UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





x           QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934





For
the quarterly period ended September 30, 2009





 ̈           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
      11 Bermuda(Address
      of principal executive offices)
            (Zip
      Code)





Registrant's
telephone number, including area code: +1-(441)-296-1431





Indicate
by check mark whether 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 whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceeding 12 months (or for such shorter period that the registrant was
required to submit and post such files).  Yes  ̈ No  ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company.  See definition of “accelerated filer”, “large accelerated
filer” or “smaller reporting company” in Rule 12b-2 of the Exchange
Act.





Large
      accelerated filer x
            Accelerated
      filer  ̈
            Non-accelerated
      filer  ̈
            Smaller
      reporting company  ̈





Indicate
by check mark whether the registrant is a shell company (as defined by Rule
12b-2 of the Exchange Act)  Yes  ̈ No x





Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.





Class
            Outstanding
      as of October 23, 2009Class
      A Common Stock, par value $0.08
            50,524,273Class
      B Common Stock, par value $0.08
            10,812,839













THIS PAGE
INTENTIONALLY LEFT BLANK











CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.





FORM
10-Q





For
the quarterly period ended September 30, 2009





INDEX





PagePart
      I. Financial informationItem
      1. Financial StatementsCondensed Consolidated Balance Sheets as at September 30, 2009
      and December 31, 2008
            1Condensed Consolidated Statements of Operations and
      Comprehensive Income for the Three and Nine Months Ended September 30,
      2009 and 2008
            3Condensed Consolidated Statements of Shareholders' Equity for
      the Nine Months Ended September 30, 2009 and 2008
            5Condensed Consolidated Statements of Cash Flows for the Nine
      Months Ended September 30, 2009 and 2008
            7Notes to the Condensed Consolidated Financial
      Statements
            8Item 2. Management's Discussion and Analysis of Financial
      Condition and Results of Operations
            64Item 3. Quantitative and Qualitative Disclosures About
      Market Risk
            129Item 4. Controls and Procedures
            131Part
      II. Other InformationItem 1. Legal Proceedings
            131Item 1A. Risk Factors
            132Item 6. Exhibits
            142Signatures
            144Exhibit Index
            145





Index





Part I.  Financial Information





Item
1.  Financial Statements





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


CONDENSED
CONSOLIDATED BALANCE SHEETS


(US$
000’s)


(Unaudited)




September
      30, 2009
            
            
            December
      31, 2008ASSETSCurrent
      assetsCash
      and cash equivalents
            
            $
            523,148
            
            
            $
            107,433Restricted
      cash and cash equivalents (Note 6)
            
            
            288,001
            
            
            
            821Accounts
      receivable (net of allowance) (Note 7)
            
            
            155,965
            
            
            
            221,450Program
      rights, net
            
            
            91,519
            
            
            
            67,787Other
      current assets (Note 8)
            
            
            114,140
            
            
            
            97,265Total
      current assets
            
            
            1,172,773
            
            
            
            494,756Non-current
      assetsInvestments
            
            
            16,559
            
            
            
            16,559Property,
      plant and equipment, net (Note 9)
            
            
            206,825
            
            
            
            206,667Program
      rights, net
            
            
            158,434
            
            
            
            113,596Goodwill
      (Note 4)
            
            
            1,158,300
            
            
            
            1,041,041Broadcast
      licenses and other intangible assets, net (Note 4)
            
            
            406,509
            
            
            
            514,732Other
      non-current assets (Note 8)
            
            
            47,746
            
            
            
            19,265Total
      non-current assets
            
            
            1,994,373
            
            
            
            1,911,860Total
      assets
            
            $
            3,167,146
            
            
            $
            2,406,616




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





Page
1
 Index





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


CONDENSED
CONSOLIDATED BALANCE SHEETS (continued)


(US$
000’s)


(Unaudited)




September
      30, 2009
            
            
            December
      31, 2008LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      liabilitiesAccounts
      payable and accrued liabilities (Note 10)
            
            $
            163,825
            
            
            $
            174,885Credit
      facilities and obligations under capital leases (Note 11)
            
            
            33,489
            
            
            
            36,502Senior
      Notes being redeemed (Note 24)
            
            
            266,210
            
            
            
            -Other
      current liabilities (Note 12)
            
            
            30,965
            
            
            
            17,286Total
      current liabilities
            
            
            494,489
            
            
            
            228,673Non-current
      liabilitiesCredit
      facilities and obligations under capital leases (Note 11)
            
            
            88,362
            
            
            
            38,758Senior
      Debt (Note 5)
            
            
            1,262,848
            
            
            
            928,525Other
      non-current liabilities (Note 12)
            
            
            105,163
            
            
            
            112,215Total
      non-current liabilities
            
            
            1,456,373
            
            
            
            1,079,498Commitments
      and contingencies (Note 20)EQUITY:CME
      Ltd. shareholders’ equity:Nil
      shares of Preferred Stock of $0.08 each (December 31, 2008 –
      nil)
            
            
            -
            
            
            
            -50,524,273
      shares of Class A Common Stock of $0.08 each (December 31, 2008
      –36,024,273)
            
            
            4,042
            
            
            
            2,88210,812,839
      shares of Class B Common Stock of $0.08 each (December 31, 2008 –
      6,312,839)
            
            
            865
            
            
            
            505Additional
      paid-in capital
            
            
            1,341,161
            
            
            
            1,126,617Accumulated
      deficit
            
            
            (278,743
            )
            
            
            (236,836
            )Accumulated
      other comprehensive income
            
            
            155,555
            
            
            
            202,090Total
      CME Ltd. shareholders’ equity
            
            
            1,222,880
            
            
            
            1,095,258Noncontrolling
      interests
            
            
            (6,596
            )
            
            
            3,187Total
      equity
            
            
            1,216,284
            
            
            
            1,098,445Total
      liabilities and equity
            
            $
            3,167,146
            
            
            $
            2,406,616




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





Page
2
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME


(US$
000’s, except share and per share data)


(Unaudited)




For
      the Three Months Ended September 30,
            
            
            For
      the Nine Months Ended September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008Net
      revenues
            
            $
            134,482
            
            
            $
            200,601
            
            
            $
            461,888
            
            
            $
            728,433Operating
      expenses:Operating
      costs
            
            
            35,828
            
            
            
            38,459
            
            
            
            96,774
            
            
            
            108,232Cost
      of programming
            
            
            88,257
            
            
            
            96,222
            
            
            
            259,072
            
            
            
            307,226Depreciation
      of station property, plant and equipment
            
            
            13,844
            
            
            
            13,980
            
            
            
            38,301
            
            
            
            39,036Amortization
      of broadcast licenses and other intangibles (Note 4)
            
            
            5,117
            
            
            
            10,199
            
            
            
            16,051
            
            
            
            26,063Cost
      of revenues
            
            
            143,046
            
            
            
            158,860
            
            
            
            410,198
            
            
            
            480,557Selling,
      general and administrative expenses
            
            
            24,886
            
            
            
            34,586
            
            
            
            76,076
            
            
            
            96,504Impairment
      charge (Note 4)
            
            
            -
            
            
            
            -
            
            
            
            81,843
            
            
            
            -Operating
      (loss) / income
            
            
            (33,450
            )
            
            
            7,155
            
            
            
            (106,229
            )
            
            
            151,372Interest
      income
            
            
            628
            
            
            
            2,126
            
            
            
            2,070
            
            
            
            8,081Interest
      expense (Note 17)
            
            
            (27,237
            )
            
            
            (22,127
            )
            
            
            (70,923
            )
            
            
            (59,702
            )Foreign
      currency exchange gain / (loss), net
            
            
            28,980
            
            
            
            4,959
            
            
            
            113,655
            
            
            
            (5,587
            )Change
      in fair value of derivatives (Note 13)
            
            
            (3,259
            )
            
            
            9,868
            
            
            
            (4,444
            )
            
            
            (13,671
            )Other
      income
            
            
            45
            
            
            
            288
            
            
            
            391
            
            
            
            1,607(Loss)
      / income  from continuing operations before tax
            
            
            (34,293
            )
            
            
            2,269
            
            
            
            (65,480
            )
            
            
            82,100Credit
      / (provision) for income taxes
            
            
            9,999
            
            
            
            (20,838
            )
            
            
            16,614
            
            
            
            (19,478
            )(Loss)
      / income from continuing operations
            
            
            (24,294
            )
            
            
            (18,569
            )
            
            
            (48,866
            )
            
            
            62,622Discontinued
      operations, net of tax (Note 19)
            
            
            -
            
            
            
            (1,026
            )
            
            
            (262
            )
            
            
            (2,534
            )Net
      (Loss) /  income
            
            
            (24,294
            )
            
            
            (19,595
            )
            
            
            (49,128
            )
            
            
            60,088Net
      loss / (income) attributable to noncontrolling interests
            
            
            2,744
            
            
            
            265
            
            
            
            7,221
            
            
            
            (1,507
            )Net
      (Loss) income attributable to CME Ltd.
            
            $
            (21,550
            )
            
            $
            (19,330
            )
            
            $
            (41,907
            )
            
            $
            58,581Net
      (loss) / income
            
            
            (24,294
            )
            
            
            (19,595
            )
            
            
            (49,128
            )
            
            
            60,088Currency
      translation adjustment
            
            
            53,164
            
            
            
            (217,905
            )
            
            
            (47,265
            )
            
            
            67,141Obligation
      to repurchase shares
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            488Comprehensive
      (loss) /  income
            
            $
            28,870
            
            
            $
            (237,500
            )
            
            $
            (96,393
            )
            
            $
            127,717Comprehensive
      income / (loss) attributable to noncontrolling interests
            
            
            3,072
            
            
            
            644
            
            
            
            7,951
            
            
            
            (1,761
            )Comprehensive
      (loss) / income attributable to CME Ltd.
            
            $
            31,942
            
            
            $
            (236,856
            )
            
            $
            (88,442
            )
            
            $
            125,956




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





Page
3
 Index





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(continued)


(US$
000’s, except share and per share data)


(Unaudited)




For
      the Three Months Ended September 30,
            
            
            For
      the Nine Months Ended September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008PER
      SHARE DATA (Note 16):Net
      (loss) / income per share:Continuing
      operations - Basic
            
            $
            (0.35
            )
            
            $
            (0.43
            )
            
            $
            (0.80
            )
            
            $
            1.44Continuing
      operations - Diluted
            
            
            (0.35
            )
            
            
            (0.43
            )
            
            
            (0.80
            )
            
            
            1.43Discontinued
      operations – Basic
            
            
            0.00
            
            
            
            (0.02
            )
            
            
            (0.01
            )
            
            
            (0.06
            )Discontinued
      operations - Diluted
            
            
            0.00
            
            
            
            (0.02
            )
            
            
            (0.01
            )
            
            
            (0.06
            )Net
      (loss) / income attributable to CME Ltd common shareholders –
      Basic
            
            
            (0.35
            )
            
            
            (0.45
            )
            
            
            (0.81
            )
            
            
            1.38Net
      (loss) / income attributable to CME Ltd common shareholders –
      Diluted
            
            $
            (0.35
            )
            
            $
            (0.45
            )
            
            $
            (0.81
            )
            
            $
            1.37Weighted
      average common shares used in computing per share amounts
      (000’s):Basic
            
            
            61,337
            
            
            
            42,335
            
            
            
            51,802
            
            
            
            42,324Diluted
            
            
            61,337
            
            
            
            42,335
            
            
            
            51,802
            
            
            
            42,773




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





Page
4
 Index




CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.


CONDENSED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY


(US$
000’s)


(Unaudited)


CME
      Ltd. ShareholdersClass
      A
              Common
      Stock
            
            
            Class
      B
              Common
      Stock
            
            
            Additional
      Paid-In Capital
            
            
            Retained
      Earnings
            
            
            Accumulated
      Other Comprehensive Income
            
            
            Noncontrolling
      Interest
            
            
            Total
      Shareholders’ EquityNumber
      of shares
            
            
            Par
      value
            
            
            Number
      of shares
            
            
            Par
      valueBALANCE,
      December 31, 2008
            
            
            36,024,273
            
            
            $
            2,882
            
            
            
            6,312,839
            
            
            $
            505
            
            
            $
            1,126,617
            
            
            $
            (236,836
            )
            
            $
            202,090
            
            
            $
            3,187
            
            
            $
            1,098,445Stock-based
      compensation
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            4,974
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            4,974Acquisition
      of noncontrolling interests
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (23,336
            )
            
            
            -
            
            
            
            -
            
            
            
            (7
            )
            
            
            (23,343
            )Shares
      issued, net of fees
            
            
            14,500,000
            
            
            
            1,160
            
            
            
            4,500,000
            
            
            
            360
            
            
            
            232,906
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            234,426Dividends
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (1,825
            )
            
            
            (1,825
            )Net
      loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (41,907
            )
            
            
            -
            
            
            
            (7,221
            )
            
            
            (49,128
            )Currency
      translation adjustment
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (46,535
            )
            
            
            (730
            )
            
            
            (47,265
            )BALANCE,
      September 30, 2009
            
            
            50,524,273
            
            
            $
            4,042
            
            
            
            10,812,839
            
            
            $
            865
            
            
            $
            1,341,161
            
            
            $
            (278,743
            )
            
            $
            155,555
            
            
            $
            (6,596
            )
            
            $
            1,216,284




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





Page
5
 Index




CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


CONDENSED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (continued)


(US$
000’s)


(Unaudited)





CME
      Ltd. ShareholdersClass
      A
              Common
      Stock
            
            
            Class
      B
              Common
      Stock
            
            
            Additional
      Paid-In Capital
            
            
            Retained
      Earnings
            
            
            Accumulated
      Other Comprehensive Income
            
            
            Noncontrolling
      Interest
            
            
            Total
      Shareholders’ EquityNumber
      of shares
            
            
            Par
      value
            
            
            Number
      of shares
            
            
            Par
      valueBALANCE,
      December 31, 2007
            
            
            36,003,198
            
            
            $
            2,880
            
            
            
            6,312,839
            
            
            $
            505
            
            
            $
            1,051,336
            
            
            $
            54,871
            
            
            $
            290,215
            
            
            $
            23,155
            
            
            $
            1,422,962Stock-based
      compensation
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            5,961
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            5,961Stock
      options exercised
            
            
            21,075
            
            
            
            2
            
            
            
            -
            
            
            
            -
            
            
            
            1,220
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,222Purchase
      of capped call options
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (63,318
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (63,318
            )Extinguishment
      of capped call options
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            22,161
            
            
            
            (22,161
            )
            
            
            -
            
            
            
            -
            
            
            
            -Redeemable
      noncontrolling Interests
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (32,901
            )
            
            
            -
            
            
            
            -
            
            
            
            (32,901
            )Bifurcation
      of equity option embedded in convertible notes
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            108,085
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            108,085Dividends
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (3,124
            )
            
            
            (3,124
            )Acquisition
      of noncontrolling interests
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            76,504
            
            
            
            76,504Net
      income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            58,581
            
            
            
            -
            
            
            
            1,507
            
            
            
            60,088Currency
      translation adjustment
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            66,887
            
            
            
            254
            
            
            
            67,141Obligation
      to repurchase shares
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            488
            
            
            
            -
            
            
            
            488BALANCE,
      September 30, 2008
            
            
            36,024,273
            
            
            $
            2,882
            
            
            
            6,312,839
            
            
            $
            505
            
            
            $
            1,125,445
            
            
            $
            58,390
            
            
            $
            357,590
            
            
            $
            98,296
            
            
            $
            1,643,108





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





Page
6
 Index




CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(US$
000’s)


(Unaudited)




For
      the Nine Months Ended September 30,2009
            
            
            2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      (loss) / income attributable to CME Ltd.
            
            $
            (41,907
            )
            
            $
            58,581Adjustments
      to reconcile net  (loss) / income to net cash generated from
      operating activities:Loss
      from discontinued operations (Note 19)
            
            
            262
            
            
            
            2,534Depreciation
      and amortization
            
            
            215,349
            
            
            
            235,744Impairment
      charge (Note 4)
            
            
            81,843
            
            
            
            -Loss
      / (gain) on disposal of fixed assets
            
            
            286
            
            
            
            (134
            )Stock-based
      compensation (Note 15)
            
            
            4,638
            
            
            
            5,540Noncontrolling
      interest in (loss) / income of consolidated subsidiaries
            
            
            (7,221
            )
            
            
            1,507Change
      in fair value of derivatives (Note 13)
            
            
            4,444
            
            
            
            13,671Foreign
      currency exchange (gain) / loss, net
            
            
            (113,655
            )
            
            
            5,587Net
      change in (net of effects of acquisitions and disposals of
      businesses):Accounts
      receivable
            
            
            73,900
            
            
            
            43,982Program
      rights
            
            
            (152,298
            )
            
            
            (210,663
            )Other
      assets
            
            
            (11,202
            )
            
            
            (19,297
            )Accounts
      payable and accrued liabilities
            
            
            (34,155
            )
            
            
            58,828Income
      taxes payable
            
            
            (15,410
            )
            
            
            (22,480
            )Deferred
      taxes
            
            
            (27,441
            )
            
            
            1,963VAT
      and other taxes payable
            
            
            133
            
            
            
            (3,161
            )Net
      cash (used in) / generated from continuing operating
      activities
            
            
            (22,434
            )
            
            
            172,202CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of property, plant and equipment
            
            
            (33,734
            )
            
            
            (59,173
            )Disposal
      of property, plant and equipment
            
            
            1,008
            
            
            
            302Investments
      in subsidiaries and unconsolidated affiliates
            
            
            (27,885
            )
            
            
            (401,768
            )Repayment
      of loans and advances to related parties
            
            
            (5,300
            )
            
            
            1,990Net
      cash used in continuing investing activities
            
            
            (65,911
            )
            
            
            (458,649
            )CASH
      FLOWS FROM FINANCING ACTIVITIES:Issuance
      of Common Stock, net of fees
            
            
            234,426
            
            
            
            -Net
      proceeds from issuance of Senior Notes
            
            
            635,418
            
            
            
            -Net
      proceeds from issuance of Convertible Notes
            
            
            -
            
            
            
            463,595Repayment
      of 2005 Fixed Rate Notes
            
            
            (91,143
            )
            
            
            -Transfers
      to restricted cash and cash equivalents (Note 6)
            
            
            (286,994
            )
            
            
            -Purchase
      of capped call option
            
            
            -
            
            
            
            (63,318
            )Proceeds
      from credit facilities
            
            
            261,239
            
            
            
            -Payment
      of credit facilities and capital leases
            
            
            (260,014
            )
            
            
            (13,381
            )Proceeds
      from exercise of stock options
            
            
            -
            
            
            
            1,222Excess
      tax benefits from share based payment arrangements
            
            
            588
            
            
            
            421Distributions
      paid to holders of noncontrolling interests
            
            
            (1,506
            )
            
            
            (2,460
            )Net
      cash received from continuing financing activities
            
            
            492,014
            
            
            
            386,079NET
      CASH USED IN DISCONTINUED OPERATIONS – OPERATING
ACTIVITIES
            
            
            (1,294
            )
            
            
            (3,201
            )NET
      CASH USED IN DISCONTINUED OPERATIONS – INVESTING
ACTIVITIES
            
            
            -
            
            
            
            (450
            )Impact
      of exchange rate fluctuations on cash
            
            
            13,340
            
            
            
            (13,162
            )Net
      increase in cash and cash equivalents
            
            
            415,715
            
            
            
            82,819CASH
      AND CASH EQUIVALENTS, beginning of period
            
            
            107,433
            
            
            
            142,812CASH
      AND CASH EQUIVALENTS, end of period
            
            $
            523,148
            
            
            $
            225,631




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





Page
7
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)




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 September 30, 2009, we had operations in Bulgaria,
Croatia, the Czech Republic, Romania, the Slovak Republic, Slovenia and
Ukraine.





Our
principal subsidiaries, equity-accounted affiliates and cost investments as at
September 30, 2009 were:





Company
      Name
            Effective
              Voting
              Interest
            Jurisdiction
      of
              Organization
            Type
      of AffiliateTop
      Tone Media S.A.
            80.0%
            Luxembourg
            SubsidiaryPRO
      BG MEDIA EOOD (“Pro.BG”)
            80.0%
            Bulgaria
            SubsidiaryTop
      Tone Media Bulgaria EOOD
            80.0%
            Bulgaria
            SubsidiaryZopal
      S.A.
            80.0%
            Luxembourg
            SubsidiaryLG
      Consult EOOD
            80.0%
            Bulgaria
            SubsidiaryRing
      TV EAD  (“Ring TV”)
            80.0%
            Bulgaria
            SubsidiaryNova
      TV d.d. (“Nova TV (Croatia)”)
            100.0%
            Croatia
            SubsidiaryOperativna
      Kompanija d.o.o.
            100.0%
            Croatia
            SubsidiaryMedia
      House d.o.o.
            100.0%
            Croatia
            SubsidiaryInternet
      Dnevnik d.o.o.
            100.0%
            Croatia
            SubsidiaryCET
      21 spol. s r.o. (“CET 21”)
            100.0%
            Czech
      Republic
            SubsidiaryJyxo,
      s.r.o. (“Jyxo”)
            100.0%
            Czech
      Republic
            SubsidiaryBLOG
      Internet, s.r.o. (“Blog“)
            100.0%
            Czech
      Republic
            SubsidiaryCME
      Romania B.V.
            100.0%
            Netherlands
            SubsidiaryMedia
      Pro International S.A. (“MPI”)
            95.0%
            Romania
            SubsidiaryMedia
      Vision S.R.L (“Media Vision”)
            95.0%
            Romania
            SubsidiaryMusic
      Television System S.R.L. (“MTS”)
            95.0%
            Romania
            SubsidiaryPro
      TV S.A. (“Pro TV”)
            95.0%
            Romania
            SubsidiarySport
      Radio TV Media S.R.L (“Sport.ro”)
            95.0%
            Romania
            SubsidiaryCampus
      Radio S.R.L.
            19.0%
            Romania
            Equity-Accounted
      AffiliateMedia
      Pro Management S.A. (“MP Management”)
            8.7%
            Romania
            Cost
      investmentMedia
      Pro B.V.
            10.0%
            Netherlands
            Cost
      investmentCME
      Slovak Holdings B.V.
            100.0%
            Netherlands
            SubsidiaryA.R.J.,
      a.s.
            100.0%
            Slovak
      Republic
            SubsidiaryMARKIZA-SLOVAKIA  spol.
      s r.o. (“Markiza”)
            100.0%
            Slovak
      Republic
            SubsidiaryMEDIA
      INVEST, spol. s r.o.
            100.0%
            Slovak
      Republic
            Subsidiary





Page
8
 Index





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





Company
      Name
            Effective
              Voting
              Interest
            Jurisdiction
      of
              Organization
            Type
      of AffiliateA.D.A.M.
      a.s.
            100.0%
            Slovak
      Republic
            Subsidiary
      (in liquidation)GAMATEX
      spol. s r.o.
            100.0%
            Slovak
      Republic
            Subsidiary
      (in liquidation)EMAIL.SK
      s.r.o.
            80.0%
            Slovak
      Republic
            SubsidiaryPMT,
      s.r.o.
            31.5%
            Slovak
      Republic
            Cost
      investmentMMTV
      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
            SubsidiaryTELEVIDEO
      d.o.o. (“Televideo”)
            100.0%
            Slovenia
            SubsidiaryKanal
      A d.o.o. (“Kanal A”)
            100.0%
            Slovenia
            SubsidiaryEuro
      3 TV d.o.o.
            42.0%
            Slovenia
            Equity-Accounted
      AffiliateInternational
      Media Services Ltd.
            100.0%
            Bermuda
            SubsidiaryCME
      Ukraine Holding GmbH
            100.0%
            Austria
            SubsidiaryInnova
      Film GmbH
            100.0%
            Germany
            SubsidiaryCME
      Cyprus Holding Ltd.
            100.0%
            Cyprus
            SubsidiaryTV
      Media Planet Ltd.
            100.0%
            Cyprus
            Subsidiary1+1
      Production
            100.0%
            Ukraine
            SubsidiaryStudio
      1+1 LLC (“Studio 1+1”)
            100.0%
            Ukraine
            SubsidiaryUkrainian
      Media Services LLC
            99.9%
            Ukraine
            SubsidiaryGrizard
      Investments Limited.
            100.0%
            Cyprus
            SubsidiaryGrintwood
      Investments Limited
            100.0%
            Cyprus
            SubsidiaryCME
      Ukraine Holding B.V.
            100.0%
            Netherlands
            SubsidiaryUkrpromtorg-2003
      LLC (“Ukrpromtorg”)
            100.0%
            Ukraine
            SubsidiaryGravis-Kino
      LLC (“Gravis-Kino”)
            100.0%
            Ukraine
            SubsidiaryNart
      LLC
            100.0%
            Ukraine
            SubsidiaryTV
      Stimul LLC (“TV Stimul”)
            100.0%
            Ukraine
            SubsidiaryTOR
      LLC (“Tor”)
            100.0%
            Ukraine
            SubsidiaryZHYSA
      LLC (“Zhysa”)
            100.0%
            Ukraine
            SubsidiaryGlavred-Media
      LLC (“Glavred”)
            10.0%
            Ukraine
            Cost
      InvestmentCentral
      European Media Enterprises N.V.
            100.0%
            Netherlands
      Antilles
            SubsidiaryCentral
      European Media Enterprises II B.V.
            100.0%
            Netherlands
      Antilles
            SubsidiaryCME
      Media Enterprises B.V.
            100.0%
            Netherlands
            SubsidiaryCME
      Programming B.V.
            100.0%
            Netherlands
            SubsidiaryCME
      Production B.V. (“CME Production”)
            100.0%
            Netherlands
            SubsidiaryCME
      Development Financing B.V.
            100.0%
            Netherlands
            SubsidiaryCME
      Development Corporation
            100.0%
            Delaware
      (USA)
            SubsidiaryCME
      Media Services Limited
            100.0%
            United
      Kingdom
            SubsidiaryCME
      SR d.o.o.
            100.0%
            Serbia
            Subsidiary





Page
9
 Index





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)











Page
10
 Index





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





Bulgaria





We
operate one national television channel in Bulgaria, PRO.BG, formerly known as
TV2, and the cable sports channel RING.BG, formerly known as RING TV. We own
80.0% of Pro.BG, which holds the broadcast license for PRO.BG, and 80.0% of Ring
TV, which operates RING.BG.





Croatia





We
operate one national television channel in Croatia, NOVA TV (Croatia). We own
100.0% of Nova TV (Croatia) which holds the broadcast license for NOVA TV
(Croatia).





Czech
Republic





We
operate three television channels in the Czech Republic; TV NOVA (Czech
Republic), NOVA SPORT and NOVA CINEMA. We own 100.0% of CET 21, which holds the
national terrestrial broadcast licenses for TV NOVA (Czech Republic) and NOVA
CINEMA and the satellite/digital licenses for NOVA SPORT and NOVA
CINEMA.





Romania





We
operate five television channels in Romania: PRO TV, ACASA, PRO CINEMA, SPORT.RO
and MTV ROMANIA, as well as PRO TV INTERNATIONAL, a channel distributed by
satellite outside the country featuring programs re-broadcast from other
Romanian channels. We also operate two radio channels in Romania, PRO FM, a pop
music channel, and INFO PRO, a national infotainment channel.





We own a
95.0% interest in each of Pro TV, MPI and Media Vision, a production, dubbing
and subtitling company.  The remaining shares of each of these
companies are owned by companies or individuals associated with, Adrian Sarbu,
our President and Chief Executive Officer.  Pro TV holds the licenses
for the PRO TV, ACASA, PRO TV INTERNATIONAL, PRO CINEMA, SPORT.RO and MTV
ROMANIA channels.





We
currently own 10.0% of Media Pro B.V. and 8.7% of Media Pro Management S.A., the
parent companies of the Media Pro group of companies (“Media Pro”). Media Pro
comprises a number of companies with operations in the fields of production,
distribution, publishing, information, printing, cinema and entertainment in
Central and Eastern Europe. On July 27, 2009, we entered into a framework
agreement with MP Management, Media Pro B.V. (“MP BV”) and Mr. Sarbu, pursuant
to which we will acquire the entertainment businesses of Media
Pro.  We expect the transaction to close during the fourth quarter of
2009 (see Note 20, “Commitments and Contingencies: Media Pro
Transaction”).





Slovak
Republic





We
operate a national television channel in the Slovak Republic, TV MARKIZA and a
female-orientated cable channel, DOMA, which we launched on August 31, 2009. We
own 100.0% of Markiza, which holds the national terrestrial broadcast license
for TV MARKIZA and operates DOMA.





Slovenia





We
operate two national television channels in Slovenia, POP TV and KANAL A and one
regional television channel, TV PIKA. We increased our ownership in TV PIKA from
20.0% to 100.0% on September 2, 2009 (see Note 3, “Acquisitions and
Disposals”).  We own 100.0% of Pro Plus, the operating company for our
Slovenia operations.  Pro Plus has a 100.0% interest in each of Pop
TV, which holds the licenses for the POP TV channel, Kanal A, which holds the
licenses for the KANAL A channel and Televideo, which holds the licenses for the
TV PIKA channel.





Page
11
 Index





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





Ukraine





We
operate one national television channel in Ukraine, STUDIO 1+1, and KINO, a
network of regional channels. We hold a 100.0% interest in each of Studio 1+1,
which holds the license for and operates the STUDIO 1+1 channel, and
Gravis-Kino, the license holder for the KINO channel. On July 2, 2009 we entered
into an agreement with Igor Kolomoisky, a shareholder and a member of our Board
of Directors, and of the Supervisory Boards of Studio 1+1 and 1+1 Production,
pursuant to which we will sell him 49.0% of our interest in Studio 1+1 and
Gravis-Kino and combine those operations with the operations of the TET TV
channel in Ukraine (see Note 20, “Commitments and Contingencies: Ukraine
Transaction”).





2.  SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES





Basis
of Presentation





The
interim financial statements for the three and nine months ended September 30,
2009 should be read in conjunction with our Annual Report on Form 10-K for the
year ended December 31, 2008, as updated for certain accounting changes by our
current report on Form 8-K filed on July 6, 2009.  Our significant
accounting policies have not changed since December 31, 2008, except as noted
below.





In the
opinion of management, the accompanying interim unaudited financial statements
reflect all adjustments, consisting only of normal recurring items, necessary
for their fair presentation in conformity with accounting principles generally
accepted in the United States of America (“US GAAP”).  The
consolidated results of operations for interim periods are not necessarily
indicative of the results to be expected for a full year.





The
preparation of financial statements in conformity with US GAAP 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 and assumptions.





The
condensed consolidated financial statements include the accounts of Central
European Media Enterprises Ltd. and our subsidiaries, after the elimination of
intercompany accounts and transactions.  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.





The terms
the “Company”, “we”, “us”, and “our” are used in this Form 10-Q to refer
collectively to the parent company and the subsidiaries through which our
various businesses are actually conducted.  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$”, “USD” or “dollars” are to US dollars, all references to
“BGN” are to Bulgarian leva, 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 “UAH” are to Ukrainian hryvna and all references
to “Euro” or “EUR” are to the European Union Euro.





FASB
Codification project





On July
1, 2009 we adopted FASB Statement No. 168, “The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles”
(“FAS 168 (ASC 205)”). FAS 168 (ASC 105) became the single source of
authoritative nongovernmental US GAAP, superseding existing FASB, American
Institute of Certified Public Accountants (“AICPA”), Emerging Issues Task Force
(“EITF”), and related accounting literature. FAS 168 (ASC 205) reorganizes the
thousands of GAAP pronouncements into roughly 90 accounting topics and displays
them using a consistent structure. Also included is relevant Securities and
Exchange Commission guidance organized using the same topical structure in
separate sections. For convenience, references to pre-codification standards
have been retained in this filing but are accompanied parenthetically by a
reference to the appropriate section in the Accounting Standards CodificationTM
(“ASC”, “the Codification”). In future filings, commencing with those for the
2010 fiscal year, all references to authoritative accounting literature will be
in accordance with the Codification only.


Page
12
 Index





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





Noncontrolling
Interests





On
January 1, 2009, we adopted FASB Statement No. 160, “Noncontrolling Interests in
Consolidated Financial Statements - an Amendment of ARB No. 51” (“FAS 160, (ASC
810)”), which establishes accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary.  FAS 160 (ASC 810) clarifies that a noncontrolling
interest in a subsidiary is an ownership interest in the consolidated entity
that should be reported as equity in the consolidated financial statements. FAS
160 (ASC 810) also requires consolidated net income to be reported at amounts
that include the amounts attributable to both the parent and the noncontrolling
interest.  It also requires disclosure, on the face of the
consolidated statement of income, of the amounts of consolidated net income
attributable to the parent and to the noncontrolling interest.  FAS
160 (ASC 810) also provides guidance when a subsidiary is deconsolidated and
requires expanded disclosures in the consolidated financial statements that
clearly identify and distinguish between the interests of the parent’s owners
and the interests of the noncontrolling owners of a subsidiary.





On
adoption of FAS 160 (AS 810) we began to attribute the net losses of our
Bulgaria operations to the holders of the noncontrolling interest. This resulted
in a reduction to the net loss attributable to CME Ltd. in accordance with
paragraph 15 of Accounting Research Bulletin No. 51 “Consolidated Financial
Statements” (“ARB 51 (ASC 810)”). We had previously not attributed these losses
because it would have resulted in a deficit noncontrolling interest. Had we
continued to apply the previous requirements of ARB 51 (ASC 810), the impact on
consolidated net income attributable to the Company and earnings per share would
have been as follows:





For
      the Three Months Ended September 30, 2009
            
            
            For
      the Nine Months Ended September 30, 2009Net
      income / (loss) attributable to CME Ltd. as reported
            
            $
            (21,550
            )
            
            $
            (41,907
            )Deduct:
      noncontrolling interest income recognized since the adoption of FAS 160
      (ASC 810)
            
            
            (2,926
            )
            
            
            (7,373
            )Pro
      Forma net income / (loss)
            
            $
            (24,476
            )
            
            $
            (49,280
            )Net
      loss per share – Basic (As reported)
            
            $
            (0.35
            )
            
            $
            (0.81
            )Net
      loss per share – Basic (Pro Forma)
            
            $
            (0.40
            )
            
            $
            (0.95
            )Net
      loss per share – Diluted (As reported)
            
            $
            (0.35
            )
            
            $
            (0.81
            )Net
      loss per share – Diluted (Pro Forma)
            
            $
            (0.40
            )
            
            $
            (0.95
            )





Other
than the increases in net losses for the three and nine months ended September
30, 2009 noted above, we reclassified certain prior period balances in our
Consolidated Balance Sheet, Consolidated Statement of Operations and Statement
of Shareholders’ Equity to reflect the new presentation requirements of FAS 160
(ASC 810) as shown below.





Convertible
Debt





On
January 1, 2009, we adopted FASB Staff Position No. APB 14-1, “Accounting for
Convertible Debt Instruments That May Be Settled in Cash Upon Conversion
(Including Partial Cash Settlement)” (“FSP APB 14-1 (ASC 470)”), which clarifies
the accounting for convertible debt instruments that may be settled in cash
(including partial cash settlement) upon conversion. FSP APB 14-1 (ASC 470)
requires issuers to account separately for the liability and equity components
of certain convertible debt instruments in a manner that reflects the issuer's
non-convertible debt (unsecured debt) borrowing rate when interest cost is
recognized. FSP APB 14-1 (ASC 470) requires bifurcation of a component of the
debt including allocated issuance costs, classification of that component in
equity and the accretion of the resulting discount on the debt and the allocated
acquisition costs to be recognized as part of interest expense in the
Consolidated Statement of Operations.





Page
13
 Index





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





FSP APB
14-1 (ASC 470) requires retrospective application; therefore we restated both
opening shareholders’ equity in 2009 and comparative amounts for 2008 in all
primary financial statements in 2009 to reflect revised equity and liability
balances on issuance of our Convertible Notes (as defined herein) of US$ 108.1
million (net of allocated acquisition costs) and US$ 364.2 million,
respectively.





The
impact on the 2008 comparative amounts for the three and nine months ended
September 30, 2008 of the adoption of both FSP APB 14-1 (ASC 470) and FAS
160  (ASC 810) was as follows:





Page
14
 Index





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





Impact
      of adoptingAs
      reported
              
              
              FSP
      APB 14-1 (ASC 470)
              
              
              FAS
      160 (ASC 810)
              
              Other
      Adjustments (1)
              
              
              As
      AdjustedConsolidated
      Statement of OperationsFor
      the Three Months Ended September 30, 2008Interest
      expense
              
              $
              (17,947
              )
              
              $
              (4,196
              )
              
              $
              -
              
              
              
              $ 16
              
              
              $
              (22,127
              )Minority
      interest in income of consolidated subsidiaries (2)
              
              
              644
              
              
              
              -
              
              
              
              (379
              )
              
              
              -
              
              
              
              265Net
      income
              
              $
              (14,755
              )
              
              $
              (4,196
              )
              
              $
              (379
              )
              
              
              $   
      -
              
              
              $
              (19,330
              )Net
      income per shareNet
      income (Basic)
              
              $
              (0.35
              )
              
              $
              (0.09
              )
              
              
              (0.01
              )
              
              
              $   
      -
              
              
              $
              (0.45
              )Net
      income (Diluted)
              
              $
              (0.35
              )
              
              $
              (0.09
              )
              
              
              (0.01
              )
              
              
              $   
      -
              
              
              $
              (0.45
              )


For
      the Nine Months ended September 30, 2008Interest
      expense
            
            $
            (50,337
            )
            
            $
            (9,417
            )
            
            $
            -
            
            
            
            $ 52
            
            
            $
            (59,702
            )Minority
      interest in income of consolidated subsidiaries (2)
            
            
            (1,761
            )
            
            
            -
            
            
            
            254
            
            
            
            -
            
            
            
            (1,507
            )Net
      income
            
            $
            67,744
            
            
            $
            (9,417
            )
            
            $
            254
            
            
            
            $   
      -
            
            
            $
            58,581Net
      income per shareNet
      income (Basic)
            
            $
            1.60
            
            
            $
            (0.22
            )
            
            $
            0.01
            
            
            
            $   
      -
            
            
            $
            1.38Net
      income (Diluted)
            
            $
            1.58
            
            
            $
            (0.22
            )
            
            $
            0.01
            
            
            
            $   
      -
            
            
            $
            1.37


As
      at December 31, 2008Impact
      of adoptingAs
      reported
              
              
              FSP
      APB 14-1 (ASC 470)
              
              
              FAS
      160 (ASC 810)
              
              Other
      Adjustments (1)
              
              
              As
      AdjustedConsolidated
      Balance SheetOther
      current assets
              
              $
              98,725
              
              
              $
              (639
              )
              
              $
              -
              
              
              
              $ 21
              )
              
              $
              97,265Other
      non-current assets
              
              
              20,743
              
              
              
              (1,478
              )
              
              
              -
              
              
              
              -
              
              
              
              19,265Senior
      Debt
              
              
              1,024,721
              
              
              
              (96,196
              )
              
              
              -
              
              
              
              -
              
              
              
              928,525Additional
      paid-in capital
              
              
              1,018,532
              
              
              
              108,085
              
              
              
              -
              
              
              
              -
              
              
              
              1,126,617Accumulated
      deficit
              
              
              (224,086
              )
              
              
              (14,006
              )
              
              
              1,256
              
              
              
              -
              
              
              
              (236,836
              )Accumulated
      Other Comprehensive Income
              
              $
              203,346
              
              
              $
              -
              
              
              $
              (1,256
              )
              
              
              $   
      -
              
              
              $
              202,090





(1) We
made certain reallocations during the year ended December 31, 2008 to recognize
our CITI channel as a discontinued operation, which had no impact on net income.
These reclassifications were made in all periods in our financial statements for
the year ended December 31, 2008 but were not reflected in our condensed
consolidated financial statements for the quarterly period ended September 30,
2008. In addition, we recognized US$ 288.0 million of restricted cash and cash
equivalents at September 30, 2009. Accordingly, we reclassified US$ 0.8 million
of restricted cash and cash equivalents that had been included within other
assets at September 30, 2008.





(2) As
required by FAS 160 (ASC 810), minority interest in income of consolidated
subsidiaries was renamed “Net income attributable to noncontrolling interests”.
We also reclassified the associated Minority Interest account in the
consolidated balance sheet into Shareholders’ Equity and renamed it
“Noncontrolling interests”.





Page
15
 Index





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





Business
Combinations





On
January 1, 2009, we adopted FASB Statement No. 141(R), “BusinessCombinations” (“FAS
141(R) (ASC 805)”), which establishes principles and requirements for how the
acquirer:  (a) recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree; (b) recognizes and measures the goodwill acquired in
the business combination or a gain from a bargain purchase; and (c) determines
what information to disclose to enable users of the financial statements to
evaluate the nature and financial effects of the business
combination.  FAS 141(R) (ASC 805) requires contingent consideration
to be recognized at its fair value on the acquisition date and, for certain
arrangements, changes in fair value to be recognized in earnings until
settled.  FAS 141(R) (ASC 805) also requires acquisition-related
transaction and restructuring costs to be expensed rather than treated as part
of the cost of the acquisition.  FAS 141(R) (ASC 805) applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008.  Because the requirements of FAS 141(R) (ASC 805)
are largely prospective, its adoption did not have a material impact on our
financial position or results of operations. However, we recognized an expense
of approximately US$ 0.9 million in the fourth quarter of 2008 for acquisition
costs incurred on potential acquisitions that did not complete prior to December
31, 2008 and for which capitalization is prohibited under FAS 141(R) (ASC
805).





On
January 1, 2009, we adopted the Emerging Issues Task Force (“EITF”) consensus on
Issue No. 08-7, “Accounting for Defensive Intangible Assets” (“EITF 08-7 (ASC
350)”). The consensus addresses the accounting for an intangible asset acquired
in a business combination or asset acquisition that an entity does not intend to
use or intends to hold to prevent others from obtaining access (a defensive
intangible asset). Under EITF 08-7 (ASC 350), a defensive intangible asset would
need to be accounted for as a separate unit of accounting and would be assigned
a useful life based on the period over which the asset diminishes in value. EITF
08-7 (ASC 350) was effective for transactions occurring after December 31, 2008.
The adoption of this standard did not have a material impact on our financial
position or results of operations.





On
January 1, 2009, we adopted FASB Staff Position No. FAS 142-3 “Determination of
the Useful Life of Intangible Assets,” (“FSP FAS 142-3 (ASC 350)”) which aims to
improve consistency between the useful life of a recognized intangible asset
under FASB Statement No. 142 “Goodwill and Other Intangible Assets” and the
period of expected cash flows used to measure the fair value of the asset under
FAS 141 (R) (ASC 350), especially where the underlying arrangement includes
renewal or extension terms. The FSP was effective prospectively for fiscal years
beginning after December 15, 2008. The adoption of FSP FAS 142-3 (ASC 350) did
not have a material impact on our financial position or results of
operations.





On
January 1, 2009, we adopted the EITF consensus on Issue No. 08-6, “Equity Method
Investment Accounting Considerations” (“EITF 08-6 (ASC 323)”) which addresses
certain effects of FAS 141(R) (ASC 805) and FAS 160 (ASC 810) on an entity’s
accounting for equity-method investments. The consensus indicates, among other
things, that transaction costs for an investment should be included in the cost
of the equity-method investment (and not expensed) and shares subsequently
issued by the equity-method investee that reduce the investor’s ownership
percentage should be accounted for as if the investor had sold a proportionate
share of its investment, with gains or losses recorded through earnings. EITF
08-6 (ASC 323) is effective for transactions occurring after December 31, 2008.
The adoption of this standard did not have a material impact on our financial
position or results of operations.





Derivative
Disclosure





On
January 1, 2009, we adopted FASB Statement No. 161 “Disclosures About Derivative
Instruments and Hedging Activities an Amendment of FASB Statement No. 133” (“FAS
161 (ASC 815)”) which enhances the disclosure requirements about derivatives and
hedging activities. FAS 161 (ASC 815) requires enhanced narrative disclosure
about how and why an entity uses derivative instruments, how they are
accounted  for under FASB Statement No. 133 “Accounting for Derivative
Instruments and Hedging Activities” (“FAS 133 (ASC 815)”), and what impact they
have on financial position, results of operations and cash flows. FAS 161 (ASC
815) is effective for fiscal years, and interim periods within those fiscal
years, beginning on or after November 15, 2008. The adoption of FAS 161 (ASC
815) did not have a material impact on our financial position or results of
operations.





Page
16
 Index





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





Subsequent
Events





In May
2009, the FASB issued, and we adopted, FASB Statement No. 165, “Subsequent
Events” (“FAS 165 (ASC 855)”). FAS 165 (ASC 855) stipulates the period after the
balance sheet date during which management of a reporting entity should evaluate
events or transactions that may occur for potential recognition or disclosure in
the financial statements, the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements and the disclosures that an entity should make about events
or transactions that occurred after the balance sheet date including a
requirement to disclose the date through which they have evaluated subsequent
events and whether the date corresponds with the release of their financial
statements. FAS 165 (ASC 855) was effective for interim and annual periods
ending after June 15, 2009. The adoption of FAS 165 (ASC 855) did not have a
material impact on our financial position and results of
operations.





Recent
Accounting Pronouncements





In June
2009, the FASB issued FASB Statement No. 166, “Accounting for Transfers of
Financial Assets” (“FAS 166 (ASC 860)”). FAS 166 removes the concept of a
qualifying special-purpose entity from FASB Statement No. 140, “Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities”
(“FAS 140 (ASC 860)”) and removes the exception from applying FASB
Interpretation No. 46 (revised, December 2003), “Consolidation of Variable
Interest Entities” (“FIN 46(R) (ASC 810)”). This statement also clarifies the
requirements for isolation and limitations on portions of financial assets that
are eligible for sale accounting. FAS 166 (ASC 860) is effective for fiscal
years beginning after November 15, 2009. We are currently evaluating the impact
of adopting this standard on our financial position or results of
operations.





In June
2009, the FASB issued FASB Statement No. 167, “Amendments to FASB Interpretation
No. 46R” (“FAS 167 (ASC 810)”). FAS 167 (ASC 810) amends FIN 46(R) (ASC 810) to
require an analysis to determine whether a variable interest gives the entity a
controlling financial interest in a variable interest entity. This statement
requires an ongoing reassessment and eliminates the quantitative approach
previously required for determining whether an entity is the primary
beneficiary. FAS 167 (ASC 810) is effective for fiscal years beginning after
November 15, 2009 and early adoption is prohibited. We are currently evaluating
the impact of adopting this standard on our financial position or results of
operations.





3.  ACQUISITIONS
AND DISPOSALS





Slovenia





Acquisition
of Televideo





On
September 2, 2009 we acquired the remaining 80% of Televideo for cash
consideration of EUR 1.2 million (approximately US$ 1.7 million at the date of
acquisition). Televideo operates the TV PIKA channel, a female-orientated
general cable channel. In connection with this transaction we provisionally
allocated EUR 0.2 million (approximately US$ 0.3 million) to trademarks and EUR
1.7 million (approximately US$ 2.4 million) to goodwill.





Page
17
 Index





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





Ukraine





Acquisition
of KINO noncontrolling interest





In the
fourth quarter of 2008, in accordance with our stated objectives of establishing
multi-channel broadcasting platforms in all of our markets and acquiring the
remaining noncontrolling interests in our channels, we reached an agreement with
our minority partners to acquire 100.0% of the KINO channel and to transfer to
them our interest in the CITI channel, a local station that broadcasts in the
Kiev region. In connection with this agreement, we segregated the broadcasting
licenses and other assets of the KINO channel and transferred them to
Gravis-Kino, a new entity spun off from Gravis LLC (“Gravis”), which previously
operated both the KINO and the CITI channels.  Between January 14,
2009 and February 10, 2009, we acquired a 100.0% interest in the KINO channel by
acquiring from our minority partners their interests in Tor, Zhysa, TV Stimul,
Ukrpromtorg and Gravis-Kino and selling to them for a de minimis amount our
interest in Gravis, which owns the broadcasting licenses and other assets of the
CITI channel. The total consideration paid by us for these interests was US$
10.0 million, including a payment of US$ 1.5 million for the use of studios,
offices and equipment of Gravis and the provision of other transitional services
through December 31, 2009. In addition, on February 10, 2009, we acquired from
an entity controlled by Alexander Tretyakov, our former partner in KINO and
CITI, a 10.0% ownership interest in Glavred for US$ 12.0 million. Glavred owns a
number of websites and print publications as well as a radio station. Igor
Kolomoisky indirectly holds a 50% interest in Glavred. The remaining 40% is
owned by Mr. Tretyakov.





We
concluded that these transactions should be accounted for together as the
acquisition of a noncontrolling interest in a subsidiary where control is
maintained under FAS 160 (ASC 810). Accordingly we recognized the excess of the
fair value of the consideration over the adjustment to noncontrolling interest
as an adjustment to additional paid-in capital.





The
amounts allocated to consideration for KINO totaled US$ 23.1 million,
represented by the fair value of the net assets of the CITI channel transferred
(US$ 1.1 million), cash payments of US$ 8.5 million for the equity interests,
and US$ 1.5 million for transitional services, and the US$ 12.0 million we paid
for the investment in Glavred, which we concluded formed part of the
consideration because we determined the Glavred investment to have a fair value
of US$ nil at the date of acquisition.





The
balance of noncontrolling interest recorded at the date of acquisition was US$
nil because the operations had been loss-making. Therefore, the full
consideration of US$ 23.1 million was recognized as a reduction to
equity.





