UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





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





For
the quarterly period ended March 31, 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 S 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 S
            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 S





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 April 24, 2009Class
      A Common Stock, par value $0.08
            36,024,273Class
      B Common Stock, par value $0.08
            6,312,839













THIS PAGE
INTENTIONALLY LEFT BLANK









CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.





FORM
10-Q





For
the quarterly period ended March 31, 2009





INDEX





PagePart
      I. Financial informationItem 1. Financial StatementsCondensed consolidated Balance Sheets as at March 31, 2009 and
      December 31, 2008
                                                4Condensed consolidated Statements of Operations and
      Comprehensive Income for the Three Months Ended March 31, 2009 and
      2008
                                                6Condensed consolidated Statements of Shareholders' Equity for
      the Three Months Ended March 31, 2009 and 2008
                                                8Condensed consolidated Statements of Cash Flows for the Three
      Months Ended March 31, 2009 and 2008
                                                9Notes to the condensed consolidated Financial
      Statements
                                                10Item 2. Management's Discussion and Analysis of Financial
      Condition and Results of Operations
                                                50Item 3. Quantitative and Qualitative Disclosures About Market
      Risk
                                                89Item 4. Controls and Procedures
                                                91Part
      II. Other InformationItem 1. Legal Proceedings
                                                92Item 1A. Risk Factors
                                                92Item 6. Exhibits
                                                101Signatures
                                                101Exhibit Index
                                                102


Page
3
 Index




Part
I. Financial Information





Item1.  Financial Statements





CENTRALEUROPEAN MEDIA ENTERPRISES LTD.


CONDENSED
CONSOLIDATED BALANCE SHEETS


(US$
000’s)


(Unaudited)





March 31,
              2009
            
            
            December 31,
              2008ASSETSCurrent
      assetsCash
      and cash equivalents
            
            $
            306,553
            
            
            $
            107,433Accounts
      receivable (net of allowance) (Note 6)
            
            
            163,993
            
            
            
            221,450Program
      rights, net
            
            
            63,825
            
            
            
            67,787Other
      current assets (Note 7)
            
            
            107,792
            
            
            
            98,086Total
      current assets
            
            
            642,163
            
            
            
            494,756Non-current
      assetsInvestments
            
            
            16,559
            
            
            
            16,559Property,
      plant and equipment, net (Note 8)
            
            
            184,907
            
            
            
            206,667Program
      rights, net
            
            
            114,149
            
            
            
            113,596Goodwill
      (Note 4)
            
            
            976,100
            
            
            
            1,041,041Broadcast
      licenses and other intangible assets, net (Note 4)
            
            
            369,450
            
            
            
            514,732Other
      non-current assets (Note 7)
            
            
            21,149
            
            
            
            19,265Total
      non-current assets
            
            
            1,682,314
            
            
            
            1,911,860Total
      assets
            
            $
            2,324,477
            
            
            $
            2,406,616








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


Page
4
 Index




CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


CONDENSED
CONSOLIDATED BALANCE SHEETS (continued)


(US$
000’s)


(Unaudited)





March 31,
              2009
            
            
            December 31,
              2008LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      liabilitiesAccounts
      payable and accrued liabilities (Note 9)
            
            $
            152,321
            
            
            $
            174,885Credit
      facilities and obligations under capital leases (Note 10)
            
            
            65,853
            
            
            
            36,502Other
      current liabilities (Note 11)
            
            
            24,367
            
            
            
            17,286Total
      current liabilities
            
            
            242,541
            
            
            
            228,673Non-current
      liabilitiesCredit
      facilities and obligations under capital leases (Note 10)
            
            
            243,956
            
            
            
            38,758Senior
      Debt (Note 5)
            
            
            909,028
            
            
            
            928,525Other
      non-current liabilities (Note 11)
            
            
            91,817
            
            
            
            112,215Total
      non-current liabilities
            
            
            1,244,801
            
            
            
            1,079,498Commitments
      and contingencies (Note 19)EQUITY:CME
      Ltd. shareholders’ equity:Nil
      shares of Preferred Stock of $0.08 each (December 31, 2008 –
      nil)
            
            
            -
            
            
            
            -36,024,273
      shares of Class A Common Stock of $0.08 each (December 31, 2008
      –36,024,273)
            
            
            2,882
            
            
            
            2,8826,312,839
      shares of Class B Common Stock of $0.08 each (December 31, 2008 –
      6,312,839)
            
            
            505
            
            
            
            505Additional
      paid-in capital
            
            
            1,105,107
            
            
            
            1,126,617Accumulated
      deficit
            
            
            (281,274
            )
            
            
            (236,836
            )Accumulated
      other comprehensive income
            
            
            9,357
            
            
            
            202,090Total
      CME Ltd. shareholders’ equity
            
            
            836,577
            
            
            
            1,095,258Noncontrolling
      interests
            
            
            558
            
            
            
            3,187Total
      equity
            
            
            837,135
            
            
            
            1,098,445Total
      liabilities and equity
            
            $
            2,324,477
            
            
            $
            2,406,616








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




Page
5
 Index


CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME


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


(Unaudited)





For
      the Three Months Ended March 31,2009
              
              
              2008Net
      revenues
              
              $
              141,221
              
              
              $
              223,023Operating
      expenses:Operating
      costs
              
              
              29,393
              
              
              
              33,015Cost
      of programming
              
              
              74,922
              
              
              
              94,087Depreciation
      of station property, plant and equipment
              
              
              11,616
              
              
              
              12,114Amortization
      of broadcast licenses and other intangibles (Note 4)
              
              
              6,101
              
              
              
              7,670Cost
      of revenues
              
              
              122,032
              
              
              
              146,886Selling,
      general and administrative expenses
              
              
              21,828
              
              
              
              30,664Impairment
      charge (Note 4)
              
              
              81,843
              
              
              
              -Operating
      (loss) / income
              
              
              (84,482
              )
              
              
              45,473Interest
      income
              
              
              744
              
              
              
              2,180Interest
      expense (Note 16)
              
              
              (21,428
              )
              
              
              (15,229
              )Foreign
      currency exchange gain / (loss), net
              
              
              39,264
              
              
              
              (17,428
              )Change
      in fair value of derivatives (Note 12)
              
              
              6,130
              
              
              
              (10,258
              )Other
      income
              
              
              99
              
              
              
              651(Loss)
      / income from continuing operations before tax
              
              
              (59,673
              )
              
              
              5,389Income
      tax credit
              
              
              12,995
              
              
              
              10,283(Loss)
      / income from continuing operations
              
              
              (46,678
              )
              
              
              15,672Discontinued
      Operations, net of tax (Note 18)
              
              
              (262
              )
              
              
              (750
              )Net
      (loss) / income
              
              
              (46,940
              )
              
              
              14,922Net
      (income) / loss attributable to noncontrolling interests
              
              
              2,502
              
              
              
              (477
              )Net
      (loss) / income attributable to CME Ltd.
              
              $
              (44,438
              )
              
              $
              14,445Net
      (loss) / income
              
              
              (46,940
              )
              
              
              14,922Currency
      translation adjustment
              
              
              (192,860
              )
              
              
              191,467Obligation
      to repurchase shares
              
              
              -
              
              
              
              488Comprehensive
      (loss) / income
              
              $
              (239,800
              )
              
              $
              206,877Comprehensive
      loss / (income) attributable to noncontrolling interests
              
              
              2,629
              
              
              
              (1,025
              )Comprehensive
      (loss) / income attributable to CME Ltd.
              
              $
              (237,171
              )
              
              $
              205,852







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


Page
6
 Index


CENTRALEUROPEAN 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 March 31,2009
            
            
            2008PER
      SHARE DATA (Note 15):Net
      income / (loss) per share:Continuing
      operations - Basic
            
            $
            (1.04
            )
            
            $
            0.36Continuing
      operations - Diluted
            
            
            (1.04
            )
            
            
            0.35Discontinued
      operations – Basic
            
            
            (0.01
            )
            
            
            (0.02
            )Discontinued
      operations - Diluted
            
            
            (0.01
            )
            
            
            (0.01
            )Net
      (loss) / income attributable to CME Ltd common shareholders –
      Basic
            
            
            (1.05
            )
            
            
            0.34Net
      (loss) / income attributable to CME Ltd common shareholders –
      Diluted
            
            $
            (1.05
            )
            
            $
            0.34Weighted
      average common shares used in computing per share amounts
      (000’s):Basic
            
            
            42,337
            
            
            
            42,316Diluted
            
            
            42,337
            
            
            
            42,732








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




Page
7
 Index


CENTRALEUROPEAN MEDIA ENTERPRISES LTD.


