, dated October
                6, 2006(incorporated
                by reference to the Company's Quarterly Report on Form 10-Q for the
                quarterly period ended September 30, 2006).10.62
            
            Agreement
                to Provide Advertising Services between Video International-Prioritet
                LLC
                and Broadcasting Company “Studio 1+1” LLC dated November 30,
                2006.21.01
            
            List
                of subsidiaries23.01
            
            Consents
                  of Deloitte & Touche LLP and Deloitte Audit
                  s.r.o.24.01
            
            Power
                of Attorney, dated as of February 24, 200731.01
            
            Sarbanes-Oxley
                Certification s.302 CEO, dated March 1, 200731.02
            
            Sarbanes-Oxley
                Certification s.302 CFO, dated March 1, 200732.01
            
            Sarbanes-Oxley
                Certification - CEO and CFO, dated March 1, 2007 (furnished
                only)*
            
            Previously
                filed exhibits+
            
            Exhibit
                is a management contract or compensatory planb)
            
            Exhibits:
                See (a)(3) above for a listing of the exhibits included as part of
                this
                report.c)
            
            Report
                of Independent Registered Public Accountants on Schedule II — Schedule of
                Valuation Allowances. (See pages S-1 to S-3 of this Form
                10-K).




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**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.**





Date:
                March 1, 2007
            /s/
                Michael Garin
              Michael
                Garin
              Chief
                Executive Officer
              (Duly
                Authorized Officer)Date:
                March 1, 2007
            /s/
                Wallace Macmillan
              Wallace
                Macmillan
              Vice
                President - Finance
              (Principal
                Financial Officer and Accounting Officer)




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**Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the Registrant and in the
      capacities and on the dates indicated.**




Signature
              
              Title
              
              Date*
              
              Chairman
                  of the Board of Directors
              
              March
                  1, 2007Ronald
                  S. Lauder*
              
              Vice-Chairman
                  of the Board of Directors
              
              March
                  1, 2007Herbert
                  A. Granath/s/
                  Michael Garin
                Michael
                  Garin
              
              Chief
                  Executive Officer and Director
                (Principal
                  Executive Officer)
              
              March
                  1, 2007/s/
                  Wallace Macmillan
                Wallace
                  Macmillan
              
              Vice
                  President - Finance
                (Principal
                  Financial Officer and Principal Accounting Officer)
              
              March
                  1, 2007*
              
              Director
              
              March
                  1, 2007Frank
                  Ehmer*
              
              Director
              
              March
                  1, 2007Charles
                  Frank*
              
              Director
              
              March
                  1, 2007Herbert
                  Kloiber*
              
              Director
              
              March
                  1, 2007Alfred
                  W. Langer*
              
              Director
              
              March
                  1, 2007Bruce
                  Maggin*
              
              Director
              
              March
                  1, 2007Ann
                  Mather*
              
              Director
              
              March
                  1, 2007Christian
                  Stahl*
              
              Director
              
              March
                  1, 2007Eric
                  Zinterhofer*
                  By
                /s/
                  Wallace Macmillan
                Wallace
                  Macmillan
                Attorney-in-fact




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**INDEX
      TO SCHEDULES**




Schedule
                II : Schedule of Valuation Allowances
            S-3





**Schedule
      II**





**Schedule
      of Valuation Allowances**


**(US$
      000’s)**





**Bad
                debt and credit note provision**
            
            **Deferred
                tax allowance****Balance
                at December 31, 2003**
            
            **5,625**
            
            **11,846**Charged
                to costs and expenses
            
            250
            
            (1,366)Charged
                to other accounts(1)
            
            (203)
            
            -Foreign
                exchange
            
            468
            
            (2,469)**Balance
                at December 31, 2004**
            
            **6,140**
            
            **8,011**Charged
                to costs and expenses
            
            1,750
            
            5,115Charged
                to other accounts(1)
            
            1,532
            
            (185)Foreign
                exchange
            
            (172)
            
            (1,007)**Balance
                at December 31, 2005**
            
            **9,250**
            
            **11,934**Charged
                to costs and expenses
            
            1,989
            
            6,107Charged
                to other accounts(1)
            
            1,540
            
            (1,168)Foreign
                exchange
            
            (115)
            
            (299)**Balance
                at December 31, 2006**
            
            **12,664**
            
            **16,574**





**(1)**
            **Charged
                to other accounts for the bad debt and credit note provision consist
                primarily of accounts receivable written off and opening balances
                of
                acquired companies.**






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