Page
18
 Index





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





4.  GOODWILL
AND INTANGIBLE ASSETS





Our
goodwill and intangible assets are the result of acquisitions in Croatia, the
Czech Republic, Romania, the Slovak Republic, Slovenia and
Ukraine.  No goodwill is expected to be deductible for tax
purposes.





Goodwill:





Goodwill
by reporting unit as at September 30, 2009 and December 31, 2008 is summarized
as follows:





Balance,
      December 31, 2008
            
            
            Additions
            
            
            Impairment
      charge
            
            
            Foreign
      currency movement
            
            
            Balance,
      September 30, 2009Croatia
            
            $
            739
            
            
            $
            -
            
            
            $
            -
            
            
            $
            38
            
            
            $
            777Czech
      Republic
            
            
            888,936
            
            
            
            -
            
            
            
            -
            
            
            
            112,191
            
            
            
            1,001,127Romania
            
            
            72,336
            
            
            
            -
            
            
            
            -
            
            
            
            (700
            )
            
            
            71,636Slovak
      Republic
            
            
            61,642
            
            
            
            -
            
            
            
            -
            
            
            
            2,384
            
            
            
            64,026Slovenia
            
            
            17,388
            
            
            
            2,439
            
            
            
            -
            
            
            
            907
            
            
            
            20,734Total
            
            $
            1,041,041
            
            
            $
            2,439
            
            
            $
            -
            
            
            $
            114,820
            
            
            $
            1,158,300








Broadcast
licenses and other intangible assets:





The net
book value of our broadcast licenses and other intangible assets as at September
30, 2009 and December 31, 2008 is summarized as follows:





Indefinite-Lived
      Broadcast Licenses
            
            
            Amortized
      Broadcast Licenses
            
            
            Trademarks
            
            
            Customer
      Relationships
            
            
            Other
            
            
            TotalBalance,
      December 31, 2008
            
            $
            59,856
            
            
            $
            282,058
            
            
            $
            97,047
            
            
            $
            68,280
            
            
            $
            7,491
            
            
            $
            514,732Additions
            
            
            -
            
            
            
            -
            
            
            
            293
            
            
            
            -
            
            
            
            -
            
            
            
            293Impairment
            
            
            -
            
            
            
            (75,788
            )
            
            
            (76
            )
            
            
            -
            
            
            
            (4,882
            )
            
            
            (80,746
            )Amortization
            
            
            -
            
            
            
            (9,924
            )
            
            
            (106
            )
            
            
            (5,393
            )
            
            
            (628
            )
            
            
            (16,051
            )Foreign
      currency movements
            
            
            36
            
            
            
            (5,490
            )
            
            
            (8,155
            )
            
            
            2,251
            
            
            
            (361
            )
            
            
            (11,719
            )Balance,
      September 30, 2009
            
            $
            59,892
            
            
            $
            190,856
            
            
            $
            89,003
            
            
            $
            65,138
            
            
            $
            1,620
            
            
            $
            406,509





Our
broadcast licenses in Croatia, Romania and Slovenia have indefinite lives
because we expect the cash flows generated by those assets to continue
indefinitely.  These licenses are subject to annual impairment
reviews.  The licenses in Ukraine have economic useful lives between,
and are amortized on a straight-line basis over, two and eighteen
years.  Licenses in the Czech Republic have an economic useful life
of, and are amortized on a straight-line basis over, twenty
years.  The license in the Slovak Republic has an economic useful life
of, and is amortized on a straight-line basis over, thirteen years.





Customer
relationships are deemed to have an economic useful life of, and are amortized
on a straight-line basis over, five to fourteen years.  Trademarks
have an indefinite life, with the exception of those acquired trademarks which
we do not intend to use, which have an economic life of, and are being amortized
over, two years using the declining balance method.





Page
19
 Index





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





The gross
value and accumulated amortization of broadcast licenses and other intangible
assets was as follows at September 30, 2009 and December 31, 2008:





September
      30, 2009
            
            
            December
      31, 2008Gross
      value
            
            $
            461,731
            
            
            $
            549,140Accumulated
      amortization
            
            
            (115,114
            )
            
            
            (94,264
            )Net
      book value of amortized intangible assets
            
            $
            346,617
            
            
            $
            454,876Indefinite-lived
      broadcast licenses
            
            
            59,892
            
            
            
            59,856Total
      broadcast licenses and other intangible assets, net
            
            $
            406,509
            
            
            $
            514,732





Impairment
of Goodwill, indefinite-lived intangible assets and long-lived
assets:





Summary.





We
recognized no impairment charges in respect of goodwill or long-lived assets in
the three months ended September 30, 2009, nor in the three or nine months ended
September 30, 2008. We recognized the following charges in the nine months ended
September 30, 2009:





Amortized
      Trademarks
            
            
            Amortized
      Broadcast Licenses
            
            
            Other
      Intangible Assets
            
            
            Other
      Assets
            
            
            TotalBulgaria
            
            $
            76
            
            
            $
            75,788
            
            
            $
            4,882
            
            
            $
            1,097
            
            
            $
            81,843





Process
of reviewing goodwill, indefinite-lived intangible assets and long-lived assets
for impairment.





We review
both goodwill and indefinite-lived intangible assets for impairment in the
fourth quarter of each year under FASB Statement No. 142 “Goodwill and Other
Intangible Assets” (“FAS 142 (ASC 350)”).  Goodwill is evaluated at
the reporting unit level and each indefinite-lived intangible asset is evaluated
individually. Long-lived assets are evaluated at the asset group level under
FASB Statement No. 144 “Accounting for the Impairment and Disposal of Long-Lived
Assets” (“FAS 144 (ASC 360)”) when there is an indication that they may be
impaired.





Whenever
events occur which suggest any assets in a reporting unit may be impaired an
evaluation of the goodwill and indefinite-lived intangible assets, together with
the associated long-lived assets of each asset group, is performed. Outside our
annual review, there are a number of factors which could trigger an impairment
review and these could include:





·
            under-performance
      of operating segments or changes in projected
  results;


·
            changes
      in the manner of utilization of an
asset;


·
            severe
      and sustained declines in the traded price of our Class A common stock
      that are not attributable to factors other than the underlying value of
      our assets;


·
            negative
      market conditions or economic trends;
and


·
            specific
      events, such as new legislation, new entrants, changes in technology or
      adverse legal judgments that we believe could have a negative impact on
      our business.





Goodwill
is evaluated for impairment at the reporting unit level. We have determined that
each of our reporting segments is a reporting unit. Long-lived assets are
evaluated at the asset group level and we have determined that, with the
exception of Bulgaria and Ukraine, each reporting unit is also an asset group
because they are the lowest level for which identifiable cash flows are largely
independent of the cash flows of other assets and liabilities. In Bulgaria,
there are two asset groups, RING.BG and PRO.BG, and there are two in Ukraine,
STUDIO 1+1 and KINO.





Page
20
 Index





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





In
testing the goodwill of each reporting unit, the fair value of the reporting
unit is compared to the carrying value of its assets, including goodwill. If the
fair value of the reporting unit is less than its carrying value, the fair value
of the reporting unit is then measured against the fair value of its underlying
assets and liabilities, excluding goodwill, to estimate an implied fair value of
the reporting unit’s goodwill. An impairment loss is recognized for any excess
of the carrying value of the reporting unit’s goodwill over the implied fair
value of that goodwill after adjusting for any impairments of indefinite-lived
intangible assets or long-lived assets.





Indefinite-lived
intangible assets are evaluated for impairment by comparing the fair value of
the asset to its carrying value. Any excess of the carrying value over the fair
value is recognized as an impairment charge.





Recoverability
of assets to be held and used is measured by a comparison of the carrying amount
of an asset group to our estimate of the undiscounted future cash flows we
expect that asset group will generate. If the carrying amount of an asset
exceeds our estimate of its undiscounted future cash flows, an impairment charge
is recognized equal to the amount by which the carrying amount exceeds the fair
value of the respective asset.





Impairment
reviews during 2009 and charges recognized.





Although
we perform regular annual impairment reviews in the fourth quarter of each year,
most recently in the fourth quarter of 2008, a number of events have occurred
since then that suggest further impairments may have occurred,
including:





·
            a
      continued reduction in the short and medium economic projections for our
      markets by external analysts fuelled by a widespread perception that
      Central and Eastern Europe had been heavily impacted by the global
      economic crisis and growing sentiment that recovery would take longer than
      expected;


·
            increasing
      reluctance of advertisers to make spending commitments, which has had a
      larger than expected impact on both the proportion of our advertising
      inventory we can sell and a reduction in the prices we can
      achieve;


·
            continued
      significant volatility in the price of shares of our Class A common stock,
      particularly during the first quarter of
2009;


·
            historically
      high sovereign debt yields in our markets, suggesting a fundamental
      re-pricing of risk by investors;
and


·
            an
      escalation of the economic crisis in Ukraine, including the downgrading of
      its sovereign credit rating to CCC+ by Standard &
    Poors.





All of
these factors were felt most acutely in the first quarter of 2009. The second
quarter saw a slight improvement in some macro economic indicators, which
continued in the third quarter.





During
the three months ended March 31, 2009, the price of our Class A common stock
decreased from a high of US$ 22.70 per share to a low of US$ 4.86 per share. In
addition, when we updated our medium and long-term forecast models at March 31,
2009, we determined that the forecast future cash flows of all of our stations
had decreased compared to our previous estimates. We concluded that together
these two events constituted an indicator of possible impairment in all
reporting units and asset groups and it was therefore necessary to review them
for impairment again under FAS 142 (ASC 350) and FAS 144 (ASC 360) (the “first
quarter impairment review”).





Upon
reviewing all of our long-lived assets, indefinite-lived intangible assets and
goodwill in the first quarter impairment review, we concluded that a charge was
required to impair long-lived assets in Bulgaria. In all other cases, the extent
to which the respective assets tested passed the impairment test had reduced
since they were previously tested for impairment in the fourth quarter of 2008.
In the Czech Republic this decline had caused the result of the goodwill
impairment test to be particularly close.





Page
21
 Index





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





Although
the price of our Class A common stock recovered during the three months ended
June 30, 2009, the financial performance of our stations continued to decline,
which caused us to revise our medium and long-term forecast models once more. We
concluded that this constituted an indicator of possible impairment in all
reporting units and asset groups and it was therefore necessary to perform a
third impairment review (the “second quarter impairment review”).





Upon
performing the second quarter impairment review we concluded that no further
impairment charges were required. In most reporting units, the extent to which
the respective assets passed the impairment test had remained comparable or
increased, largely as a result of falls in the return required by investors, and
we concluded no further impairment charges were required. In the Czech Republic
the excess had increased and this is discussed further below.





In the
three months ended September 30, 2009, market participants’ sentiment about the
future economic performance of our markets in general, and our ability to
capitalize on our competitive position in particular, appeared to improve. At
the same time, the financial performance of our stations began to stabilize and
the price of our Class A common stock increased by 74% during the quarter. We
therefore concluded that there were no indicators of further impairment and it
was not necessary to perform a new impairment review. As is required by FAS 142
(ASC 350), we will perform our annual impairment review in the fourth quarter
irrespective of whether the current, more favorable, conditions
persist.




Bulgaria





We
revised our estimates of future cash flows in our Bulgaria operations at the
time of the first quarter impairment review to reflect our revised expectations
of a heavier contraction in the advertising market in 2009, lower growth in
future years and a more prolonged downturn. In addition, Bulgaria has been
heavily impacted by the global economic crisis, which has been reflected in the
returns expected by investors to reflect the increased actual and perceived risk
of investing in Bulgaria continuing to be higher than their historical norms. We
concluded that Long-Lived Assets in the PRO.BG asset group were no longer
recoverable and recorded a charge to write them down to their fair value of US$
nil.





Czech
Republic





In the
first quarter impairment review, we concluded that our Czech Republic reporting
unit passed the first stage of the impairment test for goodwill, but that its
fair value had declined significantly since we tested it for impairment in the
fourth quarter of 2008 and was very close to the carrying value. This decline in
value was due to reductions in our cash flow forecasts to reflect the fact that
uncertainties over the macro economic environment had caused international
advertisers to become increasingly reluctant to make spending commitments. This
reluctance caused a contraction in the overall size of the advertising market
which manifested itself as a worse-than-expected decline in both the level of
advertising inventory our operations were able to sell and the prices at which
it could be sold.





In the
second quarter impairment review we concluded that the fair value of the
reporting unit had increased marginally, while the carrying value of the
reporting unit had reduced, resulting in a higher excess of fair value over
carrying value. The main reason for the increase in the fair value of the
reporting unit was a reduction in the cost of capital applied to reflect a
slightly lower perceived risk among investors in investing in the Czech
Republic, which in turn reflected marginally more encouraging macro economic
conditions in the Czech Republic in the second quarter of 2009 in comparison
with the first quarter. This slight improvement in discount factor was
commensurate with the higher average price for our Class A common stock in the
second quarter of 2009 than the first quarter. The improvement in discount
factor was partially offset by slight downward revisions to our expectations of
cash flows for our Czech Republic operations to reflect their continuing decline
in financial performance in the first half of 2009.





Notwithstanding
these conclusions, if the operating environment in the Czech Republic continues
to deteriorate, and this deterioration indicates that we should make small
adverse changes to our long-term assumptions, or the return required by
investors increases, it is likely that we would have to impair some or all of
the goodwill in our Czech Republic reporting unit.





Page
22
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CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





Critical
Estimates and Assumptions





Assessing
goodwill, indefinite-lived intangible assets and long-lived assets for
impairment is a complex iterative process that requires significant judgment and
involves a great deal of detailed quantitative and qualitative business-specific
analysis and many individual assumptions which fluctuate with the passage of
time.





Our
estimate of the cash flows our operations will generate in future periods forms
the basis for most of the significant assumptions inherent in our impairment
reviews. Our expectations of these cash flows are developed during our long- and
short-range business planning processes, which are designed to address the
uncertainties inherent in the forecasting process by capturing a range of
possible views about key trends which govern future cash flow
growth.





Historically,
the overall cash flow growth rates achieved by our operations have not provided
a good indication of future cash flows. This is largely because the markets in
which we operate are relatively new and have experienced high levels of growth
as advertising markets became rapidly established. Instead, we have observed
over many years a strong positive correlation between the macro economic
performance of our markets and the size of the television advertising market and
ultimately the cash flows we generate. With this in mind, we have placed a high
importance on developing our expectations for the future development of the
macro economic environment in general and the advertising market and our share
of it in particular. While this has involved an appreciation of historical
trends we have placed a higher emphasis on forecasting these market trends,
which has involved detailed review of macro-economic data, a range of both
proprietary and publicly-available estimates for future market development, and
a process of on-going consultation with local management.





At
present, future macro economic developments in our markets are still uncertain.
There are a wide range of economic forecasts which generally anticipate
continued declines in the size of television advertising markets in the
countries in which we operate before they begin to recover for the remainder of
2009. Some of the key assumptions underpinning these forecasts include the size
of the absolute reduction in the television advertising market during the
economic downturn, the point at which growth will resume and the speed with
which historical levels of demand will be achieved. In developing our forecasts
of future cash flows we take into account all available external estimates in
addition to considering developments in each of our markets, which provide
direct evidence of the state of the market and future market development. In
concluding whether a goodwill impairment charge is necessary, we perform the
impairment test under a range of possible scenarios. In order to check the
reasonableness of the fair values implied by our cash flow estimates we also
calculate the value of our Class A common stock implied by our cash flow
forecasts and compare this to actual traded values.





Page
23
 Index





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





For those
reporting units with goodwill, at September 30, 2009, the following compound
cash flow growth rates are necessary to avoid recording a goodwill impairment
charge. For comparison, we have also included the compound average cash flow
growth rates currently implied by our estimates of future cash
flows:





Reporting
      unit
            
            Break
      even growth rate (%) (1)
            
            
            Growth
      rate currently implied (%) (1)Croatia
            
            
            9.7
            %
            
            
            10.9
            %Czech
      Republic
            
            
            4.4
            %
            
            
            5.5
            %Romania
            
            
            17.0
            %
            
            
            22.8
            %Slovak
      Republic
            
            
            8.0
            %
            
            
            11.7
            %Slovenia
            
            
            1.2
            %
            
            
            11.1
            %





(1)
Break-even and implied growth rates are calculated by applying a constant annual
growth rate to current year cash flow forecasts, with all other variables
constant, such that the net present value of all future cash flows equals the
carrying value of the reporting unit’s assets for the break-even rate or our
estimate of the fair value of the reporting unit for the rate currently implied.
Such rates do not indicate our expectation of cash flow growth in any given
year, nor are they necessarily comparable with actual growth rates achieved in
previous years.





In
evaluating our goodwill, indefinite-lived intangible assets and long-lived
assets for impairment we use the following valuation methods





Measurement
            Valuation
      MethodRecoverability
      of cash flows
            Undiscounted
      future cash flowsFair
      value of broadcast licenses
            Build-out
      methodFair
      value of trademarks
            Relief
      from royalty methodFair
      value of reporting units
            Discounted
      cash flow model




In all
cases, each method involves a number of significant assumptions over an extended
period of time which could materially change our decision as to whether assets
are impaired. The most significant of these assumptions, and the extent to which
they changed between the first quarter impairment review and the second quarter
impairment review are discussed below:





·
            Cost of capital:The
      cost of capital reflects the return a hypothetical market participant
      would require for a long-term investment in an asset and can be viewed as
      a proxy for the risk of that asset. We calculate the cost of capital
      according to the Capital Asset Pricing Model using a number of
      assumptions, the most significant of which is a Country Risk Premium
      (“CRP”). The CRP reflects the excess risk to an investor of investing in
      markets other than the United States and generally fluctuates with
      expectations of changes in a country’s macro economic environment. The
      costs of capital that we have applied in all reporting units since the end
      of 2008 have been very high compared to historic levels, which we believe
      represents a fundamental re-pricing of the perceived risk of investing in
      emerging markets. We observed a reduction in costs of capital between the
      first quarter impairment review and the second quarter impairment review
      in response to reductions in the CRP, which have decreased across emerging
      market economies due to a narrowing of the relative spread between yields
      on developed and emerging market debt, as the risk differential between
      these is perceived by market participants to have diminished. The table
      below shows the percentage movement in the costs of capital that we
      applied to each reporting unit with goodwill between the first quarter
      impairment review and the second quarter impairment review and the adverse
      movement, in percentage terms, required to make the fair value of the
      reporting unit equal their carrying values (with all other assumptions
      constant):





Page
24
 Index





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





Percentage
      change in cost of capital:Reporting
      Unit
            
            Since
      previous impairment review
            
            
            Necessary
      to break evenCroatia
            
            
            (5.1
            )
      %
            
            
            22.4
            %Czech
      Republic
            
            
            (8.2
            )
      %
            
            
            7.3
            %Romania
            
            
            (1.5
            )
      %
            
            
            47.3
            %Slovak
      Republic
            
            
            (4.3
            )
      %
            
            
            29.5
            %Slovenia
            
            
            (3.9
            )
      %
            
            
            61.1
            %





·
            Growth rate into perpetuity:reflects the level of economic growth in each of our markets from
      the last forecasted period into perpetuity and is the sum of an estimated
      real growth rate, which reflects our belief that macro economic growth in
      our markets will eventually converge to western European markets, and long
      term expectations for inflation. Our estimates of these rates are based on
      observable market data and have not
changed.





·
            Total advertising market:The size of the television advertising market effectively places an
      upper limit on the advertising revenue we can expect to earn in each
      country. Our estimate of the total advertising market is developed from a
      number of external sources, in combination with a process of on-going
      consultation with local management. In our second quarter impairment
      review, we reduced our forecast of the absolute size of the television
      advertising markets compared to the first quarter impairment review, but
      now expect the rate of growth to be higher when markets begin to
      recover.





·
            Market share:This is a
      function of the audience share we expect our stations to generate, and the
      relative price at which we can sell advertising. Our estimate of the total
      advertising market is developed from a number of external sources, in
      combination with a process of on-going consultation with local management.
      In general, in the second quarter impairment review we forecast that our
      levels of market share will be comparable to, or slightly higher than we
      assumed in the first quarter impairment review to reflect recent
      improvements in our audience share.





·
            Forecast operating
      costs: The level of cash flow generated by each operation is
      ultimately governed by the extent to which we manage the relationship
      between revenues and costs. We forecast the level of operating costs by
      reference to (a) the historical absolute and relative levels of costs we
      have incurred in generating revenue in each station, (b) the operating
      strategy of each business and (c) specific forecast costs to be incurred.
      With the exception of the Czech Republic, where costs reduced, in the
      second quarter impairment review we forecast that operating costs will be
      comparable or slightly higher in comparison with our assumptions in the
      first quarter impairment review, to reflect the increased EBITDA margins
      we had experienced in some operations compared to previous forecasts as we
      have reduced costs.





·
            Forecast capital
      expenditure: The size and phasing of capital expenditure, both
      recurring expenditure to replace retired assets and investments in new
      projects, has a significant impact on cash flows. We forecast the level of
      future capital expenditure based on current strategies and specific
      forecast costs to be incurred. In line with our ongoing efforts to protect
      our operating margins, the absolute levels of capital expenditure forecast
      remained broadly constant between the first and second quarter impairment
      review, however certain investment cash flows were delayed, with a
      consequent marginal positive impact on the fair value of the reporting
      units.





Page
25
 Index





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





The table
below shows whether an adverse change of less than 10.0% in any of these
assumptions would result in additional impairments based on the second quarter
impairment review. Where an adverse change of less than 10.0% would result in an
impairment, the level of that change is presented parenthetically.





10%
      Adverse Change in
            Long-Lived
      Assets
            Indefinite-Lived
      Trademarks
            Indefinite-Lived
      Broadcast Licenses
            GoodwillCost
      of Capital
            None
            None
            Slovenia
      (8.6%)
            Czech
      Republic (7.2%)Total
      Advertising Market
            Croatia
      (6.7%)
            None
            Slovenia
      (4.6%)
            Croatia
      (5.9%)
              Czech
      Republic (5.4%)
              Slovak
      Republic (8.2%)Market
      Share
            Croatia
      (6.7%)
            None
            Slovenia
      (4.6%)
            Croatia
      (5.9%)
              Czech
      Republic (5.4%)
              Slovak
      Republic (8.2%)Forecast
      Operating Costs
            Croatia
      (6.1%)
            Not
      applicable
            Slovenia
      (3.5%)
            Croatia
      (5.5%)
              Czech
      Republic (9.2%)Forecast
      Capital Expenditure
            None
            Not
      applicable
            None
            NonePerpetuity
      Growth Rate
            Not
      applicable
            None
            None
            None





Potential
future charges.





Although
we considered all current information when we calculated our impairment charge
for the nine months ended September 30, 2009, if our cash flow forecasts for our
operations deteriorate still further, or costs of capital increase, it is
probable that we will have to recognize additional impairment charges in future
periods.





5.  SENIOR
DEBT





Our
senior debt comprised the following as at September 30, 2009 and December 31,
2008:





Carrying
      Value
            
            
            Fair
      ValueSeptember
      30, 2009
            
            
            December
      31, 2008
            
            
            September
      30, 2009
            
            
            December
      31, 2008EUR
      440.0 million 11.625% Senior Notes
            
            $
            650,202
            
            
            $
            -
            
            
            $
            663,621
            
            
            $
            -EUR
      245.0 million 8.25% Senior Notes (Note 24)
            
            
            -
            
            
            
            340,966
            
            
            
            -
            
            
            
            233,562EUR
      150.0 million Floating Rate Senior Notes
            
            
            219,645
            
            
            
            208,755
            
            
            
            174,618
            
            
            
            125,253USD
      475.0 million 3.50% Senior Convertible Notes
            
            
            393,001
            
            
            
            378,804
            
            
            
            408,500
            
            
            
            230,375$
            1,262,848
            
            
            $
            928,525
            
            
            $
            1,246,739
            
            
            $
            589,190





On
September 17, 2009 we issued EUR 200.0 million (approximately US$ 292.9 million)
of 11.625% senior notes due 2016 at an issue price of 98.261%, and on September
29, 2009 we issued an additional tranche of EUR 240.0 million Senior Notes due
2016 (approximately US$ 351.4 million) at an issue price of 102.75%
(collectively the “2009 Fixed Rate Notes”). The 2009 Fixed Rate Notes mature on
September 15, 2016.





Page
26
 Index





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





On May
16, 2007, we issued EUR 150.0 million of floating rate senior notes (the
“Floating Rate Notes”, and collectively with the 2009 Fixed Rate Notes, the
“Senior Notes”) which bear interest at the six-month Euro Inter Bank Offered
Rate (“EURIBOR”) plus 1.625% (The applicable rate at September 30, 2009 was
3.104%). The Floating Rate Notes mature on May 15, 2014.





On March
10, 2008, we issued US$ 475.0 million of 3.50% Senior Convertible Notes (the
“Convertible Notes”). The Convertible Notes mature on March 15,
2013.  The carrying value of the Convertible Notes as at December 31,
2008 has been adjusted to reflect the impact of the adoption of FSP APB 14-1
(ASC 470) (see Note 2, “Summary of Significant Accounting Policies, Convertible
Debt”).





Fixed
Rate Notes





2009
Fixed Rate Notes





Interest
is payable semi-annually in arrears on each March 15 and September
15.  The fair value of the 2009 Fixed Rate Notes as at September 30,
2009 was calculated by multiplying the outstanding debt by the traded market
price.





The 2009
Fixed Rate 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 two subsidiary holding companies and are secured
by a pledge of shares of those subsidiaries as well as an assignment of certain
contractual rights.  The terms of our 2009 Fixed Rate Notes restrict
the manner in which our business is conducted, including the incurrence of
additional interest obligations, the making of investments, the payment of
dividends or the making of other distributions, entering into certain affiliate
transactions and the sale of assets (see also Note 22, “Restricted and
Unrestricted Subsidiaries”) .





In the
event that (A) there is a change in control by which (i) any party other than
certain of 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 60thday
following any such change of control the rating of the 2009 Fixed Rate 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
2009 Fixed Rate Notes at a purchase price in cash equal to 101.0% of the
principal amount of the 2009 Fixed Rate Notes plus accrued and unpaid interest
to the date of purchase.





The 2009
Fixed Rate Notes are redeemable at our option, in whole or in part, at the
redemption prices set forth below:





From:
            
            Fixed
      Rate Notes
              Redemption
      PriceSeptember
      15, 2013 to September  14, 2014
            
            
            105.813
            %September
      15, 2014 to September  14, 2015
            
            
            102.906
            %September
      15, 2015 and thereafter
            
            
            100.000
            %




Certain
derivative instruments, including redemption call options and change of control
and asset disposition put options, have been identified as being embedded in the
2009 Fixed Rate Notes but as they are considered clearly and closely related to
the 2009 Fixed Rate Notes, they are not accounted for separately. We have
included the net issuance premium within the carrying value of the 2009 Fixed
Rate Notes and are amortizing it through interest expense using the effective
yield method.





Page
27
 Index





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





Floating
Rate Notes





Interest
is payable semi-annually in arrears on each May 15 and November
15.  The fair value of the Floating Rate Notes as at September 30,
2009 and December 31, 2008 was equal to the outstanding debt multiplied by the
traded market price.





The
Floating Rate 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 two subsidiary holding companies and are secured
by a pledge of shares of those subsidiaries as well as an assignment of certain
contractual rights.  The terms of our Floating Rate Notes 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
certain of 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 60thday
following any such change of control the rating of the Floating Rate 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
Floating Rate Notes at a purchase price in cash equal to 101.0% of the principal
amount of the Floating Rate Notes plus accrued and unpaid interest to the date
of purchase.





The
Floating Rate Notes are redeemable at our option for the remainder of their
life, in whole or in part, at 100.0% of their face value.





Certain
derivative instruments, including redemption call options and change of control
and asset disposition put options, have been identified as being embedded in the
Floating Rate Notes but as they are considered clearly and closely related to
the Floating Rate Notes, they are not accounted for separately.




Convertible
Notes





Interest
is payable semi-annually in arrears on each March 15 and September
15.  The fair value of the Convertible Notes as at September 30, 2009
and December 31, 2008 was calculated by multiplying the outstanding debt by the
traded market price because we considered the value of the embedded conversion
option to be zero since the market price of our shares was so far below the
conversion price.





The
Convertible 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 two subsidiary holding companies and are secured
by a pledge of shares of those subsidiaries as well as an assignment of certain
contractual rights.





Prior to
December 15, 2012, the Convertible Notes are convertible following certain
events and from that date, at any time, based on an initial conversion rate of
9.5238 shares of our Class A common stock per US$ 1,000 principal amount of
Convertible Notes (which is equivalent to an initial conversion price of
approximately US$ 105.00, or a 25% conversion premium based on the closing sale
price of US$ 84.00 per share of our Class A common stock on March 4, 2008). The
conversion rate is subject to adjustment if we make certain distributions to the
holders of our Class A common stock, undergo certain corporate transactions or a
fundamental change, and in other circumstances specified in the Convertible
Notes.   From time to time up to and including December 15, 2012,
we will have the right to elect  to deliver (i) shares of our Class A
common stock or (ii) cash and, if applicable, shares of our Class A common stock
upon conversion of the Convertible Notes. At present, we have elected to deliver
cash and, if applicable, shares of our Class A common stock. As at September 30,
2009, the Convertible Notes may not be converted.  In addition, the
holders of the Convertible Notes have the right to put the Convertible Notes to
us for cash equal to the aggregate principal amount of the Convertible Notes
plus accrued but unpaid interest thereon following the occurrence of certain
specified fundamental changes (including a change of control, certain mergers,
insolvency and a delisting).





Page
28
 Index





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





In order
to increase the effective conversion price of our Convertible Notes, on March 4,
2008 we purchased, for aggregate consideration of US$ 63.3 million, capped call
options over 4,523,809 shares of our Class A common stock from Lehman Brothers
OTC Derivatives Inc. (“Lehman OTC”), 1,583,333 shares, from BNP Paribas (“BNP”),
1,583,333 shares and from Deutsche Bank Securities Inc. (“DB”), 1,357,144
shares. The amount of shares corresponds to the number of shares of our Class A
common stock that would be issuable on a conversion of the Convertible Notes at
the initial conversion price if we elected to settle the Convertible Notes
solely in shares of Class A common stock. The options entitle us to receive, at
our election, cash or shares of Class A common stock with a value equal
approximately to the difference between the trading price of our shares at the
time the option is exercised and US$ 105.00, up to a maximum trading price of
US$ 151.20. These options expire on March 15, 2013. At present, we have elected
to receive shares of our Class A common stock on exercise of the capped call
options.





On
September 15, 2008, Lehman Brothers Holdings Inc., (“Lehman Holdings”, and
collectively with Lehman OTC, “Lehman Brothers”), the guarantor of the
obligations of Lehman OTC under the capped call agreement, filed for protection
under Chapter 11 of the United States Bankruptcy Code. The bankruptcy filing of
Lehman Holdings, as guarantor, was an event of default that gave us the right to
early termination of the capped call option agreement with Lehman OTC and to
claim for losses. We exercised this right on September 16, 2008 and claimed an
amount of US$ 19.9 million, which bears interest at a rate equal to our estimate
of our cost of funding plus 1% per annum.





At the
date of purchase, we determined that all of these capped call options met the
definition of an equity instrument within the scope of EITF Issue No. 00-19
“Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company’s Own Stock” (“EITF 00-19 (ASC 815)”) and consequently
recognized them on issuance at fair value within additional paid-in capital. We
believe that this classification is still correct with respect to the BNP and DB
capped call options and have continued to recognize them within Shareholders’
Equity. Subsequent changes in fair value have not been, and will not be,
recognized as long as the instruments continue to be classified in Shareholders’
Equity.





We
concluded that from September 16, 2008, upon delivery of the termination notice,
the capped call options with Lehman OTC were effectively extinguished. The
nullification of the non-bankruptcy provisions of the original contract means
that the fair value of the instrument no longer varies with movements in the
value of an underlying (previously, shares of our Class A common stock) and
consequently the contract ceased to be a derivative instrument and ceased to
fall within the scope of EITF 00-19 (ASC 815). Effective September 16, 2008, we
reclassified the US$ 22.2 million cost of the Lehman OTC capped call options
from additional paid-in capital to accumulated deficit to reflect this
extinction. We further concluded that our claim did not meet the definition of
an asset because the future benefit it embodied was not sufficiently probable
and therefore treated our bankruptcy claim in accordance with FASB Statement No.
5 “Accounting for Contingencies” (ASC 450).





On March
3, 2009, we assigned our claim in the bankruptcy proceedings of Lehman Holdings
and Lehman OTC to an unrelated third party for cash consideration of US$ 3.4
million, or 17% of the claim value, which has been recognized as other income
within selling, general and administrative expenses in our Consolidated
Statement of Operations. See Note 20, “Commitments and Contingencies: Lehman
Brothers Bankruptcy Claim”.





Prior to
the termination of the capped call options with Lehman OTC, we noted that no
dilution would occur prior to the trading price of our Class A common stock
reaching US$ 151.20.  This conclusion was based on a number of
assumptions, including that we would exercise all capped call options
simultaneously, we would continue with our election to receive shares of our
Class A common stock on the exercise of the capped call options, and no event
that would result in an adjustment to the conversion rate of value of the
options would have occurred.





Page
29
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CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





Following
the termination of the Lehman OTC capped call options, which represented 35% of
the total number of capped call options we acquired on March 4, 2008, limited
dilution will occur following the exercise of the remaining BNP and DB capped
call options if the price of shares of our Class A common stock is between US$
105.00 per share and US$ 151.20 per share when the Convertible Notes are
converted. The table below shows how many shares of our Class A common stock we
would issue following a conversion of the Convertible Notes and the exercise of
the remaining DB and BNP capped call options for a variety of share price
scenarios. This table assumes the currently selected settlement methods continue
to apply and no event that would result in an adjustment to the conversion rate
or the value of the option has occurred:





Stock
      price
            
            Shares
      issued on conversion of Convertible Notes
            
            
            Shares
      received on exercise of capped call options
            
            
            Net
      shares issued
            
            
            Value
      of shares issued (US$ ‘000)$105.00
      and below
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            $
            -110.00
            
            
            (205,628
            )
            
            
            133,658
            
            
            
            (71,970
            )
            
            
            (7,917
            )120.00
            
            
            (565,476
            )
            
            
            367,559
            
            
            
            (197,917
            )
            
            
            (23,750
            )130.00
            
            
            (869,963
            )
            
            
            565,475
            
            
            
            (304,488
            )
            
            
            (39,583
            )140.00
            
            
            (1,130,951
            )
            
            
            735,118
            
            
            
            (395,833
            )
            
            
            (55,417
            )151.20
            
            
            (1,382,274
            )
            
            
            898,478
            
            
            
            (483,796
            )
            
            
            (73,150
            )$
      200.00
            
            
            (2,148,807
            )
            
            
            679,248
            
            
            
            (1,469,559
            )
            
            $
            (293,912
            )





At
September 30, 2009, the options could not be exercised because no conversion of
any Convertible Notes had occurred. In the event any Convertible Notes had been
converted at September 30, 2009, no shares of our Class A common stock would
have been issuable because the closing price of our shares was below US$ 105.00
per share. The aggregate fair value of the remaining capped call options with DB
and BNP at September 30, 2009 was US$ 4.3 million.





On
adoption of FSP APB 14-1 (ASC 470), we calculated the value of the conversion
option embedded in the Convertible Notes and accounted for it separately in all
periods from March 10, 2008.





US$’000
            
            Principal
      amount of liability component
            
            
            Unamortized
      discount
            
            
            Net
      carrying value
            
            
            Equity
      ComponentBALANCE,
      December 31, 2008
            
            $
            (475,000
            )
            
            $
            96,196
            
            
            $
            (378,804
            )
            
            $
            110,752Amortization
      of debt issuance discount for the six months ended June 30,
      2009
            
            
            -
            
            
            
            (9,408
            )
            
            
            (9,408
            )
            
            
            -Amortization
      of debt issuance discount for the three months ended September 30,
      2009
            
            
            -
            
            
            
            (4,789
            )
            
            
            (4,789
            )
            
            
            -BALANCE,
      September 30, 2009
            
            $
            (475,000
            )
            
            $
            81,999
            
            
            $
            (393,001
            )
            
            $
            110,752





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30
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CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





The
remaining issuance discount is being amortized over the life of the Convertible
Notes, which mature on March 15, 2013.  The effective interest rate on
the liability component for all periods presented was 10.3%.





Certain
other derivative instruments have been identified as being embedded in the
Convertible Notes, but as they are considered to be clearly and closely related
to the Convertible Notes they are not accounted for separately.




6.  RESTRICTED
CASH AND CASH EQUIVALENTS





Restricted
cash and cash equivalents comprised the following at September 30, 2009 and
December 31, 2008:





September
      30, 2009
            
            
            December
      31, 2008Corporate
            
            $
            287,196
            
            
            $
            -Slovenia
            
            
            805
            
            
            
            821Total
      restricted cash and cash equivalents
            
            $
            288,001
            
            
            $
            821





On
September 29, 2009 we issued a redemption notice for our outstanding 8.25%
Senior Notes due 2012 (the “2005 Fixed Rate Notes”) and deposited EUR 196.1
million (approximately US$ 287.2 million) of cash that we received upon the
issuance of new Senior Notes, representing the redemption price plus all
interest that will be payable on the settlement date, in an account with the
trustee for the 2005 Fixed Rate Notes. This cash will be paid to the holders of
the 2005 Fixed Rate Notes on October 29, 2009 (see Note 24, “Senior Notes Being
Redeemed”).





7.  ACCOUNTS
RECEIVABLE





Accounts
receivable comprised the following at September 30, 2009 and December 31,
2008:





September
      30, 2009
            
            
            December
      31, 2008Third-party
      customers
            
            $
            159,167
            
            
            $
            227,253Less
      allowance for bad debts and credit notes
            
            
            (17,442
            )
            
            
            (14,663
            )Related
      parties
            
            
            14,894
            
            
            
            8,913Less
      allowance for bad debts and credit notes
            
            
            (654
            )
            
            
            (53
            )Total
      accounts receivable
            
            $
            155,965
            
            
            $
            221,450





At
September 30, 2009, CZK 261.7 million (approximately US$ 15.2 million) (December
31, 2008: CZK 820.7 million, US$ 47.8 million) of receivables in the Czech
Republic were pledged as collateral subject to a factoring agreement (see Note
11, “Credit Facilities and Obligations under Capital Leases”).





Page
31
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CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





8.  OTHER
ASSETS





Other
current and non-current assets comprised the following at September 30, 2009 and
December 31, 2008:





September
      30, 2009
            
            
            December
      31, 2008Current:Prepaid
      programming
            
            $
            54,120
            
            
            $
            54,301Productions
      in progress
            
            
            17,218
            
            
            
            14,080Other
      prepaid expenses
            
            
            11,796
            
            
            
            7,286Income
      taxes recoverable
            
            
            10,849
            
            
            
            1,216Deferred
      tax
            
            
            12,242
            
            
            
            5,898Capitalized
      debt costs
            
            
            4,099
            
            
            
            4,636VAT
      recoverable
            
            
            2,910
            
            
            
            3,460Assets
      held for sale
            
            
            -
            
            
            
            5,484Other
            
            
            906
            
            
            
            904Total
      other current assets
            
            $
            114,140
            
            
            $
            97,265September
      30, 2009
            
            
            December
      31, 2008Non-current:Capitalized
      debt costs
            
            $
            21,816
            
            
            $
            13,282Deferred
      tax
            
            
            13,156
            
            
            
            2,108Productions
      in progress
            
            
            4,749
            
            
            
            -Loans
      to related parties
            
            
            5,168
            
            
            
            -Other
            
            
            2,857
            
            
            
            3,875Total
      other non-current assets
            
            $
            47,746
            
            
            $
            19,265





Capitalized
debt costs primarily comprise the costs incurred in connection with the issuance
of our Senior Notes and Convertible Notes (see Note 5, “Senior Debt”), and are
being amortized over the term of the Senior Notes and Convertible Notes using
the effective interest method.





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32
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CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





9.  PROPERTY,
PLANT AND EQUIPMENT





Property,
plant and equipment comprised the following at September 30, 2009 and December
31, 2008:





September
      30, 2009
            
            
            December
      31, 2008Land
      and buildings
            
            $
            105,486
            
            
            $
            92,422Station
      machinery, fixtures and equipment
            
            
            215,922
            
            
            
            190,090Other
      equipment
            
            
            34,353
            
            
            
            35,470Software
      licenses
            
            
            35,716
            
            
            
            30,219Construction
      in progress
            
            
            9,871
            
            
            
            11,292Total
      cost
            
            $
            401,348
            
            
            $
            359,493Less:  Accumulated
      depreciation
            
            
            (194,523
            )
            
            
            (152,826
            )Total
      net book value
            
            $
            206,825
            
            
            $
            206,667Assets
      held under capital leases (included in the above)Land
      and buildings
            
            $
            6,160
            
            
            $
            5,855Station
      machinery, fixtures and equipment
            
            
            1,702
            
            
            
            1,917Total
      cost
            
            
            7,862
            
            
            
            7,772Less:  Accumulated
      depreciation
            
            
            (1,974
            )
            
            
            (1,644
            )Net
      book value
            
            $
            5,888
            
            
            $
            6,128





Page
33
 Index





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





10.  ACCOUNTS
PAYABLE AND ACCRUED LIABILITIES





Accounts
payable and accrued liabilities comprised the following at September 30, 2009
and December 31, 2008:





September
      30, 2009
            
            
            December
      31, 2008Accounts
      payable
            
            $
            28,222
            
            
            $
            35,778Programming
      liabilities
            
            
            46,664
            
            
            
            44,251Duties
      and other taxes payable
            
            
            21,911
            
            
            
            22,635Accrued
      staff costs
            
            
            13,438
            
            
            
            27,318Accrued
      interest payable
            
            
            14,293
            
            
            
            10,531Income
      taxes payable
            
            
            1,129
            
            
            
            7,399Accrued
      production costs
            
            
            7,522
            
            
            
            6,531Accrued
      legal contingencies
            
            
            3,084
            
            
            
            5,728Accrued
      legal and professional fees
            
            
            5,270
            
            
            
            430Authors’
      rights
            
            
            5,751
            
            
            
            4,734Other
      accrued liabilities
            
            
            16,541
            
            
            
            9,550Total
      accounts payable and accrued liabilities
            
            $
            163,825
            
            
            $
            174,885





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34
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CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





11.  CREDIT
FACILITIES AND OBLIGATIONS UNDER CAPITAL LEASES





Group
loan obligations and overdraft facilities comprised the following at September
30, 2009 and December 31, 2008:





September
      30, 2009
            
            
            December
      31, 2008Credit
      facilities:Corporate
            (a)
      – (b)
            
            $
            -
            
            
            $
            57,180Czech
      Republic
            (c)
      – (e)
            
            
            84,410
            
            
            
            12,923Romania
            (f)
            
            
            -
            
            
            
            104Slovak
      Republic
            (g)
            
            
            -
            
            
            
            -Slovenia
            (h)
            
            
            32,976
            
            
            
            -Ukraine
            (i)
            
            
            -
            
            
            
            172Total
      credit facilities
            
            
            $
            117,386
            
            
            $
            70,379Capital
      leases:Bulgaria
      operations, net of interest
            
            
            $
            734
            
            
            $
            689Romania
      operations, net of interest
            
            
            
            104
            
            
            
            289Slovak
      Republic operations, net of interest
            
            
            
            -
            
            
            
            36Slovenia
      operations, net of interest
            
            
            
            3,627
            
            
            
            3,867Total
      capital leases
            
            
            $
            4,465
            
            
            $
            4,881Total
      credit facilities and capital leases
            
            
            $
            121,851
            
            
            $
            75,260Less
      current maturities
            
            
            
            (33,489
            )
            
            
            (36,502
            )Total
      non-current maturities
            
            
            $
            88,362
            
            
            $
            38,758





Corporate





(a) On
July 21, 2006, we entered into a five-year revolving loan agreement for EUR
100.0 million (approximately US$ 146.4 million) arranged by the European Bank
for Reconstruction and Development (“EBRD”) and on August 22, 2007, we entered
into a second revolving loan agreement for EUR 50.0 million (approximately US$
73.2 million) arranged by EBRD (together with the EUR 100.0 million facility,
the “EBRD Loan”).  ING Bank N.V. (“ING”) and Ceska Sporitelna, a.s.
(“CS”) each participated in the EBRD Loan for EUR 37.5 million (approximately
US$ 54.9 million). On September 17, 2009 we repaid the full EUR 127.5 million
(approximately US$ 187.3 million at the date of repayment) outstanding under
both facilities and simultaneously terminated both agreements. In connection
with extinguishing these facilities, we incurred repayment charges and other
costs of US$ 0.6 million. We also wrote off all remaining capitalized issuance
costs and these charges were recognized as a loss on extinguishment within
interest expense.


(b) We
have an uncommitted multicurrency overdraft facility for EUR 10.0 million
(approximately US$ 14.6 million) from Bank Mendes Gans (“BMG”), a subsidiary of
ING, as part of a cash pooling arrangement. The cash pooling arrangement with
BMG enables us to receive credit across the group in respect of cash balances
which our subsidiaries in The Netherlands, Bulgaria, the Czech Republic,
Romania, the Slovak Republic, Slovenia and Ukraine deposit with BMG. Cash
deposited by our subsidiaries with BMG is pledged as security against the
drawings of other subsidiaries up to the amount deposited.  As at
September 30, 2009, the full EUR 10.0 million (approximately US$ 14.6 million)
facility was available to be drawn. Interest is payable at the relevant money
market rate plus 2%.





Page
35
 Index





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





As at
September 30, 2009, the net deposits and drawing of each of our operations in
the BMG cash pool was as follows:





Net
      Deposits
            
            
            Net
      DrawingsCorporate
            
            $
            10,139
            
            
            $
            -Czech
      Republic
            
            
            643
            
            
            
            -Croatia
            
            
            -
            
            
            
            -Romania
            
            
            -
            
            
            
            -Slovakia
            
            
            6,282
            
            
            
            -Slovenia
            
            
            29
            
            
            
            -Ukraine
            
            
            1,425
            
            
            
            -Total
            
            $
            18,518
            
            
            $
            -








Czech
Republic





(c) As at
September 30, 2009, CET 21 had drawn, in CZK, the full CZK 1.2 billion
(approximately US$ 69.9 million) of a credit facility with CS available until
December 31, 2010.  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 Offer Rate (“LIBOR”), EURIBOR or Prague
Inter-Bank Offered Rate (“PRIBOR”) rate plus 1.65%; a rate of 3.56% applied to
the balance outstanding at September 30, 2009 and is based on PRIBOR. A
non-utilization fee of 0.25% is payable on the undrawn portion of this facility,
which decreases to 0.125% of the undrawn portion if more than 50% of the loan is
drawn. Drawings under this facility are secured by a pledge of receivables,
which are also subject to a factoring arrangement with Factoring Ceska
Sporitelna, a.s. (“FCS”), a subsidiary of CS.





(d) As at
September 30, 2009, CZK 250.0 million (approximately US$ 14.6 million), the full
amount of the facility, had been drawn by CET 21 under a working capital
facility agreement with CS with a maturity date of December 31, 2010. The
facility bears interest at three-month PRIBOR plus 1.65%, a rate of 3.56%
applied to the balance outstanding under this facility at September 30, 2009.
Drawings under this facility are secured by a pledge of receivables, which are
also subject to a factoring arrangement with FCS.





(e) As at
September 30, 2009, there were no drawings under a CZK 300.0 million
(approximately US$ 17.5 million) factoring facility with FCS available until
September 30, 2011.  The facility bears interest at one-month PRIBOR
plus 1.40% for the period that actively assigned accounts receivable are
outstanding.





Romania





(f) As at
September 30, 2009, our Romania operations repaid US$ 11.0 thousand drawn from
the BMG cash pool.





Slovak
Republic





(g) As at
September 30, 2009, our Slovak Republic operations had made no drawings under a
EUR 3.3 million (approximately US$ 4.8 million) overdraft facility with
ING.  This can be utilized for short term advances up to six months at
an interest rate of EURIBOR + 2.0%.





Page
36
 Index





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





Slovenia





(h) On
July 29, 2005, Pro Plus entered into a revolving facility agreement for up to
EUR 37.5 million (approximately US$ 54.9 million) in aggregate principal amount
with ING, Nova Ljubljanska Banka d.d., Ljubljana and Bank Austria Creditanstalt
d.d., Ljubljana.  The facility amortizes by 10.0% each year for four
years commencing one year after signing, with the remaining 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 CME Media Enterprises
B.V.  Loans drawn under this facility bear interest at a rate of
EURIBOR for the period of drawing plus a margin of between 2.1% and 3.6% that
varies according to the ratio of consolidated net debt to consolidated
broadcasting cash flow for Pro Plus. A rate of 3.09% applied at September 30,
2009.  As at September 30, 2009, the full EUR 22.5 million
(approximately US$ 33.0 million) still available for drawing under this
revolving facility had been drawn.





Ukraine





(i) Our
Ukraine operations repaid US$ 0.2 million drawn from the BMG cash pool during
the nine months ended September 30, 2009.