CONDENSED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY


(US$
000’s)


(Unaudited)




CME
      Ltd. ShareholdersClass
      A
                Common
      Stock
              
              
              Class
      B
                Common
      Stock
              
              
              Additional
              
              
              
              
              
              Accumulated
      Other
              
              
              
              
              
              TotalNumber
      of shares
              
              
              Par
      value
              
              
              Number
      of shares
              
              
              Par
      value
              
              
              Paid-In
      Capital
              
              
              Retained
      Earnings
              
              
              Comprehensive
      Income
              
              
              Noncontrolling
      Interest
              
              
              Shareholders’
      EquityBALANCE,
      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
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,663
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,663Acquisition
      of KINO non-controlling interest
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (23,173
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (23,173
              )Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (44,438
              )
              
              
              -
              
              
              
              (2,502
              )
              
              
              (46,940
              )Currency
      translation adjustment
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (192,733
              )
              
              
              (127
              )
              
              
              (192,860
              )BALANCE, March 31,
      2009
              
              
              36,024,273
              
              
              $
              2,882
              
              
              
              6,312,839
              
              
              $
              505
              
              
              $
              1,105,107
              
              
              $
              (281,274
              )
              
              $
              9,357
              
              
              $
              558
              
              
              $
              837,135
 
 CME
      Ltd. ShareholdersClass
      A
                Common
      Stock
              
              
              Class
      B
                Common
      Stock
              
              
              Additional
              
              
              
              
              
              Accumulated
      Other
              
              
              
              
              
              TotalNumber
      of shares
              
              
              Par
      value
              
              
              Number
      of shares
              
              
              Par
      value
              
              
              Paid-In
      Capital
              
              
              Retained
      Earnings
              
              
              Comprehensive
      Income
              
              
              Noncontrolling
      Interest
              
              
              Shareholders’
      EquityBALANCE,
      December 31, 2007
              
              
              36,003,198
              
              
              $
              2,880
              
              
              
              6,312,839
              
              
              $
              505
              
              
              $
              1,051,336
              
              
              $
              54,871
              
              
              $
              290,216
              
              
              
              23,154
              
              
              $
              1,422,962Stock-based
      compensation
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,856
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,856Stock
      options exercised
              
              
              125
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              9
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              9Purchase
      of capped call options
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (63,318
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (63,318
              )Bifurcation
      of equity option embedded in convertible notes
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              108,085
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              108,085Net
      income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              14,445
              
              
              
              -
              
              
              
              477
              
              
              
              14,922Currency
      translation adjustment
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              
              
              
              
              190,919
              
              
              
              548
              
              
              
              191,467Obligation
      to repurchase shares
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              488
              
              
              
              -
              
              
              
              488BALANCE, March 31,
      2008
              
              
              36,003,323
              
              
              $
              2,880
              
              
              
              6,312,839
              
              
              $
              505
              
              
              $
              1,097,968
              
              
              $
              69,316
              
              
              $
              481,623
              
              
              $
              24,179
              
              
              $
              1,676,471


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


Page
8
 Index


CENTRALEUROPEAN MEDIA ENTERPRISES LTD.


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(US$
000’s)


(Unaudited)





For
      the Three Months Ended March 31,2009
                
                
                2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      (loss) / income
                
                $
                (44,438
                )
                
                $
                14,445Adjustments
      to reconcile net (loss) / income  to net cash generated from
      operating activities:Loss
      from discontinued operations (Note 18])
                
                
                262
                
                
                
                750Depreciation
      and amortization
                
                
                64,263
                
                
                
                73,365Impairment
      charge (Note 4)
                
                
                81,843
                
                
                
                -Loss
      on disposal of fixed assets
                
                
                258
                
                
                
                -Stock-based
      compensation (Note 14)
                
                
                1,547
                
                
                
                1,813Noncontrolling
      interest in (loss) / income of consolidated subsidiaries
                
                
                (2,502
                )
                
                
                477Change
      in fair value of derivatives (Note 12)
                
                
                (6,130
                )
                
                
                10,258Foreign
      currency exchange (gain) / loss, net
                
                
                (39,264
                )
                
                
                17,428Net
      change in (net of effects of acquisitions and disposals of
      businesses):Accounts
      receivable
                
                
                38,296
                
                
                
                16,540Program
      rights
                
                
                (50,665
                )
                
                
                (79,433
                )Other
      assets
                
                
                (15,384
                )
                
                
                (7,270
                )Other
      accounts payable and accrued liabilities
                
                
                17,923
                
                
                
                28,887Income
      taxes payable
                
                
                (3,900
                )
                
                
                (6,075
                )Deferred
      taxes
                
                
                (10,823
                )
                
                
                8,946VAT
      and other taxes payable
                
                
                (8,738
                )
                
                
                4,487Net
      cash generated from continuing operating activities
                
                
                22,548
                
                
                
                84,618CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of property, plant and equipment
                
                
                (7,822
                )
                
                
                (23,721
                )Disposal
      of property, plant and equipment
                
                
                665
                
                
                
                99Investments
      in subsidiaries and unconsolidated affiliates
                
                
                (22,776
                )
                
                
                -Net
      cash used in continuing investing activities
                
                
                (29,933
                )
                
                
                (23,622
                )CASH
      FLOWS FROM FINANCING ACTIVITIES:Net
      proceeds from issuance of Convertible Notes
                
                
                -
                
                
                
                463,812Proceeds
      from credit facilities
                
                
                260,970
                
                
                
                -Payment
      of credit facilities and capital leases
                
                
                (36,316
                )
                
                
                (1,046
                )Purchase
      of capped call options
                
                
                -
                
                
                
                (63,318
                )Excess
      tax benefits from share-based payment arrangements
                
                
                116
                
                
                
                43Proceeds
      from exercise of stock options
                
                
                -
                
                
                
                9Dividends
      paid to minority shareholders
                
                
                -
                
                
                
                (1,230
                )Net
      cash received from continuing financing activities
                
                
                224,770
                
                
                
                398,270NET
      CASH USED IN DISCONTINUED ACTIVITIES - OPERATING
                
                
                (1,294
                )
                
                
                (2,237
                )NET
      CASH USED IN DISCONTINUED ACTIVITIES - INVESTING
                
                
                -
                
                
                
                (121
                )Impact
      of exchange rate fluctuations on cash
                
                
                (16,971
                )
                
                
                (5,178
                )Net
      increase in cash and cash equivalents
                
                
                199,120
                
                
                
                451,730CASH
      AND CASH EQUIVALENTS, beginning of period
                
                
                107,433
                
                
                
                142,826CASH
      AND CASH EQUIVALENTS, end of period
                
                $
                306,553
                
                
                $
                594,556








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




Page
9
 Index




CENTRALEUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





1.  ORGANIZATION
AND BUSINESS





Central
European Media Enterprises Ltd. (“CME 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 March 31, 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
March 31, 2009 were:





Company
      Name
            Effective
              Voting
              Interest
            Jurisdiction
      of
              Organization
            Type
      of AffiliateTop
      Tone Media S.A.
            80.0%
            Luxembourg
            SubsidiaryTV2
      EOOD (“TV2”)
            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.
            76.0%
            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.
            19.01%
            Romania
            Equity-Accounted
      AffiliateMedia
      Pro Management S.A. (“Media Pro”)
            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
            SubsidiaryGAMATEX
      spol s r.o.
            100.0%
            Slovak
      Republic
            Subsidiary
      (in liquidation)


Page
10
 Index




CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Tabular
amounts in US$ 000’s, except 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)MEDIA
      INVEST, spol. sr.o. (“Media Invest”)
              100.0%
              Slovak
      Republic
              SubsidiaryEMAIL.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
              SubsidiaryKanal
      A d.o.o. (“Kanal A”)
              100.0%
              Slovenia
              SubsidiaryEuro
      3 TV d.o.o.
              42.0%
              Slovenia
              Equity-Accounted
      AffiliateTELEVIDEO
      d.o.o. (trading as TV Pika)
              20.0%
              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
      Development Corporation
              100.0%
              Delaware
      (USA)
              SubsidiaryCME
      Media Services Limited
              100.0%
              United
      Kingdom
              SubsidiaryCME
      SR d.o.o.
              100.0%
              Serbia
              Subsidiary


Page
11
 Index


CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)








Page
12
 Index


CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





Bulgaria





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





Croatia





We
operate one national 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 one national television channel in the Czech Republic, TV NOVA (Czech
Republic) and two cable/satellite channels, 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 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 Operating Officer.  Pro TV holds the licenses
for the PRO TV, ACASA, PRO TV INTERNATIONAL, PRO CINEMA, SPORT.RO and MTV
ROMANIA channels.





We 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”). Substantially all
of the remaining shares of Media Pro are owned directly or indirectly by Mr.
Sarbu. Media Pro comprises a number of companies with operations in the fields
of publishing, information, printing, cinema and entertainment across Central
and Eastern Europe.