Total
Group





At
September 30, 2009, the maturity of our debt (including the carrying value of
our Senior Notes and Convertible Notes) was as follows:





2009
            
            $
            -2010
            
            
            117,3862011
            
            
            -2012
            
            
            -2013
            
            
            393,0012014
      and thereafter
            
            
            869,847Total
            
            $
            1,380,234





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 September 30, 2009:





2009
            
            $
            1932010
            
            
            7462011
            
            
            6432012
            
            
            5972013
            
            
            1,5812014
      and thereafter
            
            
            1,462$
            5,222Less:
      amount representing interest
            
            
            (757
            )Present
      value of net minimum lease payments
            
            $
            4,465





Page
37
 Index





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





12.  OTHER
LIABILITIES





Other
current and non-current liabilities comprised the following as at September 30,
2009and
December 31, 2008:





September
      30, 2009
            
            
            December
      31, 2008Current:Deferred
      revenue
            
            $
            27,481
            
            
            $
            7,684Consideration
      payable – Bulgaria
            
            
            -
            
            
            
            4,500Consideration
      payable – Czech Republic
            
            
            1,571
            
            
            
            -Consideration
      payable - Romania
            
            
            -
            
            
            
            724Consideration
      payable - Slovenia
            
            
            1,318
            
            
            
            -Dividends
      payable to minority shareholders in subsidiaries
            
            
            26
            
            
            
            -Onerous
      contracts
            
            
            251
            
            
            
            1,994Deferred
      tax
            
            
            192
            
            
            
            177Liabilities
      held for sale
            
            
            -
            
            
            
            2,207Other
            
            
            126
            
            
            
            -Total
      other current liabilities
            
            $
            30,965
            
            
            $
            17,286September
      30, 2009
            
            
            December
      31, 2008Non-current:Deferred
      tax
            
            $
            77,322
            
            
            $
            89,126Program
      rights
            
            
            12,156
            
            
            
            9,922Fair
      value of derivatives
            
            
            14,326
            
            
            
            9,882Consideration
      payable – Czech Republic
            
            
            -
            
            
            
            1,396Income
      taxes payable
            
            
            1,135
            
            
            
            1,070Other
            
            
            224
            
            
            
            819Total
      other non-current liabilities
            
            $
            105,163
            
            
            $
            112,215





Page
38
 Index





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





13.  FINANCIAL
INSTRUMENTS AND FAIR VALUE MEASUREMENTS





FASB
Statement No. 157 “Fair Value Measurements” (“FAS 157 (ASC 820)”) establishes a
hierarchy that prioritizes the inputs to those valuation techniques used to
measure fair value. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (level 1
measurements) and the lowest priority to unobservable inputs (level 3
measurements). The three levels of the fair value hierarchy under FAS 157 (ASC
820) are:





Basis of
Fair Value Measurement





Level
      1
            Unadjusted
      quoted prices in active markets that are accessible at the measurement
      date for identical, unrestricted
instruments.





Level
      2
            Quoted
      prices in markets that are not considered to be active or financial
      instruments for which all significant inputs are observable, either
      directly or indirectly.





Level
      3
            Prices
      or valuations that require inputs that are both significant to the fair
      value measurement and unobservable.





A
financial instrument’s level within the fair value hierarchy is based on the
lowest level of any input that is significant to the fair value
measurement.





We
evaluate the position of each financial instrument measured at fair value in the
hierarchy individually based on the valuation methodology we apply. At September
30, 2009, we had no material financial assets or liabilities carried at fair
value using significant level 1 or level 3 inputs and the only instruments we
value using level 2 inputs are the following currency swap
agreements:





Currency
Swap





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$ 622.9 million), payable on each
July 15, October 15, January 15, and April 15 up 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$ 550.4 million) receivable on
each July 15, October 15, January 15, and April 15 up to the termination date of
April 15, 2012.





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 5, “Senior
Debt”). 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 FAS
133 (ASC 815) 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.





We value
our currency swap agreements using an industry-standard currency swap pricing
model which calculates the fair value on the basis of the net present value of
the estimated future cash flows receivable or payable. These instruments are
allocated to level 2 of the FAS 157 (ASC 820) fair value hierarchy because the
critical inputs to this model, including the relevant yield curves and the known
contractual terms of the instrument, are readily observable.





The fair
value of these instruments as at September 30, 2009, was a US$ 14.3 million
liability, which represented an increase of US$ 4.4 million from the US$ 9.9
million liability as at December 31, 2008. This was recognized as a derivative
loss in the Condensed Consolidated Statement of Operations.





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39
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CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





14.  SHAREHOLDERS’
EQUITY





Preferred
Stock





5,000,000
shares of Preferred Stock, with a US$ 0.08 par value, were authorized as at
September 30, 2009 and December 31, 2008.  None were issued and
outstanding as at September 30, 2009 and December 31, 2008.





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 September 30, 2009 and December 31, 2008.  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 May
18, 2009, we issued 14.5 million shares of Class A Common Stock at a price of
US$ 12.00 per share and 4.5 million shares of Class B Common Stock at a price of
US$ 15.00 per share to Time Warner Media Holdings B.V., an affiliate of Time
Warner Inc. (“Time Warner”) for an aggregate offering price of US$ 241.5
million.





On
September 28, 2009, the general partner of CME Holdco L.P., the holder of
approximately 6.3 million shares of Class B common stock and 60,000 shares of
Class A common stock, issued a notice of dissolution to the partners informing
them that it intended to dissolve the partnership and distribute its assets
pursuant to the terms of the partnership agreement. Due to the ownership
restrictions with respect to shares of Class B common stock as set forth in our
bye-laws, a certain amount of shares of Class B common stock will be converted
to shares of Class A common stock prior to the distribution of the partnership
assets.  We anticipate that Ronald Lauder and certain
entities associated with Mr. Lauder  (the "Lauder
Entities") will receive approximately 3.2 million shares of Class B
common stock and 30 thousand shares of Class A common stock in the
distribution and that Adele (Guernsey) L.P., a fund affiliated
with Apax Partners, will receive approximately 3.1 million shares of Class
A common stock.  Assuming that the Lauder Entities elect
to receive their pro rata share of the partnership assets in shares of
Class B common stock, following the distribution, which is expected to
occur before the end of the fourth quarter of 2009, there will be
approximately 7.7 million shares of Class B common stock and
53.6 million shares of Class A common stock
outstanding.


15.  STOCK-BASED
COMPENSATION





The
charge for stock-based compensation in our Condensed Consolidated Statements of
Operations was as follows:





For
      the Three Months Ended September 30,
            
            
            For
      the Nine Months Ended September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008Stock-based
      compensation charged
            
            $
            1,606
            
            
            $
            1,736
            
            
            $
            4,638
            
            
            $
            5,540Income
      tax benefit recognized
            
            
            86
            
            
            
            139
            
            
            
            369
            
            
            
            452





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40
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CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





Under the
provisions of FASB Statement No. 123 (revised, December 2004), “Share-Based
Payment” (“FAS 123(R) (ASC 718)”), the fair value of stock options is estimated
on the grant date using the Black-Scholes option-pricing model and recognized
ratably over the requisite service period.





2009
Option Grants





Pursuant
to the Amended and Restated Stock Incentive Plan, the Compensation Committee of
our Board of Directors awarded options to members of staff, members of executive
management and members of our Board of Directors during the nine months ended
September 30, 2009.





The
exercise price of the options granted ranges from US$ 17.52 to US$ 36.44 per
share.  The fair value of these option grants was estimated on the
date of the grant using the Black-Scholes option-pricing model, with the
following assumptions used:





Date
      of Option Grant
            
            Number
      of Options Granted
            
            
            Risk-free
      interest rate (%)
            
            
            Expected
      term (years)
            
            
            Expected
      volatility
              (%)
            
            
            Dividend
      yield
              (%)
            
            
            Weighted-average
      fair value ($/share)May
      15, 2009
            
            
            120,000
            
            
            
            1.30
            
            
            
            3.00
            
            
            
            62.40
            
            
            
            0.00
            
            
            $
            7.38May
      15, 2009
            
            
            353,875
            
            
            
            1.30
            
            
            
            3.75
            
            
            
            57.50
            
            
            
            0.00
            
            
            
            7.65May
      29, 2009
            
            
            33,000
            
            
            
            1.42
            
            
            
            3.75
            
            
            
            58.14
            
            
            
            0.00
            
            
            
            8.28June
      19, 2009
            
            
            5,000
            
            
            
            1.84
            
            
            
            3.00
            
            
            
            62.87
            
            
            
            0.00
            
            
            
            8.28July
      30, 2009
            
            
            160,000
            
            
            
            1.73
            
            
            
            5.25
            
            
            
            53.60
            
            
            
            0.00
            
            
            
            10.06September
      15, 2009
            
            
            5,000
            
            
            
            1.49
            
            
            
            3.00
            
            
            
            63.95
            
            
            
            0.00
            
            
            
            14.95September
      16, 2009
            
            
            10,000
            
            
            
            1.55
            
            
            
            3.00
            
            
            
            64.03
            
            
            
            0.00
            
            
            $
            15.83





The
expected stock price volatility was calculated based on an analysis of the
historical stock price volatility of our shares and those of our peers for the
relevant preceding period.  We consider this basis to represent the
best indicator of expected volatility over the life of the option. The weighted
average fair value of all the grants made in the nine months ended September 30,
2009 was US$ 8.15 per option.  In accordance with FAS 123(R) (ASC
718), the fair value of the option grants made in the nine months ended
September 30, 2009 (less expected forfeitures) of US$ 5.6 million is being
recognized as an expense in the consolidated statement of operations over the
requisite service period of the awards.





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41
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CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





A summary
of option activity for the nine months ended September 30, 2009 is presented
below:





Shares
            
            
            Weighted
      Average Exercise Price per Share
            
            
            Weighted
      Average Remaining Contractual Term (years)
            
            
            Aggregate
      Intrinsic ValueOutstanding
      at January 1, 2009
            
            
            1,439,042
            
            
            $
            50.81
            
            
            
            6.17
            
            
            $
            1,458Granted
            
            
            686,875
            
            
            
            18.62
            
            
            
            -
            
            
            
            -Exercised
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Forfeited
            
            
            (75,667
            )
            
            
            53.47
            
            
            
            -
            
            
            
            -Outstanding
      at September 30, 2009
            
            
            2,050,250
            
            
            $
            39.93
            
            
            
            5.51
            
            
            $
            19,414Vested
      or expected to vest
            
            
            1,886,684
            
            
            
            40.57
            
            
            
            5.46
            
            
            
            17,591Exercisable
      at September 30, 2009
            
            
            962,375
            
            
            $
            46.27
            
            
            
            4.55
            
            
            $
            6,749





The
exercise of stock options has generated a net operating loss brought forward in
our Delaware subsidiary of US$ 8.5 million at January 1, 2009.  In the
nine months ended September 30, 2009, tax benefits of US$ 0.6 million were
recognized in respect of the utilization of part of this loss, and were recorded
as additional paid-in capital, net of US$ 0.3 million of transfers related to
the write-off of deferred tax assets arising upon forfeitures. The losses are
subject to examination by the tax authorities and to restriction on their
utilization.





The
aggregate intrinsic value (the difference between the stock price on the last
day of trading of the third quarter of 2009 and the exercise prices multiplied
by the number of in-the-money options) represents the total intrinsic value that
would have been received by the option holders had they exercised all
in-the-money options as of September 30, 2009.  This amount changes
based on the fair value of our common stock.  The total intrinsic
value of options exercised during the nine months ended September 30, 2009 and
2008 was US$ nil and US$ 0.8 million, respectively.  As of September
30, 2009, there was US$ 10.4 million of total unrecognized compensation expense
related to options.  The expense is expected to be recognized over a
weighted average period of 1.9 years.  Proceeds received from the
exercise of stock options were US$ nil and US$ 1.2 million for the nine months
ended September 30, 2009 and 2008, respectively.





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CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





16.  EARNINGS
PER SHARE





The
components of basic and diluted earnings per share are as follows:





For
      the Three Months Ended September 30,
            
            
            For
      the Nine Months Ended September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008Net
      income / (loss) from continuing operations attributable to CME Ltd.
      shareholders
            
            $
            (21,550
            )
            
            $
            (18,304
            )
            
            $
            (41,645
            )
            
            $
            61,115Net
      loss from discontinued operations
            
            
            -
            
            
            
            (1,026
            )
            
            
            (262
            )
            
            
            (2,534
            )Net
      income / (loss) attributable to CME Ltd. shareholders
            
            
            (21,550
            )
            
            
            (19,330
            )
            
            
            (41,907
            )
            
            
            58,581Weighted
      average outstanding shares of common stock (000’s)
            
            
            61,337
            
            
            
            42,335
            
            
            
            51,802
            
            
            
            42,324Dilutive
      effect of employee stock options (000’s)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            449Common
      stock and common stock equivalents (000’s)
            
            
            61,337
            
            
            
            42,335
            
            
            
            51,802
            
            
            
            42,773Net
      income / (loss) per share:Basic
            
            $
            (0.35
            )
            
            $
            (0.45
            )
            
            $
            (0.81
            )
            
            $
            1.38Diluted
            
            $
            (0.35
            )
            
            $
            (0.45
            )
            
            $
            (0.81
            )
            
            $
            1.37





At
September 30, 2009, 1,112,264 (December 31, 2008: 877,625) 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.
Shares of Class A common stock potentially issuable under our Convertible Notes
may also become dilutive in the future, although they were antidilutive to
income at September 30, 2009.





Page
43
 Index





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





17.  INTEREST
EXPENSE





Interest
expense comprised the following for the three and nine months ended September
30, 2009 and 2008, respectively:





For
      the Three Months Ended September 30,
            
            
            For
      the Nine Months Ended September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008Interest
      on Senior Notes (1)
            
            $
            11,474
            
            
            $
            11,232
            
            
            $
            30,221
            
            
            $
            34,191Interest
      on Convertible Notes
            
            
            4,156
            
            
            
            4,156
            
            
            
            12,468
            
            
            
            9,282Interest
      on EBRD loan
            
            
            1,093
            
            
            
            -
            
            
            
            3,921
            
            
            
            -Interest
      on capital leases
            
            
            82
            
            
            
            108
            
            
            
            184
            
            
            
            299Other
      interest and fees
            
            
            1,122
            
            
            
            1,149
            
            
            
            3,121
            
            
            
            2,955$
            17,927
            
            
            $
            16,645
            
            
            $
            49,915
            
            
            $
            46,727Amortization
      of capitalized debt issuance costs
            
            
            1,144
            
            
            
            1,125
            
            
            
            3,434
            
            
            
            3,216Amortization
      of issuance discount on Convertible Notes
            
            
            4,789
            
            
            
            4,357
            
            
            
            14,197
            
            
            
            9,759Loss
      on extinguishment of debt
            
            
            3,377
            
            
            
            -
            
            
            
            3,377
            
            
            
            -$
            9,310
            
            
            $
            5,482
            
            
            $
            21,008
            
            
            $
            12,975Total
      interest expense
            
            $
            27,237
            
            
            $
            22,127
            
            
            $
            70,923
            
            
            $
            59,702





(1)
Interest on Senior Notes includes interest on our 2005 Fixed Rate Notes (See
Note 24, “Senior Notes Being Redeemed”).





Interest
expense for the three and nine months ended September 30, 2008 reflects the
impact of adopting FSP APB 14-1 (ASC 470) retrospectively (see Note 2, “Summary
of Significant Accounting Policies, Convertible Debt”).





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44
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CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





18.  SEGMENT
DATA





We manage
our business on a geographic basis and review the performance of each segment
using data that reflects 100% of operating and license company
results.  Our segments are Bulgaria, Croatia, the Czech Republic,
Romania, the Slovak Republic, Slovenia and Ukraine.





We
evaluate the performance of our segments based on Net Revenues and EBITDA, which
is also used as a component in determining management bonuses.





Our key
performance measure of the efficiency of our segments is EBITDA
margin.  We define EBITDA margin as the ratio of EBITDA to Net
Revenues.





EBITDA is
determined as 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 EBITDA,
include:





·
            foreign
      currency exchange gains and losses;





·
            changes
      in fair value of derivatives; and





·
            certain
      unusual or infrequent items (e.g., impairments of assets or
      investments).





Below are
tables showing our Net Revenues, EBITDA, depreciation, amortization, impairment
charges, operating (loss) / income and total assets by operation for the three
and nine months ended September 30, 2009 and 2008 for Condensed Consolidated
Statement of Operations data and as at September 30, 2009 and December 31, 2008
for Condensed Consolidated Balance Sheet data:





For
      the Three Months Ended September 30,
            
            
            For
      the Nine Months Ended September 30,Net
      Revenues (1)
            
            2009
            
            
            2008
            
            
            2009
            
            
            2008Bulgaria
      (2)
            
            $
            920
            
            
            $
            462
            
            
            $
            2,397
            
            
            $
            462Croatia
            
            
            6,871
            
            
            
            8,525
            
            
            
            31,200
            
            
            
            38,153Czech
      Republic
            
            
            53,778
            
            
            
            72,602
            
            
            
            181,456
            
            
            
            270,730Romania
            
            
            36,088
            
            
            
            59,281
            
            
            
            120,622
            
            
            
            197,119Slovak
      Republic
            
            
            19,306
            
            
            
            24,795
            
            
            
            68,106
            
            
            
            88,126Slovenia
            
            
            11,272
            
            
            
            14,231
            
            
            
            43,741
            
            
            
            58,392Ukraine
            
            
            6,247
            
            
            
            20,705
            
            
            
            14,366
            
            
            
            75,451Total
      Operating Segments
            
            $
            134,482
            
            
            $
            200,601
            
            
            $
            461,888
            
            
            $
            728,433Corporate
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
            
            $
            134,482
            
            
            $
            200,601
            
            
            $
            461,888
            
            
            $
            728,433





(1) All
net revenues are derived from external customers.  There are no
inter-segmental revenues.





(2) We
acquired our Bulgaria operations on August 1, 2008.





Page
45
 Index





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





For
      the Three Months Ended September 30,
            
            
            For
      the Nine Months Ended September 30,EBITDA
            
            2009
            
            
            2008
            
            
            2009
            
            
            2008Bulgaria
      (1)
            
            $
            (12,346
            )
            
            $
            (3,101
            )
            
            $
            (29,702
            )
            
            $
            (3,101
            )Croatia
            
            
            (3,622
            )
            
            
            (5,401
            )
            
            
            (1,362
            )
            
            
            (6,448
            )Czech
      Republic
            
            
            17,767
            
            
            
            31,405
            
            
            
            81,201
            
            
            
            146,454Romania
            
            
            6,638
            
            
            
            20,116
            
            
            
            29,196
            
            
            
            81,785Slovak
      Republic
            
            
            (2,669
            )
            
            
            5,847
            
            
            
            6,714
            
            
            
            28,958Slovenia
            
            
            (1,191
            )
            
            
            2,153
            
            
            
            9,094
            
            
            
            17,359Ukraine
            
            
            (11,822
            )
            
            
            (7,791
            )
            
            
            (40,188
            )
            
            
            (12,916
            )Total
      Operating Segments
            
            $
            (7,245
            )
            
            $
            43,228
            
            
            $
            54,953
            
            
            $
            252,091Corporate
            
            
            (7,109
            )
            
            
            (11,672
            )
            
            
            (24,176
            )
            
            
            (34,971
            )Total
            
            $
            (14,354
            )
            
            $
            31,556
            
            
            $
            30,777
            
            
            $
            217,120





(1) We
acquired our Bulgaria operations on August 1, 2008.




Page
46
 Index





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





For
      the Three Months Ended September 30,
            
            
            For
      the Nine Months Ended September 30,Depreciation
            
            2009
            
            
            2008
            
            
            2009
            
            
            2008Bulgaria
      (1)
            
            $
            728
            
            
            $
            56
            
            
            $
            1,888
            
            
            $
            56Croatia
            
            
            1,481
            
            
            
            1,667
            
            
            
            3,915
            
            
            
            4,773Czech
      Republic
            
            
            4,550
            
            
            
            5,163
            
            
            
            12,306
            
            
            
            14,312Romania
            
            
            3,043
            
            
            
            3,320
            
            
            
            8,715
            
            
            
            8,916Slovak
      Republic
            
            
            1,951
            
            
            
            1,608
            
            
            
            5,424
            
            
            
            4,556Slovenia
            
            
            1,604
            
            
            
            1,437
            
            
            
            4,532
            
            
            
            4,232Ukraine
            
            
            487
            
            
            
            729
            
            
            
            1,521
            
            
            
            2,191Total
      Operating Segments
            
            $
            13,844
            
            
            $
            13,980
            
            
            $
            38,301
            
            
            $
            39,036Corporate
            
            
            135
            
            
            
            222
            
            
            
            811
            
            
            
            649Total
            
            $
            13,979
            
            
            $
            14,202
            
            
            $
            39,112
            
            
            $
            39,685





(1) We
acquired our Bulgaria operations on August 1, 2008.






For
      the Three Months Ended September 30,
            
            
            For
      the Nine Months Ended September 30,Amortization
      of intangible assets
            
            2009
            
            
            2008
            
            
            2009
            
            
            2008Bulgaria
      (1)
            
            $
            -
            
            
            $
            1,300
            
            
            $
            1,545
            
            
            $
            1,300Croatia
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Czech
      Republic
            
            
            2,862
            
            
            
            6,009
            
            
            
            7,898
            
            
            
            17,422Romania
            
            
            600
            
            
            
            894
            
            
            
            1,770
            
            
            
            2,665Slovak
      Republic
            
            
            1,245
            
            
            
            1,333
            
            
            
            3,577
            
            
            
            3,840Slovenia
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Ukraine
            
            
            410
            
            
            
            663
            
            
            
            1,261
            
            
            
            836Total
      Operating Segments
            
            $
            5,117
            
            
            $
            10,199
            
            
            $
            16,051
            
            
            $
            26,063Corporate
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
            
            $
            5,117
            
            
            $
            10,199
            
            
            $
            16,051
            
            
            $
            26,063





(1) We
acquired our Bulgaria operations on August 1, 2008.





Page
47
 Index





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)




For
      the Three Months Ended September 30,
            
            
            For
      the Nine Months Ended September 30,Impairment
      charges
            
            2009
            
            
            2008
            
            
            2009
            
            
            2008Bulgaria
      (1)
            
            $
            -
            
            
            $
            -
            
            
            $
            81,843
            
            
            $
            -Croatia
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Czech
      Republic
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Romania
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Slovak
      Republic
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Slovenia
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Ukraine
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
      Operating Segments
            
            $
            -
            
            
            $
            -
            
            
            $
            81,843
            
            
            $
            -Corporate
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
            
            $
            -
            
            
            $
            -
            
            
            $
            81,843
            
            
            $
            -





(1) We
acquired our Bulgaria operations on August 1, 2008.






For
      the Three Months Ended September 30,
            
            
            For
      the Nine Months Ended September 30,Operating
      income / (loss)
            
            2009
            
            
            2008
            
            
            2009
            
            
            2008Bulgaria
      (1)
            
            $
            (13,074
            )
            
            $
            (4,457
            )
            
            $
            (114,978
            )
            
            $
            (4,457
            )Croatia
            
            
            (5,103
            )
            
            
            (7,068
            )
            
            
            (5,277
            )
            
            
            (11,221
            )Czech
      Republic
            
            
            10,355
            
            
            
            20,233
            
            
            
            60,997
            
            
            
            114,720Romania
            
            
            2,995
            
            
            
            15,902
            
            
            
            18,711
            
            
            
            70,204Slovak
      Republic
            
            
            (5,865
            )
            
            
            2,906
            
            
            
            (2,287
            )
            
            
            20,562Slovenia
            
            
            (2,795
            )
            
            
            716
            
            
            
            4,562
            
            
            
            13,127Ukraine
            
            
            (12,719
            )
            
            
            (9,183
            )
            
            
            (42,970
            )
            
            
            (15,943
            )Total
      Operating Segments
            
            $
            (26,206
            )
            
            $
            19,049
            
            
            $
            (81,242
            )
            
            $
            186,992Corporate
            
            
            (7,244
            )
            
            
            (11,894
            )
            
            
            (24,987
            )
            
            
            (35,620
            )Total
            
            $
            (33,450
            )
            
            $
            7,155
            
            
            $
            (106,229
            )
            
            $
            151,372





(1) We
acquired our Bulgaria operations on August 1, 2008.





Page
48
 Index





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)


Total
      assets (1):
            
            September
      30,
              2009
            
            
            December
      31,
              2008Bulgaria
            
            $
            20,705
            
            
            $
            107,805Croatia
            
            
            49,290
            
            
            
            50,431Czech
      Republic
            
            
            1,493,005
            
            
            
            1,306,997Romania
            
            
            392,011
            
            
            
            387,845Slovak
      Republic
            
            
            253,385
            
            
            
            240,899Slovenia
            
            
            97,316
            
            
            
            93,022Ukraine
            
            
            83,599
            
            
            
            129,590Total
      Operating Segments
            
            $
            2,389,311
            
            
            $
            2,316,589Corporate
            
            
            777,835
            
            
            
            84,543Total
            
            $
            3,167,146
            
            
            $
            2,401,132Reconciliation
      to condensed consolidated balance sheets:Assets
      held for sale (2)
            
            
            -
            
            
            
            5,484Total
      assets
            
            $
            3,167,146
            
            
            $
            2,406,616





(1) Segment
assets exclude any inter-company investments, loans, payables and
receivables.


(2) Assets
held for sale represent the CITI channel, which was disposed of in February
2009.






Long-lived
      assets (1):
            
            September
      30,
              2009
            
            
            December
      31,
              2008Bulgaria
            
            $
            6,825
            
            
            $
            6,404Croatia
            
            
            13,094
            
            
            
            13,450Czech
      Republic
            
            
            70,283
            
            
            
            61,463Romania
            
            
            47,189
            
            
            
            52,193Slovak
      Republic
            
            
            37,834
            
            
            
            40,025Slovenia
            
            
            25,962
            
            
            
            24,932Ukraine
            
            
            4,706
            
            
            
            7,083Total
      Operating Segments
            
            $
            205,893
            
            
            $
            205,550Corporate
            
            
            932
            
            
            
            1,117Total
      long-lived assets
            
            $
            206,825
            
            
            $
            206,667





(1)
Reflects property, plant and equipment.





We do not
rely on any single major customer or group of major customers.





Page
49
 Index





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





19.  DISCONTINUED
OPERATIONS





In the
fourth quarter of 2008, in connection with an agreement with our minority
partners to acquire 100% of the KINO channel and sell to them our interest in
the CITI channel, we segregated the broadcasting licenses and other assets of
the KINO channel and transferred them to Gravis-Kino, a new entity spun off from
Gravis, which previously operated the KINO and the CITI
channels.  Between January 14, 2009 and February 10, 2009, we acquired
a 100% interest in the KINO channel by acquiring from our minority partners
their interests in Tor, Zhysa, TV Stimul, Ukrpromtorg and Gravis-Kino and
selling to them our interest in Gravis, which owns the broadcasting licenses and
other assets of the CITI channel. We concluded that the CITI channel represented
a disposal group and therefore recognized the income and expenses of our CITI
channel as a discontinued operation in all periods presented. The assets and
liabilities of the CITI channel were classified as available for sale at
December 31, 2008 and were disposed of in the first quarter of
2009.





Page
50
 Index





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





20.  COMMITMENTS
AND CONTINGENCIES





Commitments





a)  Station
Programming Rights Agreements





At
September 30, 2009, we had the following commitments in respect of future
programming, including contracts signed with license periods starting after the
balance sheet date:





September
      30, 2009Bulgaria
            
            $
            96,008Croatia
            
            
            36,778Czech
      Republic
            
            
            107,407Romania
            
            
            148,609Slovak
      Republic
            
            
            48,045Slovenia
            
            
            18,811Ukraine
            
            
            59,020Total
            
            $
            514,678





Of the
amount shown in the table above, US$ 80.0 million is payable within one
year.








b)
Operating Lease Commitments





For the
nine months ended September 30, 2009 and 2008 we incurred aggregate rent on all
facilities of US$ 7.8 million and US$ 11.1 million,
respectively.  Future minimum operating lease payments at September
30, 2009 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:





September
      30, 20092009
            
            $
            1,8202010
            
            
            6,4702011
            
            
            5,1012012
            
            
            2,8752013
            
            
            3,0942014
      and thereafter
            
            
            4,570Total
            
            $
            23,930





c)
Acquisition of Minority Shareholdings in Romania





Adrian
Sarbu has the right to sell to us his remaining shareholding in Pro TV and MPI
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. Mr. Sarbu’s right to put his remaining
shareholding is exercisable from November 12, 2009, provided that we have not
enforced a pledge over this shareholding which Mr. Sarbu granted as security for
our right to put him our shareholding in Media Pro. As at September 30, 2009, we
consider the fair value of the put option of Mr. Sarbu to be approximately US$
nil.





Page
51
 Index





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





d)
Media Pro Transaction





On July
27, 2009, CME Production and CME Romania B.V., two wholly-owned subsidiary
holding companies, entered into a framework agreement (the “Framework
Agreement”) with MP Management, MP BV and Adrian Sarbu.  Mr. Sarbu is
the controlling shareholder of MP Management and MP BV and is guaranteeing the
performance and obligations of MP Management and MP BV under the Framework
Agreement.  Pursuant to the Framework Agreement, CME Production will
acquire the Media Pro Entertainment business (as defined below) from MP
Management and MP BV. The “Media Pro Entertainment business” consists of 100% of
each of Media Pro Pictures S.A. (“Media Pro Pictures”), Pro Video s.r.l., Media
Pro Music and Entertainment s.r.l., Media Pro Distribution s.r.l., Hollywood
Multiplex Operations s.r.l. and Media Pro Pictures s.r.o., as well as the 81.47%
interest that Media Pro Pictures holds in Media Pro Studios (Studiorile) S.A.
and the 51% interest that Media Pro Pictures holds in Domino Production
s.r.l.  In addition, Mr. Sarbu and his affiliates will assign the
Media Pro names and trademarks associated with the Media Pro Entertainment
business to CME Production.  Completion of this transaction is
expected to occur during the fourth quarter of 2009, following receipt of
necessary governmental approval.





Total
consideration payable includes $10.0 million in cash, 2.2 million shares of
Class A common stock of the Company and a warrant to purchase 850,000 shares of
Class A common stock of the Company. The 2.2 million shares of Class A common
stock and the warrant will be issued at completion pursuant to a subscription
agreement among the Company, MP Management and MP BV.  The exercise
price of the warrant is $21.75.  In addition, at completion CME
Romania B.V. will transfer its 8.7% interest in MP Management and its 10%
interest in MP BV to Mr. Sarbu or an entity designated by him. The Company will
assume certain debts of the Media Pro Entertainment business in the aggregate
principal amount of approximately $35.6 million. The Framework Agreement
contains a working capital adjustment that would result in a reduction in the
consideration payable in the event the working capital deficit of the Media Pro
Entertainment business exceeds an agreed threshold.





Under the
terms of the Subscription Agreement to be entered into at or prior to
completion, MP Management and MP BV may sell up to 1.05 million shares of Class
A common stock from the first anniversary of the completion date, up to 2.05
million shares from the second anniversary of the completion date and up to 3.05
million shares from the third anniversary of the completion date.  MP
Management and MP BV further agree not to sell more than 500,000 shares of Class
A common stock in the aggregate in any calendar quarter.





Following
completion, MP Management and MP BV will continue to own Publimedia
International S.A. and its subsidiaries (“Publimedia”), Indoor Media s.r.l.
(“Indoor Media”),  Media Pro Interactiv s.r.o. (MP Interactiv”),
MediaSat S.A., Media Fax S.A and Media Fax s.r.o. (collectively, “Media Fax”),
Companie de Productie Intertainment S.A. (“Coprint”) and Metrodome Group plc
(“Metrodome”) (collectively, the “MP Management
business”).  Publimedia is engaged in the publishing and printing of
newspapers and magazines in Romania; Indoor Media provides indoor billboards and
plasma screen advertising; MP Interactiv provides web hosting and management;
MediaSat S.A. provides internet and telecommunications services; Media Fax is a
news syndication service; Coprint is a newspaper, commercials and magazine
printing business and Metrodome is a U.K.-based film sales and distribution
business.  Both we and the companies of the Media Pro Entertainment
business have contracted with these companies for various services and may
continue to do so.





On
September 8, 2009, we entered into a loan agreement with Media Pro Pictures for
a working capital facility of US$ 10.0 million. Amounts outstanding under this
loan agreement will be incorporated into the working capital deficit adjustment
at the completion of the acquisition. The facility is repayable on January 31,
2013 and bears interest at 9.0%, payable semi-annually in arrears each March 1
and September 1. The facility is secured by a pledge of Mr Sarbu’s interest in
Pro TV until the acquisition is complete.





Page
52
 Index





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





e)
Ukraine Transaction





On July
2, 2009, we entered into an agreement (the “Ukraine Agreement”) with Igor
Kolomoisky, Alstrom Business Corp., a company which Igor Kolomoisky controls and
is the beneficial owner of (“Alstrom”), certain affiliated parties of Mr.
Kolomoisky and CME Cyprus Holding Limited (“CME Cyprus”).   The
Ukraine Agreement was subsequently amended and restated on July 22, 2009, to
introduce another of our holding companies into the restructuring. Under the
Ukraine Agreement, we will transfer our entire ownership interest in our
Ukrainian television channels STUDIO 1+1 and KINO to CME Cyprus, currently a
wholly owned subsidiary of the Company. Thereafter, CME Cyprus will issue shares
to Alstrom in exchange for an investment by Alstrom of US$ 100.0 million in cash
and a contribution by it of the entities that own and operate the TET TV channel
in Ukraine. Following completion of these transactions, we will own 51% of CME
Cyprus and Alstrom will own 49%. CME Cyprus and its affiliates will own and
operate the STUDIO 1 +1, KINO and TET television channels. The US$ 100.0 million
cash investment by Alstrom will be used to finance and develop the three
channels.  In connection with the transaction, we will have an option
to sell our 51% interest in CME Cyprus to Alstrom and Mr. Kolomoisky at the
price of US$ 300.0 million, payable in cash for a period of one year from the
closing of the transaction.  The closing of this transaction is
expected to occur during the fourth quarter of 2009, following completion of
internal restructurings of the ownership of these assets and receipt of the
necessary governmental approvals.





f)
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 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 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.





We have
since re-evaluated our forecasts of the amount of taxable income we expect to
earn in The Netherlands in the period to 2009.  As the expected tax
payable on this income is lower than the minimum amounts agreed with the Dutch
tax authorities, we have provided for the shortfall.





The
settlement with the Dutch tax authorities also provided that if any decision was
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
recover losses previously used against the 2003 arbitration award, 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.  The Dutch Ministry of Finance has now
advised that no such decision was issued.





As at
September 30, 2009 we provided US$ 0.3 million in current liabilities (December
31, 2008: US$ 1.3 million) 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.





Czech
Republic - Factoring of Trade Receivables





CET 21
has a working capital credit facility of CZK 250 million (approximately US$ 14.6
million) with CS.  This facility is secured by a pledge of receivables
under the factoring agreement with FCS.





The
transfer of the receivables is accounted for as a secured borrowing under FAS
140 (ASC 860), with the proceeds received recorded in the Condensed 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.





Page
53
 Index





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





Contingencies




a)
Litigation





We are,
from time to time, a party to litigation or arbitration proceedings arising in
the normal course of our business operations. Other than the claim discussed
below, we are not presently a party to any such litigation or arbitration which
could reasonably be expected to have a material adverse effect on our business
or operations.





Video
International Termination





On March
18, 2009, Video International Company Group, CGSC (“VI”), a Russian legal
entity, filed a claim in the London Court of International Arbitration (“LCIA”)
against our wholly-owned subsidiary CME Media Enterprises B.V. (“CME BV”), which
is the principal holding company of our Ukrainian subsidiaries. The claim
relates to the termination of an agreement between VI and CME BV dated November
30, 2006 (the “parent agreement”). The parent agreement was one of four related
contracts by which VI subsidiaries, including LLC Video International-Prioritet
(“Prioritet”), supplied advertising and marketing services to Studio 1+1 in
Ukraine and another subsidiary of the Company. Among these four contracts were
the advertising services agreement and the marketing services agreements both
between Prioritet and Studio 1+1. The parent agreement provides that it
automatically terminates upon termination of the advertising services agreement.
On December 24, 2008, each of CME BV, Studio 1+1 and the other CME subsidiary
provided notices of termination to their respective contract counterparties,
following which each of the four contracts terminated on March 24, 2009. On
January 9, 2009, in response to a VI demand, CME revised its termination notice
and noted that the parent agreement would expire of its own accord with the
termination of the advertising services agreement. In connection with these
terminations, Studio 1+1 is required under the advertising and marketing
services agreements to pay a termination penalty equal to (i) 12% of the average
monthly advertising revenues, and (ii) 6% of the average monthly sponsorship
revenues, in each case for advertising and sponsorship sold by Prioritet for the
six months prior to the termination date, multiplied by six. We determined the
termination penalty to be UAH 37.7 million (approximately US$ 4.5 million) and
made a provision for this amount in our financial statements in the fourth
quarter of 2008. On June 1, 2009, we paid UAH 13.5 million (approximately US$
1.6 million) to Prioritet and set off UAH 7.4 million (approximately US$ 0.9
million) against amounts owing to Studio 1+1 under the advertising and marketing
services agreements. In its arbitration claim, VI is seeking payment of a
separate indemnity under the parent agreement equal to the aggregate amount of
Studio 1+1’s advertising revenues for the six months ended December 31, 2008.
The aggregate amount of relief sought is US$ 58.5 million. We believe that VI
has no grounds for receiving such separate indemnity and are vigorously
defending the arbitration proceedings. We do not believe it is probable that we
will be required to make any payment and accordingly have made no provision for
it.





b) Lehman Brothers Bankruptcy
Claim





On March
4, 2008, we purchased for cash consideration of US$ 22.2 million, capped call
options from Lehman OTC (See Note 5, “Senior Debt: Convertible Notes”) over
1,583,333 shares of our Class A common stock which, together with purchases of
similar options from other counterparties, entitled us to receive, at our
election following a conversion under the Convertible Notes, cash or shares of
Class A common stock with a value equal to the difference between the trading
price of our shares at the time the option is exercised and US$ 105.00, up to a
maximum trading price of US$ 151.20.





On
September 15, 2008, Lehman Holdings, the guarantor of the obligations of Lehman
OTC under the capped call agreement, filed for protection under Chapter 11 of
the United States Bankruptcy Code. The bankruptcy filing of Lehman Holding, as
guarantor, was an event of default and gave us the right to terminate the capped
call agreement with Lehman OTC and claim for losses. We exercised this right on
September 16, 2008 and claimed an amount of US$ 19.9 million, which bears
interest at a rate equal to CME’s estimate of its cost of funding plus 1% per
annum.





Page
54
 Index





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





On
October 3, 2008, Lehman OTC also filed for protection under Chapter
11.  We filed claims in the bankruptcy proceedings of both Lehman
Holding and Lehman OTC. Our claim was a general unsecured claim and ranked
together with similar claims.





On March
3, 2009 we assigned our claim in the bankruptcy proceedings of Lehman Holdings
and Lehman OTC to an unrelated third party for cash consideration of US$ 3.4
million, or 17% of the claim value. Under the terms of the agreement, in certain
circumstances which we consider remote, including if our claim is subsequently
disallowed or adjusted by the bankruptcy court, the counterparty would be able
to recoup the corresponding portion of the purchase price from us. Likewise, if
the amount of recovery exceeds the amount of our claim, we may receive a portion
of that recovery from the claim purchaser.





c)
Licenses





Regulatory
bodies in each country in which we operate control access to the available
frequencies through licensing regimes.  The licenses to operate our
broadcast operations are effective for the following periods:





Bulgaria
            The
      analog license of PRO.BG expires in February
  2025.





Croatia
            The
      analog license of NOVA TV (Croatia) expires in March
  2010.





Czech
      Republic
            The
      terrestrial license of TV NOVA (Czech Republic) expires in January 2025
      and the satellite license of TV NOVA (Czech Republic) expires in December
      2020. The NOVA SPORT cable and satellite license expires in September
      2020. The satellite license for NOVA CINEMA expires in November
      2019.





Romania
            Analog,
      cable and satellite licenses expire on dates ranging from April 2010 to
      May 2018.





Slovak
      Republic
            The
      analog license of TV MARKIZA expires in September
  2019.





Slovenia
            The
      analog licenses of POP TV and KANAL A expire in August
    2012.





Ukraine
            The
      15-hour prime time and off prime time analog license of STUDIO 1+1 expires
      in December 2016. The analog license to broadcast for the remaining nine
      hours in off prime time expires in July 2014. The satellite license
      expires in April 2018. Analog and satellite licenses for the KINO channel
      expire on dates ranging from March 2010 to July
  2016.








Digital
Terrestrial Television Transition





In the
transition from analog to digital terrestrial broadcasting each jurisdiction is
following a similar set of steps - although the approach being applied is not
uniform.  Typically, legislation governing the transition to digital
is adopted addressing the licensing of operators of the digital networks as well
as the licensing of digital broadcasters, technical parameters concerning the
allocation of frequencies to be used for digital services (including those
currently being used for analog services), broadcasting standards to be
provided, the timing of the transition and, ideally, principles to be applied in
the transition, including transparency and non-discrimination. As a rule, these
are embodied in a technical transition plan (“TTP”) that, in most jurisdictions,
is agreed among the relevant Media Council, the national telecommunications
agency (which is generally responsible for the allocation and use of
frequencies) and the broadcasters.





Page
55
 Index





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





The TTP
will typically include the following: the timeline and final switchover date,
time allowances for the phases of the transition, allocation of frequencies for
digital broadcasting and other digital services, methods for calculating digital
terrestrial signal coverage and penetration of set top boxes, parameters for
determining whether the conditions for switchover have been satisfied for any
phase, the technical specifications for broadcasting standards to be utilized
and technical restrictions on parallel broadcasting in analog and terrestrial
during the transition phase.





Of our
markets, Bulgaria, the Czech Republic, the Slovak Republic and Slovenia are the
furthest advanced in the transition to digital. All four have adopted new
legislation or amendments to existing legislation and TTPs in order to
facilitate the transition.  Generally, this legislation provides that
incumbent analog broadcasters are entitled to receive a digital license or that
current licenses entitle the holders to digital terrestrial broadcasting,
although broadcasters in a specific jurisdiction may be required to formally
file an application in order for a digital license to be issued.





In that
regard, our Slovenian channels, POP TV and KANAL A, were issued digital licenses
in November 2007 and TV PIKA in December 2008. We anticipate that the switchover
to digital in Slovenia will be completed by 2010, at which point analog licenses
will be cancelled.  The license currently held by CET 21 allows for
national digital terrestrial broadcasting of TV NOVA (Czech Republic) in any
multiplex. Such license has been extended for an additional 8 years, to 2025. In
addition, CET 21 was granted a license for national digital terrestrial
broadcasting of NOVA CINEMA. This license is valid until the completion of
transition to digital terrestrial broadcasting in the Czech Republic, at which
time we expect a new license will be granted. In the Slovak Republic, TV MARKIZA
is entitled to receive a digital license under recently adopted legislation and
intends to apply for one now that the tender offer for the multiplex operator
under the TTP for the Slovak Republic has been completed.  In
addition, in January 2009 Markiza was granted an indefinite digital license for
a niche channel, DOMA, which was launched on August 31, 2009.  In
Bulgaria, PRO.BG was issued a “must-carry” digital license in June 2009, which
gives PRO.BG a must-carry right for the first multiplex, expected to be launched
by the end of 2010. The digital switchover in Bulgaria is expected to be
completed by 2012, at which time the analog license for PRO.BG will
automatically expire.





Draft
legislation governing the transition to digital is under discussion in
Croatia.  We anticipate that legislation will be adopted before the
end of 2009 that will address digital licensing and the TTP in a comprehensive
way.  We expect that NOVA TV (Croatia) will receive a digital
license.





The
Romanian governmental authorities have adopted amendments to existing
legislation which provide that analog broadcasters are entitled to receive
digital licenses; however, specific regulations to govern the transition to
digitalization are yet to be adopted by the Romanian Media Council. The existing
law provides that broadcasters within the same multiplex are entitled to choose
their own operator, whether one of those broadcasters, a separate company set up
by those broadcasters or a third party.





The
Ukrainian governmental authorities have issued generic legislation in respect of
the transition to digital. In addition, the Ukrainian Media Council has issued
decisions confirming that STUDIO 1+1 would be included in one of the multiplexes
to be launched in connection with the transition to digital
broadcasting.  The Ukrainian Media Council recently held a tender for
licenses for additional digital frequencies that will be made available for
niche channels in the switchover to digital, and is currently soliciting
proposals for technical development of certain digital multiplexes. However,
there has been no indication as to when a TTP will be adopted in
Ukraine.





We intend
to apply for and obtain digital licenses that are issued in replacement of
analog licenses in all our operating countries and to apply for additional
digital licenses and for licenses to operate digital networks where such
applications are permissible and prudent.





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CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





d)
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.




21.  RELATED
PARTY TRANSACTIONS





Overview





There is
a limited local market for many specialist television services in the countries
in which we operate; many of these services are provided by parties known to be
connected to our local shareholders, members of our management and board of
directors or our equity investees.  As stated in FASB Statement No. 57
“Related Party Disclosures” (“FAS 57 (ASC 850)”) 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.





Related
Party Groups





We
consider our related parties to be those shareholders who have direct control
and/or influence and other parties that can significantly influence management
as well as our officers and directors; a “connected” party is one in relation to
whom we are aware of the existence of a family or business connection to a
shareholder. We have identified transactions with individuals or entities
associated with the following individuals or entities as related party
transactions: Adrian Sarbu, our President and Chief Executive Officer and a
shareholder in our Romania operations; Time Warner, beneficial owners of
approximately 31.0% of our outstanding shares and Igor Kolomoisky, beneficial
owner of approximately 2.6% of our outstanding shares and a member of our board
of directors.





Related
Party Transactions





Adrian
Sarbu





Bulgaria:





We
purchased programming from companies related to or connected with Mr. Sarbu in
the nine months ended September 30, 2009 of approximately US$ 0.1 million (2008:
US$ nil). The total amount payable at September 30, 2009 was US$ 8.0 thousand
(December 31, 2008, US$ nil).




Croatia:





We
purchased programming from companies related to or connected to Mr. Sarbu in the
nine months ended September 30, 2009 of approximately US$ 38.0 thousand (2008:
US$ 0.1 million). The total amount payable at September 30, 2009 was US$ nil
(December 31, 2008: US$ nil).





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CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





Czech
Republic:





We made
0.1 million purchases from companies related to or connected to Mr. Sarbu in the
nine months ended September 30, 2009.  However, in 2008 we purchased
programming from companies related to or connected with Mr. Sarbu of
approximately US$ 2.7 million. The total amount payable at September 30, 2009
was US$ nil (December 31, 2008: US$ 0.2 million).




Slovak
Republic:





We
purchased programming from companies related to or connected with Mr. Sarbu in
the nine months ended September 30, 2009 of approximately US$ 0.1 million
(2008: US$ 1.9 million). The total amount payable as at September 30, 2009 was
US$ 2.0 thousand (December 31, 2008: US$ 0.2 million).


Romania:





The total
purchases from companies related to or connected with Mr. Sarbu in the nine
months ended September 30, 2009 were approximately US$ 25.0 million (2008: US$
35.4 million). Of this, US$ 19.9 million were purchases for programming rights
and for various technical, production and administrative related
services.  The total sales to companies related to or connected with
Mr. Sarbu in the nine months ended September 30, 2009 were approximately US$ 0.7
million (2008: US$ 1.5 million).  At September 30, 2009, companies
connected to Mr. Sarbu had an outstanding balance due to us of US$ 14.8 million
(December 31, 2008: US$ 8.6 million), reflecting advances paid for undelivered
programming.  At September 30, 2009, companies related to Mr. Sarbu
had an outstanding balance due to them of US$ 1.2 million (December 31, 2008:
US$ 1.3 million).





On
September 8, 2009, we entered into a loan agreement with Media Pro Pictures for
a working capital facility of US$ 10.0 million. Amounts outstanding under this
loan agreement will be incorporated into the working capital deficit adjustment
when we complete the purchase of the Media Pro Entertainment business. The
facility is repayable on January 31, 2013 and bears interest at 9.0%, payable
semi-annually in arrears each March 1 and September 1. The facility is secured
by a pledge of Mr Sarbu’s interest in Pro TV until the acquisition is
complete.





On April
17, 2008 we acquired certain radio broadcasting assets of Radio Pro, which owns
the two leading radio channels in Romania. Radio Pro is a 100% subsidiary of MP
Management, in which we held an 8.7% interest at the date of purchase and Mr.
Sarbu holds the remaining interest. The purchase price was RON 47.2 million
(approximately US$ 20.6 million).





We have
the right to put our investment in MP Management to Mr. Sarbu until November 12,
2009 at a price equal to the greater of EUR 13.0 million (approximately US$ 18.1
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.  In connection with the
transfer of our shares upon the closing of the Media Pro Transaction this put
right will be extinguished (see Note 20, “Commitments and Contingencies: Media
Pro Transaction”).





Slovenia:





We
purchased programming from companies related to or connected with Mr. Sarbu in
the nine months ended September 30, 2009 of approximately US$ 0.1 million (2008:
US$ 24.0 thousand). The total amount payable at September 30, 2009 was US$ 37.0
thousand (December 31, 2008: US$ 1.0 thousand).





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CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





Ukraine:





We
purchased programming from companies related to or connected with Mr. Sarbu in
the nine months ended September 30, 2009 of approximately US$ 0.5 million (2008:
US$ 0.2 million). The total amount payable as at September 30, 2009 was US$ 0.1
million (December 31, 2008: US$ nil).





Time
Warner





Bulgaria:





We
purchased programming from companies related to or connected with Time Warner in
the nine months ended September 30, 2009 of approximately US$ 2.0 million (2008:
US$ nil). The total amount payable as at September 30, 2009 was US$ 0.1 million
(December 31, 2008: US$ nil).





Croatia:





We
purchased programming from companies related to or connected with Time Warner in
the nine months ended September 30, 2009 of approximately US$ 44.0 thousand
(2008: US$ 0.1 million). The total amount payable as at September 30, 2009 was
US$ 10.0 thousand (December 31, 2008 US$ 0.1 million).





Czech
Republic:





We
purchased programming from companies related to or connected with Time Warner in
the nine months ended September 30, 2009 of approximately US$ 1.5 million (2008:
US$ 58.2 million). The total amount payable as at September 30, 2009 was US$ 0.6
million (December 31, 2008: US$ nil).





Romania:





We
purchased programming from companies related to or connected with Time Warner in
the nine months ended September 30, 2009 of approximately US$ 17.1 million
(2008: US$ 14.2 million). The total amount payable as at September 30, 2009 was
US$ 29.6 million (December 31, 2008: US$ 22.1 million).





Slovak
Republic:





We
purchased programming from companies related to or connected with Time Warner in
the nine months ended September 30, 2009 of approximately US$ 1.3 million (2008:
US$ 12.9 million). The total amount payable as at September 30, 2009 was US$ 6.7
million (December 31, 2008: US$ 3.6 million).





Slovenia:





We
purchased programming from companies related to or connected with Time Warner in
the nine months ended September 30, 2009 of approximately US$ 2.2 million (2008:
US$ 0.1 million) The total amount payable as at September 30, 2009 was US$ 1.7
million (December 31, 2008: US$ 1.1 million).





Ukraine:





We
purchased programming from companies related to or connected with Time Warner in
the nine months ended September 30, 2009 of US$ 0.2 million (2008: US$ 1.4
million). The total amount payable as at September 30, 2009 was US$ 0.2 million
(December 31, 2008: $ nil).





Igor
Kolomoisky





On June
30, 2008 we paid $140.0 million to Mr. Kolomoisky  in connection with
our acquisition of the interests in the Studio 1+1 group over which he held
options.





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59
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CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





As part
of the transactions involving the split of the KINO and CITI channels, on
February 10, 2009, we acquired a 10% ownership interest in Glavred for US$ 12.0
million, from an entity controlled by Alexander Tretyakov. Mr. Kolomoisky
indirectly owns 50% of Glavred and the remaining 40% is owned by Mr.
Tretyakov.





22.  RESTRICTED
AND UNRESTRICTED SUBSIDIARIES





Under the
terms of the indentures governing the Floating Rate Notes and the 2009 Fixed
Rate Notes (the “2007 Indenture” and the “2009 Indenture” respectively), we are
largely restricted from raising debt at the corporate level if the ratio of
Consolidated EBITDA to Consolidated Interest Expense (both as defined in the
2007 Indenture and 2009 Indenture) (the “Coverage Ratio”) is less than 2.0
times. For the purposes of the 2007 Indenture and the 2009 Indenture, the
calculation of the Coverage Ratio includes the company and its subsidiaries that
are “Restricted Subsidiaries.” Subsidiaries may be designated as “Unrestricted
Subsidiaries” and excluded from the calculation of Coverage Ratio by our Board
of Directors. Previously, all of our operations were Restricted Subsidiaries.
During the quarter ended September 30, 2009, our Board of Directors designated
those subsidiaries that comprise our Ukraine and Bulgaria operations as
“Unrestricted Subsidiaries”. This change in designation was immediately
beneficial to us because it resulted in the exclusion of the negative EBITDA of
the Ukraine and Bulgaria operations from the calculation of our Coverage Ratio.
We also designated a wholly owned subsidiary holding company (the “Development
Financing Holding Company”) as an Unrestricted Subsidiary at the same time we
designated the Ukraine and Bulgaria operations as Unrestricted Subsidiaries. The
only asset of this company at September 30, 2009 was US$ 224.4 million in cash,
which can be used to finance the other Unrestricted
Subsidiaries.


Our
Coverage Ratio is currently below 2.0 times, therefore our Restricted
Subsidiaries are restricted from making payments or investments in total of more
than approximately EUR 80.0 million (approximately US$ 117.1 million) to our
Unrestricted Subsidiaries or to any other operations that are not restricted
subsidiaries. We have made US$ 9.5 million of such payments since we issued
our Floating Rate Notes in 2007 and as at September 30, 2009 we have capacity
for approximately US$ 107.6 million of additional payments or investments in the
Unrestricted Subsidiaries in the event our Coverage Ratio fell below 2.0
times.





When the
Ukraine transaction closes (see Note 20, “Commitments and Contingencies: Ukraine
Transaction”) the Development Financing Holding Company may choose to return any
unrequired portion of the $224.4 million that it holds to a Restricted
Subsidiary. We estimate that the balance of this amount will be sufficient to
fund our developing operations, which include Bulgaria and Ukraine, to a
break-even cash position, which we currently estimate will occur by 2013. There
is no requirement to maintain a minimum cash balance in this company and the US$
224.4 million cash balance remains available to our Restricted Subsidiaries at
any time.


If the
Unrestricted Subsidiaries exhaust all available cash, it may be possible to
re-designate the Ukraine and Bulgaria operations as Restricted Subsidiaries
provided that our Coverage Ratio is not below 2.0 times on a pro-forma basis.
Our Restricted Subsidiaries are not restricted in the manner or amount of
funding support they may provide to the Unrestricted Subsidiaries if they are so
re-designated. Such a re-designation could have adverse consequences for our
Coverage Ratio. If a funding need arises for our Unrestricted Subsidiaries, and
we are prevented from re-designating our Ukraine and Bulgaria operations as
Restricted Subsidiaries, those operations would be required to raise debt on a
stand-alone basis, attract additional equity funding, divest some or all of
their assets or enter bankruptcy proceedings.





Selected
financial information for CME Ltd. (the “Issuer”) and its Restricted
Subsidiaries and Unrestricted Subsidiaries as required by the 2009 Indenture was
as follows:





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CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





Issuer
      and Restricted subsidiaries
            
            
            Unrestricted
      Subsidiaries
            
            
            Inter-group
      eliminations
            
            
            TotalConsolidated
      Statement of Operations:For
      the Three Months Ended September 30, 2009Net
      revenues
            
            $
            127,315
            
            
            $
            7,167
            
            
            $
            -
            
            
            $
            134,482Depreciation
      of station property, plant and equipment
            
            
            12,629
            
            
            
            1,215
            
            
            
            -
            
            
            
            13,844Amortization
      of broadcast licenses and other intangibles
            
            
            4,707
            
            
            
            410
            
            
            
            -
            
            
            
            5,117Operating
      income / (loss)
            
            
            (7,776
            )
            
            
            (25,674
            )
            
            
            -
            
            
            
            (33,450
            )Net
      income / (loss) attributable to CME Ltd.
            
            $
            6,255
            
            
            $
            (27,805
            )
            
            $
            -
            
            
            $
            (21,550
            )For
      the Nine Months Ended September 30, 2009Net
      revenues
            
            $
            445,125
            
            
            $
            16,763
            
            
            $
            -
            
            
            $
            461,888Depreciation
      of station property, plant and equipment
            
            
            34,892
            
            
            
            3,409
            
            
            
            -
            
            
            
            38,301Amortization
      of broadcast licenses and other intangibles
            
            
            13,245
            
            
            
            2,806
            
            
            
            -
            
            
            
            16,051Operating
      income / (loss)
            
            
            51,428
            
            
            
            (157,657
            )
            
            
            -
            
            
            
            (106,229
            )Net
      income / (loss) attributable to CME Ltd.
            
            $
            102,476
            
            
            $
            (144,383
            )
            
            $
            -
            
            
            $
            (41,907
            )Consolidated
      Balance Sheet:As
      at September 30, 2009Cash
      and cash equivalents
            
            
            287,998
            
            
            
            235,150
            
            
            
            -
            
            
            
            523,148Third
      Party Debt (1)
            
            
            (1,383,965
            )
            
            
            (734
            )
            
            
            -
            
            
            
            (1,384,699
            )Total
      assets
            
            
            3,751,517
            
            
            
            325,463
            
            
            
            (909,834
            )
            
            
            3,167,146Total
      CME Ltd. shareholders’ Equity
            
            
            1,829,565
            
            
            
            178,095
            
            
            
            (784,780
            )
            
            
            1,222,880





(1) Third
party debt is defined as Credit facilities and obligations under capital leases
or Senior Debt with entities that are not part of the CME Ltd. consolidated
group.


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CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





Issuer
      and Restricted subsidiaries
            
            
            Unrestricted
      Subsidiaries
            
            
            Inter-group
      eliminations
            
            
            TotalConsolidated
      Statement of Operations:For
      the Three Months Ended September 30, 2008Net
      revenues
            
            $
            179,434
            
            
            $
            21,167
            
            
            $
            -
            
            
            $
            200,601Depreciation
      of station property, plant and equipment
            
            
            13,195
            
            
            
            785
            
            
            
            -
            
            
            
            13,980Amortization
      of broadcast licenses and other intangibles
            
            
            8,236
            
            
            
            1,963
            
            
            
            -
            
            
            
            10,199Operating
      income / (loss)
            
            
            21,815
            
            
            
            (14,660
            )
            
            
            -
            
            
            
            7,155Net
      income / (loss) attributable to CME Ltd.
            
            $
            14
            
            
            $
            (19,344
            )
            
            $
            -
            
            
            $
            (19,330
            )For
      the Nine Months Ended September 30, 2008Net
      revenues
            
            $
            652,520
            
            
            $
            75,913
            
            
            $
            -
            
            
            $
            728,433Operating
      income / (loss)
            
            
            36,789
            
            
            
            2,247
            
            
            
            -
            
            
            
            39,036Depreciation
      of station property, plant and equipment
            
            
            23,927
            
            
            
            2,136
            
            
            
            -
            
            
            
            26,063Amortization
      of broadcast licenses and other intangibles
            
            
            173,349
            
            
            
            (21,977
            )
            
            
            -
            
            
            
            151,372Net
      income / (loss) attributable to CME Ltd.
            
            $
            85,285
            
            
            $
            (26,704
            )
            
            $
            -
            
            
            $
            58,581Consolidated
      Balance Sheet:As
      at December 31, 2008Cash
      and cash equivalents
            
            
            92,528
            
            
            
            14,905
            
            
            
            -
            
            
            
            107,433Third
      Party Debt (1)
            
            
            (1,002,923
            )
            
            
            (862
            )
            
            
            -
            
            
            
            (1,003,785
            )Total
      assets
            
            
            2,766,862
            
            
            
            238,462
            
            
            
            (598,708
            )
            
            
            2,406,616Total
      CME Ltd. shareholders’ Equity
            
            $
            1,498,961
            
            
            $
            109,065
            
            
            $
            (512,768
            )
            
            $
            1,095,258





(1) Third
party debt is defined as Credit facilities and obligations under capital leases
or Senior Debt with entities that are not part of the CME Ltd consolidated
group.


23.  SUBSEQUENT
EVENTS





We have
evaluated subsequent events through October 27, 2009, the date on which our
financial statements were issued. There were no subsequent events to be reported
during this period.




24.  SENIOR
NOTES BEING REDEEMED





On May 5,
2005, we issued EUR 245.0 million of 8.25% senior notes due 2012. The 2005 Fixed
Rate Notes were issued with a maturity date of May 15, 2012. On September 21,
2009 we repurchased 2005 Fixed Rate Notes totaling EUR 63.2 million
(approximately US$ 92.5 million) in aggregate principal amount pursuant to a
tender offer.





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62
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CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





On
September 29, 2009 we issued a redemption notice for redemption on October 29,
2009 of the remaining EUR 181.8 million (approximately US$ 266.2 million)
aggregate principal amount of 2005 Fixed Rate Notes outstanding. The 2005 Fixed
Rate Notes were redeemable at our option in whole or in part upon payment of a
redemption price, which was 104.125% of the principal amount. This redemption
notice is irrevocable and on September 29, 2009, we deposited EUR 196.1 million
(approximately US$ 287.2 million) with the trustee for the 2005 Fixed Rate
Notes, which represents the redemption price plus all interest that will be
payable on the settlement date, pursuant to the indenture governing the 2005
Fixed Rate Notes (the “2005 Indenture”) (see Note 6, “Restricted Cash and Cash
Equivalents”).





In
connection with such redemption notice and deposit, the indenture pursuant to
which the 2005 Fixed Rate Notes were issued has been discharged. Although this
discharge removes substantially all of the restrictions imposed by that
indenture and makes the likelihood that further payments will be required of us
with respect to the 2005 Fixed Rate Notes remote, we concluded that it did not
meet the definition of “legally released” in paragraph 16(b) of FAS 140 (ASC
405-20-40-1(b)) and therefore we will not recognize the extinguishment of the
remaining liability until October 29, 2009.





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 Index





Item 2.  Management's Discussion and Analysis of
Financial Condition and Results of Operations





Contents





I.
            Forward-looking
      StatementsII.
            Executive
      SummaryIII.
            Analysis
      of the Results of Consolidated OperationsIV.
            Analysis
      of Segment ResultsV.
            Condensed
      Consolidated Balance SheetVI.
            Liquidity
      and Capital ResourcesVII.
            Critical
      Accounting Policies and Estimates








I.
Forward-looking Statements





This
report contains forward-looking statements, including those relating to our
plans, objectives, future performance and business. Statements that use the
terms “may”, “believe”, “anticipate”, “expect”, “plan”, “estimate”, “intend” and
similar expressions of a future or forward-looking nature identify
forward-looking statements for purposes of the U.S. federal securities laws or
otherwise. 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.  Forward-looking statements
reflect our current views with respect to future events and because our business
is subject to such risks and uncertainties, actual results, our strategic plan,
our financial position, results of operations and cash flows could differ
materially from those described in or contemplated by the forward-looking
statements contained in this report.





Important
factors that contribute to such risks include, but are not limited to, those
factors set forth under “Risk Factors” as well as the following: the effect of
the credit crisis and economic downturn in our markets as well as in the United
States and Western Europe; decreases in television advertising spending and the
rate of development of the advertising markets in the countries in which we
operate; the timing and sustainability of any stabilization and economic
recovery in the markets in which we operate; the timing and impact of any
additional investments we make in our Bulgaria and Ukraine operations; our
effectiveness in implementing our strategic plan for our Ukraine operations or
our Bulgaria operations; our ability to make future investments in television
broadcast operations; our ability to develop and implement strategies regarding
sales and multi-channel distribution; changes in the political and regulatory
environments where we operate and application of relevant laws and regulations;
the timely renewal of broadcasting licenses and our ability to obtain additional
frequencies and licenses; and our ability to acquire necessary programming and
attract audiences. The foregoing review of important factors should not be
construed as exhaustive and should be read in conjunction with other cautionary
statements that are included in this report. We undertake no obligation to
publicly update or review any forward-looking statements, whether as a result of
new information, future developments or otherwise.





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II.
Executive Summary





The
following analysis includes references to “Core Markets”, which are Croatia,
Romania, the Czech and Slovak Republics and Slovenia, and to “Core Operations”,
which means our operations in those countries. We also refer to “Developing
Markets,” which are Bulgaria and Ukraine, and to “Developing Operations”, which
means our operations in those countries.





The
global financial and economic crisis significantly impacted our results in the
nine months ended September 30, 2009.  The three most significant
obstacles affecting us were the year-on-year decline in the Gross Domestic
Product (“GDP”) in each of our markets, the decline of advertising markets and
the significant appreciation of the dollar against the currencies in our markets
in the first nine months of 2009 compared to the same period in 2008. We believe
that we have reached the bottom of the cycle; year-on-year declines in net
advertising revenue, on a constant currency basis, have remained relatively
constant over the first three quarters of this year. We expect recovery to begin
in all of our countries some time in 2010, with significant variation among
countries in the timing and pace of the recovery. We currently assume that the
rate of GDP growth between 2009 and 2010 will be in low single digits and that
advertising markets will grow at a multiple of the rate of GDP
growth.





Continuing
Operations





The
following table provides a summary of our consolidated results for the three and
nine months ended September 30, 2009 and 2008:





For
      the Three Months Ended September 30,2009
            
            
            2008
            
            
            %
      Act(1)Net
      revenues
            
            $
            134,482
            
            
            $
            200,601
            
            
            
            (33.0
            )
      %Operating  (loss)
      / income
            
            
            (33,450
            )
            
            
            7,155
            
            
            Nm(2)Net
      (loss) /income
            
            $
            (24,294
            )
            
            $
            (19,595
            )
            
            
            (24.0
            )%Net
      cash (used in) / generated by continuing operating
    activities
            
            $
            (28,438
            )
            
            $
            44,027
            
            
            
            (164.6
            )
      %For
      the Nine Months Ended September 30,2009
            
            
            
            2008
            
            
            %
      Act(1)Net
      revenues
            
            $
            461,888
            
            
            $
            728,433
            
            
            
            (36.6
            )%Operating
      (loss) / income
            
            
            (106,229
            )
            
            
            151,372
            
            
            
            (170.2
            )%Net
      (loss) /  income
            
            $
            (49,128
            )
            
            $
            60,088
            
            
            
            (181.8
            )%Net
      cash (used in) / generated by continuing operating
    activities
            
            $
            (22,434
            )
            
            $
            172,202
            
            
            
            (113.0
            )
      %





(1)
Actual (“%Act”) reflects the percentage change between two periods


(2)
Number is not meaningful





Net
revenues in the nine months ended September 30, 2009 declined US$ 266.5 million
or 36.6% compared to the same period in 2008. Our costs declined at a slower
rate than revenues and we recognized a non-cash impairment charge of US$ 81.8
million in respect of our operations in Bulgaria in the first quarter of 2009
(see Item 1, Note 4, “Goodwill and Intangible Assets”). Consequently, we
suffered a very significant decline in operating income in the first nine months
of this year.





Operating
Performance





Commencing
January 1, 2009, we describe our operating performance in terms of Consolidated
EBITDA, which is equal to the EBITDA for each of our segments less corporate
costs (which include non-cash stock-based compensation as shown in Item 1, Note
15, “Stock-based Compensation”). Prior to January 1, 2009, we described our
operating performance in terms of Segment EBITDA, which reflects our station
operating performance but excludes corporate costs. Comparative numbers reflect
this change (EBITDA is defined in Item 1, Note 18, “Segment Data”).





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The
following analysis contains references to like-for-like (“% Lfl”) or constant
currency percentage movements. These references reflect the impact of applying
the current period average exchange rates to the prior period revenues and
costs. Given the significant movement of the currencies in the markets in which
we operate against the dollar, we believe that it is useful to provide
percentage movements based on like-for-like or constant currency percentage
movements as well as actual (“% Act”) percentage movements (which includes the
effect of foreign exchange). Unless otherwise stated, all percentage increases
or decreases in the following analysis refer to year-on-year percentage changes,
i.e. changes between the third quarter or nine months of 2009 and the same
quarter or nine months of 2008.





Demand
for advertising has fallen precipitously in all our markets. We currently
estimate that television advertising spending in our five Core Markets will
decline in 2009 by between 12% and 30% in constant currency
terms.  While the total TV advertising market has declined, our market
share has increased in all of our Core Markets by 1% to 7%. The increase in our
market share did not compensate for the overall decline in the television
advertising market or the relative strength of the dollar. Consequently, our
reported total Core Market dollar revenues in the first nine months of this year
declined by 32% compared to the same period last year, of which 14% was
attributable to the appreciation of the dollar against our local
currencies.





Cost
optimization programs and the decline in the value of our functional currencies
against the dollar have reduced our costs in dollar terms and diminished the
impact of the decline in dollar revenues on our EBITDA.  With the
exception of our Croatia operations, EBITDA has declined in each of our Core
Operations as lower revenues have substantially outweighed the reduction in
costs.





As a
result of these market conditions, our Core Operations delivered Net Revenues of
US$ 445.1 million in the nine months ended September 30, 2009, compared to US$
652.5 million in the nine months ended September 30, 2008, a decrease of 32%,
and Core Operations’ EBITDA was US$ 100.7 million in the nine months ended
September 30, 2009, compared to US$ 233.1 million in the nine months ended
September 30, 2008, a decrease of 57%. In constant currency terms, we have seen
a decline in Net Revenues in our Core Operations of 18% and a decline in
Consolidated EBITDA of 46%.




Losses in
our Developing Operations in Ukraine and Bulgaria have contributed significantly
to the decline in Consolidated EBITDA. In Ukraine, where the local currency
television advertising market fell by an estimated 42% in the nine months to
September 30, 2009 compared to the same period in 2008, we generated EBITDA
losses of US$ 40.2 million, compared to losses of US$ 12.9 million in the nine
months to September 30, 2008. Our new operations in Bulgaria generated EBITDA
losses of US$ 29.7 million. Approximately US$ 14.2 million of these losses is
attributable to accelerated amortization of the cost of acquired programming in
accordance with our accounting policies.


Our Net
Revenues for the nine months ended September 30, 2009 were US$ 461.9 million,
compared to US$ 728.4 million in the nine months ended September 30, 2008, a
decrease of 37%. We generated Consolidated EBITDA of US$ 30.8 million in the
nine months ended September 30, 2009, compared to US$ 217.1 million in the nine
months ended September 30, 2008, a decrease of 86%. In constant currency terms,
we have seen declines in Net Revenues and Consolidated EBITDA of 25% and 82%
respectively.





Our net
cash used in continuing operations was US$ 22.4 million in the nine months ended
September 30, 2009, compared to net cash generated from continuing operations of
US$ 172.2 million in the same period in 2008.





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Key
Events





The
following key events occurred since December 31, 2008:





Financing and
liquidity





·
            On
      May 18, 2009, we issued 14.5 million shares of Class A common stock at a
      price of US$ 12.00 per share and 4.5 million shares of Class B common
      stock at a price of US$ 15.00 per share (an average price of US$ 12.71 per
      share) to Time Warner Media Holdings B.V., an affiliate of Time Warner
      Inc. (“Time Warner”) for an aggregate offering price, net of fees, of US$
      234.4 million.


·
            During
      the second quarter, our Board of Directors approved the designation of the
      subsidiaries of our Bulgaria and Ukraine operations as well as the
      Development Finance Holding Company as Unrestricted Subsidiaries (all as
      defined in Item 1, Note 22, “Restricted and Unrestricted Subsidiaries”).
      All of our other subsidiaries remain Restricted
      Subsidiaries.  Our compliance with the incurrence covenants for
      the Floating Rate Notes and the 2009 Fixed Rate Notes is based on the
      performance of the Restricted Subsidiaries. Our ability to fund the
      Unrestricted Subsidiaries with cash from the Restricted Subsidiaries is
      limited.


·
            During
      the quarter ended September 30, 2009 we issued EUR 440.0 million
      (approximately US$ 644.3 million) fixed rate senior notes in two tranches
      (the “2009 Fixed Rate Notes”) and used the majority of the proceeds to
      repay existing debt including all of the 2005 Notes which were due in
      2012, in aggregate principal of EUR 372.5 million (approximately US$ 545.4
      million). We received net cash proceeds of EUR 45.7 million (approximately
      US$ 66.9 million) from the offering. As a result of the repayment of the
      2005 Notes which would have matured in 2012, our ability to issue new
      debt at the holding company level is no longer governed by the ratio of
      Gross Debt to EBITDA but by the Coverage Ratio as defined in the indenture
      of the 2007 Notes which mature in
2014.





Business
Development





·
            On
      July 2, 2009, we entered into an agreement with Igor Kolomoisky, a
      shareholder and member of our Board of Directors, pursuant to which Mr.
      Kolomoisky will become a 49% beneficial owner in our Ukraine operations
      following an investment of US$100.0 million in cash and the contribution
      of 100.0% of the TET TV channel in Ukraine into the Studio 1+1 group. The
      US$100.0 million cash investment will be used to finance the activities of
      STUDIO 1+1, KINO and TET TV. The addition of TET TV will enhance our
      multichannel strategy in Ukraine. See Item 1, Note 20, “Commitments and
      Contingencies, Ukraine Transaction” for more
  details.


·
            On
      July 27, 2009, we entered into a framework agreement (the “Framework
      Agreement”) with Adrian Sarbu, our President and Chief Executive Officer
      and certain parties connected to him pursuant to which we will acquire the
      Media Pro Entertainment business.  See Item 1, Note 20,
      “Commitments and Contingencies, Media Pro Transaction” for more
      details.





Management
changes





·
            On
      July 1, 2009, Wallace Macmillan resigned as our Chief Financial Officer
      and has been replaced on an interim basis by Charles Frank, Jr. Mr. Frank
      served as an independent director of CME from November 2001 until his
      appointment as Interim CFO and was previously a member of our Audit,
      Related Party Transactions and Treasury
  Committees.


·
            On
      July 27, 2009, Adrian Sarbu was appointed as our President and Chief
      Executive Officer.  Mr. Sarbu was previously our President and
      Chief Operating Officer from December 2008 and Chief Operating Officer
      from October 2007.





Future
Trends





As a
result of the economic recession this year, advertising expenditure has declined
in all of our territories at a faster rate than the decline in GDP. Year-on-year
declines in GDP and advertising expenditure in the third quarter were not
substantially different to the previous two quarters. Although it is difficult
to predict the timing of the recovery, both GDP and the advertising market
appear to have hit bottom.




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In light
of the economic conditions, advertisers have been spending less and are not
confirming their commitments beyond the current quarter. As a result, forward
visibility on sales continues to remain poor and shows few signs of
improvement.  We currently expect that local currency television
advertising spending will decline in 2009 in Ukraine by between 27% and 32%,
although there are some indications of advertising market growth in the fourth
quarter. We expect the decline in the other markets to be between 12% and 30%.
We are providing clients with incentives aimed at increasing our market share
and supporting television advertising spending within each of our markets. We
will continue to incentivize our clients until the television advertising
markets recover.
  In the
first nine months of 2009, local currencies were on average much weaker against
the dollar compared to the first nine months of 2008.  To date, in the
fourth quarter of this year the situation is reversed: local currencies have
been stronger against the dollar than they were in the fourth quarter of
2008.  If this recent trend continues to the end 2009, fourth quarter
dollar revenues will benefit as a result.
  We have
taken actions to reduce costs in order to protect profits and conserve
liquidity. These steps include staff reductions in our operations and our
headquarters, pay constraints, the deferral of certain operating expenditures,
the deferral or cancellation of capital expenditures and managing our broadcast
schedules to reduce the rate of programming cost growth. Notwithstanding these
cost reductions, our goal continues to be to maintain the high audience shares
and the strength of our brands that we currently enjoy in our Core Markets, and
to increase our audience share in the Developing Markets, as we believe this is
essential to the long term value of our operations. We intend to maintain
sufficient investment in programming to protect these strengths. Taking all
these factors into account, we expect that we will see a decline in Net Revenues
and EBITDA for the full year 2009 in local currency in all of our markets except
Croatia.
   We expect
low single-digit GDP growth in 2010 in most or all of our markets, with
variation from country to country in the timing and strength of recovery. We
expect that advertising and TV advertising market growth will again outpace GDP
growth.  We are confident that we will continue to enjoy a high TV
advertising market share in our Core Markets and an increasing share in our
Developing Markets. We plan to continue to control our costs and anticipate that
much of the revenue growth will flow immediately to our bottom line in terms of
EBITDA. After 2010, we believe that we will see a return to higher levels of GDP
growth and general advertising and television advertising spending growth in our
markets. We expect our growth rates will be higher than in Western European or
U.S. markets. As a result of increasing revenues and strict cost control over
the medium term, we expect to return to the high levels of EBITDA growth that we
enjoyed in the years before the current economic crisis hit.


Broadcast





The large
audience share that we enjoy in most of our markets is due both to the
commercial strength of our brands and channels and to the constraints on
bandwidth that limit the number of free-to-air broadcasters in our
markets.





As our
markets mature, we anticipate more intense competition for audience share and
advertising spending from other incumbent terrestrial broadcasters and from
cable, satellite and digital terrestrial broadcasters as the coverage of these
technologies grows. The advent of digital terrestrial broadcasting as well as
the introduction of alternative distribution platforms for content (including
additional direct-to-home (“DTH”) services, the internet, internet protocol TV
(“IPTV”), mobile television and video-on-demand services) will cause audience
fragmentation and change the competitive dynamics in our operating countries in
the medium term.  Due to our integrated multichannel and internet
business model, we do not expect that the impact on our advertising share will
be significant.





We
believe that our leading position in our Core Markets and the strength of our
existing brands place us in a solid position to face increased competition,
including by launching new niche channels to target niche audiences as these new
technologies develop.





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Internet





Internet
broadband penetration remains low in most of our markets in comparison to
Western European and U.S. markets. We anticipate broadband penetration and
internet usage will increase significantly over the medium term and will foster
the development of significant new opportunities for generating advertising and
other revenues in new media. We operate a complex internet business in each of
our markets and expect to continue to launch targeted services in order to
support or achieve leading positions in terms of unique visitors and page
impressions, and video downloads. We believe that the strength of our brands,
our news programming and other locally produced content, our relationships with
advertisers and the opportunities for cross promotion afforded by the large
audiences of our broadcast operations put us in a strong position to achieve
leading positions in these new forms of media as they develop and to monetize
those assets over time. We intend to continue the development of our
non-broadcast activities in order to create offerings and launch services on the
internet and mobile platforms that complement our broadcast schedules and
generate additional revenues.





Content





The
acquisition of the Media Pro Entertainment business provides a unique
opportunity for us to become a vertically integrated media company. Once we
complete the acquisition, we will combine our production units with those of
Media Pro to create a dedicated Content Division.





The
creation of the Content Division is a reflection of the increasing importance of
local content within our broadcast operations.  With secured access to
programming, we believe that we will be able to generate significant synergies
through shared creative and production resources, and equipment and facilities.
We will be better able to protect ourselves against price inflation of acquired
programming.





The
acquisition of the Media Pro Entertainment business will generate additional
third party revenues from the sale of production services, own-produced content,
and third party content rights not usable by our CME stations. It is our
intention to expand third party sales from production of our newly constituted
Content Division and to offer a full range of production services to other
content producers.





Financial
Position





We
believe our financial resources are sufficient to meet our current financial
obligations.  The recent refinancing of the EBRD Loan and our 2005
Fixed Rate Notes which would have matured in 2012 and the investment by Time
Warner have enhanced our financial position. Further deterioration in the
advertising markets or strengthening of the dollar against the currencies of the
markets in which our cash flow is generated could reduce our liquidity reserves.
The anticipated transaction with Mr. Kolomoisky will also further strengthen our
liquidity and provide a significant proportion of the cash required to develop
our operations in Ukraine.





During
September 2009, we issued 2009 Fixed Rate Notes in two tranches.  The
majority of the proceeds was used to repay the EUR 245.0 million (approximately
US$ 355.8 million) principal amount outstanding on the 2005 Fixed Rate Notes and
the EUR 127.5 million (approximately US$ 187.3 million at the date of repayment)
principal amount outstanding under the EBRD Loan. We also received net cash
proceeds of EUR 45.7 million (approximately US$ 66.9 million). Although the
interest cost associated with the 2009 Fixed Rate Notes which are due in 2016 is
substantially higher than the debt it replaces, we have significantly improved
the maturity profile of our debt; the earliest maturity date of our senior debt
is now in 2013.


Our only
scheduled repayments of debt before 2013 are local facilities in the Czech
Republic and Slovenia of US$ 117.4 million, which are due to be repaid in 2010.
We are currently in discussions regarding replacement credit facilities which
would extend the maturity of these facilities and allow us to raise an
incremental US$ 80.0 million to US$ 90.0 million. We will continue to consider
any opportunity to refinance our outstanding obligations on more favorable terms
but we remain constrained by the indentures governing our Senior Notes and
Convertible Notes.
 
 We are
unable to incur any additional debt at the holding company level beyond
“baskets” set out in the indentures governing the Senior Notes unless the ratio
of our Restricted Subsidiaries’ EBITDA to their Interest Expense (the “Coverage
Ratio” and both as defined in the indenture to the Floating Rate Notes, which
mature in 2014) is above 2.0 times; provided that any such additional debt
incurrence would not cause our coverage ratio to fall below 2.0 times. Our
Coverage Ratio was 1.9 times at September 2009. Notwithstanding this, we are
able to incur debt at either the Restricted Subsidiary or the holding company
level, of up to EUR 250.0 million (approximately US$ 366.1 million) pursuant to
“baskets” set out in the indentures governing our Senior Notes. Our local
facilities in the Czech Republic and Slovenia account for US$ 117.4 million of
this amount, and the potential incremental borrowings of US$ 80 to US$ 90
million described above would also be borrowed under these baskets, leaving
approximately US$ 158.7 to US$ 168.7 million of additional borrowing capacity
available to us. Irrespective of these restrictions, there are no significant
constraints on our ability to refinance existing debt. We will continue to
search for equity and debt opportunities to finance the development of our
Bulgaria operations  in order to preserve and further enhance our
overall cash position.


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CME
Strategy





We enjoy
very strong positions in our Core Markets. This is based on brand strength,
audience share leadership, the depth and experience of local management and
local content production. Historically, these strengths have supported price
leadership, high margins, and strong cash flows. We expect these strengths will
give our operations resilience in the current economic downturn and the
opportunity to benefit significantly as and when growth resumes.





We are
taking a number of steps to enhance the performance of the business over the
medium term. Our priorities in this regard include:





·
            enhancing
      our operating structure by creating three new divisions - broadcast
      operations, internet and content – to provide for greater vertical
      integration of the company;





·
            capitalizing
      on our core strengths and expanding our revenue base into five main
      sources: advertising, subscription, content distribution, internet and
      management services;





·
            exploring
      various options to bring our operations in Ukraine and Bulgaria to
      profitability in the shortest possible time;
and





·
            assessing
      opportunities arising from current economic conditions to launch, acquire
      or operate additional channels and internet operations in our region in
      order to expand our offerings, target niche audiences and increase our
      advertising inventory when financially
prudent.





In the
near term, while current difficult economic conditions continue, we will
maintain a strong focus on cost control to protect both profitability and
liquidity, while protecting our brands and competitive
strength.  Building on the increase in our market share, we are poised
to respond swiftly and strongly as soon as growth returns.





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III.
Analysis of the Results of Consolidated Operations





III
(a) Net Revenues for the three months ended September 30, 2009 compared to the
three months ended September 30, 2008





CONSOLIDATED
NET REVENUES


For
      the Three Months Ended September 30, (US$ 000’s)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)Croatia
            
            $
            6,871
            
            
            $
            8,525
            
            
            
            (19.4
            )%
            
            
            (13.5
            )%Czech
      Republic
            
            
            53,778
            
            
            
            72,602
            
            
            
            (25.9
            )%
            
            
            (19.4
            )%Romania
            
            
            36,088
            
            
            
            59,281
            
            
            
            (39.1
            )%
            
            
            (24.6
            )%Slovak
      Republic
            
            
            19,306
            
            
            
            24,795
            
            
            
            (22.1
            )
      %
            
            
            (18.9
            )%Slovenia
            
            
            11,272
            
            
            
            14,231
            
            
            
            (20.8
            )%
            
            
            (17.1
            )%Total
      Core Operations
            
            $
            127,315
            
            
            $
            179,434
            
            
            
            (29.0
            )%
            
            
            (20.4
            )%Bulgaria
            
            $
            920
            
            
            $
            462
            
            
            
            99.1
            %
            
            
            101.8
            %Ukraine
            
            
            6,247
            
            
            
            20,705
            
            
            
            (69.8
            )%
            
            
            (69.8
            )%Total
      Developing Operations
            
            $
            7,167
            
            
            $
            21,167
            
            
            
            (66.1
            )%
            
            
            (66.1
            )%Total
      Net Revenues
            
            $
            134,482
            
            
            $
            200,601
            
            
            
            (33.0
            )%
            
            
            (25.7
            )%





(1)
Actual (“%Act”) reflects the percentage change between two periods





(2) Like
for Like (“%Lfl”) or constant currency reflects the impact of applying the
current period average exchange rates to the prior period revenues and
costs








Our
consolidated net revenues for the three months ended September 30, 2009
decreased by US$ 66.1 million, or  33.0%, compared to the three months
ended September 30, 2008, of which 7.3% reflects the impact of movements in
foreign exchange rates.





For a
more detailed explanation of movements in our revenues, see Section IV.
“Analysis of Segment Results”.





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III
(b) Net Revenues for the nine months ended September 30, 2009 compared to the
nine months ended September 30, 2008





CONSOLIDATED
NET REVENUES


For
      the Nine Months Ended September 30, (US$ 000's)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)Croatia
            
            $
            31,200
            
            
            $
            38,153
            
            
            
            (18.2
            )
      %
            
            
            (6.0
            )%Czech
      Republic
            
            
            181,456
            
            
            
            270,730
            
            
            
            (33.0
            )
      %
            
            
            (19.9
            )%Romania
            
            
            120,622
            
            
            
            197,119
            
            
            
            (38.8
            )
      %
            
            
            (20.9
            )%Slovak
      Republic
            
            
            68,106
            
            
            
            88,126
            
            
            
            (22.7
            )
      %
            
            
            (13.6
            )%Slovenia
            
            
            43,741
            
            
            
            58,392
            
            
            
            (25.1
            )
      %
            
            
            (15.8
            )%Total
      Core Operations
            
            $
            445,125
            
            
            $
            652,520
            
            
            
            (31.8
            )%
            
            
            (18.0
            )%Bulgaria
            
            $
            2,397
            
            
            $
            462
            
            
            Nm(1)
            
            
            Nm(1)Ukraine
            
            
            14,366
            
            
            
            75,451
            
            
            
            (81.0
            )
      %
            
            
            (81.0
            )%Total
      Developing Operations
            
            $
            16,763
            
            
            $
            75,913
            
            
            
            (77.9
            )%
            
            
            (77.9
            )%Total
      Net Revenues
            
            $
            461,888
            
            
            $
            728,433
            
            
            
            (36.6
            )
      %
            
            
            (25.4
            )%





(1)
Actual (“%Act”) reflects the percentage change between two periods.





(2) Like
for Like (“%Lfl”) or constant currency reflects the impact of applying the
current period average exchange rates to the prior period revenues and
costs.





(3)
Number is not meaningful.





Our
consolidated net revenues for the nine months ended September 30, 2009 decreased
by US$ 266.5 million, or 36.6%, compared to the nine months ended September 30,
2008, of which 11.2% reflects the impact of movements in foreign exchange
rates





For a
more detailed explanation of movements in our revenues, see Section IV.
“Analysis of Segment Results”.





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III
(c) Cost of Revenues for the three months ended September 30, 2009 compared to
the three months ended September 30, 2008





COST
OF REVENUES


For
      the Three Months Ended September 30, (US$ 000's)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)Operating
      costs
            
            $
            35,828
            
            
            $
            38,459
            
            
            
            (6.8
            )
      %
            
            
            2.6
            %Cost
      of programming
            
            
            88,257
            
            
            
            96,222
            
            
            
            (8.3
            )
      %
            
            
            0.8
            %Depreciation
      of station property, plant and equipment
            
            
            13,844
            
            
            
            13,980
            
            
            
            (1.0
            )
      %
            
            
            11.0
            %Amortization
      of broadcast licenses and other intangibles
            
            
            5,117
            
            
            
            10,199
            
            
            
            (49.8
            )
      %
            
            
            (45.3
            )%Total
      Cost of Revenues
            
            $
            143,046
            
            
            $
            158,860
            
            
            
            (10.0
            )
      %
            
            
            (0.9
            )%





(1)
Actual (“%Act”) reflects the percentage change between two periods.





(2) Like
for Like (“%Lfl”) or constant currency reflects the impact of applying the
current period average exchange rates to the prior period revenues and
costs.





Total
cost of revenues for the three months ended September 30, 2009 decreased by US$
15.8 million, or 10%, compared to the three months ended September 30, 2008, of
which 9.1% reflects the impact of movements in foreign exchange
rates.





For a
more detailed explanation of movements in our cost of revenues, see Section IV.
“Analysis of Segment Results”.





OPERATING
COSTS


For
      the Three Months Ended September 30, (US$ 000's)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)Croatia
            
            $
            3,058
            
            
            $
            2,957
            
            
            
            3.4
            %
            
            
            11.9
            %Czech
      Republic
            
            
            11,735
            
            
            
            10,316
            
            
            
            13.8
            %
            
            
            26.6
            %Romania
            
            
            6,638
            
            
            
            9,269
            
            
            
            (28.4
            )%
            
            
            (10.8
            )%Slovak
      Republic
            
            
            5,253
            
            
            
            4,620
            
            
            
            13.7
            %
            
            
            20.0
            %Slovenia
            
            
            3,600
            
            
            
            3,576
            
            
            
            0.7
            %
            
            
            6.3
            %Total
      Core Operations
            
            $
            30,284
            
            
            $
            30,738
            
            
            
            (1.5
            )%
            
            
            11.3
            %Bulgaria
            
            $
            1,498
            
            
            $
            1,201
            
            
            
            24.7
            %
            
            
            27.2
            %Ukraine
            
            
            4,046
            
            
            
            6,520
            
            
            
            (37.9
            )%
            
            
            (37.9
            )%Total
      Developing Operations
            
            $
            5,544
            
            
            $
            7,721
            
            
            
            (28.2
            )%
            
            
            (28.0
            )%Total
      Operating Costs
            
            $
            35,828
            
            
            $
            38,459
            
            
            
            (6.8
            )%
            
            
            2.6
            %





(1)
Actual (“%Act”) reflects the percentage change between two periods.





(2) Like
for Like (“%Lfl”) or constant currency reflects the impact of applying the
current period average exchange rates to the prior period revenues and
costs.





Operating
costs:Total operating costs (excluding programming costs,
depreciation of station property, plant and equipment, amortization of broadcast
licenses and other intangibles as well as station selling, general and
administrative expenses) for the three months ended September 30, 2009 decreased
by US$ 2.6 million, or 6.8%, compared to the three months ended September 30,
2008.  Excluding the impact of movements in foreign exchange rates,
total operating costs increased by 2.6%.





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73
 Index





The
movement in operating costs for each of our country operations is discussed in
Section IV, “Analysis of Segment Results”.





Cost of
programming: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.  Our cost
of programming for the three months ended September 30, 2009 and 2008 was as
follows:





COST
OF PROGRAMMING


For
      the Three Months Ended September 30, (US$ 000’s)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)Croatia
            
            $
            5,981
            
            
            $
            8,272
            
            
            
            (27.7
            )%
            
            
            (22.6
            )%Czech
      Republic
            
            
            18,789
            
            
            
            24,087
            
            
            
            (22.0
            )%
            
            
            (14.6
            )%Romania
            
            
            19,223
            
            
            
            25,842
            
            
            
            (25.6
            )%
            
            
            (7.7
            )%Slovak
      Republic
            
            
            13,350
            
            
            
            11,437
            
            
            
            16.7
            %
            
            
            22.5
            %Slovenia
            
            
            7,158
            
            
            
            6,395
            
            
            
            11.9
            %
            
            
            19.8
            %Total
      Core Operations
            
            $
            64,501
            
            
            $
            76,033
            
            
            
            (15.2
            )%
            
            
            (4.4
            )%Bulgaria
            
            $
            9,803
            
            
            $
            1,589
            
            
            Nm(3)
            
            
            Nm(3)Ukraine
            
            
            13,953
            
            
            
            18,600
            
            
            
            (25.0
            )%
            
            
            (25.0
            )%Total
      Developing Operations
            
            $
            23,756
            
            
            $
            20,189
            
            
            
            17.7
            %
            
            
            18.0
            %Total
      Cost of Programming
            
            $
            88,257
            
            
            $
            96,222
            
            
            
            (8.3
            )%
            
            
            0.8
            %Represented
      by:Production
      expenses
            
            $
            41,162
            
            
            $
            44,504
            
            
            
            (7.5
            )%
            
            
            3.0
            %Program
      amortization
            
            
            47,095
            
            
            
            51,718
            
            
            
            (8.9
            )%
            
            
            (1.1
            )%Cost
      of programming
            
            $
            88,257
            
            
            $
            96,222
            
            
            
            (8.3
            )%
            
            
            0.8
            %





(1)
Actual (“%Act”) reflects the percentage change between two periods.




(2) Like
for Like (“%Lfl”) or constant currency reflects the impact of applying the
current period average exchange rates to the prior period revenues and
costs.





(3)
Number is not meaningful





Total
consolidated programming costs (including amortization of acquired programming
rights and production costs) decreased in the three months ended September 30,
2009 compared to the three months ended September 30, 2008 primarily due
to:





·
            the
      strengthening of the dollar in each of our markets in the three months
      ended September 30, 2009 compared to the three months ended September 30,
      2008. The impact of movements in foreign exchange rates resulted in a
      decrease of 9.1%;





·
            the
      cost optimization of our programming schedule. In the three months ended
      September 30, 2009, our operations aired a more cost effective schedule
      than in the three months ended September 30, 2008. This decrease was
      partially offset by;





·
            the
      acquisition of our Bulgaria operations in August
  2008;





·
            above
      inflation increase in the cost of foreign acquired programming,
      particularly in our Slovak Republic operations,
  and





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74
 Index




·
            Accelerated
      amortization of acquired programming that is scheduled to be shown on our
      channels where the net realizable value of the programming is less than
      its carrying value because the channel is not expected to generate
      sufficient revenue to recover the cost of programming. We recognized
      accelerated amortization of US$ 8.8 million in the three months ended
      September 30, 2009, of which US$ 0.9 million relates to DOMA, our new
      channel in the Slovak Republic, and US$ 0.4 million relates to NOVA CINEMA
      in the Czech Republic.





The
amortization of acquired programming for each of our consolidated operations for
the three months ended September 30, 2009 and 2008 is set out in the table
below.  For comparison, the table also shows the cash paid for
acquired programming by each of our operations in the respective periods, which
is reflected within net cash generated from continuing operating activities in
our consolidated statement of cash flows.





PROGRAM
AMORTIZATION AND CASH PAID FOR ACQUIRED PROGRAMMING





For
      the Three Months Ended September 30, (US$ 000’s)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)Program
      amortization:Croatia
            
            $
            3,064
            
            
            $
            4,570
            
            
            
            (33.0
            )%
            
            
            (28.0
            )%Czech
      Republic
            
            
            8,500
            
            
            
            14,480
            
            
            
            (41.3
            )%
            
            
            (35.8
            %)Romania
            
            
            9,233
            
            
            
            10,623
            
            
            
            (13.1
            )%
            
            
            8.0
            %Slovak
      Republic
            
            
            7,157
            
            
            
            5,217
            
            
            
            37.2
            %
            
            
            45.0
            %Slovenia
            
            
            3,328
            
            
            
            2,930
            
            
            
            13.6
            %
            
            
            19.9
            %Total
      Core Operations
            
            $
            31,282
            
            
            $
            37,820
            
            
            
            (17.3
            )%
            
            
            (7.3
            )%Bulgaria
            
            $
            5,612
            
            
            $
            645
            
            
            Nm(3)
            
            
            Nm(3)Ukraine
            
            
            10,201
            
            
            
            13,253
            
            
            
            (23.0
            )%
            
            
            (23.0
            )%Total
      Developing Operations
            
            $
            15,813
            
            
            $
            13,898
            
            
            
            13.8
            %
            
            
            14.2
            %Total
      Program Amortization
            
            $
            47,095
            
            
            $
            51,718
            
            
            
            (8.9
            )%
            
            
            (1.1
            )%Cash
      paid for acquired programming:Croatia
            
            $
            2,310
            
            
            $
            6,058
            
            
            
            (61.9
            )%
            
            
            (58.8
            )%Czech
      Republic
            
            
            15,445
            
            
            
            7,542
            
            
            
            104.8
            %
            
            
            134.5
            %Romania
            
            
            24,456
            
            
            
            25,680
            
            
            
            (4.8
            )%
            
            
            20.2
            %Slovak
      Republic
            
            
            6,553
            
            
            
            4,718
            
            
            
            38.9
            %
            
            
            48.8
            %Slovenia
            
            
            3,489
            
            
            
            2,579
            
            
            
            35.3
            %
            
            
            44.5
            %Total
      Core Operations
            
            $
            52,253
            
            
            $
            46,577
            
            
            
            12.2
            %
            
            
            32.8
            %Bulgaria
            
            $
            4,290
            
            
            $
            1,202
            
            
            
            256.9
            %
            
            
            258.4
            %Ukraine
            
            
            1,703
            
            
            
            12,086
            
            
            
            (85.9
            )%
            
            
            (85.9
            )%Total
      Developing Operations
            
            $
            5,993
            
            
            $
            13,288
            
            
            
            (54.9
            )%
            
            
            (54.9
            )%Total
      Cash Paid for acquired Programming
            
            $
            58,246
            
            
            $
            59,865
            
            
            
            (2.7
            )%
            
            
            10.7
            %





(1)
Actual (“%Act”) reflects the percentage change between two periods.





(2) Like
for Like (“%Lfl”) or constant currency reflects the impact of applying the
current period average exchange rates to the prior period revenues and
costs.





(3)
Number is not meaningful.





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75
 Index





Depreciation of property, plant and
equipment:  Total depreciation of property, plant and equipment
for the three months ended September 30, 2009 decreased by US$ 0.1 million, or
1.0%, compared to the three months ended September 30, 2008, primarily due to
movements in foreign exchange rates offsetting an increase in constant currency
of 12.0%, representing recent investments in production equipment assets across
all of our operations, particularly Bulgaria and Romania.





Amortization of broadcast licenses
and other intangibles:  Total amortization of broadcast
licenses and other intangibles for the three months ended September 30, 2009
decreased by US$ 5.1 million, or 49.8%, compared to the three months ended
September 30, 2008, of which 4.5% reflects the impact of movements in foreign
exchange rates. This decrease was primarily due to a reduction in amortization
in our Czech Republic operations following the recent extension of TV NOVA
(Czech Republic)’s main broadcast license.