Slovak
Republic





We
operate one national television channel in the Slovak Republic, TV MARKIZA. We
own 100.0% of Markiza, which holds a national terrestrial broadcast license for
TV MARKIZA.





Slovenia





We
operate two national television channels in Slovenia, POP TV and KANAL
A.  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, and Kanal A, which holds the licenses
for the KANAL A channel.





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 Studio 1+1,
which holds the license for and operates the STUDIO 1+1 channel. We also own
100% of Gravis-Kino, the license holder for the KINO channel.


Page
13
 Index


CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





2.  SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES





Basis
of Presentation





The
interim financial statements for the three months ended March 31, 2009 should be
read in conjunction with the Notes to the Consolidated Financial Statements
contained in our Annual Report on Form 10-K for the year ended December 31,
2008.  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, all references to
“Euro” or “EUR” are to the European Union Euro and all references to “GBP” are
to British pounds.





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”), which establishes accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary.  FAS 160 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 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 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 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”) 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 the impact on consolidated net income
attributable to the Company and earnings per share would have been as
follows:


Page
14
 Index


CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





For
      the three months ended March 31, 2009Net
      loss attributable to CME Ltd. as reported
            
            $
            (44,438
            )Deduct:
      noncontrolling interest income recognized since the adoption of FAS
      160
            
            
            (1,846
            )Pro
      Forma net loss
            
            $
            (46,284
            )Net
      loss per share – Basic (As reported)
            
            $
            (1.05
            )Net
      loss per share – Basic (Pro Forma)
            
            $
            (1.09
            )Net
      loss per share – Diluted (As reported)
            
            $
            (1.05
            )Net
      loss per share – Diluted (Pro Forma)
            
            $
            (1.09
            )





Other
than the reduction in net loss 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 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”), which clarifies the
accounting for convertible debt instruments that may be settled in cash
(including partial cash settlement) upon conversion. FSP APB 14-1 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 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.





FSP APB
14-1 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) (net of
allocated acquisition costs) of US$ 108.1 million and US$ 364.2 million,
respectively.


Page
15
 Index


CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





The
impact on the 2008 comparative amounts for the quarterly period ended March 31,
2008 of the adoption of both FSP APB 14-1 and FAS 160 was as
follows:








For
      the Three Months ended March 31, 2008Impact
      of adoptingAs
      reported
                        
                        
                        FSP
      APB 14-1
                        
                        
                        FAS
      160
                        
                        
                        As
      AdjustedConsolidated
      Statement of OperationsInterest
      expense
                        
                        $
                        (14,250
                        )
                        
                        $
                        (979
                        )
      (1)
                        
                        $
                        -
                        
                        
                        $
                        (15,229
                        )Minority
      interest in income of consolidated subsidiaries (2)
                        
                        
                        (1,025
                        )
                        
                        
                        -
                        
                        
                        
                        548
                        
                        
                        
                        (477
                        )As
      at December 31, 2008Impact
      of adoptingAs
      reported
                        
                        
                        FSP
      APB 14-1
                        
                        
                        FAS
      160
                        
                        
                        As
      AdjustedConsolidated
      Balance SheetOther
      current assets
                        
                        $
                        98,725
                        
                        
                        $
                        (639
                        )
                        
                        $
                        -
                        
                        
                        $
                        98,086Other
      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) The
impact of APB 14-1 is shown net of a reclassification of US$ 18 thousand of
interest expense attributable to discontinued operations.




(2) As
required by FAS 160, 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”.




Business
Combinations





On
January 1, 2008, we adopted FASB Statement No. 141(R), “BusinessCombinations”
(“FAS 141(R)”), 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) 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) 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) 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) 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).


Page
16
 Index


CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





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”).
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, a defensive intangible asset would need to
be accounted 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 is
effective for transactions occurring after December 31, 2008. The adoption
of this standard did not have a material impact on our financial condition 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”) 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), especially where the underlying arrangement includes renewal or extension
terms. The FSP is effective prospectively for fiscal years beginning after
December 15, 2008. The adoption of FSP FAS 142-3 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”) which addresses
certain effects of SFAS Nos. 141(R) and 160 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 is
effective for transactions occurring after December 31, 2008. The adoption
of this standard did not have a material impact on our financial condition 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”) which enhances the disclosure requirements about derivatives and hedging
activities. FAS 161 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”), and what impact they have on financial position, results of
operations and cash flows. FAS 161 is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after November 15, 2008. The
adoption of FAS 161 did not have a material impact on our financial position or
results of operations.





3.
ACQUSITIONS AND DISPOSALS





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 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 our interest in Gravis, which
owns the broadcasting licenses and other assets of the CITI channel, for a de
minimus amount. 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, CME acquired from
an entity controlled by Alexander Tretyakov a 10.0% ownership interest in
Glavred (“Glavred”) for US$ 12.0 million. Glavred owns a number of websites and
print publications as well as a radio station.


Page
17
 Index


CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





We
concluded that these transactions should be accounted for together as the
acquisition of a noncontrolling interest in a subsidiary where control is
retained under FAS 160. 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) and cash payments of US$ 8.5 million for the equity interests,
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.





Igor
Kolomoisky, a member of the Board of Directors of the company and the
supervisory boards of Studio 1+1 and 1+1 Production, indirectly holds a 50%
interest in Glavred and the remaining 40% is owned by Mr. Tretyakov, our former
partner in KINO and CITI.





4.
GOODWILL AND INTANGIBLE ASSETS





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





Goodwill:





Goodwill
by operating segment as at March 31, 2009 and December 31, 2008 is summarized as
follows:





BalanceDecember 31,
      2008
              
              
              Additions
              
              
              Impairment
      charge
              
              
              Foreign
      currency movement
              
              
              BalanceMarch 31,
      2009Croatia
              
              $
              739
              
              
              $
              -
              
              
              $
              -
              
              
              $
              (53
              )
              
              $
              686Czech
      Republic
              
              
              888,936
              
              
              
              -
              
              
              
              -
              
              
              
              (52,692
              )
              
              
              836,244Romania
              
              
              72,336
              
              
              
              -
              
              
              
              -
              
              
              
              (7,981
              )
              
              
              64,355Slovak
      Republic
              
              
              61,642
              
              
              
              -
              
              
              
              -
              
              
              
              (3,454
              )
              
              
              58,188Slovenia
              
              
              17,388
              
              
              
              -
              
              
              
              -
              
              
              
              (761
              )
              
              
              16,627Total
              
              $
              1,041,041
              
              
              $
              -
              
              
              $
              -
              
              
              $
              (64,941
              )
              
              $
              976,100


Page
18
 Index




CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





Broadcast
licenses and other intangible assets:





The net
book value of our broadcast licenses and other intangible assets as at March 31,
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
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Impairment
            
            
            -
            
            
            
            (75,788
            )
            
            
            (76
            )
            
            
            -
            
            
            
            (4,882
            )
            
            
            (80,746
            )Amortization
            
            
            -
            
            
            
            (3,913
            )
            
            
            (103
            )
            
            
            (1,700
            )
            
            
            (385
            )
            
            
            (6,101
            )Foreign
      currency movements
            
            
            (5,803
            )
            
            
            (31,075
            )
            
            
            (16,302
            )
            
            
            (4,676
            )
            
            
            (579
            )
            
            
            (58,435
            )Balance,
      March 31, 2009
            
            $
            54,053
            
            
            $
            171,282
            
            
            $
            80,566
            
            
            $
            61,904
            
            
            $
            1,645
            
            
            $
            369,450





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.  The license in the Czech Republic has an economic useful life
of, and is amortized on a straight-line basis over, twelve years.  The
license in the Slovak Republic has an economic 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.





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





March
      31,
              2009
            
            
            December 31,
              2008Gross
      value
            
            $
            404,726
            
            
            $
            549,140Accumulated
      amortization
            
            
            (89,329
            )
            
            
            (94,264
            )Net
      book value of amortized intangible assets
            
            $
            315,397
            
            
            $
            454,876Indefinite-lived
      broadcast licenses
            
            
            54,053
            
            
            
            59,856Total
      broadcast licenses and other intangible assets, net
            
            $
            369,450
            
            
            $
            514,732




Page
19
 Index


CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





Impairment
of Goodwill and Long-Lived Assets





We
recognized the following impairment charges in respect of long-lived assets in
the three months ended March 31, 2009:





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




We
evaluate goodwill and indefinite-lived intangible assets for impairment by
reporting unit or asset group in the fourth quarter of each year. However,
whenever events occur which suggest assets may be impaired in a reporting unit,
an additional evaluation of the goodwill and indefinite-lived intangible assets,
together with the associated long-lived assets of each asset group, is
performed. 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-term forecast models at March
31, 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 indication that the value of our goodwill,
indefinite-lived intangible assets or long-lived assets may have fallen in value
since we last reviewed them for impairment in the fourth quarter of 2008 and it
was therefore necessary to review them for impairment again under FASB
Statements No. 142 “Goodwill and Other Intangible Assets” (“FAS 142”) and No.
144 “Accounting for the Impairment and Disposal of Long-Lived Assets” (“FAS
144”).
 
 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 TV and TV2, and there
are two in Ukraine, STUDIO 1+1 and KINO.
 
 In
performing our assessment, we also noted that a number of events had occurred
during the first quarter of 2009 which suggested that 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 will be among the regions most heavily impacted
      by the global economic crisis and growing sentiment that recovery will
      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 our shares of Class A common stock
      during most of the quarter;
 ·
              continued
      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.
 
 Upon
reviewing all of our long-lived assets, indefinite-lived intangible assets and
goodwill we concluded that an impairment charge was required in Bulgaria. In all
other cases, the extent to which the respective assets tested passed the
impairment test has reduced since they were last tested for impairment in the
fourth quarter of 2008 and the impact of changes in key assumptions in the
valuation models is discussed below. In the Czech Republic this decline had
caused the result of the goodwill impairment test to be particularly
close.


Page
20
 Index


CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





Bulgaria





We
revised our estimates of future cash flows in our Bulgaria operations 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 TV2 asset group
were no longer recoverable and recorded a charge to write them down to their
fair value of US$ nil.





Czech
Republic





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 is very
close to the carrying value. This decline in value was due to reductions to our
cash flow forecasts to reflect the fact that uncertainties over the macro
economic environment has caused international advertisers to become increasingly
reluctant to make spending commitments. This reluctance, which has intensified
during the quarter, has caused a contraction in the overall size of the
advertising market which has manifested itself as a worse-than-expected decline
in both the level of advertising inventory our operations are able to sell and
the prices at which it can be sold.





We
reviewed the assumptions in our valuation models and concluded that the fair
value of the reporting unit was in excess of the fair value. In performing this
review we also considered:





·
            The
      impact of a number of possible scenarios for the downturn in, and eventual
      recovery of, the Czech economy in general and the television advertising
      market in particular. These scenarios included the timing and magnitude of
      future growth in the market, and the speed of convergence with Western
      European markets.


·
            Other
      available indications of fair value, such as Company-specific and
      peer-group earnings multiples and analysts’
  consensuses.


·
            Comparing
      the market capitalization implied by the aggregate fair value of all of
      our reporting units to our actual market capitalization during the quarter
      and considering whether the small resulting premium was a reasonable
      indication of the premium an acquirer would be prepared to pay to obtain
      control. We also noted that this implied control premium was consistent
      with the price to be paid by TW Media Holdings LLC (“TWMH”) for their
      investment in our shares (see note 13 “Shareholders’
    Equity”).


·
            Whether
      the decline in our share price could have reflected factors other than the
      underlying value of our assets. The sharp decline and subsequent partial
      recovery in our share price during, and after, the quarter coincided with
      the with a decline in the market generally, and increased investor concern
      over the macro economic environment in Eastern Europe in
      particular.


·
            Our
      experience of historical acquisition activity in the region, including the
      premia applied to broadcasting assets with dominant positions in their
      respective markets.





Notwithstanding
these considerations, if the operating environment in the Czech Republic
continues to deteriorate, and this deterioration indicates that we should make
even a small adverse change in our long-term assumptions, it is likely that we
will have to impair some or all of the goodwill in our Czech Republic reporting
unit.





Critical
Estimates and Assumptions





Assessing
goodwill, indefinite-lived intangible assets and long-lived assets requires
significant judgment. The process involves making a number of estimates in order
to evaluate the fair value of a number of assets, the fair value of the
reporting units, and the future cash flows expected in each reporting unit. The
table below shows the key measurements involved and the valuation methods
applied:


Page
21
 Index


CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)




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 the result and the decision on
whether assets are impaired. The most significant of these assumptions include
the discount rate applied (cost of capital), the total advertising market size,
achievable levels of market share, level of forecast operating costs and capital
expenditure and the rate of growth into perpetuity. The table below shows
whether an adverse change of 10.0% in any of these assumptions would result in
additional impairments after reflecting the impairment charge recognized in the
three months ended March 31, 2009:





10%
      Adverse Change in
            Long-Lived
      Assets
            Indefinite-Lived
      Trademarks
            Indefinite-Lived
      Broadcast Licenses
            GoodwillCost
      of Capital
            None
            Ukraine
            Slovenia
            Czech
      RepublicTotal
      Advertising
            Croatia
            None
            Slovenia
            CroatiaMarket
            Slovak
      Republic
            
            
            Czech
      RepublicSlovak
      RepublicSloveniaMarket
      Share
            Croatia
            None
            Slovenia
            CroatiaSlovak
      Republic
            
            
            Czech
      RepublicSlovak
      RepublicSloveniaForecast
      Operating
            Croatia
            Not
      applicable
            Slovenia
            CroatiaCosts
            Slovak
      Republic
            
            
            Czech
      RepublicSlovak
      RepublicSloveniaForecast
      Capital Expenditure
            None
            Not
      applicable
            Slovenia
            NonePerpetuity
      Growth Rate
            Not
      applicable
            None
            None
            None




Although
we considered all current information when we calculated our impairment charge
for the three months ended March 31, 2009, if our cash flow forecasts for our
operations deteriorate still further, or discount rates increase, it is probable
that we will have to to recognize additional impairment charges in future
periods.


Page
22
 Index


CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





5.  SENIOR
DEBT





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





Carrying
      Value
            
            
            Fair
      ValueMarch 31,
      2009
            
            
            December 31,
      2008
            
            
            March 31,
      2009
            
            
            December 31,
      2008EUR
      245.0 million 8.25% Senior Notes
            
            $
            326,046
            
            
            $
            340,966
            
            
            $
            257,576
            
            
            $
            233,562EUR
      150.0 million Floating Rate Senior Notes
            
            
            199,620
            
            
            
            208,755
            
            
            
            114,782
            
            
            
            125,253USD
      475.0 million 3.5% Senior Convertible Notes
            
            
            383,362
            
            
            
            378,804
            
            
            
            268,375
            
            
            
            230,375$
            909,028
            
            
            $
            928,525
            
            
            $
            640,733
            
            
            $
            589,190





On May 5,
2005, we issued EUR 245.0 million of 8.25% senior notes (the “Fixed Rate
Notes”). The Fixed Rate Notes mature on May 15, 2012.





On May
16, 2007, we issued EUR 150.0 million of floating rate senior notes (the
“Floating Rate Notes”, and collectively with the 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 March 31, 2009 was 5.934%). 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
(see Note 2, “Summary of Significant Accounting Policies, Convertible
debt”).





Fixed
Rate Notes





Interest
is payable semi-annually in arrears on each May 15 and November
15.  The fair value of the Fixed Rate Notes as at March 31, 2009 and
December 31, 2008 was calculated by multiplying the outstanding debt by the
traded market price.





The 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 Fixed 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
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 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
Fixed Rate Notes at a purchase price in cash equal to 101.0% of the principal
amount of the Fixed Rate Notes plus accrued and unpaid interest to the date of
purchase.


Page
23
 Index


CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





The 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
      PriceMay
      15, 2009 to May 14, 2010
            
            
            104.125
            %May
      15, 2010 to May 14, 2011
            
            
            102.063
            %May
      15, 2011 and thereafter
            
            
            100.000
            %





Prior to
May 15, 2009, we may redeem all or a part of the Fixed Rate Notes at a
redemption price equal to 100.0% of the principal amount of such notes, plus a
“make-whole” premium and accrued and unpaid interest to the redemption
date.





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





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 March 31, 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.


Page
24
 Index




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




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





From:
            
            Floating
      Rate Notes
              Redemption
      PriceMay
      14, 2009
            
            
            101.000
            %May
      15, 2009 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
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 March 31, 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 March 31,
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).





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), BNP Paribas (“BNP,”
1,583,333 shares) and 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. At present, we have elected to receive shares of our Class A common
stock on exercise of the capped call options.


Page
25
 Index


CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





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”) 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 meant
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. 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
extinguishment. We further concluded that our claim did not meet the definition
of an asset under FASB Statement of Financial Accounting Concepts No. 6
“Elements of Financial Statements” because the future benefit it embodied were
not sufficiently probable and therefore treated our bankruptcy claim in
accordance with FASB Statement No. 5 “Accounting for
Contingencies”.





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 19, “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.