III
(d) Cost of Revenues for the nine months ended September 30, 2009 compared to
the nine months ended September 30, 2008





COST
OF REVENUES


For
      the Nine Months Ended September 30, (US$ 000's)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)Operating
      costs
            
            $
            96,774
            
            
            $
            108,232
            
            
            
            (10.6
            )
      %
            
            
            2.6
            %Cost
      of programming
            
            
            259,072
            
            
            
            307,226
            
            
            
            (15.7
            )
      %
            
            
            (2.9
            )%Depreciation
      of station property, plant and equipment
            
            
            38,301
            
            
            
            39,036
            
            
            
            (1.9
            )
      %
            
            
            15.2
            %Amortization
      of broadcast licenses and other intangibles
            
            
            16,051
            
            
            
            26,063
            
            
            
            (38.4
            )
      %
            
            
            (28.0
            )%Total
      Cost of Revenues
            
            $
            410,198
            
            
            $
            480,557
            
            
            
            (14.6
            )
      %
            
            
            (1.6
            )%





(1)
Actual (“%Act”) reflects the percentage change between two periods.





(2) Like
for Like (“%Lfl”) or constant currency reflects the impact of applying the
current period average exchange rates to the prior period revenues and
costs.





Total
cost of revenues for the nine months ended September 30, 2009 decreased by US$
70.4 million, or 14.6%, compared to the nine months ended September 30, 2008, of
which 13.0% reflects the impact of movements in foreign exchange
rates.





For a
more detailed explanation of movements in our cost of revenues, see Section IV,
“Analysis of Segment Results”





OPERATING
COSTS


For
      the Nine Months Ended September 30, (US$ 000's)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)Croatia
            
            $
            8,478
            
            
            $
            9,483
            
            
            
            (10.6
            )%
            
            
            1.9
            %Czech
      Republic
            
            
            29,967
            
            
            
            30,578
            
            
            
            (2.0
            )%
            
            
            16.6
            %Romania
            
            
            17,465
            
            
            
            23,857
            
            
            
            (26.8
            )%
            
            
            (5.9
            )%Slovak
      Republic
            
            
            13,887
            
            
            
            13,927
            
            
            
            (0.3
            )%
            
            
            11.2
            %Slovenia
            
            
            9,570
            
            
            
            10,723
            
            
            
            (10.8
            )%
            
            
            (0.3
            )%Total
      Core Operations
            
            $
            79,367
            
            
            $
            88,568
            
            
            
            (10.4
            )%
            
            
            6.3
            %Bulgaria
            
            $
            4,542
            
            
            $
            1,201
            
            
            
            278.2
            %
            
            
            285.5
            %Ukraine
            
            
            12,865
            
            
            
            18,463
            
            
            
            (30.3
            )%
            
            
            (30.3
            )%Total
      Developing Operations
            
            $
            17,407
            
            
            $
            19,664
            
            
            
            (11.5
            )%
            
            
            (11.4
            )%Total
      Operating Costs
            
            $
            96,774
            
            
            $
            108,232
            
            
            
            (10.6
            )%
            
            
            2.6
            %





(1)
Actual (“%Act”) reflects the percentage change between two periods.





(2) Like
for Like (“%Lfl”) or constant currency reflects the impact of applying the
current period average exchange rates to the prior period revenues and
costs.





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76
 Index





Operating
costs:Total operating costs (excluding programming costs,
depreciation of station property, plant and equipment, amortization of broadcast
licenses and other intangibles as well as station selling, general and
administrative expenses) for the nine months ended September 30, 2009 decreased
by US$ 11.5 million, or 10.6%, compared to the nine months ended September 30,
2008.  Excluding the impact of movements in foreign exchange rates,
total operating costs increased by 2.6%.





The
movement in operating costs for each of our operations is discussed in Section
IV, “Analysis of Segment Results”.





Cost of
programming: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. Our cost of
programming for the three and nine months ended September 30, 2009 and 2008 was
as follows:





COST
OF PROGRAMMING


For
      the Nine Months Ended September 30, (US$ 000’s)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)Croatia
            
            $
            19,910
            
            
            $
            29,117
            
            
            
            (31.6
            )%
            
            
            (22.0
            )%Czech
      Republic
            
            
            55,206
            
            
            
            74,904
            
            
            
            (26.3
            )%
            
            
            (12.4
            )%Romania
            
            
            64,020
            
            
            
            80,138
            
            
            
            (20.1
            )%
            
            
            3.3
            %Slovak
      Republic
            
            
            38,659
            
            
            
            37,399
            
            
            
            3.4
            %
            
            
            15.4
            %Slovenia
            
            
            20,889
            
            
            
            24,272
            
            
            
            (13.9
            )%
            
            
            (2.9
            )%Total
      Core Operations
            
            $
            198,684
            
            
            $
            245,830
            
            
            
            (19.2
            )%
            
            
            (3.3
            )%Bulgaria
            
            $
            22,780
            
            
            $
            1,589
            
            
            Nm(3)
            
            
            Nm(3)Ukraine
            
            
            37,608
            
            
            
            59,807
            
            
            
            (37.1
            )%
            
            
            (37.1
            )%Total
      Developing Operations
            
            $
            60,388
            
            
            $
            61,396
            
            
            
            (1.6
            )%
            
            
            (1.5
            )%Total
      Cost of Programming
            
            $
            259,072
            
            
            $
            307,226
            
            
            
            (15.7
            )%
            
            
            (2.9
            )%Represented
      by:Production
      expenses
            
            $
            119,874
            
            
            $
            140,782
            
            
            
            (14.9
            )
      %
            
            
            0.1
            %Program
      amortization
            
            
            139,198
            
            
            
            166,444
            
            
            
            (16.4
            )
      %
            
            
            (5.4
            )%Cost
      of programming
            
            $
            259,072
            
            
            $
            307,226
            
            
            
            (15.7
            )
      %
            
            
            (2.9
            )%





(1)
Actual (“%Act”) reflects the percentage change between two periods.





(2) Like
for Like (“%Lfl”) or constant currency reflects the impact of applying the
current period average exchange rates to the prior period revenues and
costs.





(3)
Number is not meaningful.





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77
 Index





Total
consolidated programming costs (including amortization of acquired programming
rights and production costs) decreased in the nine months ended September 30,
2009 compared to the nine months ended September 30, 2008, primarily due
to:





·
            the
      strengthening of the dollar in each of our markets in the nine months
      ended September 30, 2009 compared to the nine months ended September 30,
      2008. Of the total decrease of 15.7%, 12.8% was due to the impact of
      movements in foreign exchange
rates;





·
            The
      cost optimization of our programming schedule. In the nine months ended
      September 30, 2009, our operations aired a more cost effective schedule
      than in the nine months ended September 30, 2008. This decrease was
      partially offset by;





·
            the
      acquisition of our Bulgaria operations in August
  2008;





·
            above
      inflation increase in the cost of foreign acquired programming,
      particularly in our Slovak Republic operations,
  and





·
            Accelerated
      amortization of acquired programming that is scheduled to be shown on our
      channels where the net realizable value of the programming is less than
      its carrying value because the channel is not expected to generate
      sufficient revenue to recover the cost of programming. We recognized
      accelerated amortization of US$ 18.0 million in the nine months ended
      September 30, 2009, of which US$ 1.6 million relates to DOMA, our new
      channel in the Slovak Republic, and US$ 2.1 million relates to NOVA CINEMA
      in the Czech Republic





The
amortization of acquired programming for each of our consolidated operations for
the nine months ended September 30, 2009 and 2008 is set out in the table
below.  For comparison, the table also shows the cash paid for
acquired programming by each of our operations in the respective periods, which
is reflected within net cash generated from continuing operating activities in
our consolidated statement of cash flows.





Page
78
 Index





PROGRAM
AMORTIZATION AND CASH PAID FOR ACQUIRED PROGRAMMING


For
      the Nine Months Ended September 30, (US$ 000’s)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)Program
      amortization:Croatia
            
            $
            8,614
            
            
            $
            15,374
            
            
            
            (44.0
            )%
            
            
            (36.2
            )%Czech
      Republic
            
            
            28,421
            
            
            
            41,560
            
            
            
            (31.6
            )%
            
            
            (19.1
            )%Romania
            
            
            31,915
            
            
            
            36,640
            
            
            
            (12.9
            )%
            
            
            13.0
            %Slovak
      Republic
            
            
            18,964
            
            
            
            15,997
            
            
            
            18.5
            %
            
            
            32.3
            %Slovenia
            
            
            9,966
            
            
            
            8,888
            
            
            
            12.1
            %
            
            
            25.4
            %Total
      Core Operations
            
            $
            97,880
            
            
            $
            118,459
            
            
            
            (17.4
            )%
            
            
            (1.3
            )%Bulgaria
            
            $
            13,362
            
            
            $
            645
            
            
            Nm(3)
            
            
            Nm(3)Ukraine
            
            
            27,956
            
            
            
            47,340
            
            
            
            (40.9
            )%
            
            
            (40.9
            )%Total
      Developing Operations
            
            $
            41,318
            
            
            $
            47,985
            
            
            
            (13.9
            )%
            
            
            (13.9
            )%Total
      Programming Amortization
            
            $
            139,198
            
            
            $
            166,444
            
            
            
            (16.4
            )%
            
            
            (5.4
            )%Cash
      paid for acquired programming:Croatia
            
            $
            10,872
            
            
            $
            21,119
            
            
            
            (48.5
            )%
            
            
            (39.4
            )%Czech
      Republic
            
            
            32,929
            
            
            
            26,781
            
            
            
            23.0
            %
            
            
            51.2
            %Romania
            
            
            63,000
            
            
            
            57,075
            
            
            
            10.4
            %
            
            
            42.6
            %Slovak
      Republic
            
            
            18,647
            
            
            
            14,956
            
            
            
            24.7
            %
            
            
            41.3
            %Slovenia
            
            
            8,738
            
            
            
            8,535
            
            
            
            2.4
            %
            
            
            14.6
            %Total
      Core Operations
            
            $
            134,186
            
            
            $
            128,466
            
            
            
            4.5
            %
            
            
            28.1
            %Bulgaria
            
            $
            13,514
            
            
            $
            1,202
            
            
            Nm(3)
            
            
            Nm(3)Ukraine
            
            
            3,800
            
            
            
            34,768
            
            
            
            (89.1
            )%
            
            
            (89.1
            )%Total
      Developing Operations
            
            $
            17,314
            
            
            $
            35,970
            
            
            
            (51.9
            )%
            
            
            (51.9
            )%Total
      Cash Paid for acquired Programming
            
            $
            151,500
            
            
            $
            164,436
            
            
            
            (7.9
            )%
            
            
            7.7
            %





(1)
Actual (“%Act”) reflects the percentage change between two periods.





(2) Like
for Like (“%Lfl”) or constant currency reflects the impact of applying the
current period average exchange rates to the prior period revenues and
costs.





(3)
Number is not meaningful.





Depreciation of property, plant and
equipment:  Total depreciation of property, plant and equipment
for the nine months ended September 30, 2009 decreased by US$ 0.7 million, or
1.9%, compared to the nine months ended September 30, 2008, primarily due to the
impact of movements in foreign exchange rates.  In constant currency,
depreciation increased by 15.2% as a result of the impact of recent investments
in production equipment assets across all of our operations, particularly in
Bulgaria and Romania.





Amortization of broadcast licenses
and other intangibles:  Total amortization of broadcast
licenses and other intangibles for the nine months ended September 30, 2009
decreased by US$ 10.0 million, or 38.4%, compared to the nine months ended
September 30, 2008, of which 10.4% reflects the impact of movements in foreign
exchange rates. This decrease was primarily due to a reduction in amortization
in our Czech Republic operations following the recent extension of TV NOVA
(Czech Republic)’s main broadcast license.





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 Index





III
(e) Selling, General and Administrative Expenses for the three months ended
September 30, 2009 compared to the three months ended September 30,
2008





SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES


For
      the Three Months Ended September 30, (US$ 000's)Movement2009
            
            
            2008
            
            
            %Act(1)
            
            
            %
      Lfl(2)Croatia
            
            $
            1,454
            
            
            $
            2,697
            
            
            
            (46.1
            )%
            
            
            (42.5
            )%Czech
      Republic
            
            
            5,487
            
            
            
            6,794
            
            
            
            (19.2
            )%
            
            
            (11.5
            )%Romania
            
            
            3,589
            
            
            
            4,054
            
            
            
            (11.5
            )%
            
            
            10.1
            %Slovak
      Republic
            
            
            3,372
            
            
            
            2,891
            
            
            
            16.6
            %
            
            
            23.1
            %Slovenia
            
            
            1,705
            
            
            
            2,107
            
            
            
            (19.1
            )%
            
            
            (15.2
            )%Corporate
            
            
            7,244
            
            
            
            11,894
            
            
            
            (39.1
            )%
            
            
            (36.7
            )%Total
      Core Operations
            
            $
            22,851
            
            
            $
            30,437
            
            
            
            (24.9
            )%
            
            
            (18.9
            )%Bulgaria
            
            $
            1,965
            
            
            $
            773
            
            
            
            154.2
            %
            
            
            163.0
            %Ukraine
            
            
            70
            
            
            
            3,376
            
            
            
            (97.9
            )%
            
            
            (97.9
            )%Total
      Developing Operations
            
            $
            2,035
            
            
            $
            4,149
            
            
            
            (51.0
            )%
            
            
            (50.6
            )%Total
      Selling, General and Administrative Expenses
            
            $
            24,886
            
            
            $
            34,586
            
            
            
            (28.0
            )%
            
            
            (22.9
            )%





(1)
Actual (“%Act”) reflects the percentage change between two periods.





(2) Like
for Like (“%Lfl”) or constant currency reflects the impact of applying the
current period average exchange rates to the prior period revenues and
costs.





Total
selling, general and administrative expenses for the three months ended
September 30, 2009 decreased by US$ 9.7 million, or 28.0%, compared to the three
months ended September 30, 2008, of which 5.1% reflects the impact of movements
in foreign exchange rates.





The
movement in selling, general and administrative expenses for each of our country
operations is discussed in Section IV, “Analysis of Segment
Results”.





Corporate
costs for the three months ended September 30, 2009 decreased by US$ 4.7
million, or 39.1%, compared to the three months ended September 30, 2008 as the
benefits of our ongoing cost reduction measures were seen in all cost captions.
We incurred costs of approximately US$ 0.7 million in connection with our
proposed acquisition of the Media Pro Entertainment business, which prior to
January 1, 2009 would have been capitalized as part of our investment (see Item
1, Note 20, “Commitments and Contingencies: Media Pro
Transaction”).


Corporate
costs for the three months ended September 30, 2009 include a charge of US$ 1.6
million (three months ended September 30, 2008: US$ 1.7 million) in respect of
non-cash stock-based compensation (see Item 1, Note 15, “Stock-Based
Compensation”).





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 Index





III
(f) Selling, General and Administrative Expenses for the nine months ended
September 30, 2009 compared to the nine months ended September 30,
2008





SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES


For
      the Nine Months Ended September 30, (US$ 000's)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)Croatia
            
            $
            4,174
            
            
            $
            6,001
            
            
            
            (30.4
            )%
            
            
            (21.9
            )%Czech
      Republic
            
            
            15,082
            
            
            
            18,794
            
            
            
            (19.8
            )%
            
            
            (4.8
            )%Romania
            
            
            9,941
            
            
            
            11,339
            
            
            
            (12.3
            )%
            
            
            12.4
            %Slovak
      Republic
            
            
            8,846
            
            
            
            7,842
            
            
            
            12.8
            %
            
            
            25.5
            %Slovenia
            
            
            4,188
            
            
            
            6,038
            
            
            
            (30.6
            )%
            
            
            (22.7
            )%Corporate
            
            
            24,987
            
            
            
            35,620
            
            
            
            (29.9
            )%
            
            
            (27.3
            )%Total
      Core Operations
            
            $
            67,218
            
            
            $
            85,634
            
            
            
            (21.5
            )%
            
            
            (12.5
            )%Bulgaria
            
            $
            4,777
            
            
            $
            773
            
            
            Nm(3)
            
            
            Nm(3)Ukraine
            
            
            4,081
            
            
            
            10,097
            
            
            
            (59.6
            )%
            
            
            (59.6
            )%Total
      Developing Operations
            
            $
            8,858
            
            
            $
            10,870
            
            
            
            (18.5
            )%
            
            
            (18.3
            )%Total
      Selling, General and Administrative Expenses
            
            $
            76,076
            
            
            $
            96,504
            
            
            
            (21.2
            )%
            
            
            (13.2
            )%





(1)
Actual (“%Act”) reflects the percentage change between two periods.





(2) Like
for Like (“%Lfl”) or constant currency reflects the impact of applying the
current period average exchange rates to the prior period revenues and
costs.





(3)
Number is not meaningful.





Total
Selling, General and Administrative Expenses for the nine months ended September
30, 2009 decreased by US$ 20.4 million, or 21.2%, compared to the nine months
ended September 30, 2008, of which 8.0% reflects the impact of movements in
foreign exchange rates.





The
movement in selling, general and administrative expenses for each of our country
operations is discussed in Section IV, “Analysis of Segment
Results”.





Corporate
costs for the nine months ended September 30, 2009 decreased by US$ 10.6
million, or 29.9%, compared to the nine months ended September 30, 2008 as the
benefits of our ongoing cost reduction measures were partially offset by
redundancy costs of US$ 1.5 million and costs of approximately US$ 3.7 million
in connection with our proposed acquisition of the Media Pro Entertainment
business, which prior to January 1, 2009 would have been capitalized as part of
our investment (see Item 1, Note 20, “Commitments and Contingencies: Media Pro
Transaction”).





Corporate
costs for the nine months ended September 30, 2009 are stated net of other
income of US$ 3.4 million arising on the assignment of our Lehman Brothers
bankruptcy claim (see Item 1, Note 20, “Commitments and Contingencies: Lehman
Brothers Bankruptcy Claim”).





Corporate
costs for the nine months ended September 30, 2009 include a charge of US$ 4.6
million (nine months ended September 30, 2008: US$ 5.5 million) in respect of
non-cash stock-based compensation (see Item 1, Note 15, “Stock-Based
Compensation”).





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81
 Index





III
(g) Impairment Charge for the nine months ended September 30, 2009 compared to
the nine months ended September 30, 2008





For
      the Nine Months Ended September 30, (US$ 000's)2009
            
            
            2008
            
            %Act(1)Impairment
      charge
            
            $
            81,843
            
            
            
            -
            
            Nm(2)





(1)
Actual (“%Act”) reflects the percentage change between two periods.





(2)
Number is not meaningful.








We
revised our estimates of future cash flows in our Bulgaria operations in the
first quarter of 2009 to reflect revised expectations of a heavier contraction
in the advertising market in 2009, lower growth in future years and a more
prolonged downturn. In addition, Bulgaria has been heavily impacted by the
global economic crisis, which has been reflected in the returns expected by
investors to reflect the increased actual and perceived risk of investing in
Bulgaria continuing to be higher than their historical norms. We concluded that
Long-Lived Assets in the PRO.BG asset group were no longer recoverable and
recorded a charge to write them down to their fair value of US$ nil (see Item 1,
Note 4, “Goodwill and Intangible Assets”).








III
(h) Operating Income for the three months ended September 30, 2009 compared to
the three months ended September 30, 2008





OPERATING
INCOME


For
      the Three Months Ended September 30, (US$ 000's)Movement2009
            
            
            2008
            
            %
      Act(1)
            %
      Lfl(2)Operating
      Income / (Loss)
            
            $
            (33,450
            )
            
            $
            7,155
            
            Nm(3)
            Nm(3)





(1)
Actual (“%Act”) reflects the percentage change between two periods.





(2) Like
for Like (“%Lfl”) or constant currency reflects the impact of applying the
current period average exchange rates to the prior period revenues and
costs.





(3)
Number is not meaningful.








Due to
the foregoing, operating income for the three months ended September 30, 2009
decreased by US$ 40.6 million compared to the three months ended September 30,
2009.  Operating margin was (24.9)%, compared to 3.6% for the three
months ended September 30, 2008.





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 Index





III
(i) Operating Income for the nine months ended September 30, 2009 compared to
the nine months ended September 30, 2008





OPERATING
INCOME


For
      the Nine Months Ended September 30, (US$ 000's)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)Operating
      Income / (Loss)
            
            $
            (106,229
            )
            
            $
            151,372
            
            
            
            (170.2
            )
      %
            
            
            (192.7
            )%





(1)
Actual (“%Act”) reflects the percentage change between two periods.





(2) Like
for Like (“%Lfl”) or constant currency reflects the impact of applying the
current period average exchange rates to the prior period revenues and
costs.





Due to
the foregoing, operating income for the nine months ended September 30, 2009
decreased by US$ 257.6 million compared to the nine months ended September 30,
2008.  Operating margin was (23.0)%, compared to 20.8% for the nine
months ended September 30, 2008.





III
(j) Other income / (expense) items for the three months ended September 30, 2009
compared to the three months ended September 30, 2008





OTHER
INCOME / (EXPENSE)


For
      the Three Months Ended September 30, (US$ 000's)2009
            
            
            2008
            
            
            %
      ActInterest
      income
            
            $
            628
            
            
            $
            2,126
            
            
            
            (70.5
            )
      %Interest
      expense
            
            
            (27,237
            )
            
            
            (22,127
            )
            
            
            (23.1
            )%Foreign
      currency exchange gain, net
            
            
            28,980
            
            
            
            4,959
            
            
            Nm(1)Change
      in fair value of derivatives
            
            
            (3,259
            )
            
            
            9,868
            
            
            
            (133.0
            )%Other
      income
            
            
            45
            
            
            
            288
            
            
            
            (84.4
            )%Provision
      for income taxes
            
            
            9,999
            
            
            
            (20,838
            )
            
            Nm(1)Discontinued
      Operations, net of tax
            
            
            -
            
            
            
            (1,026
            )
            
            Nm(1)Noncontrolling
      Interest in loss / (income) of consolidated subsidiaries
            
            
            2,744
            
            
            
            265
            
            
            Nm(1)Currency
      Translation Adjustment, net
            
            
            53,164
            
            
            
            (217,905
            )
            
            Nm(1)





(1)
Actual (“%Act”) reflects the percentage change between two periods.


(2)
Number is not meaningful.





Interest income for the three months ended September 30, 2009
decreased by US$ 1.5 million compared to the three months ended September 30,
2008, primarily as a result of the reduction in interest rates.
In  September 2009, we issued EUR 440.0 million (approximately US$
644.3 million) of 2009 Fixed Rate Notes for a net premium of US$ 5.9 million
which is being amortized through interest income using the effective yield
method. Although it had little impact in the current quarter, the amortization
of this premium will result in additional interest income of approximately US$
0.1 - 0.2 million per quarter until September
2016.


Interest expense for the three
months ended September 30, 2009 increased by US$ 5.1 million compared to the
three months ended September 30, 2008 as a result of movements in foreign
exchange rates, an increase in our average borrowings, albeit at lower interest
rates, and a loss on extinguishment of our EBRD loan and the 2005 Fixed Rate
Notes of US$ 3.4 million.





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83
 Index





Foreign currency exchange gain /
(loss), net:  We are exposed to fluctuations in foreign
exchange rates on the revaluation of monetary assets and liabilities denominated
in currencies other than the local functional currency of the relevant
subsidiary.  This includes third party receivables and payables,
including our Senior Notes (including the 2005 Fixed Rate Notes) and, prior to
its repayment, the EBRD Loan, which are denominated in Euros, as well as
intercompany loans.  Our subsidiaries generally receive funding via
loans that are denominated in currencies other than the dollar, and any change
in the relevant exchange rate will require us to recognize a transaction gain or
loss on revaluation.





During
the three months ended September 30, 2009, we recognized a net gain of US$ 29.0
million comprising: transaction gains of US$ 51.9 million relating to the
revaluation of intercompany loans; transaction losses of approximately US$ 19.8
million on the Senior Notes (including the 2005 Fixed Rate Notes) and US$ 7.0
million on the EBRD Loan due to the strengthening of the Euro against the dollar
between June 30, 2009 and September 30, 2009; and transaction gains of US$ 3.9
million relating to the revaluation of monetary assets and liabilities
denominated in currencies other than the local functional currency of the
relevant subsidiary.





During
the three months ended September 30, 2008, we recognized a net gain of US$ 5.0
million comprising transaction gains of approximately US$ 57.7 million on the
Senior Notes (including the 2005 Fixed Rate Notes) due to the strengthening of
the dollar against the Euro between June 30, 2008 and September 30, 2009. This
gain was partly offset by transaction losses of US$ 18.3 million relating to the
revaluation of monetary assets and liabilities denominated in currencies other
than the dollar and US$ 34.4 million relating to the revaluation of intercompany
loans.





Since
February 19, 2009, any gain or loss arising on the revaluation of an
intercompany loan to our Czech Republic operations has been recognized in the
income statement as the loan is no longer considered to be long term in
nature.  We recognized a loss of US$ 85.4 million within currency
translation adjustment on the revaluation of the loan in the period from July 1,
2008 to September 30, 2008.





Change in fair value of
derivatives: For the three months ended September 30, 2009, we recognized
a loss of US$ 3.3 million as a result of the change in the fair value of the
currency swaps entered into on April 27, 2006 compared to a gain of US$ 9.9
million for the three months ended September 30, 2008.





Other income/
(expense):  For the three months ended September 30, 2009 we
recognized other income of US$ 45.0 thousand compared to US$ 0.3 million for the
three months ended September 30, 2008.





Provision for income
taxes:  The provision for
income taxes for the three months ended September 30, 2009 was a credit of US$
10.0 million, compared to a charge of US$ 20.8 million for the three months
ended September 30, 2008. The provision for income taxes for the three months
ended September 30, 2008 included a charge of  US$ 21.8 million
relating to movements in foreign exchange rates on intercompany loans, with a
corresponding credit recognized in other comprehensive income. The underlying
reduction in our provision for income taxes reflects our lower profitability.
Our stations pay income taxes at rates ranging from 10% in Bulgaria to 25% in
Ukraine.
 
 Discontinued operations,
net:  In the fourth quarter
of 2008 we agreed to acquire 100% of the KINO channel from our minority partners
and to sell them our interest in the CITI channel, which was completed in
February 2009.  The results of the CITI channel have therefore been
treated as discontinued operations for the three months ended September 30,
2008, but these operations were disposed of in the first quarter of
2009.
 
 Noncontrolling Interest in loss /
(income) of consolidated subsidiaries:  For the three months ended September 30, 2009, we
recognized income of US$ 2.7 million in respect of the noncontrolling interest
in the loss of consolidated subsidiaries as a result of adoption of FASB
Statement No. 160 “Noncontrolling Interests in Consolidated Financial Statements
– an Amendment of ARB No.51” (“FAS 160 (ASC 810)”) from January 1, 2009,
compared to income of US$ 0.3 million for the three months ended September 30,
2008 reflecting the losses of our Bulgaria operations, which we acquired in
August 2008.  The income in the three months ended September 30, 2008
arose on our Ukraine operations.


Page
84
 Index





Currency translation adjustment,
net:  The underlying equity value of our investments (which are
denominated in the functional currency of the relevant operation) are converted
into dollars at each balance sheet date, with any change in value of the
underlying assets and liabilities being recorded as a currency translation
adjustment to the balance sheet, which is not recorded in the profit and loss
account.





The
dollar depreciated against the functional currencies of all of our operations
during the three months ended September 30, 2009 and appreciated against the
functional currencies of all our operations during the three months ended
September 30, 2008 and as a result we recognized gains on the revaluation of our
net investments in subsidiaries during the three months ended September 30, 2009
of US$ 53.2 million compared to a loss of US$ 217.9 million for the three months
ended September 30, 2008. The net loss on translation for the three months ended
September 30, 2008 included a loss of US$ 85.4 million on the revaluation of an
intercompany loan to our Czech Republic operations that was previously
considered to be long term in nature.   Since February 19, 2009,
any exchange difference arising on the revaluation of this loan has been
recognized in the income statement.


The
following table illustrates the amount by which the dollar depreciated against
the functional currencies of our operations between July 1 and September 30 in
2009 and 2008, respectively:





Three
      months ended September 30,2009
            
            
            2008Bulgarian
      Lev (1)
            
            
            (3
            )%
            
            
            -
            %Croatian
      Kuna
            
            
            (4
            )%
            
            
            8
            %Czech
      Koruna
            
            
            (6
            )%
            
            
            14
            %Euro
            
            
            (3
            )%
            
            
            10
            %New
      Romanian Lei
            
            
            (4
            )%
            
            
            13
            %Ukraine
      Hryvna (2)
            
            
            -
            %
            
            
            -
            %





(1)  We
acquired our Bulgaria operations on August 1, 2008.





(2) The
functional currency of our Ukraine operations changed from the dollar to the
Hryvna with effect from January 1, 2009.  We therefore do not show the
movement of the dollar against the Hryvna for the three months ended September
30, 2008.








To the
extent that our subsidiaries incur transaction losses in their local functional
currency income statement on the revaluation of monetary assets and liabilities
denominated in dollars, we recognize a gain of the same amount as a currency
translation adjustment within shareholders’ equity when we retranslate our net
investment in that subsidiary into dollars.  Similarly, any exchange
gain or loss arising on the retranslation of intercompany loans in the
functional currency of the relevant subsidiary or the dollar will be offset by
an equivalent loss or gain on consolidation.





Page
85
 Index





III
(k) Other income / (expense) items for the nine months ended September 30, 2009
compared to the nine months ended September 30, 2008





OTHER
INCOME / (EXPENSE)


For
      the Nine Months Ended September 30, (US$ 000's)2009
            
            
            2008
            
            
            %Act(1)Interest
      income
            
            $
            2,070
            
            
            $
            8,081
            
            
            
            (74.4
            )
      %Interest
      expense
            
            
            (70,923
            )
            
            
            (59,702
            )
            
            
            (18.8
            )
      %Foreign
      currency exchange gain, net
            
            
            113,655
            
            
            
            (5,587
            )
            
            Nm(2)Change
      in fair value of derivatives
            
            
            (4,444
            )
            
            
            (13,671
            )
            
            
            67.5
            %Other
      income
            
            
            391
            
            
            
            1,607
            
            
            
            (75.7
            )
      %Provision
      for income taxes
            
            
            16,614
            
            
            
            (19,478
            )
            
            
            185.3
            %Discontinued
      Operations, net of tax
            
            
            (262
            )
            
            
            (2,534
            )
            
            
            89.7
            %Noncontrolling
      Interest in loss / (income) of consolidated subsidiaries
            
            
            7,221
            
            
            
            (1,507
            )
            
            Nm(2)Currency
      Translation Adjustment, net
            
            
            (47,265
            )
            
            
            67,141
            
            
            
            (170.4
            )
      %Obligation
      to repurchase shares
            
            
            -
            
            
            
            488
            
            
            Nm(2)





(1)
Actual (“%Act”) reflects the percentage change between two periods.


(2)
Number is not meaningful.






Interest income for the nine months ended September 30, 2009
decreased by US$ 6.0 million compared to the nine months ended September 30,
2008, primarily as a result of the reduction in interest rates. In September
2009, we issued EUR 440.0 million of 2009 Fixed Rate Notes for a net premium of
US$ 5.9 million which is being amortized through interest income using the
effective yield method. Although this has had little impact in the nine months
ended September 30, 2009, the amortization of this premium will result in
additional interest income of approximately US$ 0.1 - 0.2 million per quarter
until September 2016.


Interest expense for the nine
months ended September 30, 2009 increased by US$ 11.2 million compared to the
nine months ended September 30, 2008.  The increase reflects a full
nine months’ interest and amortization of the related debt issuance discount on
our Convertible Notes issued on March 10, 2008 as well as movements in foreign
exchange rates, an increase in our average borrowings, albeit at lower interest
rates, and a loss on extinguishment of our EBRD loan and the 2005 Fixed Rate
Notes of US$ 3.4 million.





Foreign currency exchange gain /
(loss), net:  During the nine months ended September 30, 2009,
we recognized a net gain of US$ 113.7 million comprising: transaction gains of
US$ 167.1 million relating to the revaluation of intercompany loans; transaction
losses of approximately US$ 28.3 million on the Senior Notes (including the 2005
Fixed Rate Notes before they were redeemed) and US$ 22.4 million on the EBRD
Loan due to the strengthening of the Euro against the dollar between December
31, 2008 and September 30, 2009; and transaction losses of US$ 2.7 million
relating to the revaluation of monetary assets and liabilities denominated in
currencies other than the local functional currency of the relevant
subsidiary.





During
the nine months ended September 30, 2008 we recognized a net loss of US$ 5.6
million comprising: a transaction gain of approximately US$ 16.5 million on the
Senior Notes (including the 2005 Fixed Rate Notes before they were redeemed) due
to the strengthening of the dollar against the Euro between December 31, 2007
and September 30, 2008, partially offset by losses of US$ 13.2 million relating
to the revaluation of monetary assets and liabilities denominated in currencies
other than the dollar and US$ 8.9 million relating to the revaluation of
intercompany loans.





Since
February 19, 2009, any gain or loss arising on the revaluation of an
intercompany loan to our Czech Republic operations has been recognized in the
income statement as the loan is no longer considered to be long term in
nature.  We recognized a loss of US$ 95.1 million within currency
translation adjustment on the revaluation of such loan in the period from
January 1, 2009 to February 19, 2009 compared to a gain of US$ 28.6 million in
the nine months ended September 30, 2008.





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Change in fair value of
derivatives: For the nine months ended September 30, 2009 we recognized a
loss of US$ 4.4 million as a result of the change in the fair value of the
currency swaps entered into on April 27, 2006 compared to a loss of US$ 13.7
million for the nine months ended September 30, 2008.





Other income:  For
the nine months ended September 30, 2009 we recognized other income of US$ 0.4
million compared to US$ 1.6 million for the nine months ended September 30,
2008.





Provision for income
taxes:  The
provision for income taxes for the nine months ended September 30, 2009 was a
credit of US$ 16.6 million compared to a charge of US$ 19.5 million for the nine
months ended September 30, 2008.  The provision for income taxes for
the nine months ended September 30, 2008 includes a credit of US$ 7.3 million
relating to movements in foreign exchange rates on intercompany loans, with a
corresponding charge recognized in other comprehensive income.  The
underlying reduction in our provision for income taxes reflects our reduced
profitability.  Our stations pay income taxes at rates ranging from
10% in Bulgaria to 25% in Ukraine.




Discontinued operations,
net:  In the fourth quarter of 2008, we agreed to acquire 100%
of the KINO channel from our minority partners and to sell them our interest in
the CITI channel, which was completed in February 2009.  The results
of the CITI channel have therefore been treated as discontinued operations for
the nine months ended September 30, 2008, but these operations were disposed of
in the first quarter of 2009.





Noncontrolling Interest in income of
consolidated subsidiaries:  For the nine months ended September
30, 2009, we recognized income of US$ 7.2 million in respect of the
noncontrolling interest in the loss of consolidated subsidiaries as a result of
adoption of FAS 160 (ASC 810) from January 1, 2009, compared to an expense of
US$ 1.5 million for the nine months ended September 30, 2008, reflecting the
losses of our Bulgaria operations which we acquired in August 2008.





Currency translation adjustment,
net:  The underlying equity value of our investments (which are
denominated in the functional currency of the relevant operation) are converted
into dollars at each balance sheet date, with any change in value of the
underlying assets and liabilities being recorded as a currency translation
adjustment to the balance sheet, which is not recorded in the profit and loss
account.





The
dollar depreciated against the functional currencies of most of our operations
during the nine months ended September 30, 2009, particularly during the first
quarter of 2009. The dollar depreciated against the functional currencies of our
Croatia and Czech Republic operations and appreciated against the functional
currencies of our Romania, Slovak Republic and Slovenia operations during the
nine months ended September 30, 2008.  We recognized a loss of US$
47.3 million on the revaluation of our net investments in subsidiaries compared
to a gain of US$ 67.1 million in the nine months ended September 30, 2008. The
net loss on translation for the nine months ended September 30, 2009 included a
loss of US$ 95.1 million on the revaluation of an intercompany loan to our Czech
Republic operations that was previously considered to be long term in
nature.  This compares to a gain of US$ 28.6 million for the same
period in 2008.  Since February 19, 2009, any exchange difference
arising on the revaluation of such loan has been recognized in the income
statement.


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The
following table illustrates the amount by which the exchange rate between the
dollar and the functional currencies of our operations moved between January 1
and September 30 in 2009 and 2008, respectively:





Nine
      months ended September 30,2009
            
            
            2008Bulgarian
      Lev (1)
            
            
            (5
            )%
            
            
            -Croatian
      Kuna
            
            
            (5
            )%
            
            
            (1
            )%Czech
      Koruna
            
            
            (11
            )%
            
            
            (5
            )%Euro
            
            
            (5
            )%
            
            
            3
            %New
      Romanian Lei
            
            
            1
            %
            
            
            6
            %Ukraine
      Hryvna (2)
            
            
            -
            
            
            
            -





(1)  We
acquired our Bulgaria operations on August 1, 2008.





(2) The
functional currency of our Ukraine operations changed from the dollar to the
Hryvna with effect from January 1, 2009. We therefore do not show the movement
of the dollar against the Hryvna for the nine months ended September 30,
2008.





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IV.
Analysis of Segment Results





OVERVIEW





We manage
our business on a geographic basis and review the performance of each 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 segments are
Bulgaria, Croatia, the Czech Republic, Romania, the Slovak Republic, Slovenia
and Ukraine.





We
evaluate the performance of our segments based on Net Revenues and
EBITDA.





Our key
performance measure of the efficiency of our segments is EBITDA
margin.  We define EBITDA margin as the ratio of EBITDA to Net
Revenues.





EBITDA is
determined as 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 EBITDA,
include:





·
            foreign
      currency exchange gains and losses;





·
            change
      in fair value of derivatives; and





·
            certain
      unusual or infrequent items (e.g. impairments of assets or
      investments).





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 EBITDA is useful to investors because it provides a more meaningful
representation of our performance as it excludes certain items that do not
impact either our cash flows or the operating results of our
stations.  EBITDA is also used as a component in determining
management bonuses.





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





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SEGMENT
FINANCIAL INFORMATION


For
the Three Months Ended September 30, (US$ 000's)


Movement2009
            
            
            2008
            
            
            %Act
            
            
            %LflNet
      RevenuesCroatia
      (NOVA TV)
            
            $
            6,871
            
            
            $
            8,525
            
            
            
            (19.4
            )%
            
            
            (13.5
            )%Czech
      Republic (TV NOVA, NOVA CINEMA and NOVA SPORT)
            
            
            53,778
            
            
            
            72,602
            
            
            
            (25.9
            )%
            
            
            (19.4
            )%Romania
      (1)
            
            
            36,088
            
            
            
            59,281
            
            
            
            (39.1
            )%
            
            
            (24.6
            )%Slovak
      Republic (TV MARKIZA and DOMA) (2)
            
            
            19,306
            
            
            
            24,795
            
            
            
            (22.1
            )%
            
            
            (18.9
            )%Slovenia
      (POP TV, KANAL A and TV PIKA)
            
            
            11,272
            
            
            
            14,231
            
            
            
            (20.8
            )%
            
            
            (17.1
            )%Total
      Core Operations
            
            
            127,315
            
            
            
            179,434
            
            
            
            (29.0
            )%
            
            
            (20.4
            )%Bulgaria
      (PRO.BG and RING.BG) (3)
            
            $
            920
            
            
            $
            462
            
            
            
            99.1
            %
            
            
            101.8
            %Ukraine
      (STUDIO 1+1, KINO) (4)
            
            
            6,247
            
            
            
            20,705
            
            
            
            (69.8
            )%
            
            
            (69.8
            )%Total
      Developing Operations
            
            
            7,167
            
            
            
            21,167
            
            
            
            (66.1
            )%
            
            
            (66.1
            )%Total
      Net Revenues
            
            $
            134,482
            
            
            $
            200,601
            
            
            
            (33.0
            )%
            
            
            (25.7
            )%Represented
      by:Broadcast
      operations
            
            $
            132,148
            
            
            $
            198,426
            
            
            
            (33.4
            %)
            
            
            (26.2
            )%Non-broadcast
      operations
            
            
            2,334
            
            
            
            2,175
            
            
            
            7.3
            %
            
            
            17.5
            %Total
      Net Revenues
            
            $
            134,482
            
            
            $
            200,601
            
            
            
            (33.0
            )%
            
            
            (25.7
            )%EBITDACroatia
      (NOVA TV)
            
            $
            (3,622
            )
            
            $
            (5,401
            )
            
            
            32.9
            %
            
            
            28.2
            %Czech
      Republic (TV NOVA, NOVA CINEMA and NOVA SPORT)
            
            
            17,767
            
            
            
            31,405
            
            
            
            (43.4
            )%
            
            
            (39.2
            )%Romania
      (1)
            
            
            6,638
            
            
            
            20,116
            
            
            
            (67.0
            )%
            
            
            (59.4
            )%Slovak
      Republic (TV MARKIZA and DOMA) (2)
            
            
            (2,669
            )
            
            
            5,847
            
            
            
            (145.6
            )%
            
            
            (146.1
            )%Slovenia
      (POP TV, KANAL A and TV PIKA)
            
            
            (1,191
            )
            
            
            2,153
            
            
            
            (155.3
            )%
            
            
            (153.5
            )%Corporate
            
            
            (7,109
            )
            
            
            (11,672
            )
            
            
            39.1
            %
            
            
            36.6
            %Total
      Core Operations
            
            
            9,814
            
            
            
            42,448
            
            
            
            (76.9
            )%
            
            
            (73.7
            )%Bulgaria
      (PRO.BG and RING.BG) (3)
            
            $
            (12,346
            )
            
            $
            (3,101
            )
            
            
            (298.1
            )%
            
            Nm
      (5)Ukraine
      (STUDIO 1+1, KINO) (4)
            
            
            (11,822
            )
            
            
            (7,791
            )
            
            
            (51.7
            )%
            
            
            (51.7
            )%Total
      Developing Operations
            
            
            (24,168
            )
            
            
            (10,892
            )
            
            
            (121.9
            )%
            
            
            (124.0
            )%Consolidated
      EBITDA
            
            $
            (14,354
            )
            
            $
            31,556
            
            
            
            (145.5
            )%
            
            
            (154.1
            )%Represented
      by:Broadcast
      operations
            
            $
            (3,342
            )
            
            $
            46,018
            
            
            
            (107.3
            )%
            
            
            (108.3
            )%Non-broadcast
      operations
            
            
            (3,903
            )
            
            
            (2,790
            )
            
            
            (39.9
            )%
            
            
            (53.9
            )%Corporate
            
            
            (7,109
            )
            
            
            (11,672
            )
            
            
            39.1
            %
            
            
            36.6
            %Consolidated
      EBITDA
            
            $
            (14,354
            )
            
            $
            31,556
            
            
            
            (145.5
            )%
            
            
            (154.1
            )%EBITDA
      Margin (6)
            
            
            (11
            )%
            
            
            16
            %





(1)
Romania channels are PRO TV, PRO CINEMA, ACASA, PRO TV INTERNATIONAL, SPORT.RO
and MTV Romania.





(2) We
launched DOMA on August 31, 2009





(3) We
acquired our Bulgaria operations on August 1, 2008.





(4) From
January 1, 2009 the operations of our KINO channel were combined with those of
our STUDIO 1+1 channel and are no longer reported as a separate
segment.





(5)
Number is not meaningful.





(6) We
define EBITDA margin as the ratio of EBITDA to Net Revenues.





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SEGMENT
FINANCIAL INFORMATION


For
the Nine  Months Ended September 30, (US$ 000's)


Movement2009
            
            
            2008
            
            
            %Act
            
            
            %LflNet
      RevenuesCroatia
      (NOVA TV)
            
            $
            31,200
            
            
            $
            38,153
            
            
            
            (18.2
            )%
            
            
            (6.0
            )%Czech
      Republic (TV NOVA, NOVA CINEMA and NOVA SPORT)
            
            
            181,456
            
            
            
            270,730
            
            
            
            (33.0
            %)
            
            
            (19.9
            )%Romania
      (1)
            
            
            120,622
            
            
            
            197,119
            
            
            
            (38.8
            )%
            
            
            (20.9
            )%Slovak
      Republic (TV MARKIZA and DOMA)  (2)
            
            
            68,106
            
            
            
            88,126
            
            
            
            (22.7
            )%
            
            
            (13.6
            )%Slovenia
      (POP TV, KANAL A and TV PIKA)
            
            
            43,741
            
            
            
            58,392
            
            
            
            (25.1
            )%
            
            
            (15.8
            )%Total
      Core Operations
            
            
            445,125
            
            
            
            652,520
            
            
            
            (31.8
            )%
            
            
            (18.0
            )%Bulgaria
      (PRO.BG and RING.BG) (3)
            
            $
            2,397
            
            
            $
            462
            
            
            Nm
      (5)
            
            
            Nm
      (5)Ukraine
      (STUDIO 1+1, KINO) (4)
            
            
            14,366
            
            
            
            75,451
            
            
            
            (81.0
            )%
            
            
            (81.0
            )%Total
      Developing Operations
            
            
            16,763
            
            
            
            75,913
            
            
            
            (77.9
            )%
            
            
            (77.9
            )%Total
      Net Revenues
            
            $
            461,888
            
            
            $
            728,433
            
            
            
            (36.6
            )%
            
            
            (25.4
            )%Represented
      by:Broadcast
      operations
            
            $
            455,347
            
            
            $
            721,505
            
            
            
            (36.9
            )%
            
            
            (25.7
            )%Non-broadcast
      operations
            
            
            6,541
            
            
            
            6,928
            
            
            
            (5.6
            )%
            
            
            9.2
            %Total
      Net Revenues
            
            $
            461,888
            
            
            $
            728,433
            
            
            
            (36.6
            )%
            
            
            (25.4
            )%EBITDACroatia
      (NOVA TV)
            
            $
            (1,362
            )
            
            $
            (6,448
            )
            
            
            78.9
            %
            
            
            77.3
            %Czech
      Republic (TV NOVA, NOVA CINEMA and NOVA SPORT)
            
            
            81,201
            
            
            
            146,454
            
            
            
            (44.6
            )%
            
            
            (33.4
            )%Romania
      (1)
            
            
            29,196
            
            
            
            81,785
            
            
            
            (64.3
            )%
            
            
            (53.8
            )%Slovak
      Republic (TV MARKIZA and DOMA) (2)
            
            
            6,714
            
            
            
            28,958
            
            
            
            (76.8
            )%
            
            
            (73.9
            )%Slovenia
      (POP TV, KANAL A and TV PIKA)
            
            
            9,094
            
            
            
            17,359
            
            
            
            (47.6
            )%
            
            
            (41.0
            )%Corporate
            
            
            (24,176
            )
            
            
            (34,971
            )
            
            
            30.9
            %
            
            
            28.3
            %Total
      Core Operations
            
            
            100,667
            
            
            
            233,137
            
            
            
            (56.8
            )%
            
            
            (46.0
            )%Bulgaria
      (PRO.BG and RING.BG) (3)
            
            $
            (29,702
            )
            
            $
            (3,101
            )
            
            Nm
      (5)
            
            
            Nm
      (5)Ukraine
      (STUDIO 1+1, KINO) (4)
            
            
            (40,188
            )
            
            
            (12,916
            )
            
            
            (211.1
            )%
            
            
            (211.1
            )%Total
      Developing Operations
            
            
            (68,890
            )
            
            
            (16,017
            )
            
            Nm
      (7)
            
            
            Nm
      (5)Consolidated
      EBITDA
            
            $
            30,777
            
            
            $
            217,120
            
            
            
            (85.8
            )%
            
            
            (82.0
            )%Represented
      by:Broadcast
      operations
            
            $
            61,892
            
            
            $
            258,251
            
            
            
            (76.0
            )%
            
            
            (70.5
            )%Non-broadcast
      operations
            
            
            (6,939
            )
            
            
            (6,160
            )
            
            
            (12.6
            )%
            
            
            (27.7
            )%Corporate
            
            
            (24,176
            )
            
            
            (34,971
            )
            
            
            30.9
            %
            
            
            28.3
            %Consolidated
      EBITDA
            
            $
            30,777
            
            
            $
            217,120
            
            
            
            (85.8
            )%
            
            
            (82.0
            )%EBITDA
      Margin (6)
            
            
            7
            %
            
            
            30
            %





(1)
Romania channels are PRO TV, PRO CINEMA, ACASA, PRO TV INTERNATIONAL, SPORT.RO
and MTV Romania.





(2) We
launched DOMA on August 31, 2009





(3) We
acquired our Bulgaria operations on August 1, 2008.





(4) From
January 1, 2009 the operations of our KINO channel were combined with those of
our STUDIO 1+1 channel and are no longer reported as a separate
segment.





(5)
Number is not meaningful.





(6) We
define EBITDA margin as the ratio of EBITDA to Net Revenues.





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Historically
it has been our experience that the EBITDA we generate in each of our segments,
which correspond to the countries in which we operate, is the result of the
interaction of a number of different factors. While the relative significance of
these factors fluctuates both from segment to segment and period to period, we
believe that the critical factors involved, which we discuss below, remain
constant.





Macro Economic Environment.
Over the last ten years the markets in which we operate have generally
experienced a much higher rate of economic growth than Western markets as they
have established free market economies, instituted parliamentary democracies and
attracted foreign investment funding.  This has tended to generate
growth in the domestic advertising markets of these countries as new entrants
demand advertising time for new products and incumbent advertisers seek to
protect their market share.