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 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:


Page
26
 Index


CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





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 March
31, 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 March 31, 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 DB and BNP capped call options
at March 31, 2009 was US$ 0.4 million





On
adoption of FSP APB 14-1, 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. 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.  ACCOUNTS
RECEIVABLE





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





March 31,
              2009
            
            
            December 31,
              2008Third-party
      customers
            
            $
            168,131
            
            
            $
            227,253Less
      allowance for bad debts and credit notes
            
            
            (15,298
            )
            
            
            (14,663
            )Related
      parties
            
            
            11,292
            
            
            
            8,913Less
      allowance for bad debts and credit notes
            
            
            (132
            )
            
            
            (53
            )Total
      accounts receivable
            
            $
            163,993
            
            
            $
            221,450





At March
31, 2009, CZK 466.9 million (approximately US$ 22.7 million) (December 31, 2008:
CZK 820.7 million, US$ 39.9 million) of receivables in the Czech Republic were
pledged as collateral subject to a factoring agreement (see Note 10, “Credit
Facilities and Obligations under Capital Leases”).


Page
27
 Index


CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





7.  OTHER
ASSETS





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





March 31,
                      2009
                    
                    
                    December 31,
                      2008Current:Prepaid
      programming
                    
                    $
                    49,494
                    
                    
                    $
                    54,301Productions
      in progress
                    
                    
                    17,184
                    
                    
                    
                    14,080Other
      prepaid expenses
                    
                    
                    14,390
                    
                    
                    
                    7,286Income
      taxes recoverable
                    
                    
                    10,092
                    
                    
                    
                    1,216Deferred
      tax
                    
                    
                    6,624
                    
                    
                    
                    5,898Capitalized
      debt costs
                    
                    
                    4,662
                    
                    
                    
                    4,636VAT
      recoverable
                    
                    
                    3,911
                    
                    
                    
                    3,460Restricted
      cash
                    
                    
                    739
                    
                    
                    
                    821Assets
      held for sale
                    
                    
                    -
                    
                    
                    
                    5,484Other
                    
                    
                    696
                    
                    
                    
                    904Total
      other current assets
                    
                    $
                    107,792
                    
                    
                    $
                    98,086March 31,
                      2009
                    
                    
                    December 31,
                      2008Non-current:Capitalized
      debt costs
                    
                    $
                    12,110
                    
                    
                    $
                    13,282Deferred
      tax
                    
                    
                    4,291
                    
                    
                    
                    2,108Other
                    
                    
                    4,748
                    
                    
                    
                    3,875Total
      other non-current assets
                    
                    $
                    21,149
                    
                    
                    $
                    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.


Page
28
 Index


CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





8.  PROPERTY,
PLANT AND EQUIPMENT





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





March 31,
              2009
            
            
            December 31,
              2008Land
      and buildings
            
            $
            87,664
            
            
            $
            92,421Station
      machinery, fixtures and equipment
            
            
            172,944
            
            
            
            190,090Other
      equipment
            
            
            30,752
            
            
            
            35,470Software
      licenses
            
            
            29,229
            
            
            
            30,219Construction
      in progress
            
            
            10,902
            
            
            
            11,293Total
      cost
            
            $
            331,491
            
            
            $
            359,493Less:  Accumulated
      depreciation
            
            
            (146,584
            )
            
            
            (152,826
            )Total
      net book value
            
            $
            184,907
            
            
            $
            206,667Assets
      held under capital leases (included in the above)Land
      and buildings
            
            $
            5,599
            
            
            $
            5,855Station
      machinery, fixtures and equipment
            
            
            1,397
            
            
            
            1,917Total
      cost
            
            
            6,996
            
            
            
            7,772Less:  Accumulated
      depreciation
            
            
            (1,528
            )
            
            
            (1,644
            )Net
      book value
            
            $
            5,468
            
            
            $
            6,128


Page
29
 Index




CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)




9.  ACCOUNTS
PAYABLE AND ACCRUED LIABILITIES





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





March 31,
              2009
            
            
            December 31,
              2008Accounts
      payable
            
            $
            27,795
            
            
            $
            35,778Programming
      liabilities
            
            
            37,073
            
            
            
            44,251Duties
      and other taxes payable
            
            
            21,970
            
            
            
            22,635Accrued
      staff costs
            
            
            16,454
            
            
            
            27,318Accrued
      interest payable
            
            
            16,286
            
            
            
            10,531Income
      taxes payable
            
            
            2,082
            
            
            
            7,399Accrued
      production costs
            
            
            6,885
            
            
            
            6,531Authors’
      rights
            
            
            3,617
            
            
            
            4,734Other
      accrued liabilities
            
            
            20,159
            
            
            
            15,708Total
      accounts payable and accrued liabilities
            
            $
            152,321
            
            
            $
            174,885





The
accrued interest payable balance relates primarily to interest on our Senior
Notes and our Convertible Notes (see Note 5, “Senior
Debt”).


Page
30
 Index


CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





10.  CREDIT
FACILITIES AND OBLIGATIONS UNDER CAPITAL LEASES





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





March 31,
                2009
              
              
              December 31,
                2008Credit
      facilities:Corporate
              (a)
      – (b)
              
              $
              199,625
              
              
              $
              57,180Czech
      Republic
              (c)
      – (e)
              
              
              70,508
              
              
              
              12,923Romania
              (f)
              
              
              -
              
              
              
              104Slovak
      Republic
              (g)
              
              
              -
              
              
              
              -Slovenia
              (h)
              
              
              34,933
              
              
              
              -Ukraine
              (i)
              
              
              164
              
              
              
              172Total
      credit facilities
              
              
              $
              305,230
              
              
              $
              70,379Capital
      leases:Bulgaria
      operations, net of interest
              
              
              $
              744
              
              
              $
              689Romania
      operations, net of interest
              
              
              
              221
              
              
              
              289Slovak
      Republic operations, net of interest
              
              
              
              -
              
              
              
              36Slovenia
      operations, net of interest
              
              
              
              3,614
              
              
              
              3,867Total
      capital leases
              
              
              $
              4,579
              
              
              $
              4,881Total
      credit facilities and capital leases
              
              
              $
              309,809
              
              
              $
              75,260Less
      current maturities
              
              
              
              (65,853
              )
              
              
              (36,502
              )Total
      non-current maturities
              
              
              $
              243,956
              
              
              $
              38,758





Corporate





(a) On
July 21, 2006, we entered into a five-year revolving loan agreement for EUR
100.0 million (approximately US$ 133.1 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$
66.5 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”) are each participating in the EBRD Loan for EUR 37.5 million
(approximately US$ 49.9 million).





The EBRD
Loan bears interest at a rate of three-month EURIBOR plus 1.625% on the drawn
amount. A commitment charge of 0.8125% is payable on any undrawn portion of the
EBRD Loan.  The available amount of the EBRD Loan amortizes by 15.0%
every six months from May 2009 to November 2010 and by 40.0% in May 2011. As at
March 31, 2009, the full EUR 150.0 million (approximately US$ 199.6 million) had
been drawn.





Covenants
contained in the EBRD Loan are similar to those contained in our Senior Notes
(see below and Note 5, “Senior Debt”).  In addition, the EBRD Loan’s
covenants restrict us from making principal repayments on other new debt of
greater than US$ 20.0 million per year for the life of the EBRD
Loan.  This restriction is not applicable to our existing facilities
with ING or CS or to any refinancing of our Senior Notes.


Page
31
 Index


CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





The EBRD
Loan is a secured senior obligation and ranks pari passu with all existing and
future senior indebtedness, including the Senior Notes and the Convertible
Notes, and is effectively subordinated to all existing and future indebtedness
of our subsidiaries.  The amount drawn is guaranteed by two subsidiary
holding companies and is secured by a pledge of shares of those subsidiaries as
well as an assignment of certain contractual rights.  The terms of the
EBRD Loan restrict the manner in which our business is conducted, including the
incurrence of additional indebtedness, the making of investments, the payment of
dividends or the making of other distributions, entering into certain affiliate
transactions and the sale of assets.





(b) We
have an uncommitted multicurrency overdraft facility for EUR 10.0 million
(approximately US$ 13.3 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
March 31, 2009, the full EUR 10.0 million (approximately US$ 13.3 million)
facility was available to be drawn. Interest is payable at the relevant money
market rate plus 2%.





As at
March 31, 2009, our Dutch holding company, CME Media Enterprises B.V., had
approximately US$ 12.2 million deposited in the BMG cash pool while our
operations in the Czech Republic, the Slovak Republic, Slovenia and Ukraine had
deposited approximately US$ 22.9 million, US$ 5.7 million, US$ 5.3 million, and
US$ 0.9 million, respectively in the BMG cash pool. Our Ukraine operations had
drawn approximately US$ 0.2 million from the BMG cash pool at March 31,
2009.





Czech
Republic





(c) As at
March 31, 2009, CET 21 had drawn, in CZK, the full CZK 1.2 billion
(approximately US$ 58.4 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 2.44% applied to
the balance outstanding at March 31, 2009 and is based on PRIBOR. A utilization
interest 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
March 31, 2009, CZK 250 million (approximately US$ 12.2 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%, and a rate of 2.44%
applied to the balance outstanding under this facility at March 31, 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
March 31, 2009, there were no drawings under a CZK 300.0 million (approximately
US$ 14.6 million) factoring facility with FCS available until June 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) Our
Romania operations repaid US$ 0.1 million drawn from the BMG cash pool during
the three months ended March 31, 2009.