Local Advertising
Markets.We
have observed over many years a strong positive correlation between the macro
economic performance of the emerging markets in which we operate and the size of
the television advertising market, which is measured in constant currency unless
otherwise stated, although advertising and TV advertising markets have increased
much faster than GDP when GDP increases and have declined more rapidly when GDP
declines. In addition to the underlying macro economic performance of each
country in which we operate, demand for advertising, and therefore the overall
size of the market, can fluctuate for many other reasons. These reasons could
include, but are not limited to,  structural changes to the economy,
such as accession to the European Union, the development of new technologies,
significant new entrants requiring large amounts of advertising or the impact of
new legislation.





Audience Ratings and Share.
When describing our performance we refer to “audience share”, which represents
the share attracted by a channel as a proportion of the total audience watching
television, and “ratings”, which represents the number of people watching a
channel (expressed as a proportion of the total population measured). Audience
share and ratings information is measured in each market by international
measurement agencies using peoplemeters, which quantify audiences for different
demographics and sub geographies of the population measured throughout the day.
Our channels schedule programming intended to attract audiences within specific
“target” demographics that we believe will be attractive to advertisers. For
each of our segments we show all day and prime time audience share and program
ratings information for our channels and our major competitors, based on our
channels’ target demographics. In common with all broadcasters, our audience
share can fluctuate for many reasons, including the popularity of our own
programming, the strength of our competitors’ programming, unseasonal weather or
national and international sporting, cultural or political events.





Monetization of audience share.For the purposes of our management’s discussion and analysis of financial
condition and results of operations, total television and radio advertising
revenue net of rebates is referred to as “spot revenues,” which primarily
comprise sales of commercial gross rating points (“GRPs”), which is a measure of
the number of people watching when the advertisement is aired. The audience
share we can generate in each country determines the number of GRPs each of our
operations has to sell, although the relationship between audience share and
revenue is frequently non-linear in nature and the amount of revenue we earn is
the result of the interrelation between the volume of GRPs we are able to
generate, the proportion of those GRPs we can sell to advertisers and the price
at which we can sell them. In any period, we attempt to maximize revenue by
optimizing pricing and resulting sell-out rates, including price increases or
decreases depending on market conditions, 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. In
most of our segments, our ability to provide advertisers with a package of
related services across a number of channels and audience demographics, combined
with the absolute level of that audience share, which has generally been
market-leading, has enabled us to enjoy a share of the advertising market, and
therefore segment net revenues, disproportionately in excess of our audience
share.





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 Index





Generally
we contract with clients to provide an agreed number of GRPs for an agreed price
(“cost per point”). Much more rarely we may sell on a fixed spot basis where an
advertisement is placed at an agreed time for a negotiated price that is
independent of the number of viewers.  The price per GRP package
varies depending on the season and time of day the advertisement is aired, the
volume of GRPs purchased, requirements for special positioning of the
advertisement, the demographic group that the advertisement is targeting (in a
multi-channel environment) and other factors. Our larger advertising customers
generally enter into annual contracts which usually run from April to March and
set the pricing for a committed volume of GRPs, although this has not been our
experience in 2009. Generally, demand for broadcast advertising is highest in
the fourth quarter of the year in the run-up to Christmas and lowest in the
third quarter of the year during the summer holiday period.





“Non-spot
revenues” refers to all other revenues, including those from sponsorship, game
shows, program sales, short message service (“SMS”) messaging, cable
subscriptions and barter transactions.  The total of spot revenues and
non-spot revenues is equal to Net Revenues.





Protection of EBITDA margin.
Ultimately, the amount of EBITDA we generate in each segment is determined by
how efficiently we manage the relationship between revenues and costs.
Programming costs, which includes the cost of producing program content,
typically represent the largest single component of our cost base in each of our
operations and have historically increased each year as we, and our competitors,
seek to gain or protect market share. We invest in programming where we believe
we are able to gain audience share and ultimately increase our revenues, but
only where we believe it is cost effective. The extent to which we are able to
control major cost components without harming our market share will govern the
ultimate level of EBITDA we earn.




A)
BULGARIA





Macro
economic environment and local advertising markets





We
estimate that the net television advertising market in Bulgaria was
approximately US$ 175 to US$ 185 million in 2008. We estimate that the
television advertising market declined by 27% in the nine months ended September
30, 2009 compared to the same period in 2008.  Economic projections
for Bulgaria in 2009 are poor, resulting in uncertainty among
advertisers.  As a result we are closing sales contracts for 2009 more
slowly than we anticipated and cannot accurately predict future market
development.  However, we currently expect the television advertising
market to decline by between 22% and 28% in 2009. If market conditions continue
to worsen, a larger decline in the total advertising market could
occur.





Audience
Share and Ratings





For sales
purposes, PRO.BG’s target audience demographic is 18-49 Urban. All audience data
shown below is based on the target demographic of PRO.BG.





For
      the nine months ended September 30, 2009All
      day audience share
            
            
            2.9
            %All
      day ratings
            
            
            0.4
            %Prime
      time audience share
            
            
            3.1
            %Prime
      time ratings
            
            
            0.9
            %





We
acquired our Bulgaria operations on August 1, 2008.  Since acquiring
our Bulgaria operations, we have continued to focus on establishing the
necessary infrastructure and resources for the development of the operations,
drawing on support from Romania and other markets while we build the new local
management team. We continue to enhance our management team and have delivered
our first in-house production, ‘Wife Swap’, which aired during the second
quarter.  Other in-house and co-productions are in development to be
aired later this year, including the second season of ‘Wife Swap’ and new access
and prime time shows.  We have consolidated our operations to one
location, which has three fully operational studios.





Page
93
 Index





Our major
competitors are the privately owned broadcasters bTV and NOVA TV and the public
broadcaster BNT. In the nine months ended September 30, 2009, bTV had an all day
audience share of 32.6%, NOVA TV had an all day audience share of 23.9% and BNT
had an all day audience share of 9.0%.  In terms of its audience
share, PRO.BG currently is comparable to the larger cable or satellite channels
in the Bulgarian market, including DIEMA + and DIEMA 2, with all day audience
shares for the nine months ended September 30, 2009 of 2.8% and 1.1%,
respectively and FOX LIFE with 2.6%.





Prime
time audience share for the nine months ended September 30, 2009 was 37.9% for
bTV, 25.9% for NOVA TV and 10.4% for BNT, respectively.  Prime time
audience shares for the nine months ended September 30, 2009 for DIEMA +, DIEMA
2 and FOX LIFE were 2.4%, 0.6% and 1.3%, respectively.








Monetization
of audience share





Three
months ended September 30, 2009 compared to the three months ended September 30,
2008





BULGARIA
      FINANCIAL INFORMATIONFor
      the Three Months Ended September 30, (US$ 000's)Movement2009
            
            
            2008(1)
            
            
            %
      Act(2)
            
            
            %
      Lfl(3)Spot
      revenues
            
            $
            491
            
            
            $
            158
            
            
            
            210.8
            %
            
            
            216.8
            %Non-spot
      revenues
            
            
            429
            
            
            
            304
            
            
            
            41.1
            %
            
            
            42.4
            %Net
      Revenues
            
            $
            920
            
            
            $
            462
            
            
            
            99.1
            %
            
            
            101.8
            %Represented
      byBroadcast
      operations
            
            $
            920
            
            
            $
            460
            
            
            
            100
            %
            
            
            102.5
            %Non-broadcast
      operations
            
            
            -
            
            
            
            2
            
            
            
            (100
            )%
            
            
            (100
            )%Net
      Revenues
            
            $
            920
            
            
            $
            462
            
            
            
            99.1
            %
            
            
            101.8
            %





Page
94
 Index





Nine
months ended September 30, 2009 compared to the nine months ended September 30,
2008


BULGARIA
      FINANCIAL INFORMATIONFor
      the Nine Months Ended September 30, (US$ 000's)Movement2009
            
            
            2008(1)
            
            %
      Act(2)
            %
      Lfl(3)Spot
      revenues
            
            $
            1,157
            
            
            $
            158
            
            Nm(4)
            Nm(4)Non-spot
      revenues
            
            
            1,240
            
            
            
            304
            
            Nm(4)
            Nm(4)Net
      Revenues
            
            $
            2,397
            
            
            $
            462
            
            Nm(4)
            Nm(4)Represented
      byBroadcast
      operations
            
            $
            2,397
            
            
            $
            460
            
            Nm(4)
            Nm(4)Non-broadcast
      operations
            
            
            -
            
            
            
            2
            
            (100)%
            (100)%Net
      Revenues
            
            $
            2,397
            
            
            $
            462
            
            Nm(4)
            Nm(4)





(1) We
acquired our Bulgaria operations on August 1, 2008.


(2)
Actual (“%Act”) reflects the percentage change between two periods.


(3) Like
for Like (“%Lfl”) or constant currency reflects the impact of applying the
current period average exchange rates to the prior period revenues and
costs.


(4)
Number is not meaningful.





Spot
revenues for the three months ended September 30, 2009 continue to increase from
the previous quarters in 2009 and were more than double those of the three
months ended March 31, 2009.  However, they remain low in absolute
terms.





Net
Revenues for the nine months ended September 30, 2009 were US$ 2.4 million
compared to US$ 0.5 million for the nine months ended September 30,
2008.  Spot revenues were US$ 1.2 million and non-spot revenues were
US$ 1.2 million, primarily from cable revenues.


EBITDA
Performance




BULGARIA
      FINANCIAL INFORMATIONFor
      the Three Months Ended September 30, (US$ 000's)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)EBITDA
            
            $
            (12,346
            )
            
            $
            (3,101
            )
            
            
            (298.1
            )%
            
            Nm(3)Represented
      byBroadcast
      operations
            
            $
            (12,198
            )
            
            $
            (3,031
            )
            
            Nm(3)
            
            
            Nm(3)Non-broadcast
      operations
            
            
            (148
            )
            
            
            (70
            )
            
            
            (111.4
            )%
            
            
            (114.1
            )%EBITDA
            
            $
            (12,346
            )
            
            $
            (3,101
            )
            
            
            (298.1
            )%
            
            Nm(3)EBITDA
      Margin
            
            Nm(3)
            
            
            Nm(3)
            
            
            Nm(3)
            
            
            Nm(3)





Page
95
 Index





Nine
months ended September 30, 2009 compared to the nine months ended September 30,
2008





BULGARIA
      FINANCIAL INFORMATIONFor
      the Nine Months Ended September 30, (US$ 000's)Movement2009
            
            
            2008
            
            %
      Act(1)
            %
      Lfl(2)EBITDA
            
            $
            (29,702
            )
            
            $
            (3,101
            )
            Nm(3)
            Nm(3)Represented
      byBroadcast
      operations
            
            $
            (29,368
            )
            
            $
            (3,031
            )
            Nm(3)
            Nm(3)Non-broadcast
      operations
            
            
            (334
            )
            
            
            (70
            )
            Nm(3)
            Nm(3)EBITDA
            
            $
            (29,702
            )
            
            $
            (3,101
            )
            Nm(3)
            Nm(3)EBITDA
      Margin
            
            Nm(3)
            
            
            Nm(3)
            
            Nm(3)
            Nm(3)





(1)
Actual (“%Act”) reflects the percentage change between two periods.


(2) Like
for Like (“%Lfl”) or constant currency reflects the impact of applying the
current period average exchange rates to the prior period revenues and
costs.


(3)
Number is not meaningful.





EBITDA
losses were US$ 12.3 million and US$ 29.7 million for the three and nine months
ended September 30, 2009, respectively. The three months to September 30, 2009
are the first reported period following the relaunch of our channels and
accordingly operating costs for the quarter are significantly higher than in
previous quarters, reflecting increased programming activity and
marketing.  We incurred programming costs of US$ 22.8 million in the
nine months ended September 30, 2009, of which US$ 7.8 million relates to
accelerated amortization of acquired programming that is scheduled to be
broadcast where the net realizable value of the programming is less than its
carrying value because the channel is not expected to generate sufficient
revenue to recover the cost of the programming. We incurred other operating
costs of US$ 4.5 million and selling, general and administrative costs of US$
4.8 million for the nine months ended September 30, 2009.


(B)
CROATIA





Macro
economic environment and local advertising markets





We
estimate that the television advertising market in Croatia experienced no growth
in 2008 because of a reduction in demand from international advertisers in the
fourth quarter of that year.  We estimate that the television
advertising market declined by 17% in the nine months to September 30, 2009
compared to the same period in 2008.  Economic projections for Croatia
in 2009 are poor and there is no consensus as to when a recovery will take
place. Due to the resulting uncertainty among advertisers we cannot predict
future market development accurately.  However, we currently expect
the television advertising market to decline by between 12% and 18% in 2009. If
market conditions continue to worsen a further decline in the television
advertising market can be expected.





The
exchange rate between the dollar and the Croatian kuna, the functional currency
of our Croatia operations, varies considerably from period to period. The
average exchange rates of the dollar to the Croatian kuna in the three and nine
months ended September 30, 2009 appreciated by 7% and 15%, respectively,
compared to the same periods in 2008.





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96
 Index





Audience
Share and Ratings





For
advertising sales purposes, the NOVA TV (Croatia) target audience is the 18-49
demographic and all audience data is shown on this basis.





For
      the Nine Months Ended September 30,2009
            
            
            2008
            
            
            MovementAll
      day audience share
            
            
            22.2
            %
            
            
            22.7
            %
            
            
            (0.5
            )%All
      day ratings
            
            
            3.5
            %
            
            
            3.3
            %
            
            
            0.2
            %Prime
      time audience share
            
            
            26.3
            %
            
            
            25.9
            %
            
            
            0.4
            %Prime
      time ratings
            
            
            9.1
            %
            
            
            8.7
            %
            
            
            0.4
            %





NOVA TV
(Croatia) achieved average prime time audience shares of 25.2% and 27.5% in
August and September 2009 respectively, to become the market leader in Croatia.
The prime time audience share of NOVA TV (Croatia) for the nine months ended
September 30, 2009 increased compared to the same period of 2008 despite the
implementation of a low cost programming schedule and the impact of the Croatian
national team reaching the final of the World Handball Championships in 2009,
which was broadcast by a competitor channel.





The
second season of the reality show ‘The Farm’ was launched in March 2009,
achieving an average audience share of 35%. More recently, in September
2009,  we launched our entertainment show ‘Supertalent’ (‘Got Talent’)
and our locally produced drama series ‘Najbolje Godine’ (‘The Best Years’),
achieving average audience shares of 37% and 33%, respectively.  Our
main evening news program continues to perform well and increased its audience
share in the third quarter to approximately  33.8% from 30.5% in the
same period in 2008, providing an anchor for the rest of our prime time
schedule.





The
number of daily unique users to our internet sites continues to increase, up by
20% in the third quarter compared to the same period in 2008.





Our major
competitors are the privately owned broadcaster RTL, with an all day audience
share for the nine months ended September 30, 2009 of 26.4%, and two channels of
the public broadcaster, HTV1 and HTV2, with all day audience shares of 23.8% and
13.3%, respectively.





In the
nine months ended September 30, 2009 NOVA TV (Croatia) remained the second
highest ranked channel with an increase in its prime time audience share from
25.9% in the nine months ended September 30, 2008 to 26.3% in the nine months
ended September 30, 2009. The prime time audience share for RTL increased from
26.4% to 27.6% over the same period, in part due to its broadcasting of the
World Handball Championship. The prime time audience shares of HTV1 decreased
from 21.8% to 21.3% and HTV2 decreased from 17.5% to 14.6%.





Prime
time ratings for the Croatia market increased from 33.5% for the nine months
ended September 30, 2008 to 34.8% for the comparable nine month period in
2009.


Page
97
 Index





Monetization
of audience share





Three
months ended September 30, 2009 compared to the three months ended September 30,
2008





CROATIA
      FINANCIAL INFORMATIONFor
      the Three Months Ended September 30, (US$ 000's)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)Spot
      revenues
            
            $
            5,678
            
            
            $
            7,084
            
            
            
            (19.8
            )%
            
            
            (13.9
            )%Non-spot
      revenues
            
            
            1,193
            
            
            
            1,441
            
            
            
            (17.2
            )%
            
            
            (11.4
            )%Net
      Revenues
            
            $
            6,871
            
            
            $
            8,525
            
            
            
            (19.4
            )%
            
            
            (13.5
            )%Represented
      byBroadcast
      operations
            
            $
            6,772
            
            
            $
            8,430
            
            
            
            (19.7
            %)
            
            
            (13.8
            )%Non-broadcast
      operations
            
            
            99
            
            
            
            95
            
            
            
            4.2
            %
            
            
            13.6
            %Net
      Revenues
            
            $
            6,871
            
            
            $
            8,525
            
            
            
            (19.4
            )%
            
            
            (13.5
            )%








Nine
months ended September 30, 2009 compared to the nine months ended September 30,
2008





CROATIA
      FINANCIAL INFORMATIONFor
      the Nine Months Ended September 30, (US$ 000's)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)Spot
      revenues
            
            $
            25,970
            
            
            $
            31,797
            
            
            
            (18.3
            )%
            
            
            (6.1
            )%Non-spot
      revenues
            
            
            5,230
            
            
            
            6,356
            
            
            
            (17.7
            )%
            
            
            (5.6
            )%Net
      Revenues
            
            $
            31,200
            
            
            $
            38,153
            
            
            
            (18.2
            )%
            
            
            (6.0
            )%Represented
      byBroadcast
      operations
            
            $
            30,824
            
            
            $
            37,744
            
            
            
            (18.3
            )%
            
            
            (6.1
            )%Non-broadcast
      operations
            
            
            376
            
            
            
            409
            
            
            
            (8.1
            )%
            
            
            5.9
            %Net
      Revenues
            
            $
            31,200
            
            
            $
            38,153
            
            
            
            (18.2
            )%
            
            
            (6.0
            )%





(1)
Actual (“%Act”) reflects the percentage change between two periods.


(2) Like
for Like (“%Lfl”) or constant currency reflects the impact of applying the
current period average exchange rates to the prior period revenues and
costs.





Spot
revenues for the three and nine months ended September 30, 2009 decreased
compared to the three and nine months ended September 30, 2008, in part as a
result of the strengthening of the dollar against the Croatian Kuna, the
currency in which our sales are denominated.





In
constant currency, we experienced a decrease in spot revenues primarily due to
lower pricing in response to weaker demand from advertisers, which more than
offset an increase in the volume of GRPs sold.





Non-spot
revenues decreased in constant currency in the three and nine months ended
September 30, 2009 compared to the same period in 2008, primarily as a result of
lower game show and text messaging revenues following changes to our schedule.
Although we experienced signs of increased demand for advertising in the retail,
pharmaceuticals and food sectors, the beverages and financial sectors remain in
decline.





Page
98
 Index





EBITDA
Performance





Three
months ended September 30, 2009 compared to the three months ended September 30,
2008





CROATIA
      FINANCIAL INFORMATIONFor
      the Three Months Ended September 30, (US$ 000's)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)EBITDA
            
            $
            (3,622
            )
            
            $
            (5,401
            )
            
            
            32.9
            %
            
            
            28.2
            %Represented
      byBroadcast
      operations
            
            $
            (3,166
            )
            
            $
            (4,547
            )
            
            
            30.4
            %
            
            
            25.1
            %Non-broadcast
      operations
            
            
            (456
            )
            
            
            (854
            )
            
            
            46.6
            %
            
            
            44.4
            %EBITDA
            
            $
            (3,622
            )
            
            $
            (5,401
            )
            
            
            32.9
            %
            
            
            28.2
            %EBITDA
      Margin
            
            
            (53
            )%
            
            
            (63
            )%
            
            
            10
            %
            
            
            10
            %






Nine
months ended September 30, 2009 compared to the nine months ended September 30,
2008





CROATIA
      FINANCIAL INFORMATIONFor
      the Nine Months Ended September 30, (US$ 000's)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)EBITDA
            
            $
            (1,362
            )
            
            $
            (6,448
            )
            
            
            78.9
            %
            
            
            77.3
            %Represented
      byBroadcast
      operations
            
            $
            (387
            )
            
            $
            (4,977
            )
            
            
            92.2
            %
            
            
            91.7
            %Non-broadcast
      operations
            
            
            (975
            )
            
            
            (1,471
            )
            
            
            33.7
            %
            
            
            27.4
            %EBITDA
            
            $
            (1,362
            )
            
            $
            (6,448
            )
            
            
            78.9
            %
            
            
            77.3
            %EBITDA
      Margin
            
            
            (4
            )%
            
            
            (17
            )%
            
            
            13
            %
            
            
            13
            %





(1)
Actual (“%Act”) reflects the percentage change between two periods.


(2) Like
for Like (“%Lfl”) or constant currency reflects the impact of applying the
current period average exchange rates to the prior period revenues and
costs.








Despite
the decreases in revenues described above, our Croatia operations produced lower
EBITDA losses during the three and nine months ended September 30,
2009.





Our
Croatia operations’ EBITDA performance is primarily a result of a decline in
revenues which outweighed overall cost decreases resulting from:





·
            decreases
      in the cost of programming of 23% and 22% for the three and nine months
      ended September 30, 2009, respectively, compared to the same periods in
      2008, following a cost optimization program reflecting savings in both
      foreign and local program syndication,  partially offset by
      costs relating to the production of ‘In Magazin’, a locally produced daily
      magazine show;


·
            increases
      in other operating costs of 12% and 2% for the three and nine months ended
      September 30, 2009, respectively, compared to the same periods in 2008 due
      to higher staff-related costs due to higher headcount;
  and


·
            decreases
      in selling, general and administrative expenses of 43% and 22% for the
      three and nine months ended September 30, 2009, respectively, compared to
      the same periods in 2008, primarily due to lower marketing
      expenses.





Page
99
 Index





(C)
CZECH REPUBLIC





Macro
economic environment and local advertising markets





We
estimate that the television advertising market in the Czech Republic grew by
approximately 10% to 12% in 2008, although it declined noticeably in December of
that year.  We estimate that the television advertising market
declined by 23% in the nine months ended September 30, 2009 compared to the same
period in 2008.  Economic projections for the Czech Republic for 2009
show substantial decline in GDP and there is no consensus as to when a recovery
will take place.  Due to the resulting uncertainty among advertisers
we cannot predict future market development accurately.  However, we
currently expect the television advertising market to decline by between 20% and
25% in 2009. If market conditions continue to worsen, a further decline in the
television advertising market can be expected.





The
exchange rate between the dollar and the Czech koruna, the functional currency
of our Czech Republic operations, varies considerably from period to period. The
average exchange rates of the dollar to the Czech koruna in the three and nine
months ended September 30, 2009 appreciated by 9% and 20%, respectively,
compared to the same periods in 2008.


Audience
share and ratings





For
advertising sales purposes, the TV NOVA (Czech Republic) and NOVA CINEMA target
audience is the 15-54 demographic and all audience data is shown on this
basis.





For
      the Nine Months Ended September 30,2009(1)
            
            
            2008
            
            
            MovementAll
      day audience share
            
            
            43.0
            %
            
            
            41.4
            %
            
            
            1.6
            %All
      day ratings
            
            
            4.6
            %
            
            
            4.5
            %
            
            
            0.1
            %Prime
      time audience share
            
            
            47.7
            %
            
            
            45.7
            %
            
            
            2.0
            %Prime
      time ratings
            
            
            13.5
            %
            
            
            13.2
            %
            
            
            0.3
            %





(1) NOVA
CINEMA began broadcasting in DVB-T from December 15, 2008.





Our Czech
Republic operations maintained their clear leadership position in the market
with an average prime time share in their target group of 47.7% for the nine
months ended September 30, 2009.  This was achieved despite the
introduction of a more cost efficient spring and fall schedule. In addition to
our already successful series ‘Ulice’ and ‘Ordinace’, this schedule included a
rerun of the popular Czech sitcom ’Comeback’ and a new season of the reality
show ‘Czech-Slovak Superstar’, which achieved an audience share of around 50% in
its initial airing.  TV NOVA (Czech Republic)’s news program performed
extraordinarily well with an average prime time audience share of 66% for the
nine months ended September 30, 2009.





NOVA
CINEMA increased its coverage in its 4+ individuals target audience to 67% from
46% since it began broadcasting in Digital Video Broadcasting-Terrestrial
(“DVB-T”) on December 15, 2008 and we began to monetize its ratings in the nine
months ended September 30, 2009.





The
number of average unique daily users to our internet sites grew from an average
of approximately 258 thousand in the nine months ended September 30, 2008 to 518
thousand in the nine months ended September 30, 2009, primarily due to the
launch of news portal tn.cz, the acquisition of Jyxo s.r.o. and Blog, a leading
Czech blog site in May 2008, and the successful launch of video-on-demand
capability in the fall of 2008. The number of average unique daily users to our
internet sites decreased 5% during the three months ended September 30, 2009
compared to the same period in 2008 although there has been a recovery in unique
daily users towards the end of the third quarter in 2009 following the broadcast
of the reality show ‘Czech-Slovak Superstar’.





Page
100
 Index





Our main
competitors are the two channels operated by the public broadcaster, CT1 and
CT2, with all day audience shares for the nine months ended September 30, 2009
of 15.9% and 5.5%, respectively, and privately owned broadcaster TV Prima, with
an all day audience share of 16.7%.





Prime
time audience share for CT1 decreased from 18.2% in the nine months ended
September 30, 2008 to 17.2% in the nine months ended September 30, 2009, while
the shares of CT2 and TV Prima decreased from 6.1% to 4.9% and from 17.3% to
16.4%, respectively.





Prime
time ratings for our Czech Republic operations were 13.5% in the nine months
ended September 30, 2009 compared to 13.2% in the nine months ended September
30, 2008, which included NOVA CINEMA, while total prime time ratings in the
Czech Republic declined from 28.9% in 2008 to 28.3% in 2009 for the same
period.





Monetization
of audience share





Three
months ended September 30, 2009 compared to the three months ended September 30,
2008





CZECH
      REPUBLIC FINANCIAL INFORMATIONFor
      the Three Months Ended September 30, (US$ 000's)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)Spot
      revenues
            
            $
            47,352
            
            
            $
            66,607
            
            
            
            (28.9
            )%
            
            
            (22.6
            )%Non-spot
      revenues
            
            
            6,426
            
            
            
            5,995
            
            
            
            7.2
            %
            
            
            17.1
            %Net
      Revenues
            
            $
            53,778
            
            
            $
            72,602
            
            
            
            (25.9
            )%
            
            
            (19.4
            )%Represented
      byBroadcast
      operations
            
            $
            52,735
            
            
            $
            71,813
            
            
            
            (26.6
            )%
            
            
            (20.1
            )%Non-broadcast
      operations
            
            
            1,043
            
            
            
            789
            
            
            
            32.2
            %
            
            
            46.3
            %Net
      Revenues
            
            $
            53,778
            
            
            $
            72,602
            
            
            
            (25.9
            )%
            
            
            (19.4
            )%





Page
101
 Index





Nine
months ended September 30, 2009 compared to the nine months ended September 30,
2008





For
      the Nine Months Ended September 30, (US$ 000's)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)Spot
      revenues
            
            $
            161,353
            
            
            $
            248,280
            
            
            
            (35.0
            )%
            
            
            (22.3
            )%Non-spot
      revenues
            
            
            20,103
            
            
            
            22,450
            
            
            
            (10.5
            )%
            
            
            6.9
            %Net
      Revenues
            
            $
            181,456
            
            
            
            270,730
            
            
            
            (33.0
            )%
            
            
            (19.9
            )%Represented
      byBroadcast
      operations
            
            $
            178.949
            
            
            
            269,236
            
            
            
            (33.5
            )%
            
            
            (20.5
            )%Non-broadcast
      operations
            
            
            2,507
            
            
            
            1,494
            
            
            
            67.8
            %
            
            
            94.3
            %Net
      Revenues
            
            $
            181,456
            
            
            $
            270,730
            
            
            
            (33.0
            )%
            
            
            (19.9
            )%





(1)
Actual (“%Act”) reflects the percentage change between two periods.


(2) Like
for Like (“%Lfl”) or constant currency reflects the impact of applying the
current period average exchange rates to the prior period revenues and
costs.





Spot
revenues for the three and nine months ended September 30, 2009 decreased
compared to the three and nine months ended September 30, 2008 in part as a
result of the strengthening of the dollar against the Czech Koruna, the currency
in which our sales are denominated, and in part as a result of decline in the
advertising market.





Despite
increasing our share of the television advertising market, we experienced a
decrease in spot revenues in constant currency, primarily due to lower pricing
and lower volume of GRPs sold as a result of the weaker market. The decrease in
the number of GRPs sold in off prime time was only partially offset by an
increase in the number of GRPs sold in prime time.





Prior to
January 2009, NOVA CINEMA generated subscription revenue within non-spot
revenues. In January 2009, NOVA CINEMA began broadcasting in DVB-T and now
generates revenue from the sale of advertising.





Non-spot
revenues increased in constant currency in the three and nine months ended
September 30, 2009 compared to the same period in 2008 primarily due to higher
sponsorship revenues following the creation of a dedicated sponsorship sales
team in 2009, increased revenues generated from teleshopping and increased
barter revenues, particularly in the three months ended September 30, 2009. This
increase was partially offset by the absence of subscription revenues generated
from NOVA CINEMA.





Page
102
 Index





EBITDA
Performance





Three
months ended September 30, 2009 compared to the three months ended September 30,
2008





CZECH
      REPUBLIC FINANCIAL INFORMATIONFor
      the Three Months Ended September 30, (US$ 000's)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)EBITDA
            
            $
            17,767
            
            
            $
            31,405
            
            
            
            (43.4
            )%
            
            
            (39.2
            )%Represented
      byBroadcast
      operations
            
            $
            19,223
            
            
            $
            33,044
            
            
            
            (41.8
            )%
            
            
            (37.4
            )%Non-broadcast
      operations
            
            
            (1,456
            )
            
            
            (1,639
            )
            
            
            11.2
            %
            
            
            4.0
            %EBITDA
            
            $
            17,767
            
            
            $
            31,405
            
            
            
            (43.4
            )%
            
            
            (39.2
            )%EBITDA
      Margin
            
            
            33
            %
            
            
            43
            %
            
            
            (10
            )%
            
            
            (10
            )%







Nine
months ended September 30, 2009 compared to the nine months ended September 30,
2008





For
      the Nine Months Ended September 30, (US$ 000's)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)EBITDA
            
            $
            81,201
            
            
            $
            146,454
            
            
            
            (44.6
            )%
            
            
            (33.4
            )%Represented
      byBroadcast
      operations
            
            $
            84,037
            
            
            $
            149,338
            
            
            
            (43.7
            )%
            
            
            (32.5
            )%Non-broadcast
      operations
            
            
            (2,836
            )
            
            
            (2,884
            )
            
            
            1.7
            %
            
            
            12.2
            %EBITDA
            
            $
            81,201
            
            
            $
            146,454
            
            
            
            (44.6
            )%
            
            
            (33.4
            )%EBITDA
      Margin
            
            
            45
            %
            
            
            54
            %
            
            
            (9
            )%
            
            
            (9
            )%





(1)
Actual (“%Act”) reflects the percentage change between two periods.


(2) Like
for Like (“%Lfl”) or constant currency reflects the impact of applying the
current period average exchange rates to the prior period revenues and
costs.





Our Czech
Republic operations’ EBITDA performance is primarily a result of a decline in
revenues which outweighed a net cost saving resulting from:





·
            decreases
      in the cost of programming of 15% and 12% for the three and nine months
      ended September 30, 2009, respectively, compared to the same periods in
      2008, following a cost optimization program resulting in savings in both
      foreign and local program syndication. Notwithstanding the decrease in the
      cost of programming, production costs increased during the third quarter
      in 2009 primarily due to an increase in reality and entertainment shows
      included in the fall schedule. Production costs remained flat for the nine
      months ended September 30, 2009 compared to the same period in
      2008;


·
            increases
      in other operating costs of 27% and 17% for the three and nine months
      ended September 30, 2009, respectively, compared to the same periods in
      2008, primarily due to higher fees paid for digital transmission as a
      result of broadcasting two of our channels in DVB-T rather than one in the
      same period in 2008, partially offset by lower staff-related costs;
      and


·
            decreases
      in selling, general and administrative expenses of 12% and 5% for the
      three and nine months ended September 2009 compared with the same periods
      in 2008 primarily due to the lower marketing and travel expenses,
      partially offset by an increase in provision for doubtful debt in the
      three months ended September 30,
2009.





Page
103
 Index





The cost
savings described above were unable to offset the effect of the decrease in
revenues and as a result our Czech Republic operations experienced a decline in
the EBITDA margin for the three and nine months ended September 30, 2009,
compared to the same periods in 2008.





(D)
ROMANIA





Macro
economic environment and local advertising markets





We
estimate that the television advertising market grew by approximately 27% to 29%
in 2008. However, there was a marked slowdown towards the end of 2008 and we
estimate that the market declined by 29% in the nine months to September 30,
2009 compared to the same period in 2008. Due to the resulting uncertainty among
advertisers we cannot predict future market development accurately. However, we
currently expect the television advertising market will decline by between 25%
and 30% in 2009. If market conditions continue to worsen, a further decline in
the television advertising market can be expected.





The
exchange rate between the dollar and the New Romanian lei, the functional
currency of our Romania operations, varies considerably from period to period.
The average exchange rates of the dollar to the New Romanian lei in the three
and nine months ended September 30, 2009 appreciated by 24% and 30%,
respectively compared to the same periods in 2008.




Audience
Share and Ratings





For
advertising sales purposes, our Romanian channels have different target audience
demographics: PRO TV - 18-49 urban; ACASA - 15-49 female urban; PRO CINEMA -
18-49 urban; SPORT.RO - 18-49 male urban; and MTV ROMANIA - 15-34 urban. All
audience data shown below is combined for all five channels and based on the
target demographic of PRO TV.





For
      the Nine Months Ended September 30, 20092009
            
            
            2008
            
            
            MovementAll
      day audience share
            
            
            27.6
            %
            
            
            28.7
            %
            
            
            (1.1
            )%All
      day ratings
            
            
            4.4
            %
            
            
            4.5
            %
            
            
            (0.1
            )%Prime
      time audience share
            
            
            33.0
            %
            
            
            32.0
            %
            
            
            1.0
            %Prime
      time ratings
            
            
            10.6
            %
            
            
            10.4
            %
            
            
            0.2
            %





Our
Romania operations maintained an increase in prime time audience
share.  Local programming continued to perform strongly in 2009, with
‘Regina’, the spin-off from the successful ‘Gypsy Heart’ series, delivering an
audience share of 26.6%. The broadcast of ‘Regina’ ended in June 2009 and
‘Aniela’, the spin-off from ‘Regina’, commenced on ACASA in September 2009,
delivering an audience share of 13.3%. ‘State de Romania’, a sitcom broadcast on
PRO TV, delivered an audience share of 17.9% in September 2009.





Our
internet operations continued to develop strongly, reaching approximately 406
thousand average daily unique users by the end of September 2009, a year-on-year
growth of 71%.  ‘Stirileprotv.ro’ a new website launched in September
2008 contributed to the year-on-year increase in unique daily
users.





Page
104
 Index





Our main
competitors are the privately owned broadcasters Antena 1, which had an all day
audience share for the nine months ended September 30, 2009 of 11.4%, Prima TV
and Kanal D, which had all day audience shares of 5.5% and 4.7%,
respectively.





Prime
time audience share for Antena 1 increased from 11.2% in the nine months ended
September 30, 2008 to 12.3% in the nine months ended September 30, 2009, while
the prime time audience shares of Prima TV increased from 5.9% to 7.2% and Kanal
D decreased from 5.0% to 4.8%.





Prime
time ratings for PRO TV were 6.3% in the nine months ended September 30, 2008
compared to 6.4% in the nine months ended September 30, 2009 while total prime
time ratings for the Romania market decreased from 32.3% in the nine months
ended September 30, 2008 to 32.1% in the nine months ended September 30,
2009.





Monetization
of audience share





Three
months ended September 30, 2009 compared to the three months ended September 30,
2008





ROMANIA
      FINANCIAL INFORMATIONFor
      the Three Months Ended September 30, (US$ 000's)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)Spot
      revenues
            
            $
            30,212
            
            
            $
            54,720
            
            
            
            (44.8
            )%
            
            
            (31.7
            )%Non-spot
      revenues
            
            
            5,876
            
            
            
            4,561
            
            
            
            28.8
            %
            
            
            62.3
            %Net
      Revenues
            
            $
            36,088
            
            
            $
            59,281
            
            
            
            (39.1
            )%
            
            
            (24.6
            )%Represented
      byBroadcast
      operations
            
            $
            35,894
            
            
            $
            59,044
            
            
            
            (39.2
            )%
            
            
            (24.7
            )%Non-broadcast
      operations
            
            
            194
            
            
            
            237
            
            
            
            (18.1
            )%
            
            
            1.6
            %Net
      Revenues
            
            $
            36,088
            
            
            $
            59,281
            
            
            
            (39.1
            )%
            
            
            (24.6
            )%






Nine
months ended September 30, 2009 compared to the nine months ended September 30,
2008





ROMANIA
      FINANCIAL INFORMATIONFor
      the Nine Months Ended September 30, (US$ 000's)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)Spot
      revenues
            
            $
            103,738
            
            
            $
            181,615
            
            
            
            (42.9
            )%
            
            
            (26.2
            )%Non-spot
      revenues
            
            
            16,884
            
            
            
            15,504
            
            
            
            8.9
            %
            
            
            41.5
            %Net
      Revenues
            
            $
            120,622
            
            
            $
            197,119
            
            
            
            (38.8
            )%
            
            
            (20.9
            )%Represented
      byBroadcast
      operations
            
            $
            120,033
            
            
            $
            196,072
            
            
            
            (38.8
            )%
            
            
            (20.9
            )%Non-broadcast
      operations
            
            
            589
            
            
            
            1,047
            
            
            
            (43.7
            )%
            
            
            (27.0
            )%Net
      Revenues
            
            $
            120,622
            
            
            $
            197,119
            
            
            
            (38.8
            )%
            
            
            (20.9
            )%





(1)
Actual (“%Act”) reflects the percentage change between two periods.


(2) Like
for Like (“%Lfl”) or constant currency reflects the impact of applying the
current period average exchange rates to the prior period revenues and
costs.





Page
105
 Index





Spot
revenues for the three and nine months ended September 30, 2009 decreased
compared to the three and nine months ended September 30, 2008 both as a result
of the strengthening of the dollar against the New Romanian Lei, the currency in
which our sales are denominated, and a decline in the advertising
market.





In
constant currency, we experienced a decrease in spot revenues primarily due to a
decrease in the volume of GRPs sold, particularly in the first quarter of 2009,
and lower pricing, particularly in the second and third quarters.




EBITDA
Performance





Three
months ended September 30, 2009 compared to the three months ended September 30,
2008





ROMANIA
      FINANCIAL INFORMATIONFor
      the Three Months Ended September 30, (US$ 000's)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)EBITDA
            
            $
            6,638
            
            
            $
            20,116
            
            
            
            (67.0
            )%
            
            
            (59.4
            )%Represented
      byBroadcast
      operations
            
            $
            7,560
            
            
            $
            20,413
            
            
            
            (63.0
            )%
            
            
            (54.5
            )%Non-broadcast
      operations
            
            
            (922
            )
            
            
            (297
            )
            
            
            (210.4
            )%
            
            
            (284.2
            )%EBITDA
            
            $
            6,638
            
            
            $
            20,116
            
            
            
            (67.0
            )%
            
            
            (59.4
            )%EBITDA
      Margin
            
            
            18
            %
            
            
            34
            %
            
            
            (16
            )%
            
            
            (16
            )%








Nine
months ended September 30, 2009 compared to the nine months ended September 30,
2008





ROMANIA
      FINANCIAL INFORMATIONFor
      the Nine Months Ended September 30, (US$ 000's)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)EBITDA
            
            $
            29,196
            
            
            $
            81,785
            
            
            
            (64.3
            )%
            
            
            (53.8
            )%Represented
      byBroadcast
      operations
            
            $
            30,824
            
            
            $
            82,162
            
            
            
            (62.5
            )%
            
            
            (51.5
            )%Non-broadcast
      operations
            
            
            (1,628
            )
            
            
            (377
            )
            
            Nm(3)
            
            
            Nm(3)EBITDA
            
            $
            29,196
            
            
            $
            81,785
            
            
            
            (64.3
            )%
            
            
            (53.8
            )%EBITDA
      Margin
            
            
            24
            %
            
            
            41
            %
            
            
            (17
            )%
            
            
            (17
            )%





(1)
Actual (“%Act”) reflects the percentage change between two periods.


(2) Like
for Like (“%Lfl”) or constant currency reflects the impact of applying the
current period average exchange rates to the prior period revenues and
costs.


(3)
Number is not meaningful.





Page
106
 Index





Our
Romania operations’ EBITDA performance is primarily a result of a decline in
revenue and an increase in costs resulting from:





·
            increases
      in the cost of programming of 3% for the nine months ended September 30,
      2009, compared to the same period in 2008, reflecting the higher cost of
      foreign acquired programming and an increase in acquired sport events. The
      acquisition of Radio Pro on April 17, 2008 also contributed to the
      increase. Cost of programming decreased by 8% in the three months ended
      September 30, 2009, compared to the same period in 2008 following a cost
      optimization program in the 2009 fall
schedule;


·
            decreases
      in other operating costs of 11% and 6% for the three and nine months ended
      September 30, 2009, respectively, compared to the same periods in 2008,
      primarily due to lower staff-related costs;
and


·
            increases
      in selling, general and administrative expenses of 10% and 12% for the
      three and nine months ended September 2009, respectively, compared with
      the same period in 2008, primarily due to increases in costs associated
      with new premises occupied in October 2008 and an increase in the
      provision for doubtful debts.





Total
costs charged in arriving at EBITDA decreased 7% and increased 2% for the three
and nine months ended September 30, 2009, respectively, compared to the same
periods in 2008. The decline in revenues outweighed the cost optimization
initiatives and as a result, our Romania operations experienced a significant
decline in their EBITDA margin for the three and nine months ended September 30,
2009 compared to the same periods in 2008.




(E)
SLOVAK REPUBLIC





Macro
economic environment and local advertising markets





We
estimate that the television advertising market in the Slovak Republic grew by
approximately 6% to 8% in local currency in 2008. We estimate that the
television advertising market declined by 23% in the nine months ended September
30, 2009 compared to the same period in 2008 due to general economic conditions,
augmented by the impact on the Slovak Republic of the dispute between Russia and
Ukraine over gas supplies in the first quarter.  Economic projections
for the Slovak Republic in 2009 are poor and there is no consensus as to when a
recovery will take place.  Due to the resulting uncertainty among
advertisers we cannot predict future market development accurately. However, we
expect the television advertising market to decline by between 25% and 30% in
2009. If market conditions continue to worsen, a further decline in the
television advertising market can be expected.





With
effect from January 1, 2009 the amount of total broadcast time devoted to
advertising on public-owned stations was reduced to 2.5% from 3% and in
connection with this we are required to pay 2.0% of the revenues of our Slovak
Republic operations to a new Audiovisual Fund. This has increased our cost base
by approximately US$ 1.3 million compared to 2008.





The
Slovak Republic adopted the Euro on January 1, 2009, and as a result the
functional currency of our Slovak Republic operations changed from the Slovak
Koruna (“SKK”) on that date.





The
exchange rate between the dollar and the Euro varies considerably from period to
period. The average exchange rates of the dollar to the Euro in the three and
nine months ended September 30, 2009 appreciated by 5% and 12%, respectively
compared to the same periods in 2008. We calculated the comparative 2008
like-for-like data by translating the actual SKK revenues and costs of our
Slovak Republic operations into Euros using the average exchange rates
applicable during 2008. We then converted these implied Euro values into dollars
using the current period average exchange rates in order to arrive at a
like-for-like comparative.





Audience
Share and Ratings





On August
31, 2009, we launched DOMA, a new channel in the Slovak Republic targeted at a
younger female audience.  In September, DOMA achieved an average all
day audience share of 2.8% in its target group of Female 12-54. For advertising
sales purposes, TV MARKIZA’s target audience is the 12+ demographic and the
audience data for TV MARKIZA and DOMA is shown below is based on TV MARKIZA’s
target audience.





Page
107
 Index




For
      the Nine Months Ended September 30,2009
            
            
            2008
            
            
            MovementAll
      day audience share
            
            
            31.2
            %
            
            
            35.3
            %
            
            
            (4.1
            )%All
      day ratings
            
            
            4.0
            %
            
            
            4.4
            %
            
            
            (0.4
            )%Prime
      time audience share
            
            
            32.6
            %
            
            
            36.6
            %
            
            
            (4.0
            )%Prime
      time ratings
            
            
            10.8
            %
            
            
            11.7
            %
            
            
            (0.9
            )%




Our
Slovak Republic operations’ prime time audience share declined to 32.6% in the
nine months ended September 30, 2009 from 36.6% in the same period of
2008.  This reflects our decision in the first quarter of 2009 to
remove high-cost local productions from the schedule to reduce costs which our
principal competitor, privately owned TV JOJ, capitalized on and increased their
investment in local production.





TV JOJ’s
prime time audience share in the nine months ended September 30, 2009 increased
from 18.7% to 22.1% whilst the prime time audience share for STV1, the only
significant public broadcaster,  decreased from 18.1% in the nine
months ended September 30, 2008 to 17.2% in the nine months ended September 30,
2009.  Prime time ratings for TV MARKIZA were 10.8% in the nine months
ended September 30, 2009 compared to 11.7% in the nine months ended September
30, 2008. Total prime time ratings for the market increased from 32.0% in the
nine months ended September 30, 2008 to 33.3% in the nine months ended September
30, 2009, partially due to the addition of JOJ Plus, a new channel that was
launched in October 2008.





Our
decision to include local production in our fall schedule has been successful.
Our Slovak Republic operations jointly produced the reality show ‘Czech-Slovak
Superstar’ with our Czech Republic operations, which achieved a prime time
audience share of 46% in its initial airing. ‘Best wishes’, a locally produced
entertainment show, was also successful and achieved a prime time audience share
of 40.2%.





We saw an
increase of approximately 53.4% in the number of daily unique users to our
websites during the first nine months of 2009 compared to the same period of
2008, reflecting the continued success of our news website and interest in
broadcast-related shows such as ‘Czech-Slovak Superstar’, a joint reality
production between TV NOVA (Czech Republic) and TV MARKIZA.





Page
108
 Index





Monetization
of audience share





Three
months ended September 30, 2009 compared to the three months ended September 30,
2008





SLOVAK
      REPUBLIC FINANCIAL INFORMATIONFor
      the Three Months Ended September 30, (US$ 000's)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)Spot
      revenues
            
            $
            18,257
            
            
            $
            23,391
            
            
            
            (21.9
            )%
            
            
            (18.7
            )%Non-spot
      revenues
            
            
            1,049
            
            
            
            1,404
            
            
            
            (25.3
            )%
            
            
            (21.9
            )%Net
      Revenues
            
            $
            19,306
            
            
            $
            24,795
            
            
            
            (22.1
            )%
            
            
            (18.9
            )%Represented
      byBroadcast
      operations
            
            $
            19,076
            
            
            $
            24,749
            
            
            
            (22.9
            )%
            
            
            (19.7
            )%Non-broadcast
      operations
            
            
            230
            
            
            
            46
            
            
            Nm(3)
            
            
            Nm(3Net
      Revenues
            
            $
            19,306
            
            
            $
            24,795
            
            
            
            (22.1
            )%
            
            
            (18.9
            )%








Nine
months ended September 30, 2009 compared to the nine months ended September 30,
2008





SLOVAK
      REPUBLIC FINANCIAL INFORMATIONFor
      the Nine Months Ended September 30, (US$ 000's)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)Spot
      revenues
            
            $
            63,062
            
            
            $
            81,593
            
            
            
            (22.7
            )%
            
            
            (13.6
            )%Non-spot
      revenues
            
            
            5,044
            
            
            
            6,533
            
            
            
            (22.8
            )%
            
            
            (12.9
            )%Net
      Revenues
            
            $
            68,106
            
            
            $
            88,126
            
            
            
            (22.7
            )%
            
            
            (13.6
            )%Represented
      byBroadcast
      operations
            
            $
            67,520
            
            
            $
            87,955
            
            
            
            (23.2
            )%
            
            
            (14.2
            )%Non-broadcast
      operations
            
            
            586
            
            
            
            171
            
            
            
            242.7
            %
            
            
            278.3
            %Net
      Revenues
            
            $
            68,106
            
            
            $
            88,126
            
            
            
            (22.7
            )%
            
            
            (13.6
            )%





(1)
Actual (“%Act”) reflects the percentage change between two periods.


(2) Like
for Like (“%Lfl”) or constant currency reflects the impact of applying the
current period average exchange rates to the prior period revenues and
costs.


(3)
Number is not meaningful.




Spot
revenues for the three and nine months ended September 30, 2009 decreased
compared to the three and nine months ended September 30, 2008 in part as a
result of the strengthening of the dollar against the Euro, the currency in
which our sales are denominated, and in part due to the worsening
economy.





In
constant currency, we experienced a decrease in spot revenues primarily due to a
lower volume of GRPs sold as our ratings declined and a decrease in our pricing
to remain competitive in the declining television advertising market. Although
we experienced signs of increased demand for advertising in the pharmaceuticals
sector, the automotive and the fast moving consumer goods sectors remained at a
similar level to that of 2008 during the three months ended September 30, 2009,
while the telecommunications sectors and financial sectors remain in
decline.