Page
32
 Index


CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





Slovak
Republic





(g) As at
March 31, 2009, our Slovak Republic operations had made no drawings under a EUR 3.3 million
(approximately US$ 4.4 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%.





Slovenia





(h) On
July 29, 2005, Pro Plus entered into a revolving facility agreement for up to
EUR 37.5 million (approximately US$ 49.9 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 60.0% repayable after five
years.  This facility is secured by a pledge of the bank accounts of
Pro Plus, the assignment of certain receivables, a pledge of our interest in Pro
Plus and a guarantee of our wholly-owned subsidiary CME Media Enterprises
B.V.  Loans drawn under this facility 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 3.653% applied at March 31,
2009.  As at March 31, 2009, the full EUR 26.3 million (approximately
US$ 34.9 million) available for drawing under this revolving facility had been
drawn.





Ukraine





(i) Our
Ukraine operations had drawn EUR 0.1 million (approximately US$ 0.2 million)
from the BMG cash pool as at March 31, 2009.





Total
Group





At March
31, 2009, the maturity of our debt (including our Senior Notes and Convertible
Notes) was as follows:





2009
            
            $
            65,0452010
            
            
            160,3372011
            
            
            79,8482012
            
            
            326,0462013
            
            
            383,3622014
      and thereafter
            
            
            199,620Total
            
            $
            1,214,258


Page
33
 Index




CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





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 March 31, 2009:





2009
            
            
            6672010
            
            
            7372011
            
            
            6362012
            
            
            6022013
            
            
            2,4652014
      and thereafter
            
            
            774$
            5,881Less:
      amount representing interest
            
            
            (1,302
            )Present
      value of net minimum lease payments
            
            $
            4,579




11.  OTHER
LIABILITIES





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





March 31,
              2009
            
            
            December 31,
              2008Current:Deferred
      revenue
            
            $
            18,052
            
            
            $
            7,684Consideration
      payable – Bulgaria
            
            
            4,500
            
            
            
            4,500Consideration
      payable - Romania
            
            
            -
            
            
            
            724Onerous
      contracts
            
            
            1,389
            
            
            
            1,994Deferred
      tax
            
            
            426
            
            
            
            177Liabilities
      held for sale
            
            
            -
            
            
            
            2,207Total
      other current liabilities
            
            $
            24,367
            
            
            $
            17,286March 31,
              2009
            
            
            December 31,
              2008Non-current:Deferred
      tax
            
            $
            70,047
            
            
            $
            89,126Program
      rights
            
            
            15,048
            
            
            
            9,922Fair
      value of derivatives
            
            
            3,752
            
            
            
            9,882Consideration
      payable – Czech Republic
            
            
            1,314
            
            
            
            1,396Income
      taxes payable
            
            
            1,030
            
            
            
            1,070Other
            
            
            626
            
            
            
            819Total
      other non-current liabilities
            
            $
            91,817
            
            
            $
            112,215


Page
34
 Index




CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)




12.  FINANCIAL
INSTRUMENTS AND FAIR VALUE MEASUREMENTS





FAS 157
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 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 March 31,
2009, we have 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 currency swap agreements as follows:





Currency
Swap





On April
27, 2006, we entered into currency swap agreements with JP Morgan Chase Bank,
N.A. and Morgan Stanley Capital Services Inc. whereby we swapped a fixed annual
coupon interest rate (of 9.0%) on notional principal of CZK 10.7 billion
(approximately US$ 520.3 million), payable on July 15, October 15, January 15,
and April 15, to the termination date of April 15, 2012, for a fixed annual
coupon interest rate (of 9.0%) on notional principal of EUR 375.9 million
(approximately US$ 500.2 million) receivable on July 15, October 15, January 15,
and April 15, 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 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 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 March 31, 2009, was a US$ 3.8 million
liability, which represented a decrease of US$ 6.1 million from the US$ 9.9
million liability as at December 31, 2008 and was recognized as a gain in the
Condensed Consolidated Statement of Operations and Comprehensive
Income.


Page
35
 Index


CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)




13.  SHAREHOLDERS’
EQUITY





Preferred
Stock





5,000,000
shares of preferred stock, with a US$ 0.08 par value, were authorized as at
March 31, 2009 and December 31, 2008.  None were issued and
outstanding as at March 31, 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 March 31, 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. Shares of Class B Common Stock are
convertible into shares of Class A Common Stock for no additional consideration
on a one-for-one basis.  Holders of each class of shares are entitled
to receive dividends and upon liquidation or dissolution are entitled to receive
all assets available for distribution to shareholders.  The holders of
each class have no preemptive or other subscription rights and there are no
redemption or sinking fund provisions with respect to such shares.





On March
22, 2009, we entered into a subscription agreement with TWMH (the “Subscription
Agreement”). Pursuant to the Subscription Agreement, we have agreed to issue to
TWMH 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,
for an aggregate offering price of $241.5 million.  The completion of
this issuance of these shares of Class A Common Stock and Class B Common Stock
is subject to a vote of our shareholders and other customary closing conditions.
We expect the transaction to close during the second quarter of
2009.





14.  STOCK-BASED
COMPENSATION





The
charge for stock-based compensation in our condensed consolidated statements of
operations was as follows:





For
      the Three Months Ended March 31,2009
            
            
            2008Stock-based
      compensation
            
            $
            1,547
            
            
            $
            1,813Income
      tax benefit recognized
            
            
            113
            
            
            
            180




Under the
provisions of SFAS 123(R), 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. No options were granted or exercised in the
three months ended March 31, 2009.


Page
36
 Index


CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





A summary
of option activity for the three months ended March 31, 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
            
            
            -
            
            
            
            -Exercised
            
            
            -
            
            
            
            -Forfeited
            
            
            (13,125
            )
            
            
            79.35Outstanding
      at March 31, 2009
            
            
            1,425,917
            
            
            
            50.54
            
            
            
            5.91
            
            
            
            281Vested
      or expected to vest
            
            
            1,363,176
            
            
            
            50.31
            
            
            
            5.97
            
            
            
            281Exercisable
      at March 31, 2009
            
            
            852,855
            
            
            
            44.05
            
            
            
            5.14
            
            
            
            281





The
exercise of stock options has generated a net operating loss brought forward in
our Delaware subsidiary of US$ 7.5 million at January 1, 2009.  In the
quarter ended March 31, 2009 tax benefits of US$ 0.2 million were recognized in
respect of the utilization of part of this loss, and were recorded as additional
paid-in capital, net of US$ 0.1 million of transfers related to the write-off of
deferred tax assets arising upon forfeitures and other adjustments. 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 first 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 March 31, 2009.  This amount changes based
on the fair value of our Common Stock.  The total intrinsic value of
options exercised during the three months ended March 31, 2009 and 2008 was US$
nil and US$ 1.8 thousand, respectively.  As of March 31, 2009, there
was US$ 9.8 million of total unrecognized compensation expense related to
options.  The expense is expected to be recognized over a weighted
average period of 2.1 years.  Proceeds received from the exercise of
stock options were US$ nil and US$ 9.0 thousand for the three months ended March
31, 2009 and 2008, respectively.


Page
37
 Index


CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





15.  EARNINGS
PER SHARE





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





For
      the Three Months Ended March 31,2009
              
              
              2008Net
      (loss) / income from continuing operations attributable for CME Ltd.
      shareholders
              
              $
              (44,176
              )
              
              $
              $
      15,195Net
      loss from discontinued operations
              
              
              (262
              )
              
              
              (750
              )Net
      (loss) / income attributable to CME Ltd. Shareholders
              
              $
              (44,438
              )
              
              $
              14,445Weighted
      average outstanding shares of Common Stock (000’s)
              
              
              42,337
              
              
              
              42,316Dilutive
      effect of employee stock options (000’s)
              
              
              -
              
              
              
              416Common
      Stock and Common Stock equivalents (000’s)
              
              
              42,337
              
              
              
              42,732Income
      / (loss) per share:Basic
              
              $
              (1.05
              )
              
              $
              0.34Diluted
              
              $
              (1.05
              )
              
              $
              0.34





At March
31, 2009, 1,377,343 (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. Common shares
potentially issuable under our Convertible Notes may also become dilutive in the
future although were antidilutive at March 31, 2009.





16.  INTEREST
EXPENSE





Interest
expense comprised the following for the three months ended March 31, 2009 and
2008, respectively:





For
      the Three Months Ended March 31,2009
            
            
            2008Interest
      on Senior Notes
            
            $
            9,408
            
            
            $
            11,315Interest
      on Convertible Notes
            
            
            4,156
            
            
            
            970Interest
      on EBRD loan
            
            
            1,268
            
            
            
            -Interest
      on capital leases
            
            
            85
            
            
            
            95Other
      interest and fees
            
            
            823
            
            
            
            958$
            15,740
            
            
            $
            13,338Amortization
      of capitalized debt issuance costs
            
            
            1,130
            
            
            
            861Amortization
      of debt issuance discount
            
            
            4,558
            
            
            
            1,030$
            5,688
            
            
            $
            1,891Total
      interest expense
            
            $
            21,428
            
            
            $
            15,229


Page
38
 Index




CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





Interest
expense for the three months ended March 31, 2008 reflects the impact of
adopting FSP APB 14-1 retrospectively (see Note 2, “Summary of Significant
Accounting Policies, Convertible Debt”).





17.  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 assets by operation for the three months
ended March 31, 2009 and 2008 for condensed consolidated statement of operations
data and as at March 31, 2009 and December 31, 2008 for condensed consolidated
balance sheet data:





For
      the Three Months Ended March 31,Net
      Revenues (1)
              
              2009
              
              
              2008Bulgaria
      (2)
              
              $
              596
              
              
              $
              -Croatia
              
              
              10,203
              
              
              
              11,534Czech
      Republic
              
              
              56,127
              
              
              
              85,558Romania
              
              
              35,689
              
              
              
              57,996Slovak
      Republic
              
              
              20,571
              
              
              
              26,234Slovenia
              
              
              13,134
              
              
              
              17,951Ukraine
              
              
              4,901
              
              
              
              23,750Total
      Operating Segments
              
              $
              141,221
              
              
              $
              223,023Corporate
              
              
              -
              
              
              
              -Total
              
              $
              141,221
              
              
              $
              223,023




(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
39
 Index




CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





For
      the Three Months Ended March 31,EBITDA
              
              2009
              
              
              2008Bulgaria
      (1)
              
              $
              (6,730
              )
              
              $
              -Croatia
              
              
              (43
              )
              
              
              (2,730
              )Czech
      Republic
              
              
              24,893
              
              
              
              43,845Romania
              
              
              7,147
              
              
              
              23,376Slovak
      Republic
              
              
              3,728
              
              
              
              9,137Slovenia
              
              
              3,010
              
              
              
              4,340Ukraine
              
              
              (12,280
              )
              
              
              (2,694
              )Total
      Operating Segments
              
              $
              19,725
              
              
              $
              75,274Corporate
              
              
              (4,259
              )
              
              
              (9,806
              )Total
              
              $
              15,466
              
              
              $
              65,468





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





For
      the Three Months Ended March 31,Depreciation
              
              2009
              
              
              2008Bulgaria
      (1)
              
              $
              535
              
              
              $
              -Croatia
              
              
              1,069
              
              
              
              1,410Czech
      Republic
              
              
              3,695
              
              
              
              4,622Romania
              
              
              2,751
              
              
              
              2,672Slovak
      Republic
              
              
              1,636
              
              
              
              1,383Slovenia
              
              
              1,426
              
              
              
              1,283Ukraine
              
              
              504
              
              
              
              744Total
      Operating Segments
              
              $
              11,616
              
              
              $
              12,114Corporate
              
              
              388
              
              
              
              211Total
              
              $
              12,004
              
              
              $
              12,325




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


Page
40
 Index


CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





For
      the Three Months Ended March 31,Amortization
      of intangible assets
              
              2009
              
              
              2008Bulgaria
      (1)
              
              $
              1,545
              
              
              $
              -Croatia
              
              
              -
              
              
              
              -Czech
      Republic
              
              
              2,414
              
              
              
              5,524Romania
              
              
              591
              
              
              
              869Slovak
      Republic
              
              
              1,137
              
              
              
              1,193Slovenia
              
              
              -
              
              
              
              -Ukraine
              
              
              414
              
              
              
              84Total
      Operating Segments
              
              $
              6,101
              
              
              $
              7,670Corporate
              
              
              -
              
              
              
              -Total
              
              $
              6,101
              
              
              $
              7,670





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





For
      the Three Months Ended March 31,Impairment
      charges
              
              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.


Page
41
 Index


CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





For
      the Three Months Ended March 31,Operating
      (loss) / income
              
              2009
              
              
              2008Bulgaria
      (1)
              
              $
              (90,653
              )
              
              $
              -Croatia
              
              
              (1,112
              )
              
              
              (4,140
              )Czech
      Republic
              
              
              18,784
              
              
              
              33,699Romania
              
              
              3,805
              
              
              
              19,835Slovak
      Republic
              
              
              955
              
              
              
              6,561Slovenia
              
              
              1,584
              
              
              
              3,057Ukraine
              
              
              (13,198
              )
              
              
              (3,522
              )Total
      Operating Segments
              
              $
              (79,835
              )
              
              $
              55,490Corporate
              
              
              (4,647
              )
              
              
              (10,017
              )Total
              
              $
              (84,482
              )
              
              $
              45,473





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





Total
      assets (1):
              
              March 31,
                2009
              
              
              December 31,
                2008Bulgaria
              
              $
              19,115
              
              
              $
              107,805Croatia
              
              
              46,193
              
              
              
              50,431Czech
      Republic
              
              
              1,245,879
              
              
              
              1,306,997Romania
              
              
              343,788
              
              
              
              387,845Slovak
      Republic
              
              
              230,110
              
              
              
              240,899Slovenia
              
              
              90,751
              
              
              
              93,022Ukraine
              
              
              91,629
              
              
              
              129,590$
              2,067,465
              
              
              $
              2,316,589Corporate
              
              
              257,012
              
              
              
              84,543Total
              
              $
              2,324,477
              
              
              $
              2,401,132Reconciliation
      to condensed consolidated balance sheets:Assets
      held for sale (2)
              
              
              -
              
              
              
              5,484Total
      assets
              
              $
              2,324,477
              
              
              $
              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.


Page
42
 Index




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




Long-lived
      assets (1):
            
            March 31,
              2009
            
            
            December 31,
              2008Bulgaria
            
            $
            5,979
            
            
            $
            6,404Croatia
            
            
            11,953
            
            
            
            13,450Czech
      Republic
            
            
            57,162
            
            
            
            61,463Romania
            
            
            44,970
            
            
            
            52,193Slovak
      Republic
            
            
            36,647
            
            
            
            40,025Slovenia
            
            
            22,863
            
            
            
            24,932Ukraine
            
            
            4,562
            
            
            
            7,083$
            184,136
            
            
            $
            205,550Corporate
            
            
            771
            
            
            
            1,117Total
      long-lived assets
            
            $
            184,907
            
            
            $
            206,667





(1)
            Reflects
      property, plant and equipment.





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








18.  DISCONTINUED
OPERATIONS





Ukraine




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 have been classified as available for sale at December 31, 2008
and had been disposed of by March 31, 2009.





Czech
Republic





On May
19, 2003, we received US$ 358.6 million from the Czech Republic in final
settlement of our UNCITRAL arbitration in respect of our former operations in
the Czech Republic.





On June
19, 2003, our Board of Directors decided to withdraw from operations in the
Czech Republic. The revenues and expenses of our former Czech Republic
operations and the award income and related legal expenses have therefore all
been accounted for as discontinued operations for all periods
presented.





On
February 9, 2004, we entered into an agreement with the Dutch tax authorities to
settle all tax liabilities outstanding for the years up to and including 2003,
including receipts in respect of our 2003 award in the arbitration against the
Czech Republic, for a payment of US$ 9.0 million.  We expected to
continue to pay tax in The Netherlands of between US$ 1.0 and US$ 2.5 million
for the foreseeable future and therefore agreed to a minimum payment of US$ 2.0
million per year for the years 2004 to 2008 and US$ 1.0 million for
2009.


Page
43
 Index




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




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 provides that if any decision is
issued at any time prior to December 31, 2008 exempting awards under Bilateral
Investment Treaties from taxation in The Netherlands, we will be allowed to
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.





The
settlement with the Dutch tax authorities has also resulted in a deductible
temporary difference in the form of a ruling deficit against which a full
valuation allowance has been recorded.








19.  COMMITMENTS
AND CONTINGENCIES





Commitments





a)  Station
Programming Rights Agreements





At March
31, 2009, we had the following commitments in respect of future programming,
including contracts signed with license periods starting after the balance sheet
date:





March 31, 2009Bulgaria
            
            $
            49,306Croatia
            
            
            27,614Czech
      Republic
            
            
            102,262Romania
            
            
            171,135Slovak
      Republic
            
            
            47,978Slovenia
            
            
            20,664Ukraine
            
            
            15,523Total
            
            $
            434,482





Of the
amount shown in the table above, US$ 108.2 million is payable within one
year.