Page
109
 Index





Non-spot
revenues decreased primarily due to lower sponsorship revenues in the three and
nine months ended September 30, 2009 compared to the three and nine months ended
September 30, 2008.





EBITDA
Performance





Three
months ended September 30, 2009 compared to the three months ended September 30,
2008





SLOVAK
      REPUBLIC FINANCIAL INFORMATIONFor
      the Three Months Ended September 30, (US$ 000's)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)EBITDA
            
            $
            (2,669
            )
            
            $
            5,847
            
            
            
            (145.6
            )%
            
            
            (146.1
            )%Represented
      byBroadcast
      operations
            
            $
            (2,119
            )
            
            $
            6,269
            
            
            
            (133.8
            )%
            
            
            (134.2
            )%Non-broadcast
      operations
            
            
            (550
            )
            
            
            (422
            )
            
            
            (30.3
            )%
            
            
            (36.3
            )%EBITDA
            
            $
            (2,669
            )
            
            $
            5,847
            
            
            
            (145.6
            )%
            
            
            (146.1
            )%EBITDA
      Margin
            
            
            (14
            )%
            
            
            24
            %
            
            
            (38
            )%
            
            
            (38
            )%








Nine
months ended September 30, 2009 compared to the nine months ended September 30,
2008





SLOVAK
      REPUBLIC FINANCIAL INFORMATIONFor
      the Nine Months Ended September 30, (US$ 000's)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)EBITDA
            
            $
            6,714
            
            
            $
            28,958
            
            
            
            (76.8
            )%
            
            
            (73.9
            )%Represented
      byBroadcast
      operations
            
            $
            7,676
            
            
            $
            29,849
            
            
            
            (74.3
            )%
            
            
            (71.1
            )%Non-broadcast
      operations
            
            
            (962
            )
            
            
            (891
            )
            
            
            (8.0
            )%
            
            
            18.7
            %EBITDA
            
            $
            6,714
            
            
            $
            28,958
            
            
            
            (76.8
            )%
            
            
            (73.9
            )%EBITDA
      Margin
            
            
            10
            %
            
            
            33
            %
            
            
            (23
            )%
            
            
            (23
            )%





(1)
Actual (“%Act”) reflects the percentage change between two periods.


(2) Like
for Like (“%Lfl”) or constant currency reflects the impact of applying the
current period average exchange rates to the prior period revenues and
costs.





Our
Slovak Republic operations’ EBITDA performance is primarily a result of
declining revenues and an increase in costs resulting from:





·
            increases
      in the cost of programming of 23% and 15% for the three and nine months
      ended September 30, 2009, respectively, compared to the same periods in
      2008, reflecting the higher cost of foreign acquired programming, the
      additional programming costs relating to the launch of DOMA and the higher
      cost of production relating to the locally produced reality show
      ‘Czech-Slovak Superstar’;





Page
110
 Index




·
            increases
      in other operating costs of 20% and 11% for the three and nine months
      ended September 30, 2009, respectively, compared to the same periods in
      2008, primarily due to initial redundancy-related costs reflected in the
      first quarter of 2009 partially offset by lower staff-related costs;
      and


·
            increases
      in selling, general and administrative expenses of 23% and 26% for the
      three and nine months ended September 2009, respectively, compared with
      the same periods in 2008, reflecting payments made to the Slovak
      Audiovisual Fund and marketing costs relating to the launch of
      DOMA.





Total
costs charged in arriving at EBITDA increased by 22% and 16% for the three and
nine months ended September 30, 2009 compared to the same periods in 2008. As a
result, our Slovak Republic operations experienced an EBITDA loss for the three
months ended September 30, 2009, and a significant decline in their EBITDA
margin for the nine months ended September 30, 2009 compared to the same periods
in 2008.





(F)
SLOVENIA





Macro
economic environment and local advertising markets





We
estimate that the television market declined by 20% in the nine months to
September 30, 2009 compared to the same period in 2008.  Economic
projections for Slovenia in 2009 are poor and there is no consensus as to when a
recovery will take place.  Due to the resulting uncertainty among
advertisers we cannot predict future market development accurately. However, we
currently expect the television advertising market to decline by between 18% and
22% in 2009. If market conditions continue to worsen, a further decline in the
total advertising market can be expected.





The
exchange rate between the dollar and the Euro, the functional currency of our
Slovenia operations, varies considerably from period to period. The average
exchange rates of the dollar to the Euro in the three and nine months ended
September 30, 2009 appreciated by 5% and 12%, respectively, compared to the same
periods in 2008.





Audience
Share and Ratings





For
advertising sales purposes, each of POP TV’s and KANAL A’s target audience is
the 18-49 demographic and all audience data shown is on this basis and combined
for both channels.





For
      the Nine Months Ended September 30,2009
            
            
            2008
            
            
            MovementAll
      day audience share(1)
            
            
            37.2
            %
            
            
            39.1
            %
            
            
            (1.9
            )%All
      day ratings(1)
            
            
            3.4
            %
            
            
            3.7
            %
            
            
            (0.3
            )%Prime
      time audience share(1)
            
            
            45.5
            %
            
            
            46.1
            %
            
            
            (0.6
            )%Prime
      time ratings(1)
            
            
            10.5
            %
            
            
            10.9
            %
            
            
            (0.4
            )%





(1) We
acquired the remaining 80% of of TV PIKA on September 2, 2009. All data shown
above excludes audience data relating to TV PIKA.





Our major
competitors are the two channels operated by the public broadcaster, SLO1 and
SLO2, with all day audience shares for the nine months ended September 30, 2009
of 13.9% and 8.0%, respectively, and privately owned broadcaster TV3, with an
all day audience share of 7.9%.





Prime
time audience share for SLO 2 increased from 6.6% to 7.3% and TV3 increased from
6.5% in the nine months ended September 30, 2008 to 7.3% in the nine months
ended September 30, 2009.  The prime time audience shares of SLO 1
decreased from 19.3% to 17.0%.





The
combined prime time ratings for our Slovenia operations were 10.5% in the nine
months ended September 30, 2009 compared to 10.9% in the nine months ended
September 30, 2008.  Total prime time ratings for the market decreased
from 23.8% in the nine months ended September 30, 2008 to 23.1% in the nine
months ended September 30, 2009.





Page
111
 Index





Our
Slovenia operations experienced a slight decrease in prime time audience share
for the nine months ended September 30, 2009, partially due to the withdrawal of
the program ‘Big Brother’ and ‘Deal or No Deal’ in order to reduce costs. We
were able to mitigate the effects of the absence of ‘Big Brother’ and ‘Deal or
No Deal’ in the first half of 2009 with the continued popularity of our
innovative local programming, with ‘Celebrity Farm’, ‘Can U Dig It?!’ and
‘Neighbours’, delivering strong average prime time audience shares of 52%, 36%
and 40%, respectively. Our news program, ‘24 ur’, continues to perform well
delivering strong average prime time audience shares of 43%.





Our
internet sites delivered a 47.5% increase in unique daily users in the nine
months ended September 30, 2009 compared to the first nine months of 2008. Of
this increase, 18.0.% originated from our 24ur.com website and the remaining
increase was as a result of our niche microsites (vizita.si, poptv.si), launched
in 2008.





Monetization
of audience share





Three
months ended September 30, 2009 compared to the three months ended September 30,
2008





SLOVENIA
      FINANCIAL INFORMATIONFor
      the Three Months Ended September 30, (US$ 000's)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)Spot
      revenues
            
            $
            10,009
            
            
            $
            11,902
            
            
            
            (15.9
            )%
            
            
            (12.2
            )%Non-spot
      revenues
            
            
            1,263
            
            
            
            2,329
            
            
            
            (45.8
            )%
            
            
            (42.6
            )%Net
      Revenues
            
            $
            11,272
            
            
            $
            14,231
            
            
            
            (20.8
            )%
            
            
            (17.1
            )%Represented
      byBroadcast
      operations
            
            $
            10,533
            
            
            $
            13,235
            
            
            
            (20.4
            )%
            
            
            (16.8
            )%Non-broadcast
      operations
            
            
            739
            
            
            
            996
            
            
            
            (25.8
            )%
            
            
            (21.3
            )%Net
      Revenues
            
            $
            11,272
            
            
            $
            14,231
            
            
            
            (20.8
            )%
            
            
            (17.1
            )%








Nine
months ended September 30, 2009 compared to the nine months ended September 30,
2008





SLOVENIA
      FINANCIAL INFORMATIONFor
      the Nine Months Ended September 30, (US$ 000's)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)Spot
      revenues
            
            $
            39,094
            
            
            $
            49,720
            
            
            
            (21.4
            )%
            
            
            (11.6
            )%Non-spot
      revenues
            
            
            4,647
            
            
            
            8,672
            
            
            
            (46.4
            )%
            
            
            (39.6
            )%Net
      Revenues
            
            $
            43,741
            
            
            $
            58,392
            
            
            
            (25.1
            )%
            
            
            (15.8
            )%Represented
      byBroadcast
      operations
            
            $
            41,353
            
            
            $
            54,646
            
            
            
            (24.3
            )%
            
            
            (15.0
            )%Non-broadcast
      operations
            
            
            2,388
            
            
            
            3,746
            
            
            
            (36.3
            )%
            
            
            (28.0
            )%Net
      Revenues
            
            $
            43,741
            
            
            $
            58,392
            
            
            
            (25.1
            )%
            
            
            (15.8
            )%





(1)
Actual (“%Act”) reflects the percentage change between two periods.


(2) Like
for Like (“%Lfl”) or constant currency reflects the impact of applying the
current period average exchange rates to the prior period revenues and
costs.





Page
112
 Index





Spot
revenues for the three and nine months ended September 30, 2009 decreased
compared to the three and nine months ended September 30, 2008, both as a result
of the strengthening of the dollar against the Euro, the currency in which our
sales are denominated, and as a result of the decline in the advertising
market.





In
constant currency, we experienced a decrease in spot revenues primarily due to
decreased spending from existing customers and lower pricing for the nine months
ended September 30, 2009. Although the volume of GRPs sold during the three
months ended September 30, 2009 was only marginally below the same period in
2008, we were unable to maintain our pricing and as a result our spot revenues
during this period decreased.





Non-spot
revenues decreased primarily due to lower sponsorship and lower telephone voting
revenues in the three and nine months ended September 30, 2009 compared to the
three and nine months ended September 30, 2008 due to changes in our programming
schedule.





EBITDA
Performance





Three
months ended September 30, 2009 compared to the three months ended September 30,
2008





SLOVENIA
      FINANCIAL INFORMATIONFor
      the Three Months Ended September 30, (US$ 000's)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)EBITDA
            
            $
            (1,191
            )
            
            $
            2,153
            
            
            
            (155.3
            )%
            
            
            (153.5
            )%Represented
      byBroadcast
      operations
            
            $
            (1,126
            )
            
            $
            1,452
            
            
            
            (177.5
            )%
            
            
            (174.9
            )%Non-broadcast
      operations
            
            
            (65
            )
            
            
            701
            
            
            
            (109.3
            )%
            
            
            (108.8
            )%EBITDA
            
            $
            (1,191
            )
            
            $
            2,153
            
            
            
            (155.3
            )%
            
            
            (153.5
            )%EBITDA
      Margin
            
            
            (11
            )%
            
            
            15
            %
            
            
            (26
            )%
            
            
            (26
            )%


Page
113
 Index
  Nine
months ended September 30, 2009 compared to the nine months ended September 30,
2008





SLOVENIA
      FINANCIAL INFORMATIONFor
      the Nine Months Ended September 30, (US$ 000's)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)EBITDA
            
            $
            9,094
            
            
            $
            17,359
            
            
            
            (47.6
            )%
            
            
            (41.0
            )%Represented
      byBroadcast
      operations
            
            $
            8,632
            
            
            $
            17,227
            
            
            
            (49.9
            )%
            
            
            (43.2
            )%Non-broadcast
      operations
            
            
            462
            
            
            
            132
            
            
            
            250.0
            %
            
            
            117.5
            %EBITDA
            
            $
            9,094
            
            
            $
            17,359
            
            
            
            (47.6
            )%
            
            
            (41.0
            )%EBITDA
      Margin
            
            
            21
            %
            
            
            30
            %
            
            
            (9
            )%
            
            
            (9
            )%





(1)
Actual (“%Act”) reflects the percentage change between two periods.


(2) Like
for Like (“%Lfl”) or constant currency reflects the impact of applying the
current period average exchange rates to the prior period revenues and
costs.





Our
Slovenia operations reported an EBITDA loss in the three months ended September
30, 2009, despite savings in other operating costs and selling, general and
administrative expenses. The EBITDA loss is primarily as a result of declining
revenues and increases in the cost of programming of 20% for the three months
ended September 30, 2009, compared to the same period in 2008, reflecting a
reduction in the proportion of locally produced programming and the higher costs
of acquired programming in the fall schedule and the addition of TV PIKA. Total
costs charged in arriving at EBITDA increased 10% in the three months ended
September 30, 2009 compared to the same period in 2008.





Our
Slovenia operations’ EBITDA performance for the nine months ended September 30,
2009, is primarily as a result of declining revenues which outweighed a decrease
in costs resulting from:





·
            a
      decrease in the cost of programming of 3% for the nine months ended
      September 30, 2009, compared to the same period in 2008, reflecting a
      reduction in the proportion of locally produced programming in our
      schedule partially offset by the higher cost of acquired programming,
      particularly in the first half of 2009. In the three months ended
      September 30, 2009, the cost of programming increased 20% compared to the
      same period in 2008 as we began broadcasting the new season of the UEFA
      Champions’ League;


·
            other
      operating costs remaining flat for the nine months ended September 30,
      2009 compared to the same period in 2008, primarily due to lower
      staff-related costs, offset by the initial redundancy-related costs
      reflected in the first quarter of 2009 and higher fees paid for digital
      transmission as a result of broadcasting our channels in DVB-T;
      and


·
            a
      decrease in selling, general and administrative expenses of 23% for the
      nine months ended September 2009, compared with the same period in 2008,
      primarily due to lower marketing and travel
  expenses.





Total
costs charged in arriving at EBITDA decreased 5% for the nine months ended
September 30, 2009 compared to the same period in 2008. Despite the decrease in
total costs, our Slovenia operations experienced a decline in EBITDA as a result
of weak market conditions.





Page
114
 Index





(G)
UKRAINE





Macro
economic environment and local advertising markets





We
estimate that the television advertising market in Ukraine declined by
approximately 3% and 5% in 2008, reflecting steady growth in the first ten
months of the year, followed by a significant decline in November and
December.  We estimate that the local television advertising market
declined by 42% in the nine months ended September 30, 2009.





We expect
the local television advertising market to stabilise in the fourth quarter of
2009 to end the year with a decline of between 27% and 32%.





Presidential
elections are scheduled for January 19, 2010 and campaigning has begun in the
fall of 2009.





The
exchange rate between the dollar and the Ukrainian hryvna, the functional
currency of our Ukraine operations since January 1, 2009, varies considerably
from period to period. The average exchange rates of the dollar to the Ukrainian
hyrvna in the three and nine months ended September 30, 2009 appreciated by 77%
and 67%, respectively compared to the same periods in 2008. The functional
currency of our Ukraine operations changed from the dollar to the Hryvna with
effect from January 1, 2009. As a result, we do not apply the current period
average exchange rates to the prior period revenues and costs.





Audience
Share and Ratings





For
advertising sales purposes, STUDIO 1+1’s target audience is the 18-54
demographic and all audience data is shown below on this basis.





For
      the Nine Months Ended September 30, 20092009
            
            
            2008
            
            
            MovementAll
      day audience share
            
            
            10.0
            %
            
            
            12.2
            %
            
            
            (2.2
            )%All
      day ratings
            
            
            1.4
            %
            
            
            1.5
            %
            
            
            (0.1
            )%Prime
      time audience share
            
            
            12.3
            %
            
            
            13.5
            %
            
            
            (1.2
            )%Prime
      time ratings
            
            
            3.9
            %
            
            
            4.2
            %
            
            
            (0.3
            )%





Our main
competitors include Inter, with an all day audience share for the nine months
ended September 30, 2009 of 13.6%, Novy Kanal with 10.3%, ICTV with 9.1% and STB
with 9.4%, respectively.





Prime
time audience share for Inter decreased from 21.0% for the nine months ended
September 30, 2008 to 15.8% for the nine months ended September 30, 2009, while
the prime time audience shares of Novy Kanal, ICTV and STB increased from 9.8%
to 11.5%, from 9.1% to 9.3% and from 8.0% to 9.4%, respectively.





Prime
time ratings for STUDIO 1+1 decreased to 3.8% in the nine months ended September
30, 2009 from 4.1% in the nine months ended September 30, 2008.  Prime
time ratings in the Ukraine market increased from 31.3% in the nine months ended
September 30, 2008 to 32.1% in the nine months ended September 30,
2009.





We
continue to restructure our operating processes and have reduced the headcount
and our overall cost base significantly compared to the same period of
2008.  We completed the buyout of our minority partners in KINO during
the first quarter and have fully integrated the channel into the operations of
STUDIO 1+1.  We established an in-house sales function that has direct
responsibility for all sales for our Ukraine operations and we are already
experiencing high demand for GRPs for October and November.  We have
commenced both local fiction and non-fiction productions. Shows ‘Dance for You’
and ‘I Love Ukraine’ started airing in the Fall season. The series ‘Only Love’
is scheduled to be broadcast in our spring 2010 schedule.  Our
restructuring initiatives will continue into the fourth quarter of
2009.





Page
115
 Index





On July
2, 2009 we entered into an agreement with Igor Kolomoisky, a shareholder and
member of our board of directors, pursuant to which Mr. Kolomoisky will become a
49% beneficial owner in our Ukraine operations following an injection of $100.0
million in cash and the contribution of 100.0% of the TET TV channel into Studio
1+1 group. The $100.0 million cash investment will be used to finance the
activities of STUDIO 1+1, KINO and TET and the addition of the TET TV channel
will enhance our multichannel strategy in Ukraine. See Item 1, Note 20
“Commitments and Contingencies, Ukraine Transaction” for more
details.




Monetization
of audience share





Three
months ended September 30, 2009 compared to the three months ended September 30,
2008





UKRAINE
      FINANCIAL INFORMATIONFor
      the Three Months Ended September 30, (US$ 000's)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)Spot
      revenues
            
            $
            5,056
            
            
            $
            19,397
            
            
            
            (73.9
            )%
            
            
            (73.9
            )%Non-spot
      revenues
            
            
            1,191
            
            
            
            1,308
            
            
            
            (8.9
            )%
            
            
            (8.9
            )%Net
      Revenues
            
            $
            6,247
            
            
            $
            20,705
            
            
            
            (69.8
            )%
            
            
            (69.8
            )%Represented
      byBroadcast
      operations
            
            $
            6,218
            
            
            $
            20,695
            
            
            
            (70.0
            )%
            
            
            (70.0
            )%Non-broadcast
      operations
            
            
            29
            
            
            
            10
            
            
            
            190.0
            %
            
            
            (190.0
            )%Net
      Revenues
            
            $
            6,247
            
            
            $
            20,705
            
            
            
            (69.8
            )%
            
            
            (69.8
            )%








Nine
months ended September 30, 2009 compared to the nine months ended September 30,
2008





UKRAINE
      FINANCIAL INFORMATIONFor
      the Nine Months Ended September 30, (US$ 000's)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)Spot
      revenues
            
            $
            9,723
            
            
            $
            61,862
            
            
            
            (84.3
            )%
            
            
            (84.3
            )%Non-spot
      revenues
            
            
            4,643
            
            
            
            13,589
            
            
            
            (65.8
            )%
            
            
            (65.8
            )%Net
      Revenues
            
            $
            14,366
            
            
            $
            75,451
            
            
            
            (81.0
            )%
            
            
            (81.0
            )%Represented
      byBroadcast
      operations
            
            $
            14,271
            
            
            $
            75,392
            
            
            
            (81.1
            )%
            
            
            (81.1
            )%Non-broadcast
      operations
            
            
            95
            
            
            
            59
            
            
            
            61.0
            %
            
            
            (61.0
            )%Net
      Revenues
            
            $
            14,366
            
            
            $
            75,451
            
            
            
            (81.0
            )%
            
            
            (81.0
            )%





(1)
Actual (“%Act”) reflects the percentage change between two periods.


(2) The
functional currency of our Ukraine operations changed from the dollar to the
Hryvna with effect from January 1, 2009. We therefore do not apply the current
period average exchange rates to the prior period revenues and
costs.





Our
Ukraine operations experienced a significant decrease in net revenues as they
continue to face a combination of the significant decline in the television
advertising market described above and strong competition from the sales house
Inter-Reklama, which controls the majority of inventory in the television
market. Furthermore, the strengthening of the dollar against the Ukrainian
Hryvna, the currency in which our sales are now denominated, has reduced our
revenue in dollars.





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116
 Index





Non-spot
revenues primarily comprised of sponsorship sales which have broadly declined in
line with the decline in advertising market.





EBITDA
Performance





Three
months ended September 30, 2009 compared to the three months ended September 30,
2008





UKRAINE
      FINANCIAL INFORMATIONFor
      the Three Months Ended September 30, (US$ 000's)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)EBITDA
            
            $
            (11,822
            )
            
            $
            (7,791
            )
            
            
            (51.7
            )%
            
            
            (51.7
            )%Represented
      byBroadcast
      operations
            
            $
            (11,516
            )
            
            $
            (7,582
            )
            
            
            (51.9
            )%
            
            
            (51.9
            )%Non-broadcast
      operations
            
            
            (306
            )
            
            
            (209
            )
            
            
            (46.4
            )%
            
            
            (46.4
            )%EBITDA
            
            $
            (11,822
            )
            
            $
            (7,791
            )
            
            
            (51.7
            )%
            
            
            (51.7
            )%EBITDA
      Margin
            
            
            (189
            )%
            
            
            (38
            )%
            
            
            (151
            )%
            
            
            (151
            )%








Nine
months ended September 30, 2009 compared to the nine months ended September 30,
2008





UKRAINE
      FINANCIAL INFORMATIONFor
      the Nine Months Ended September 30, (US$ 000’s)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)EBITDA
            
            $
            (40,188
            )
            
            $
            (12,916
            )
            
            
            (211.1
            )%
            
            
            (211.1
            )%Represented
      byBroadcast
      operations
            
            $
            (39,522
            )
            
            $
            (12,317
            )
            
            
            (220.9
            )%
            
            
            (220.9
            )%Non-broadcast
      operations
            
            
            (666
            )
            
            
            (599
            )
            
            
            (11.2
            )%
            
            
            (11.2
            )%EBITDA
            
            $
            (40,188
            )
            
            $
            (12,916
            )
            
            
            (211.1
            )%
            
            
            (211.1
            )%EBITDA
      Margin
            
            
            (280
            )%
            
            
            (17
            )%
            
            
            (263
            )%
            
            
            (263
            )%





(1)
Actual (“%Act”) reflects the percentage change between two periods.


(2) The
functional currency of our Ukraine operations changed from the dollar to the
Hryvna with effect from January 1, 2009. We therefore do not apply the current
period average exchange rates to the prior period revenues and
costs.





Our
Ukraine operations’ EBITDA performance is primarily as a result of a decline in
revenues which significantly outweighed the following cost
decreases:





·
            decreases
      in the cost of programming of 25% and 37% for the three and nine months
      ended September 30, 2009 compared to the same periods in 2008 due to
      implementation of a lower cost schedule. Although the cost of our fall
      schedule is lower compared to 2008, we have increased the cost of
      programming when compared to previous quarters in
  2009;





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117
 Index




·
            decreases
      in other operating costs of 38% and 30% for the three and nine months
      ended September 30, 2009, respectively, compared to the same periods in
      2008, primarily due to a reduction in headcount;
  and


·
            decreases
      in selling, general and administrative expenses of 98% and 60% for the
      three and nine months ended September 2009, respectively, compared with
      the same periods in 2008, primarily due to lower office
      overheads.





Total
costs charged in arriving at EBITDA decreased 37% and 38% for the three and nine
months ended September 30, 2009, compared to the same periods in 2008. Despite
the large decrease in total costs, our Ukraine operations experienced a
significant decline in EBITDA as a result of the weak market
conditions.




V.
Condensed consolidated balance sheet





Summarized
      Condensed Consolidated Balance Sheet (US$ 000’s)September
      30, 2009
            
            
            December
      31, 2008
            
            
            MovementCurrent
      assets
            
            $
            1,172,773
            
            
            $
            494,756
            
            
            
            137.0
            %Non-current
      assets
            
            
            1,994,373
            
            
            
            1,911,860
            
            
            
            4.3
            %Current
      liabilities
            
            
            494,489
            
            
            
            228,673
            
            
            
            116.2
            %Non-current
      liabilities
            
            
            1,456,373
            
            
            
            1,079,498
            
            
            
            34.9
            %CME
      Ltd. shareholders’ equity
            
            
            1,222,880
            
            
            
            1,095,258
            
            
            
            11.7
            %Noncontrolling
      interests in consolidated subsidiaries
            
            $
            (6,596
            )
            
            $
            3,187
            
            
            Nm(1)





(1)
Number is not meaningful





Current
assets:  Current assets at September 30, 2009 increased US$
678.0 million compared to December 31, 2008, primarily as a result of increases
of US$ 287.2 million and US$ 415.7 million in our restricted and unrestricted
cash and cash equivalents respectively, as we drew our unutilized revolving
credit facilities in the first quarter, received net proceeds of approximately
$234.4 million from the issuance of equity to Time Warner and received net cash
for general corporate purposes of US$ 66.9 million as a result of replacing our
2005 Fixed Rate Notes and EBRD Loan with the 2009 Fixed Rate Notes. Our
restricted cash and cash equivalents increased by US$ 287.2 million, in
connection with the redemption of our 2005 Fixed Rate Notes, although this cash
will be paid to bondholders on October 29, 2009.





Non-current
assets:  Non-current assets at September 30, 2009 increased US$
82.5 million compared to December 31, 2008, primarily as a result of a higher
level investment of program rights and increases in the
dollar carrying value of CZK-denominated goodwill in our Czech Republic
operation caused by the weakening of the dollar, offset by an impairment charge
of US$ 81.8 million relating to long-lived assets in Bulgaria .





Current
liabilities:  Current
liabilities at September 30, 2009 increased by  US$ 265.8 million
compared to December 31, 2008 as a result of a temporary increase of US$ 266.2
million representing the remaining portion of the 2005 Fixed Rate Notes that
will be extinguished when the bondholders are repaid on October 29,
2009.
 
 Non-current
liabilities:  Non-current
liabilities at September 30, 2009 increased US$ 376.9 million compared to
December 31, 2008, primarily as a result of our having drawn our unutilized
revolving credit facilities in the Czech Republic and Slovenia, together with
additional borrowings after issuing our 2009 Fixed Rate Notes and repaying the
EBRD Loan and portion of our 2005 Fixed Rate Notes. The movement also reflects a
US$ 14.2 million increase in the carrying value of our Convertible Notes as a
result of the accretion of the debt issuance discount recognized under FSP APB
14-1 (ASC 470).


Page
118
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CME Ltd. shareholders’
equity:  Total shareholders’ equity at September 30, 2009
increased US$ 117.8 million compared to December 31, 2008, primarily as a result
of the issuance of 19.0 million shares of our common stock to Time Warner for
net proceeds of US$ 234.4 million.  We also recognized a reduction in
Other Comprehensive Income of US$ 46.5 million, reflecting the impact of the
strengthening in the dollar in total against our foreign currency denominated
assets, a net loss of US$ 41.9 million for the nine months ended September 30,
2009, a reduction in equity of US$ 23.3 million in connection with our
acquisition of KINO and a stock-based compensation charge of US$ 5.0
million.





Noncontrolling interests in
consolidated subsidiaries:  Noncontrolling interests in
consolidated subsidiaries at September 30, 2009 decreased US$ 9.8 million
compared to December 31, 2008 primarily due to the losses of our Bulgaria
operations.




VI.
Liquidity and Capital Resources





VI
(a) Summary of cash flows





Cash and
cash equivalents increased by US$ 415.7 million during the nine months ended
September 30, 2009.  The change in cash and cash equivalents is
summarized as follows:


2009
            
            
            2008
            
            
            MovementNet
      cash generated from continuing operating activities
            
            $
            (22,434
            )
            
            $
            172,202
            
            
            
            113.0
            %Net
      cash used in continuing investing activities
            
            
            (65,911
            )
            
            
            (458,649
            )
            
            
            (85.6
            )%Net
      cash received from continuing financing activities
            
            
            492,014
            
            
            
            386,079
            
            
            
            27.4
            %Net
      cash used in discontinued operations – operating
activities
            
            
            (1,294
            )
            
            
            (3,201
            )
            
            
            (59.6
            )%Net
      cash used in discontinued operations – investing
activities
            
            
            -
            
            
            
            (450
            )
            
            
            -Net
      increase / (decrease) in cash and cash equivalents
            
            $
            415,715
            
            
            $
            82,819
            
            
            
            Nm
      (1)




(1)
Number is not meaningful


Operating
Activities





Cash
generated from continuing operations decreased from US$ 172.2 million in the
nine months ended September 30, 2008 to an outflow of US$ 22.4 million in the
nine months ended September 30, 2009, reflecting the cash needs of our
Developing Operations as well as the decline in profitability of our Core
Operations.





Investing
Activities





Cash used
in investing activities decreased from US$ 458.6 million in the nine months
ended September 30, 2008 to US$ 65.9 million in the nine months ended September
30, 2009. Our investing cash flows in the nine months ended September 30, 2009
primarily comprised US$ 22.0 million paid in connection with the KINO buyout
(see Item 1, Note 3, “Acquisitions and Disposals”) and capital expenditure of
US$ 33.7 million. The nine months ended September 20, 2008 includes cash flows
for the purchase of our investments in our Bulgaria operations and 30.0% of the
Studio 1+1 group.


Financing
Activities





Net cash
received from financing activities in the nine months ended September 30, 2009
was US$ 492.0 million compared to US$ 386.1 million in the nine months ended
September 30, 2008.  The amount of cash received in the nine months
ended September 30, 2009 reflects:





·
            the
      issuance of 19.0 million shares of our common stock to Time Warner for the
      aggregate offering price of US$ 234.4 million, net of fees paid;
      and,


·
            the
      draw down of our revolving credit facilities to maximize liquidity and the
      issuance of EUR 440.0 million (net of fees) (approximately US$ 644.3
      million) of our 2009 Fixed Rate
Notes,





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119
 Index





offset
by:





·
            payments
      to repurchase EUR 63.2 million (approximately US$ 92.5 million) of
      outstanding principal of our 2005 Fixed Rate
  Notes;


·
            transfers
      to restricted cash and cash equivalents of EUR 196.1 million
      (approximately US$ 287.0 million at the date of transfer) representing the
      redemption price plus all interest that will be payable on the settlement
      date in connection with the redemption of the remaining EUR 181.8 million
      (approximately US$ 266.2 million) of our 2005 Fixed Rate Notes;
      and,


·
            the
      repayment of EUR 127.5 million (approximately US$ 187.3 million at the
      date of repayment) outstanding on the EBRD
Loan.





Discontinued
Operations





In the
nine months ended September 30, 2009, we paid taxes of US$ 1.0 million to the
Dutch tax authorities pursuant to the agreement we entered into with them on
February 9, 2004, compared to US$ 2.0 million in the nine months ended September
30, 2008.





The CITI
channel had cash outflows of US$ 0.3 million in the period until disposal in
February 2009 compared to US$ 0.8 million in the nine months ended September 30,
2008.




VI
(b) Sources and Uses of Cash





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





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.





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120
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VI
(c) Contractual Obligations and Commitments





Our
future contractual obligations as of September 30, 2009 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 yearsLong-Term
      Debt – principal
            
            
            1,456,323
            
            
            
            -
            
            
            
            117,386
            
            
            
            475,000
            
            
            
            863,937Long-Term
      Debt – interest (1)
            
            
            483,376
            
            
            
            116,876
            
            
            
            197,435
            
            
            
            154,240
            
            
            
            14,825Capital
      Lease Obligations
            
            
            5,222
            
            
            
            769
            
            
            
            1,261
            
            
            
            3,192
            
            
            
            -Operating
      Leases
            
            
            23,930
            
            
            
            5,711
            
            
            
            8,791
            
            
            
            9,365
            
            
            
            63Unconditional
      Purchase Obligations
            
            
            526,382
            
            
            
            104,524
            
            
            
            316,616
            
            
            
            90,588
            
            
            
            14,654Other
      Long-Term Obligations
            
            
            1,178
            
            
            
            1,178
            
            
            
            -
            
            
            
            -
            
            
            
            -FIN
      48 obligations (2)
            
            
            1,488
            
            
            
            45
            
            
            
            1,443
            
            
            
            -
            
            
            
            -Deferred
      consideration
            
            
            1,571
            
            
            
            1,571
            
            
            
            -
            
            
            
            -
            
            
            
            -Senior
      notes being redeemed
            
            
            287,196
            
            
            
            287,196
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
      Contractual Obligations
            
            
            2,786,666
            
            
            
            517,870
            
            
            
            642,932
            
            
            
            732,385
            
            
            
            893,479





(1)
Interest obligations on variable rate debt are calculated using the rate
applicable at the balance sheet date.





(2) ASC
740





Long-Term
Debt





As at
September 30, 2009, we had the following debt outstanding by carrying
value:


September
      30, 2009
              (US$
      000’s)Corporate
            
            
            (1)
      - (4)
            
            
            $
            1,262,847Czech
      Republic
            
            
            (5)
      - (7)
            
            
            
            84,410Slovak
      Republic
            
            
            (8)
            
            
            
            -Slovenia
            
            
            (9)
            
            
            
            32,977Total
            
            
            
            
            
            $
            1,380,234







(1)
            As
      at September 30, 2009 we had EUR 590.0 million (approximately US$ 863.9
      million) of Senior Notes outstanding, comprising EUR 440.0 million
      (approximately US$ 644.3 million) of the 2009 Fixed Rate Notes and EUR
      150.0 million (approximately US$ 219.6 million) of the 2007 Floating Rate
      Notes, which bear interest at nine-month Euro Inter-Bank Offered Rate
      (“EURIBOR”) plus 1.625%. The applicable rate at September 30, 2009 was
      3.104%.





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 the Senior Notes restrict the manner in which
our business is conducted, including the incurrence of additional interest
obligations, 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
certain of 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.


Page
121
 Index




At any
time after September 15, 2013, we may redeem all or a part of the 2009 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, if any, to
the redemption date.





As of
September 30, 2009, Standard & Poor’s (“S&P”) senior unsecured debt
rating for our Senior Notes was B with a negative outlook. As of September 30,
2009, Moody’s Investors Services (“Moody’s”) senior unsecured debt rating for
our Senior Notes and our corporate credit rating was B2 with a negative outlook.
In both cases, the ratings were issued before we issued our 2009 Fixed Rate
Notes, therefore they refer to the 2005 Fixed Rate Notes and the Floating Rate
Notes. The 2009 Fixed Rate Notes were rated by S&P as B.





(2)
            As
      at September 30, 2009 we had US$ 475.0 million principal amount of
      Convertible Notes outstanding that mature on March 15,
      2013.  Interest is payable semi-annually in arrears on each
      March 15 and September 15.





The
Convertible 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 two subsidiary holding companies and are secured by a pledge
of shares of those subsidiaries as well as an assignment of certain contractual
rights.





(3)
            On
      July 21, 2006, we entered into a five-year revolving loan agreement for
      EUR 100.0 million (approximately US$ 146.4 million) arranged by the
      European Bank for Reconstruction and Development (“EBRD”) and on August
      22, 2007, we entered into a second revolving loan agreement for EUR 50.0
      million (approximately US$ 73.2 million) arranged by EBRD (together with
      the EUR 100.0 million facility, the “EBRD Loan”).  ING Bank N.V.
      (“ING”) and Ceska Sporitelna, a.s. (“CS”) each participated in the EBRD
      Loan for EUR 37.5 million (approximately US$ 54.9 million). On September
      17, 2009 we repaid the full aggregate principal amount of EUR 127.5
      million (approximately US$ 187.3 million at the date of repayment)
      outstanding and simultaneously terminated both agreements. In connection
      with extinguishing these facilities, we incurred repayment charges and
      other costs of US$ 0.6 million. We also wrote off all remaining
      capitalized issuance costs and these charges were recognized as a loss on
      extinguishment within interest
expense.





(4)
            We
      have an uncommitted multicurrency overdraft facility for EUR 10.0 million
      (approximately US$ 14.6 million) from Bank Mendes Gans (“BMG”), a
      subsidiary of ING, as part of a cash pooling arrangement. The cash pooling
      arrangement with BMG enables us to receive credit across the group in
      respect of cash balances which our subsidiaries in the Netherlands,
      Bulgaria, the Czech Republic, Romania, the Slovak Republic, Slovenia and
      Ukraine deposit with BMG. Cash deposited by our subsidiaries with BMG is
      pledged as security against the drawings of other subsidiaries up to the
      amount deposited.  As at September 30, 2009, the full EUR 10.0
      million (approximately US$ 14.6 million) facility was available to be
      drawn. Interest is payable at the relevant money market rate plus
      2%


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As at
September 30, 2009, the net deposits and drawing of each of our operations in
the BMG cash pool was as follows:





Net
      Deposits
            
            
            Net
      DrawingsCorporate
            
            
            10,139
            
            
            
            -Czech
      Republic
            
            
            643
            
            
            
            -Romania
            
            
            -
            
            
            
            -Slovakia
            
            
            6,282
            
            
            
            -Slovenia
            
            
            29
            
            
            
            -Ukraine
            
            
            1,425
            
            
            
            -Total
            
            
            18,518
            
            
            
            -





(5)
            As
      at September 30, 2009, CET 21 had drawn, in CZK, the full CZK 1.2 billion
      (approximately US$ 69.9 million) of a credit facility with CS available
      until December 31, 2010.  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 Offer Rate (“LIBOR”), EURIBOR
      or Prague Inter-Bank Offered Rate (“PRIBOR”) rate plus 1.65%; a rate of
      3.56% applied to the balance outstanding at September 30, 2009 and is
      based on PRIBOR. A non-utilization fee of 0.25% is payable on the undrawn
      portion of this facility, which decreases to 0.125% of the undrawn portion
      if more than 50% of the loan is drawn. Drawings under this facility are
      secured by a pledge of receivables, which are also subject to a factoring
      arrangement with Factoring Ceska Sporitelna, a.s. (“FCS”), a subsidiary of
      CS.





(6)
            CET
      21 has a working capital credit facility of CZK 250.0 million
      (approximately US$ 14.6 million) with CS, which matures on December 31,
      2010.  This working capital facility bears interest at the
      three-month PRIBOR rate plus 1.65%. The applicable rate at September 30,
      2009 was 3.56% .This facility is secured by a pledge of receivables, which
      are also subject to a factoring arrangement with CS.  As at
      September 30, 2009, the full CZK 250.0 million (approximately US$ 14.6
      million) was drawn under this
facility.





(7)
            As
      at September 30, 2009, there were no drawings under a CZK 300.0 million
      (approximately US$ 17.5 million) factoring facility with
      CS.  This facility is available until June 30, 2011 and bears
      interest at the rate of one-month PRIBOR plus 1.40% for the period that
      actively assigned accounts receivable are
  outstanding.





(8)
            As
      at September 30, 2009, our Slovak Republic operations had made no drawings
      under a EUR 3.3 million (approximately US$ 4.8 million) overdraft facility
      with ING.  This can be utilized for short term advances up to
      nine months at an interest rate of EURIBOR +
2%.





(9)
            In
      July 2005 Pro Plus entered into a revolving five-year facility agreement
      for up to EUR 37.5 million (approximately US$ 54.9 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 B.V.  Loans drawn under this facility 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
      September 30, 2009, the full EUR 22.5 million (approximately US$ 33.0
      million) available under this facility was
  drawn.





Page
123
 Index





Capital
Lease Obligations





Capital
lease obligations include future interest payments of US$ 0.8
million.  For more information on our capital lease obligations see
Item 1, Note 11, “Credit Facilities and Obligations under Capital
Leases”.





Operating
Leases





For more
information on our operating lease commitments see Item 1, Note 20, “Commitments
and Contingencies”.





Unconditional
Purchase Obligations





Unconditional
purchase obligations largely comprise future programming
commitments.  At September 30, 2009, we had commitments in respect of
future programming of US$ 514.7 million (December 31, 2008: US$ 280.5
million).  This includes contracts signed with license periods
starting after September 30, 2009.  For more information on our
programming commitments see Item 1, Note 20, “Commitments and
Contingencies”.





Other
Long-Term Obligations





Included
in Other Long-Term Obligations are our commitments to the Dutch tax authorities
of US$ 0.3 million (see Item 1, Note 20, “Commitments and
Contingencies”).





In
addition to the amounts disclosed above, Adrian Sarbu, our President and Chief
Executive Officer, has the right to sell his 5.0% shareholdings in each of 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.  The put option is
exercisable from November 12, 2009 for a twenty-year period thereafter, provided
that we have not enforced a pledge over this 4.79% shareholding which Mr. Sarbu
granted as security for our right to put to him our 8.7% shareholding in MP
Management. As at September 30, 2009, we considered the fair value of the put
option of Mr. Sarbu to be approximately US$ nil.





VI
(d) Cash Outlook.





Sources
of cash and certainty of cash flows from operations





Our
principal sources of liquidity are cash from operations, borrowings under our
various loan agreements as well as cash proceeds from subscriptions for our
equity from time to time. The primary source of our cash flows from operations
has been the sale of television advertising, particularly in our Czech Republic,
Romania, Slovak Republic and Slovenia operations which, together with our
Croatia operations, we regard as Core Operations for the purposes of financing
our business. The level of cash our operations generate in each country is often
strongly correlated to the macro economic performance of that country. While we
strive to negotiate spending commitments with our clients for long periods,
typically one year, during the first three quarters of 2009 our clients have
reduced spending on advertising because demand in the wider economy is
constrained. This has resulted in us having historically low levels of committed
spending and less visibility of future cash flows.





Since
2005, our Core Operations have in the aggregate generated positive cash flows.
During the adverse economic conditions of the first three quarters of 2009, cash
flows from those operations have in the aggregate remained positive although
they have declined. Our operations in Bulgaria and Ukraine, which we regard as
our Developing Operations, do not generate positive cash flows, and instead
require substantial support as they make the investments in programming, people
and other resources necessary to establish market-leading multi-channel
broadcasting platforms. Historically, the cash flows from our Core Operations
has been sufficient, together with issuances of equity and debt, to fund our
Core Operations and our Developing Operations. We expect that our Core
Operations will generate sufficient cash, in conjunction with our current cash
and available facilities to fund their operations and meet the other financing
obligations of the group for the next twelve months. Similarly, we expect that
our Developing Operations have sufficient cash resources to finance their losses
for the next twelve months.





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We
continue to take steps to conserve cash to ensure that we are able to meet our
debt service and other existing financial obligations.  These steps
have included targeted reductions to our operating cost base through headcount
reductions and widespread cost optimization programs, deferral of capital
expenditure and the rescheduling of expansion plans. In addition to conserving
cash, we have also taken several steps to improve our liquidity position. These
steps have focused both on limiting the amount of cash spent on our Developing
Operations and increasing our cash resources, both through additional debt
facilities and the issuance of equity.





Improving
our liquidity position and extending the maturity of our debt





As at
September 30, 2009 we had US$ 560.1 million in available unrestricted cash and
credit facilities (including uncommitted overdraft facilities), gross debt of
US$ 1,475.1 million (being the aggregate outstanding principal amount of our
debt) and net debt of US$ 952.0 million.
 
 During
the quarter ended September 30, 2009 we successfully issued EUR 440.0 million
(approximately US$ 644.3 million) of fixed rate senior notes in two tranches as
described below and used the majority of the proceeds to repay existing debt in
an aggregate principal amount of EUR 372.5 million (approximately US$ 545.5
million). We received net cash proceeds of EUR 45.7 million (approximately US$
66.9 million) from the offerings additional cash which we will use for general
corporate purposes.
 
 On
September 17, 2009 we issued EUR 200.0 million (approximately US$ 292.9 million)
of 11.625% senior notes due 2016 at an issue price of 98.261%, and on September
29, 2009 we issued an additional tranche of EUR 240.0 million of senior fixed
rate notes due 2016 (approximately US$ 351.4 million) at an issue price
of  102.75%. The 2009 Fixed Rate Notes mature on September 15,
2016.


On
September 21, 2009 we repurchased a portion of our 2005 Fixed Rate Notes
totaling EUR 63.2 million (approximately US$ 92.5 million) in aggregate
principal amount pursuant to a tender offer. On September 29, 2009 we issued a
redemption notice for redemption on October 29, 2009 of the remaining EUR 181.8
million (approximately US$ 266.2 million) aggregate principal amount of 2005
Fixed Rate Notes outstanding.  The redemption notice issued on
September 29, 2009 is irrevocable. On September 29, 2009, we deposited an amount
equal to the redemption price plus all interest that will be payable on the
settlement date with the trustee and paying agent pursuant to the indenture
governing the 2005 Fixed Rate Notes (the “2005 Indenture”). The 2005 Fixed Rate
Notes had a maturity date of May15, 2012.





In
connection with such redemption notice and deposit, the 2005 Indenture has been
discharged. Although this discharge removes substantially all of the
restrictions imposed by the 2005 Indenture and makes the likelihood that further
payments or future compliance will be required of us with respect to the 2005
Fixed Rate Notes remote, we concluded that it did not meet the definition of
“legally released” in paragraph 16(b) of FASB Statement No. 140 “accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”
(ASC 405-20-40-1(b)) and therefore we will not recognize the extinguishment of
the remaining liability until October 29, 2009.





On
September 17, 2009 we repaid the aggregate principal amount of EUR 127.5 million
(approximately US$ 187.3 million at the date of repayment) outstanding under the
EBRD Loan and simultaneously terminated the EBRD Loan. In connection with
extinguishing these facilities, we incurred repayment charges and other costs of
US$ 0.6 million. We also wrote off all remaining capitalized issuance costs and
these charges were recognized as a loss on extinguishment within interest
expense.
 
 Although
the interest costs associated with the 2009 Fixed Rate Notes are substantially
higher than the 2005 Fixed Rate Notes and the EBRD Loan, the benefit of
replacing our 2005 Fixed Rate Notes and the EBRD loan with the 2009 Fixed Rate
Notes is twofold. First, the scheduled final maturity of a large portion of our
outstanding debt has been extended from 2011 or 2012 to 2016.  As at
September 30, 2009, the principal amount of our Senior Notes and Convertible
Notes together represented 92% of the total principal amount of our total debt
outstanding and none of this debt matures before March 2013. We currently expect
that we will now need to repay or refinance no maturing or amortizing loan
principal in the remainder of 2009, US$ 117.4 million in 2010 and none in 2011.
At June 30, 2009, prior to the issue of the 2009 Fixed Rate Notes, the
comparable amounts were US$ 37.1 million (excluding the 2005 Fixed Rate Notes),
US$ 174.6 million and US$ 84.8 million.


Page
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Furthermore,
the 2009 Indenture contains covenants that are currently more favorable to us
than those that were in the documents governing the 2005 Fixed Rate Notes and
the EBRD Loan. We do not have maintenance covenants in any of our Senior holding
company debt which means that there is no event of default if we fail to meet a
minimum level of EBITDA, leverage or any other EBITDA-related ratio. However,
the 2005 Fixed Rate Notes and EBRD Loan were subject to an incurrence covenant
which largely restricted us from raising new debt at the corporate level if the
ratio of our Indebtedness to Consolidated EBITDA (both as defined in the 2005
Indenture) (the “Leverage Ratio”) exceeded 4.5 times, or if the raising of new
debt would cause us to exceed this ratio. As at June 30, 2009, our leverage
ratio exceeded this level. Instead of a Leverage Ratio incurrence covenant, the
2009 Indenture and the 2007 Indenture contain a similar covenant which restricts
the incurrence of additional debt if our Coverage Ratio is less than 2.0 times,
or if the raising of new debt would cause us to fall below this ratio. At
September 30, 2009 our Coverage Ratio was 1.9 times. Notwithstanding this
restriction, we are able to incur debt at either the Restricted Subsidiary or
holding company level, of up to EUR 250.0 million (approximately US$ 336.1
million) pursuant to “baskets” set out in the 2009 Indenture and the 2007
Indenture. Our local facilities in the Czech Republic and Slovenia account for
US$ 117.4 million of this amount, and the potential incremental borrowings of
US$ 80 to US$ 90 million that we are currently negotiating in connection with
replacing these facilities would also be borrowed under these baskets, leaving
approximately US$ 158.7 to US$ 168.7 million of additional borrowing capacity
available to us. Irrespective of these restrictions, there are no significant
constraints on our ability to refinance existing debt.
 
 On
February 19, 2009, CET 21 drew the full CZK 1.2 billion (approximately US$ 69.9
million) of its credit facility with CS. At the same time, Pro Plus drew the
full EUR 22.5 million (approximately US$ 32.9 million) available under its
five-year revolving facility with a syndicate of banks. We drew these funds to
ensure their continued availability in light of renewed concerns over the
solvency of credit providers in the region and have kept them deposited in low
risk short-term deposits.
 
 Increasing
our financing flexibility
 
 For the
purposes of the 2009 Indenture and the 2007 Indenture, the calculation of the
Coverage Ratio includes onlyentities that are
“Restricted Subsidiaries.” Subsidiaries may be designated as “Unrestricted
Subsidiaries” and excluded from the calculation of Coverage Ratio. Prior to the
quarter ended June 30, 2009, all of our operations were Restricted Subsidiaries.
During the quarter ended June 30, 2009, our Board of Directors designated those
subsidiaries that comprise our Developing Operations as Unrestricted
Subsidiaries. This change in designation was immediately beneficial to us
because it resulted in the exclusion of the negative EBITDA of the Developing
Operations from the calculation of the Coverage Ratio. Similarly, as the cash
flows of our Core Operations recover, our ability to raise additional debt
finance should improve commensurately, unimpeded by any continuing negative
results in our Developing Operations. In addition, Unrestricted Subsidiaries may
be financed in several ways, including by contributing them into minority
interest joint ventures, swapping for minority stakes in other ventures or other
arrangements.
 
 Under the
covenants in the 2009 Indenture and the 2007 Indenture, our Core Operations are
restricted from making payments or investments in total of more than EUR 80.0
million (approximately US$ 117.1 million)  to our Developing
Operations or to any other operations outside our Core Operations if our
Coverage Ratio is below 2.0 times. We have  made US$ 9.5 million
of such payments since we issued our Floating Rate Notes in 2007 and as at
September 30, 2009 have capacity for approximately US$ 107.6 million of
additional payments to or investments in the Developing Operations in the event
our Coverage Ratio continues to be below 2.0 times. We also designated a wholly
owned subsidiary holding company (the “Development Financing Holding Company”)
as an Unrestricted Subsidiary at the time we designated the Developing
Operations as Unrestricted Subsidiaries. The only asset of this entity at
September 30, 2009 was US$ 224.4 million in cash, which can be used to finance
our Developing Operations. We estimate that this amount will be sufficient to
fund our Developing Operations to a break-even cash position,. There is no
requirement to maintain a minimum cash balance in this company and the full US$
224.4 million of cash remains available to our Core Operations at any time.
However, if some or all of the US$ 224.4 million of initial funding is returned
to our Core Operations, unless our Coverage Ratio is above 2.0 times, the total
additional cash that we are permitted to transfer from Core Operations to the
Developing Operations is restricted to EUR 80.0 million (approximately US$ 117.1
million).


If the
Developing Operations exhaust all available cash, it may be possible to
re-designate them as Restricted Subsidiaries provided that our Coverage Ratio is
not below 2.0 times on a pro forma basis. Our Core Operations are not restricted
in the manner or amount of funding support they provide to the Developing
Operations if they are Restricted Subsidiaries. Such a re-designation could have
adverse consequences on our Coverage Ratio. If a funding need arises for our
Unrestricted Subsidiaries, and we are prevented from re-designating our
Developing Operations as Restricted Subsidiaries, those operations would be
required to raise debt on a stand-alone basis, attract additional equity
funding, divest some or all of their assets or enter bankruptcy
proceedings.





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Reducing
cash requirements and attracting equity investments.





Since the
fourth quarter of 2008 we have been seeking solutions to reduce the financing
burden of our Developing Operations. We concluded that the Developing Operations
are best suited to equity finance at a local or at a Developing Operations level
where equity can be raised without creating dilution for shareholders in CME
Ltd. On July 2, 2009 we announced that we had signed a framework agreement with
Igor Kolomoisky (See Item 1, Note 20 “Commitments and Contingencies: Ukraine
Transaction”). This transaction will provide US$ 100.0 million of immediate
funding to the Ukraine operations and will allow us to transfer up to US$ 100.0
million from the Development Financing Holding Company to the Core Operations if
we so choose. We will also have the right to sell our remaining interest in the
enlarged Ukraine operations to Mr Kolomoisky for US$ 300.0 million in cash for a
period of one year from the closing of the transaction. We also have the choice
to continue to participate in any increase in value of these operations in the
future. We are still evaluating possible solutions to provide funding for our
Bulgaria operations.





Additionally,
on May 18, 2009 we issued 14.5 million shares of Class A common stock at a price
of $12.00 per share and 4.5 million shares of Class B common stock at a price of
$15.00 per share to Time Warner, in exchange for aggregate cash consideration,
net of fees paid, of US$ 234.4 million.





Credit
ratings and future debt issuances





The
availability of additional liquidity is dependent upon the overall status of the
debt and equity capital markets as well as on our continued financial
performance, operating performance and credit ratings. In view of the severe
tightening of credit in high yield bond, convertible debt and bank markets in
the past twelve months it has become more difficult to raise additional or
replacement finance by issuing debt, although conditions improved sufficiently
to allow us to issue our 2009 Fixed Rate Notes in September 2009.





We are
currently able to raise limited additional debt and we believe that we can still
access the debt capital markets in order to refinance any combination of our
existing debt. We are in discussions regarding a possible credit facility for
our Czech operations which would allow us to refinance exisiting credit
facilities and to increase available debt by an incremental US$ 80.0 million to
US$ 90.0 million.





S&P
and Moody’s have both rated our outstanding debt instruments and our corporate
credit as follows as at September 30, 2009:





Senior
      and Convertible Notes (1)
            Corporate
            OutlookS&P
            B
            B
            NegativeMoody’s
            B2
            B2
            Negative





(1)
Moody’s issued their rating before we issued our 2009 Fixed Rate Notes,
therefore with respect to them “Senior Notes” refers to our 2005 Fixed Rate
Notes and Floating Rate Notes. S&P confirmed their rating on September 29,
2009, following our issue of the 2009 Fixed Rate Notes .


S&P
downgraded both of its ratings from BB- to B+ on May 28, 2009 and from B+ to B
(with a negative outlook) on August 4, 2009, which the subsequently confirmed on
September 29, 2009. Moody’s downgraded both of its ratings from Ba2 to Ba3 (with
a negative outlook) on March 2, 2009 and from Ba3 to B2 on August 11,
2009.





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Credit
rating agencies now monitor companies much more closely and have made liquidity,
and the key ratios associated with it, a particular priority. One of the key
indicators used by the ratings agencies in assigning credit ratings to us is our
gross leverage ratio, which was 12.6 times at September 30, 2009 and is
calculated as our gross debt divided by our trailing twelve-month EBITDA
(excluding stock based compensation) as defined by the ratings agencies. As at
September 30, 2009, our total gross debt of US$ 1,475.1 million was the sum of
our credit facilities (excluding our 2005 Fixed Rate Notes, which are in the
process of being redeemed and before considering the adoption of FASB Staff
Position No. FSP APB 14-1 “Accounting for Convertible Debt Instruments That May
Be Settled in Cash Upon Conversion (Including Partial Cash Settlement)” (“FSP
APB 14-1 (ASC 470)”) and obligations under capital leases as disclosed in our
financial statements and the liability under our swap agreements. Our trailing
twelve-month EBITDA (excluding stock based compensation) was US$ 117.3
million.





In view
of the deteriorating trend in our gross leverage ratio, which we expect will
continue during the year as our trailing twelve-month EBITD is expected to
decline, it is likely that S&P and Moody’s will further downgrade our credit
rating by one or more levels during the remainder of 2009.





A
downgrade will not result in us being required to repay any of our outstanding
debt earlier than the current maturity, nor will it result in any variation of
the current interest terms or prevent us from accessing our current undrawn debt
facilities or overdrafts. A downgrade, would, however result in our having to
pay higher interest rates on any future financing and may make it more difficult
for us to raise additional debt.  We do not have any credit facilities
or other financial instruments which would require early termination, the
posting of collateral, or any other financial penalties, solely in the event of
our credit rating being downgraded. We will work closely with rating agencies to
demonstrate the improved credit profile of our Core Operations, especially
following the transactions described above.





Credit
risk of financial counterparties





We have
entered into a number of significant contracts with financial counterparties as
follows:





Cross
Currency Swap





On April
27, 2006, we entered into cross currency swap agreements with JP Morgan Chase
Bank, N.A. and Morgan Stanley Capital Services Inc. (see Item 1, Note 13,
“Financial Instruments and Fair Value Measurements”) under which we periodically
exchange Czech koruna for Euro with the intention of reducing our exposure to
movements in foreign exchange rates. We do not consider that there is any risk
to our liquidity if either of our counterparties were unable to meet their
respective rights under the swap agreements because we would be able to convert
the CZK we receive from our subsidiary into Euros at the prevailing exchange
rate rather than the rate included in the swap.





Capped
Call Options





On
September 15, 2008, Lehman Brothers Holdings Inc, (“Lehman Holdings”, and
collectively with Lehman Brothers OTC Derivatives Inc., “Lehman Brothers”),
filed for protection under Chapter 11 of the United States Bankruptcy Code. The
bankruptcy filing of Lehman Holding, as guarantor, was an event of default that
gave us the right to early termination of caped call options we had purchased
from Lehman Brothers to increase the effective conversion price of our
Convertible Notes. We exercised this right and have claimed an amount of US$
19.9 million. We have subsequently assigned our claim to an unrelated third
party for cash consideration of US$ 3.4 million.





We had
purchased similar capped call options from BNP Paribas (“BNP”) and Deutsche Bank
Securities Inc (“DB”), however we consider the likelihood of similar loss on the
BNP or DB capped calls to be significantly less following the coordinated
response of Europe’s central banks to the global liquidity crisis and the
pivotal positions that each of these banks occupies in its respective country.
In the event of any similar default, there would be no impact on our current
liquidity since the purchase price of the options has already been paid and we
have no further obligation under the terms of the capped calls to deliver cash
or other assets to the counterparties.  Any default would increase the
dilutive effect to our existing shareholders resulting from the issuance of
shares of Class A Common Stock upon any conversion of the Convertible
Notes.





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Cash
Deposits





We
deposit cash in the global money markets with a range of bank counterparties and
review the counterparties we choose weekly.  The maximum period of
deposit is three months but we have more recently held amounts on deposit for
shorter periods, from overnight to one month. The credit rating of a bank is a
critical factor in determining the size of cash deposits and we will only
deposit cash with banks of an investment grade of A or A2 or higher. In addition
we also closely monitor the credit default swap spreads and other market
information for each of the banks with which we consider depositing or have
deposited funds.




VI  (e)
Off-Balance Sheet Arrangements





None.





VII.  Critical
Accounting Policies and Estimates





Our
accounting policies affecting our financial condition and results of operations
are more fully described in Part II, Item 8 of our Annual Report on Form 10-K
for the year ended December 31, 2008, as updated for certain accounting changes
by our current report on Form 8-K filed on July 6, 2009.  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 we believe 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 our critical accounting policies relate to the following: program
rights, goodwill and intangible assets, impairment or disposal of long-lived
assets, revenue recognition, income taxes, foreign exchange and
contingencies.  These critical accounting policies affect our more
significant judgments and estimates used in the preparation of our condensed
consolidated financial statements.





See Item
1, Note 2, “Summary of Significant Accounting Principles” for a discussion on
accounting standards adopted since December 31, 2008 and recently issued
accounting standards not yet adopted.




Item 3.  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, although our functional
currency is the US Dollar, 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.





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 Index





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$ 622.9 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$ 550.4 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 September 30, 2009 was a US$ 14.3
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 1, Note 5,
“Senior Debt”).  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 FASB Statement No. 133, “Accounting for Derivative
Instruments and Hedging Activities” (ASC 820), 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
September 30, 2009, approximately 23% of the carrying value of our debt provides
for interest at a spread above a base rate EURIBOR or PRIBOR.  A
significant rise in the EURIBOR or PRIBOR base rate would have an adverse effect
on our business and results of operations.





Interest
Rate Table as at September 30, 2009





Expected
      Maturity Dates
            
            2009
            
            
            2010
            
            
            2011
            
            
            2012
            
            
            2013
            
            
            ThereafterTotal
      debt in Euro (000's)Fixed
      rate
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            440,000Average
      interest rate (%)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            11.63
            %Variable
      rate
            
            
            -
            
            
            
            22,520
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            150,000Average
      interest rate (%)
            
            
            -
            
            
            
            3.09
            %
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            3.10
            %Total
      debt in US$ (000's)Fixed
      rate
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            475,000
            
            
            
            -Average
      interest rate (%)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            3.5
            %
            
            
            -Total
      debt in CZK (000's)Fixed
      rate
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Average
      interest rate (%)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Variable
      rate
            
            
            -
            
            
            
            1,450,000
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Average
      interest rate (%)
            
            
            -
            
            
            
            3.56
            %
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -





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130
 Index





Variable
Interest Rate Sensitivity as at September 30, 2009





Yearly
      interest charge if interest rates increase by
              (US$
      000s):Value
      of Debt as at September 30, 2009 (US$ 000's)
            
            Interest
      Rate as at September 30, 2009
            
            
            Yearly
      Interest Charge
              (US$
      000’s)
            
            
            
            1
            %
            
            
            2
            %
            
            
            3
            %
            
            
            4
            %
            
            
            5
            %252,621
              (EUR
      172.5 million)
            
            
            3.10
            %
            
            
            7,837
            
            
            
            10,363
            
            
            
            12,889
            
            
            
            15,415
            
            
            
            17,942
            
            
            
            20,46784,410
              (CZK
      1,450.0 million)
            
            
            3.56
            %
            
            
            3,005
            
            
            
            3,849
            
            
            
            4,693
            
            
            
            5,538
            
            
            
            6,381
            
            
            
            7,226Total
            
            
            
            
            
            $
            10,842
            
            
            $
            14,212
            
            
            $
            17,582
            
            
            $
            20,953
            
            
            $
            24,323
            
            
            $
            27,693





Item 4.  Controls and Procedures





Our
President and Chief Executive Officer and Chief Financial Officer evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this report. Based upon this
evaluation, the President and Chief Executive Officer and Chief Financial
Officer concluded that the disclosure controls and procedures are
effective.  There has been no change in our internal control over
financial reporting during the quarter ended September 30, 2009 that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.




PART
II  OTHER INFORMATION





Item 1. Legal Proceedings





General





a)
Litigation





We are,
from time to time, a party to litigation or arbitration proceedings arising in
the normal course of our business operations. Other than the claim discussed
below, we are not presently a party to any such litigation or arbitration which
could reasonably be expected to have a material adverse effect on our business
or operations.





Video
International termination





On March
18, 2009, Video International Company Group, CGSC (“VI”), a Russian legal
entity, filed a claim in the London Court of International Arbitration (“LCIA”)
against our wholly-owned subsidiary CME Media Enterprises B.V. (“CME BV”), which
is the principal holding company of our Ukrainian subsidiaries. The claim
relates to the termination of an agreement between VI and CME BV dated November
30, 2006 (the “parent agreement”). The parent agreement was one of four related
contracts by which VI subsidiaries, including LLC Video International-Prioritet
(“Prioritet”), supplied advertising and marketing services to Studio 1+1 in
Ukraine and another subsidiary of the Company. Among these four contracts were
the advertising services agreement and the marketing services agreements both
between Prioritet and Studio 1+1. The parent agreement provides that it
automatically terminates upon termination of the advertising services agreement.
On December 24, 2008, each of CME BV, Studio 1+1 and the other CME subsidiary
provided notices of termination to their respective contract counterparties,
following which each of the four contracts terminated on March 24, 2009. On
January 9, 2009, in response to a VI demand, CME revised its termination notice
and noted that the parent agreement would expire of its own accord with the
termination of the advertising services agreement. In connection with these
terminations, Studio 1+1 is required under the advertising and marketing
services agreements to pay a termination penalty equal to (i) 12% of the average
monthly advertising revenues, and (ii) 6% of the average monthly sponsorship
revenues, in each case for advertising and sponsorship sold by Prioritet for the
six months prior to the termination date, multiplied by six. We determined the
termination penalty to be UAH 37.7 million (approximately US$ 4.5 million) and
made a provision for this amount in our financial statements in the fourth
quarter of 2008. On June 1, 2009, we paid UAH 13.5 million (approximately US$
1.6 million) to Prioritet and set off UAH 7.4 million (approximately US$ 0.9
million) against amounts owing to Studio 1+1 under the advertising and marketing
services agreements. In its arbitration claim, VI is seeking payment of a
separate indemnity under the parent agreement equal to the aggregate amount of
Studio 1+1’s advertising revenues for the six months ended December 31, 2008.
The aggregate amount of relief sought is US$ 58.5 million. We believe that VI
has no grounds for receiving such separate indemnity and are vigorously
defending the arbitration proceedings. We do not believe it is probable that we
will be required to make any payment and accordingly have made no provision for
it.





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Item 1A.  Risk Factors





This
report and the following discussion of risk factors contain forward-looking
statements as discussed in Part I, Item 2, “Management’s Discussion and Analysis
of Financial Condition and Results of Operations”. Our actual results may differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including the risks and uncertainties described below
and elsewhere in this report. These risks and uncertainties are not the only
ones we may face. Additional risks and uncertainties of which we are not aware,
or that we currently deem immaterial, may also become important factors that
affect our financial condition, results of operations and cash
flows.





Risks
Relating to our Financial Position





The
global recession and credit crisis has adversely affected our financial position
and results of operations; we cannot predict if or when adverse economic
conditions in the countries in which we operate will recover, and a failure to
recover promptly will continue to adversely affect our results of
operations.





The
results of our operations rely heavily on advertising revenue, and demand for
advertising is affected by prevailing general and regional economic conditions.
The financial turmoil affecting the global financial markets and banking system
has resulted in a tightening of credit and a low level of liquidity, which has
had an adverse impact on economic growth in the United States as well as in
countries across Western and Central and Eastern Europe, many of which have
fallen into recession. There has been a widespread withdrawal of investment
funding from the Central and Eastern European markets and companies with
investments in them, particularly in Ukraine, Bulgaria and Romania. Furthermore,
the continued economic downturn has adversely affected consumer and business
spending, access to credit, liquidity, investments, asset values and
unemployment rates and has contributed to a strengthening of the dollar against
many of the currencies in which we report our consolidated revenues. These
adverse economic conditions have had a material negative impact on the
advertising industries in our markets, leading our customers to reduce the
amounts they spend on advertising. This has resulted in a decrease in demand for
our advertising airtime and a severe, negative impact on our financial position,
results of operations and cash flows. In addition, the occurrence of disasters,
acts of terrorism, civil or military conflicts or general political instability
may create further economic uncertainty that reduces advertising spending. We
cannot predict when a recovery will occur or the sustainability of any recovery
in our markets. The absence of a recovery will continue to adversely affect our
financial position, results of operations and cash flows.





Our
operating results are adversely affected when we cannot generate strong
advertising sales.





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We
generate almost all of our revenues from the sale of advertising airtime on our
television channels. In addition to general economic conditions, other factors
that may affect our advertising revenues are the pricing of our advertising time
as well as television viewing levels, changes in our programming strategy,
changes in audience preferences, our channels’ technical reach, technological
developments relating to media and broadcasting, competition from other
broadcasters and operators of other media platforms, seasonal trends in the
advertising market in the countries in which we operate, and shifts in
population and other demographics. A reduction in advertising spending in our
markets has put pressure on the prices at which we sell television advertising
because of pressure to reduce prices from advertisers and discounting by
competitors, particularly in Ukraine. Reduced advertising spending and
discounting of the price of television advertising in our markets and the
competition from broadcasters seeking to attract similar audiences have had and
may continue to have an adverse impact on our ability to maintain or increase
our advertising sales. Our ability to maintain television viewing levels and to
generate GRPs depends in part on our maintaining investments in television
programming and productions at a sufficient level to continue to attract these
audiences. Significant or sustained reductions in investments in programming,
production or other operating costs in response to reduced advertising spending
in our markets have had and may continue to have an adverse impact on our
television viewing levels. The significant decline in advertising sales has had
and could continue to have a material adverse effect on our financial position,
results of operations and cash flows.





Our
debt service obligations relating to our Senior Notes and Convertible Notes may
restrict our ability to fund our operations.





We
currently have significant debt service obligations under our Senior Notes and
Convertible Notes and we are restricted in the manner in which our business is
conducted (see Part I, Item 1, Note 5, “Senior Debt” and
Note 11, “Credit Facilities and Obligations under Capital Leases”). Our
high leverage has important consequences for our business and results of
operations, including but not limited to restricting our ability to obtain
additional financing to fund future working capital, capital expenditures,
business opportunities and other corporate requirements. In addition, our high
leverage may impede our ability to provide further financial support to our
unrestricted subsidiaries, because the covenants contained in the indentures
governing the Senior Notes restrict the manner and extent to which we can
finance the unrestricted subsidiaries. Our cash flow from operations is
currently less than that required to service interest on our indebtedness, which
means that other sources of capital are required to fund our operations, capital
expenditures and for other corporate purposes. Our ability to satisfy our
obligations under the Senior Notes and Convertible Notes is subject to our
ability to secure additional financing, which may not be available on favorable
terms or at all. We may have a proportionally higher level of debt than certain
of our competitors, which may put us at a competitive disadvantage. Therefore,
our flexibility in planning for, or reacting to, changes in our business, the
competitive environment and the industry in which we operate may be 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 the implementation
of our strategic plans.


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





Our
ability to meet our total capital requirements is based on our expected cash
resources, including our debt facilities, as well as estimates of future
operating results, which are derived from a variety of assumptions that may
prove to be inaccurate. If economic conditions in our markets do not improve, if
our assumptions regarding future operating results prove to be inaccurate, if
our costs increase due to competitive pressures or other unanticipated
developments, if the proceeds expected to be received as part of the
transactions contemplated by the Ukraine Agreement are not received, or if our
investment plans change, we will need to obtain additional financing to fund our
operations and to repay or refinance the Senior Notes and the Convertible Notes.
The tightening of the credit markets and the impact of the continued economic
downturn on our operations may constrain our ability to obtain financing,
whether through public or private debt or equity offerings, proceeds from the
sale of assets or other financing arrangements. It is not possible to ensure
that additional debt financings will be available within the limitations on the
incurrence of additional indebtedness contained in the 2009 Indenture and the
2007 Indenture. Moreover, such financings, if available at all, may not be
available on acceptable terms. If we cannot obtain adequate capital or obtain it
on acceptable terms, this could have an adverse effect on our financial
position, results of operations and cash flows.





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We
may be unable to refinance our existing debt financings or obtain favorable
refinancing terms.





We are
subject to the normal risks associated with debt financings, including the risk
that our cash flow will be insufficient to meet required payments of principal
and interest on debt and the risk that indebtedness will not be able to be
renewed, repaid or refinanced when due, or that the terms of any renewal or
refinancing will not be as favorable as the terms of such indebtedness. This
risk is exacerbated by the recent capital market crisis which has resulted in
tightened lending requirements and in some cases the inability to refinance
indebtedness. If we were unable to refinance indebtedness on acceptable terms,
or at all, we might be forced to dispose of assets on disadvantageous terms, or
reduce or suspend operations, any of which would materially and adversely affect
our financial condition and results of operations.





If
more of our goodwill, indefinite-lived intangible assets and long-lived assets
become impaired we may be required to record additional significant charges to
earnings.





We review
our long-lived 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, indefinite-lived intangible
assets or long-lived assets may not be recoverable include slower growth rate in
our markets, future cash flows and a decline in our stock price and market
capitalization. We recorded impairment charges of US$81.8 million in the nine
months ended September 30, 2009 in respect of our Bulgaria operations and
US$336.7 million in the three months ended December 31, 2008 in respect of our
Bulgaria and Ukraine operations. While the amount by which the fair value of our
reporting units exceeds their carrying values had recovered in the second
quarter of 2009, the last point at which we performed an impairment review, and
we therefore did not record further impairments, these excesses are still at
historically low levels. Conditions improved during the third quarter of 2009
and we concluded that a further impairment review was not required. Although we
considered all current information in respect of calculating our impairment
charge for the nine months ended September 30, 2009, if there are further
indicators of impairment and our long term cash flow forecasts for our
operations deteriorate further, or discount rates increase, we may be required
to recognize additional impairment charges in later periods.





Fluctuations
in exchange rates may adversely affect our results of operations.





Our
reporting currency is the dollar but our consolidated revenues and costs,
including programming rights expenses and interest on debt, are divided across a
range of currencies. The strengthening of the dollar against these currencies
has had an adverse impact on our reported results for the three and nine month
periods ended September 30, 2009 compared to the prior year. In addition,
the Senior Notes are denominated in Euros. We have not attempted to hedge the
foreign exchange exposure on the principal amount of the Senior Notes. We may
continue to experience significant gains and losses on the translation of our
revenues or the Senior Notes into dollars due to movements in exchange rates
between the Euro, the currencies of our local operations and the
dollar.


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





Our
ability to make debt service payments under the Senior Notes, our Convertible
Notes and other indebtedness will depend 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 were to prove insufficient to fund our debt service
obligations, we would face substantial liquidity problems. We may be obliged to
reduce or delay capital or other material expenditures at our channels,
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, which may
have an adverse effect on our financial position, results of operations and cash
flows. Following the discharge of the 2005 Indenture on September 29, 2009, we
are subject only to the limits on our ability to incur additional interest
expense, and not to limits on our ability to incur indebtedness (whether or not
it bears interest). As a result, we are able to incur higher amounts of
indebtedness that is non interest-bearing, such as vendor financing or
guarantees of indebtedness. This may place additional demands on our cash flow
and capital resources.





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A
downgrading of our ratings may adversely affect our ability to raise additional
financing.





Following
a downgrade on August 4, 2009, our Senior Notes, Convertible Notes and corporate
credit are rated B with a negative outlook by S&P, and, following a
downgrade on August 19, 2009, both our Senior Notes and our corporate credit are
rated as B2 with a negative outlook by Moody’s. These ratings reflect each
agency’s opinion of our financial strength, operating performance and ability to
meet our debt obligations as they become due. Credit rating agencies have begun
to monitor companies much more closely and have made liquidity, and the key
ratios associated with it, such as gross leverage ratio, a particular priority.
We expect that our gross leverage ratio will continue to deteriorate and
therefore our credit ratings may be downgraded again during the course of 2009
(see Part I, Item 2, VI(d) “Cash Outlook”). In the event our debt or corporate
credit ratings are lowered by the ratings agencies, our ability to raise
additional indebtedness may be more difficult and we will have to pay higher
interest rates, which may have an adverse effect on our financial position,
results of operations and cash flows.





Under
the Senior Notes and Convertible Notes, we have pledged shares in our two
principal subsidiary holding companies 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 the 2007 Indenture, the indenture pursuant to which our
Convertible Notes were issued (the “2008 Indenture”) and the 2009 Indenture, 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, Markiza, Pro Plus and Studio 1+1. If we
were to default on any of the 2007 Indenture, the 2008 Indenture or the 2009
Indenture, the trustees under the 2007 Indenture, the 2008 Indenture and the
2009 Indenture would have the ability to sell all or a portion of all of these
assets in order to pay amounts outstanding under such debt
instruments.





Risks
Relating to our Operations





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. Television competes with various other
media, such as print, radio, the internet and outdoor advertising, for
advertising spending. 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. Furthermore, there can
be no assurances that changes in the regulatory environment or improvements in
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 would have an adverse effect on our financial
position, results of operations and cash flows.





If
we fail to successfully implement our strategic goals for Ukraine, our operating
results and cash flows will be materially adversely affected.





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In June
2008, we completed the acquisition of an additional 30% interest in the Studio
1+1 group from our partners, increasing our beneficial ownership interest to
90%, and in October 2008, we completed the acquisition of the remaining 10%
interest in the Studio 1+1 group. In February 2009, we completed the buyout of
our minority partners in the KINO channel and the sale of our interest in the
CITI channel (see Part I, Item 1, Note 3, “Acquisitions and Disposals”). In July
2009, we entered into an agreement with Igor Kolomoisky, a shareholder and
member of our Board of Directors, pursuant to which Mr. Kolomoisky and certain
of his affiliates will invest US $100.0 million in cash and contribute the
entities that own and operate the TET TV channel in Ukraine, in exchange for
49.0% ownership interest in our Ukraine operations (see Part I, Item 1, Note 20,
“Commitments and Contingencies: Ukraine Transaction”). In addition, in
connection with the termination of our advertising sales arrangements with Video
International group, we created an in-house sales department to sell advertising
on our channels in Ukraine. As a result of these events, we have taken a series
of measures to improve the overall standing and performance of the STUDIO 1+1
and KINO channels. Successful implementation will depend on several factors,
including but not limited to general economic conditions in Ukraine, the ability
of our in-house sales team to sell advertising, our ability to integrate the
operations of our Ukraine channels, our achieving cost savings by consolidating
these operations, the cost and popularity of local productions and
Russian-language programming, our ability to maintain investment levels
necessary to achieve higher ratings and audience share, the implementation of
new management processes, the strength of the local management team, the ability
of our internet properties in Ukraine to generate revenues as well the ability
of the Ukrainian government to maintain political stability and the successful
closing of the transaction with Mr. Kolomoisky. There can be no assurance that
we will be able to successfully implement a new strategy in Ukraine, and any
such failure will have a material adverse effect on our financial position,
results of operations and cash flows.





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





Our
business and operations have grown in part through acquisition. The acquisition
and integration of new businesses (including the expected acquisition of the
Media Pro Entertainment business) pose significant risks to our existing
operations, including:





•
            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
      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
      to the indentures governing our Senior Notes (with the exception of the
      2005 Indenture, which was discharged on September 29,
    2009).





To manage
our growth effectively 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 due to 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 cash flows
and profit margins.





In
addition, prospective competitors may have greater financial resources than we
do, and increased competition for target broadcasters may reduce the number of
potential acquisitions that are available on acceptable terms.





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





Television
programming is one of the most significant components of our operating costs,
particularly in Ukraine. The commercial success of our channels depends
substantially on our ability to develop, produce or acquire programming that
matches audience tastes, attracts high audience shares and generates advertising
revenues. The costs of acquiring content attractive to our viewers, such as
feature films and popular television series and formats, may increase as a
result of greater competition from existing and new television broadcasting
channels. Our expenditure in respect of locally produced programming may also
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 well in our markets. In the event any such programming does not attract
adequate audience share, it may be necessary to increase our expenditures by
investing in additional programming as well as to write down the value of such
underperforming programming. Any increase in programming costs or write-downs
could have a material adverse effect on our financial condition, results of
operations and cash flows.





The
transition to digital broadcasting may require substantial additional
investments and the timing of such investments is uncertain.





Countries
in which we have operations are migrating from analog terrestrial broadcasting
to digital terrestrial broadcasting. Each country has independent plans with its
own timeframe and regulatory and investment regime. The specific timing and
approach to implementing such plans is subject to change. We cannot predict the
effect of the migration on our existing operations or predict with certainty our
ability to receive any additional rights or licenses to broadcast for our
existing channels or any additional channels if such additional rights or
licenses should be required under any relevant regulatory regime. Furthermore,
we may be required to make substantial additional capital investment and commit
substantial other resources to implement digital terrestrial broadcasting, and
the availability of competing alternative distribution systems, such as
direct-to-home platforms, may require us to acquire additional distribution and
content rights. We may not have access to resources sufficient to make such
investments when required.





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





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 analog terrestrial broadcasting,
such as digital terrestrial broadcasting, direct-to-home cable and satellite
distribution systems, the internet, video-on-demand and the availability of
television programming on portable digital devices, have fragmented television
audiences in more developed markets and could adversely affect our ability to
retain audience share and attract advertisers as such technologies penetrate our
markets. New technologies that enable viewers to choose when and what content to
watch, as well as to fast-forward or skip advertisements may cause changes in
consumer behavior that could impact our business. In addition, compression
techniques and other technological developments allow for an increase in the
number of channels that may be broadcast in our markets and expanded programming
offerings that may be offered to highly targeted audiences. Reductions in the
cost of launching additional channels 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 to address competition that arises on account of
technological innovations in broadcasting may have an adverse effect on our
financial position, results of operations and cash flows.





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We
may not be aware of all related party transactions, which may involve risks of
conflicts of interest that result in concluding transactions on less favorable
terms than could be obtained in arms-length transactions.





In
certain of our markets, Adrian Sarbu, our President and Chief Executive Officer
(who is a shareholder in our Romania operations), general directors or other
members of the management of our operating companies have other business
interests in their respective countries, including interests in television and
other media-related companies. For example, following the completion of
acquisition of the Media Pro Entertainment business, Mr. Sarbu will
continue to own or control entities involved in print media, internet services
and news syndication services, among others (see Part I, Item 1, Note 20,
“Commitments and Contingencies: Media Pro Transaction”). We may not be aware of
all business interests or relationships that exist with respect to entities with
which our operating companies enter into transactions. Transactions with
companies, whether or not we are aware of any business relationship between our
employees and third parties, may present conflicts of interest which may in turn
result in the conclusion of transactions on terms that are not arms-length. It
is likely that our subsidiaries will continue to enter into related party
transactions in the future. 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 indentures governing the Senior
Notes. Any related party transaction that is entered into on terms that are not
arms-length may result in a negative impact on our financial position, results
of operations and cash flows.


We
may not be able to prevent the management of our operating companies 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 addition, we typically grant
authority to other members of management through delegated authorities. In the
past, our internal controls have detected transactions that have been entered
into by managers acting outside of their authority. Internal controls may not be
able to prevent an employee from acting outside his authority. There is
therefore a risk that employees with delegated authorities may act outside their
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 create the risk of fraud or the breach of applicable
law, which may result in transactions or sanctions that may 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. Our analog broadcasting licenses
expire at various times between April 2010 and February 2025. 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
markets 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. 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.





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





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Our
revenue generating operations are located in Central and Eastern Europe. These
markets pose different risks to 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. The economic and political systems, legal
and tax regimes, standards of corporate governance and business practices of
countries in this region continue to develop. Government policies may be subject
to significant adjustments, especially in the event of a change in leadership.
This 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, any of which could have a material adverse
effect on our financial positions, results of operations and cash flows. Other
potential risks inherent in markets with evolving 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 political parties also present a potential for biased
treatment of us before regulators or courts 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. The loss of
a material business would have an adverse impact on our financial position,
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. 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. The loss
of the services of any of these individuals could have an adverse effect on our
business, results of operations and cash flows.





Risks
Relating to Enforcement of Rights





We
are a Bermuda company and enforcement of civil liabilities and judgments may be
difficult.





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





Our
bye-laws restrict shareholders from bringing legal action against our officers
and directors.





Our
bye-laws contain a broad waiver by our shareholders of any claim or right of
action in Bermuda, both individually and on our behalf, against any of our
officers or directors. The waiver applies to any action taken by an officer or
director, or the failure of an officer or director to take any action, in the
performance of his or her duties, except with respect to any matter involving
any fraud or dishonesty on the part of the officer or director. This waiver
limits the right of shareholders to assert claims against our officers and
directors unless the act or failure to act involves fraud or
dishonesty.





Risks
Relating to our Common Stock





The
holders of shares of our Class B stock are in a position to decide corporate
actions that require shareholder approval and may have interests that differ
from those of other shareholders





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Shares of
our Class B common stock carry ten votes per share, and there are currently
10,812,839 shares of Class B common stock outstanding.  CME Holdco
L.P. (“CME Holdco”) owns 6,312,839 shares of Class B common stock. Ronald
Lauder, the chairman of our Board of Directors, is the majority owner and
general partner of CME Holdco and is entitled to vote those shares on behalf of
CME Holdco.  Adele (Guernsey) L.P., a fund affiliated with Apax
Partners, owns 49.7% of CME Holdco. On September 28, 2009, the general partner
of CME Holdco issued a notice of dissolution informing the partners that it
intended to dissolve the partnership and distribute its assets pursuant to the
terms of the partnership agreement. Following the distribution, we anticipate
that Mr. Lauder and certain entities associated with him will hold approximately
3.2 million shares of Class B common stock. The remaining 3.1 million shares of
Class B common stock will be converted to shares of Class A common stock
pursuant to our bye-laws and distributed to Adele (Guernsey) L.P. The
distribution of the CME Holdco partnership assets is expected to
occur before the end of the fourth quarter of 2009,(see Part I, Item
1, Note 14, “Shareholders’ Equity”).


On May
18, 2009, the Company issued 14,500,000 shares of Class A common stock and
4,500,000 shares of Class B common stock (collectively, the TW Shares“) to Time
Warner (see Part I, Item 1, Note 14, “Shareholders’ Equity”). Pursuant to a
voting agreement between the Company, Mr. Lauder, RSL Savannah LLC, a company
wholly owned by Mr. Lauder, and Time Warner Media Holdings B.V., Mr. Lauder is
entitled to vote the TW Shares, as well as any other shares of Class A common
stock or Class B common stock acquired by Time Warner during the term of the
voting agreement.  Notwithstanding the foregoing, Time Warner reserves
the right to vote certain shares in any transaction that would result in a
change of control of the Company.





The
shares over which Mr. Lauder has voting power represent 77.3% of the aggregate
voting power of our outstanding common stock and he is therefore in a position
to control the outcome of corporate actions requiring shareholder approval, such
as the election of directors or certain transactions, including issuances of
common stock of the Company that may result in a dilution of the holders of
shares of Class A common stock or in a change of control. The interests of Mr.
Lauder 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
Mr. Lauder retains voting control.





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 Operations” as well as the following: general
economic and business trends, variations in quarterly operating results, license
renewals, 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 and investor and securities analysts’ perception of us and
other companies that investors or securities analysts deem comparable in the
television broadcasting industry.  In addition, stock markets in
general have 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 shares of our Class A common stock,
regardless of our operating performance.





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





As at
October 28, 2009, we have a total of 2.0 million options to purchase Class A
common stock outstanding and 0.1 million options to purchase shares of Class B
common stock outstanding.  An affiliate of PPF a.s., from whom we
acquired the TV Nova (Czech Republic) group, holds 3,500,000 unregistered shares
of Class A common stock and Igor Kolomoisky, a member of our Board of Directors,
holds 1,275,227 unregistered shares of Class A common stock. Furthermore, in May
2009 we issued 14,500,000 unregistered shares of Class A common stock and
4,500,000 unregistered shares of Class B common stock to an affiliate of Time
Warner.  Time Warner has registration rights with respect to the
shares of Class A common stock. Following the distribution of the assets of CME
Holdco as described above, an affiliate of Apax Partners will hold 3,168,575
unrestricted shares of our Class A common stock.





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In
addition, the Convertible Notes are convertible into shares of our Class A
common stock and mature on March 15, 2013. Holders of the Convertible Notes have
registration rights with respect to the shares of Class A common stock
underlying the Convertible Notes. Prior to December 15, 2012, the Convertible
Notes will be convertible following certain events and from that date, at any
time through March 15, 2013. From time to time up to and including December 15,
2012, we will have the right to elect  to deliver (i) shares of our
Class A common stock or (ii) cash and, if applicable, shares of our Class A
common stock upon conversion of the Convertible Notes. At present, we have
elected to deliver cash and, if applicable, shares of our Class A common stock
(see Part I, Item 1, Note 5 “Senior Debt”). To mitigate the potentially dilutive
effect of a conversion of the Convertible Notes on our Class A common stock, we
have entered into two capped call transactions.  In connection
therewith we have purchased call options with respect to a certain number of
shares of our Class A common stock that are exercisable in the event of a
conversion of the Convertible Notes or at maturity on March 15,
2013.   We may receive cash or shares of our Class A common stock
upon the exercise of an option (see Part I, Item 1, Note 5, “Senior
Debt”).





We cannot
predict what effect, if any, an issuance of shares of our common stock,
including the Class A common stock underlying options or the Convertible Notes
and in connection with future financings, or the entry into trading of
previously issued unregistered shares of our Class A common stock, will have on
the market price of our shares.  If more shares of common stock are
issued, the economic interest of current shareholders may be diluted and the
price of our shares may be adversely affected.





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Item 6.  Exhibits





a)
            The
      following exhibits are attached:





4.1
            Indenture
      among Central European Media Enterprises Ltd. as Issuer, Central European
      Media Enterprises N.V. and CME Media Enterprises B.V. as Subsidiary
      Guarantors, The Bank of New York, acting through its London Branch, as
      Trustee, The Bank of New York, acting through its London Branch, as
      Principal Paying Agent and Transfer Agent, The Law Debenture Trust
      Corporation p.l.c. as Security Trustee and The Bank of New York
      (Luxembourg) S.A. as Registrar, Luxembourg Transfer Agent and Luxembourg
      Paying Agent, dated September 17, 2009.10.4
            First
      Amended and Restated Framework Agreement among Central European Media
      Enterprises Ltd., CME Ukraine Holding B.V., CME Cyprus Holding Limited,
      Alstrom Business Corp, Michalakis Tsitsekkos, Igor Kolomoisky and Ihor
      Surkis, dated July 22, 2009.10.5
            Framework
      Agreement among CME Production B.V., CME Romania B.V., Media Pro
      Management S.A., Media Pro B.V. and Adrian Sarbu, dated July 27,
      2009.10.6
            Contract
      of Employment between CME Media Services Limited and Adrian Sarbu, dated
      July 27, 2009.10.7
            Dealer
      Manager Agreement between Central European Media Enterprises Ltd. and
      Deutsche Bank AG, London Branch, dated September 7,
  2009.10.8
            Tender
      Agency Agreement between Central European Media Enterprises Ltd., Deutsche
      Bank AG, London Branch, as Principal Tender Agent, and certain other
      tender agents, dated September 7, 2009.10.9
            Purchase
      Agreement among Central European Media Enterprises Ltd., Central European
      Media Enterprises N.V., CME Media Enterprises B.V., Deutsche Bank AG,
      London Branch, BNP Paribas London Branch, Merrill Lynch International,
      Erste Group Bank AG and  J.P. Morgan Securities Ltd., dated
      September 10, 2009.10.10
            Global
      Deed of Release among Central European Media Enterprises Ltd., CME Media
      Enterprises B.V., Central European Media Enterprises N.V. and European
      Bank for Reconstruction and Development, dated September 16,
      2009.10.11
            Contract
      Assignment between CME Media Enterprises B.V, Central European Media
      Enterprises Ltd., The Bank of New York Mellon, acting through its London
      Branch and the Law Debenture Trust Corporation p.l.c., dated September 17,
      2009.10.12
            Deed
      of Amendment to the Intercreditor Agreement dated July 21, 2006, as
      amended, among Central European Media Enterprises Ltd., Central European
      Media Enterprises N.V., CME Media Enterprises B.V., The Bank of New York
      Mellon (formerly JPMorgan Chase Bank, N.A., London Branch), BNY Corporate
      Trustee Services Limited, The Bank of New York Mellon (formerly The Bank
      of New York), The Bank of New York Mellon (formerly The Bank of New York),
      European Bank for Reconstruction and Development, The Bank of New York
      Mellon, acting through its London Branch and The Law Debenture Trust
      Corporation p.l.c., dated September 17, 2009.10.13
            Pledge
      Agreement among Central European Media Enterprises Ltd., Central European
      Media Enterprises N.V., The Bank of New York Mellon, acting through its
      London Branch and The Law Debenture Trust Corporation p.l.c., dated
      September 17, 2009.10.14
            Deed
      of Pledge of Shares among Central European Media Enterprises N.V., CME
      Media Enterprises B.V., The Bank of New York Mellon, acting through its
      London Branch and The Law Debenture Trust Corporation p.l.c., dated
      September 17, 2009.10.15
            Purchase
      Agreement among Central European Media Enterprises Ltd., Central European
      Media Enterprises N.V., CME Media Enterprises B.V., Deutsche Bank AG,
      London Branch, BNP Paribas London Branch, Merrill Lynch International,
      Erste Group Bank AG, ING Bank N.V., London Branch and J.P. Morgan
      Securities Ltd., dated September 23, 2009.


Page
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10.16
            Global
      Deed of Release among Central European Media Enterprises Ltd., CME Media
      Enterprises B.V., Central European Media Enterprises N.V. and The Bank of
      New York Mellon, acting through its London Branch (formerly JPMorgan Chase
      Bank, N.A., London Branch), dated September 29, 2009.10.17
            Deed
      of Amendment to the Intercreditor Agreement dated July 21, 2006, as
      amended, among Central European Media Enterprises Ltd., Central European
      Media Enterprises N.V., CME Media Enterprises B.V., The Bank of New York
      Mellon (formerly JPMorgan Chase Bank, N.A., London Branch), BNY Corporate
      Trustee Services Limited, The Bank of New York Mellon (formerly The Bank
      of New York), The Bank of New York Mellon (formerly The Bank of New York),
      The Bank of New York Mellon, acting through its London Branch and The Law
      Debenture Trust Corporation p.l.c., dated September 29,
    2009.31.01
            Certification
      of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a)
      and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.31.02
            Certification
      of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a)
      and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.32.01
            Certifications
      of Principal Executive Officer and Principal Financial Officer pursuant to
      18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002 (furnished
only).





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 Index





SIGNATURES





Pursuant
to the requirements 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:
      October 27, 2009
            /s/ Adrian Sarbu
              Adrian
      Sarbu
              President
      and Chief Executive Officer
              (Principal
      Executive Officer)Date:
      October 27, 2009
            /s/ Charles Frank
              Charles
      Frank
              Chief
      Financial Officer
              (Principal
      Financial Officer)





Page
144
 Index





EXHIBIT INDEX





4.1
            Indenture
      among Central European Media Enterprises Ltd. as Issuer, Central European
      Media Enterprises N.V. and CME Media Enterprises B.V. as Subsidiary
      Guarantors, The Bank of New York, acting through its London Branch, as
      Trustee, The Bank of New York, acting through its London Branch, as
      Principal Paying Agent and Transfer Agent, The Law Debenture Trust
      Corporation p.l.c. as Security Trustee and The Bank of New York
      (Luxembourg) S.A. as Registrar, Luxembourg Transfer Agent and Luxembourg
      Paying Agent, dated September 17, 2009.10.4
            First
      Amended and Restated Framework Agreement among Central European Media
      Enterprises Ltd., CME Ukraine Holding B.V.,CME Cyprus Holding Limited,
      Alstrom Business Corp, Michalakis Tsitsekkos, Igor Kolomoisky and Ihor
      Surkis, dated July 22, 2009.10.5
            Framework
      Agreement among CME Production B.V., CME Romania B.V., Media Pro
      Management S.A., Media Pro B.V. and Adrian Sarbu, dated July 27,
      2009.10.6
            Contract
      of Employment between CME Media Services Limited and Adrian Sarbu, dated
      July 27, 2007.10.7
            Dealer
      Manager Agreement between Central European Media Enterprises Ltd. and
      Deutsche Bank AG, London Branch, dated September 7,
  2009.10.8
            Tender
      Agency Agreement between Central European Media Enterprises Ltd., Deutsche
      Bank AG, London Branch, as Principal Tender Agent, and certain other
      tender agents, dated September 7, 2009.10.9
            Purchase
      Agreement among Central European Media Enterprises Ltd., Central European
      Media Enterprises N.V., CME Media Enterprises B.V., Deutsche Bank AG,
      London Branch, BNP Paribas London Branch, Merrill Lynch International,
      Erste Group Bank AG and  J.P. Morgan Securities Ltd., dated
      September 10, 2009.10.10
            Global
      Deed of Release among Central European Media Enterprises Ltd., CME Media
      Enterprises B.V., Central European Media Enterprises N.V. and European
      Bank for Reconstruction and Development, dated September 16,
      2009.10.11
            Contract
      Assignment between CME Media Enterprises B.V, Central European Media
      Enterprises Ltd., The Bank of New York Mellon, acting through its London
      Branch and the Law Debenture Trust Corporation p.l.c., dated September 17,
      2009.10.12
            Deed
      of Amendment to the Intercreditor Agreement dated July 21, 2006, as
      amended, among Central European Media Enterprises Ltd., Central European
      Media Enterprises N.V., CME Media Enterprises B.V., The Bank of New York
      Mellon (formerly JPMorgan Chase Bank, N.A., London Branch), BNY Corporate
      Trustee Services Limited, The Bank of New York Mellon (formerly The Bank
      of New York), The Bank of New York Mellon (formerly The Bank of New York),
      European Bank for Reconstruction and Development, The Bank of New York
      Mellon, acting through its London Branch and The Law Debenture Trust
      Corporation p.l.c., dated September 17, 2009.10.13
            Pledge
      Agreement among Central European Media Enterprises Ltd., Central European
      Media Enterprises N.V., The Bank of New York Mellon, acting through its
      London Branch and The Law Debenture Trust Corporation p.l.c., dated
      September 17, 2009.10.14
            Deed
      of Pledge of Shares among Central European Media Enterprises N.V., CME
      Media Enterprises B.V., The Bank of New York Mellon, acting through its
      London Branch and The Law Debenture Trust Corporation p.l.c., dated
      September 17, 2009.10.15
            Purchase
      Agreement among Central European Media Enterprises Ltd., Central European
      Media Enterprises N.V., CME Media Enterprises B.V., Deutsche Bank AG,
      London Branch, BNP Paribas London Branch, Merrill Lynch International,
      Erste Group Bank AG, ING Bank N.V., London Branch and J.P. Morgan
      Securities Ltd., dated September 23,
2009.


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10.16
            Global
      Deed of Release among Central European Media Enterprises Ltd., CME Media
      Enterprises B.V., Central European Media Enterprises N.V. and The Bank of
      New York Mellon, acting through its London Branch (formerly JPMorgan Chase
      Bank, N.A., London Branch), dated September 29, 2009.10.17
            Deed
      of Amendment to the Intercreditor Agreement dated July 21, 2006, as
      amended, among Central European Media Enterprises Ltd., Central European
      Media Enterprises N.V., CME Media Enterprises B.V., The Bank of New York
      Mellon (formerly JPMorgan Chase Bank, N.A., London Branch), BNY Corporate
      Trustee Services Limited, The Bank of New York Mellon (formerly The Bank
      of New York), The Bank of New York Mellon (formerly The Bank of New York),
      The Bank of New York Mellon, acting through its London Branch and The Law
      Debenture Trust Corporation p.l.c., dated September 29,
    2009.31.01
            Certification
      of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a)
      and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.31.02
            Certification
      of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a)
      and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.32.01
            Certifications
      of Principal Executive Officer and Principal Financial Officer pursuant to
      18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002 (furnished
only).






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