Page
44
 Index


CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





c)
Operating Lease Commitments





For the
three months ended March 31, 2009 and 2008 we incurred aggregate rent on all
facilities of US$ 2.2 million and US$ 3.6 million,
respectively.  Future minimum operating lease payments at March 31,
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:





March 31,20092009
            
            
            4,3202010
            
            
            4,7662011
            
            
            2,8982012
            
            
            1,9312013
            
            
            3,8402014
      and thereafter
            
            
            1,597Total
            
            $
            19,352





d)
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 March 31, 2009, we
consider the fair value of the put option of Mr. Sarbu to be approximately US$
nil.





e)
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
March 31, 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.


Page
45
 Index


CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





Czech
Republic - Factoring of Trade Receivables





CET 21
has a working capital credit facility of CZK 250 million (approximately US$ 12.2
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 FASB
Statement No. 140, “Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities”, 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.





Contingencies





a)
Litigation





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





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 B.V. dated
November 30, 2006 (the “parent agreement”), which was entered into in connection
with Studio 1+1 in Ukraine entering advertising and marketing services
agreements with LLC Video International-Prioritet, a Ukrainian subsidiary of
VI.  Pursuant to the advertising and marketing services agreements,
LLC Video International-Prioritet had been selling advertising and sponsorship
on the STUDIO 1+1 channel. We delivered notice of termination of all agreements
with the VI group on December 24, 2008; and as a result, all agreements with the
VI group terminated on March 24, 2009. 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 for advertising
and sponsorship sold by LLC Video International-Prioritet for the six months
prior to the termination date, multiplied by six. We have recorded a provision
of US$ 4.9 million, representing the amount we currently believe we will be
required to pay in connection with the termination of the 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 defending our position vigorously in
the arbitration proceedings.





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 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.


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CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





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.





On
October 3, 2008, Lehman OTC filed for protection under Chapter 11 as
well.  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 TV2 expires in February
2010.




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 May
      2009 to April 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.


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CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





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.





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, both of our Slovenian channels, POP TV and KANAL A, were issued digital
licenses in November 2007. 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 following the completion of the tender offer for the multiplex
operator under the TTP for the Slovak Republic.  In addition, in
January 2009 Markiza was granted a digital license for a niche channel which
must be launched by January 2011.  In Bulgaria, TV2 was granted the
right to receive a “must-carry” digital license, which gives TV2 a must-carry
right for the first multiplex. We expect the Bulgarian Media Council to issue
the license in the near future. The digital switchover in Bulgaria is expected
to be completed by 2012.





Draft
legislation governing the transition to digital is under discussion in
Croatia.  We anticipate that legislation will be adopted during 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.


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CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





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.




c)
Restrictions on dividends from Consolidated Subsidiaries and Unconsolidated
Affiliates




Corporate
law in the Central and Eastern European countries in which we have operations
stipulates generally that dividends may be declared by shareholders, out of
yearly profits, subject to the maintenance of registered capital and required
reserves after the recovery of accumulated losses. The reserve requirement
restriction generally provides that before dividends may be distributed, a
portion of annual net profits (typically 5%) be allocated to a reserve, which
reserve is capped at a proportion of the registered capital of a company
(ranging from 5% to 25%).  The restricted net assets of our
consolidated subsidiaries and equity in earnings of investments accounted for
under the equity method together are less than 25% of consolidated net
assets.





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Item2.  Management's Discussion and Analysis of Financial
Condition and Results of Operations





Contents




I.
              Forward-looking
      Statements
 II.
              Executive
      Summary
 III.
              Analysis
      of Segment Results
 IV.
              Analysis
      of the Results of Consolidated
Operations
 V.
              Liquidity
      and Capital Resources
 VI.
              Critical
      Accounting Policies and
Estimates




I.
Forward-looking Statements




This
report contains forward-looking statements, including those relating to our
capital needs, business strategy, expectations and intentions. Statements that
use the terms “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 impact of any additional investments we make in our Bulgaria,
Croatia and Ukraine operations; our effectiveness in implementing our strategic
plan for our Ukraine operations or our Bulgaria operations; the successful
completion of our transaction with TWMH; 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 publically update or review any forward-looking
statements, whether as a result of new information, future developments or
otherwise.




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The
following discussion should be read in conjunction with our interim financial
statements and notes included elsewhere in this report.




II.
Executive Summary





Continuing
Operations





The
following table provides a summary of our consolidated results for the three
months ended March 31, 2009 and 2008:





For
      the Three Months Ended March 31,
              (US$
      000's)2009
            
            
            2008
            
            
            MovementNet
      revenues
            
            $
            141,221
            
            
            $
            223,023
            
            
            
            (36.7
            )%Operating
      (loss) / income
            
            
            (84,482
            )
            
            
            45,473
            
            
            
            Nm
            (1)Net
      (loss) / income
            
            $
            (46,940
            )
            
            $
            14,922
            
            
            
            Nm
            (1)Net
      cash (used in) / generated by continuing operating
    activities
            
            $
            22,548
            
            
            $
            84,618
            
            
            
            (
      73.4
            )%




(1)
Number is not meaningful.




The
reduction in net revenues of US$ 81.8 million reflects lower demand for
advertising across most of our markets as a result of weaker economic
conditions, as well as the impact of a stronger dollar on our local currency
revenues in the three months ended March 31, 2009 compared to the same period in
2008.  The deterioration in our operating income is principally due to
the recognition of a non-cash impairment charge of US$ 81.8 million in respect
of our operations in Bulgaria (see Item 1, Note 4, “Goodwill and Intangible
Assets”).




Operating
Performance




In
the following discussion we describe our operating performance in terms of
EBITDA, which is equal to total EBITDA of each of our segments less corporate
costs (which include non-cash stock-based compensation). In previous reports we
have 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 17,
“Segment Data”).
  Despite
maintaining audience share leadership in most of our established markets, the
deterioration in the economic and general market conditions across the region in
which we operate has resulted in much weaker financial performance in the first
quarter of 2009, particularly when compared to the unusually strong results
delivered in the same period in 2008. Television advertising demand has fallen
sharply across all our markets, with estimated declines in our five established
markets ranging from 8% to 30% in the quarter. Increasing our share of
television advertising revenues in each of our established markets has only
partially mitigated the impact of the declining advertising markets and
revenues. In EBITDA terms, cost reduction programs have been unable to
compensate for the decline in revenues.  In addition, the dollar was
considerably stronger against the currencies in which we operate than in the
same period last year.
  As a
result of these market conditions, we are reporting a reduction in Net Revenues
of 37% and in EBITDA of 76% in the first quarter. In constant currency terms,
which excludes the impact of the appreciation of the dollar on our local
revenues, we have seen a decline in revenues of 24% and a decline in EBITDA of
69%.


Losses in
our developing markets of Ukraine and Bulgaria have contributed significantly to
the reduction in reported EBITDA. In Ukraine, where the television advertising
market fell by an estimated 55% in the quarter, we generated EBITDA losses of
US$ 12.3 million compared to US$ 2.7 million in the first quarter of 2008. Our
new operations in Bulgaria generated EBITDA losses of US$ 6.7 million. Excluding
these losses, the reduction in our EBITDA would have been 6.2%.




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Our net
cash generated from continuing operations fell by 73% in the
quarter.




Key
Events




On March
22, 2009, we entered into a subscription agreement with TW Media Holdings LLC
(“TWMH”) (the “Subscription Agreement”). Pursuant to the Subscription Agreement,
we have agreed to issue to TWMH 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, for an aggregate offering price of $241.5
million.  The completion of this issuance of these shares of Class A
Common Stock and Class B Common Stock is subject to a vote of our shareholders
and other customary closing conditions.





Future
Trends




Advertising
market conditions in the countries in which we operate deteriorated sharply in
the first quarter of 2009. We anticipate GDP decline in all our markets in 2009,
and consensus economic projections continue to worsen. Although it is difficult
to predict the depth or duration of the recession, we currently expect the
market to stabilize between the second half of 2009 and the first half of
2010.




The first
quarter of the year is the main period in which we negotiate advertising
contracts with our clients, but in light of the economic conditions, advertisers
remain uncertain about the level of spending they are prepared to commit and the
level of sales committed to contract is lower than at the same time last year.
As a result forward visibility on sales remains poor. We currently expect that
television advertising spending will decline in 2009 in Ukraine by 55% and in
our other markets by between 10% and 30.




Since
June 30, 2008, the dollar has strengthened considerably against most European
currencies, including the Euro and the local currencies of our station
operations.  In general, an increase in the value of the dollar
against the functional currencies of the markets in which we operate will reduce
the dollar value of the segment sales and segment EBITDA that we report. This
trend has continued in the first quarter of 2009. We cannot predict future
exchange rate trends.




We have
taken actions to reduce costs in order to protect profits and to 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. We have also modified
our development strategies for Ukraine and Bulgaria and significantly reduced
our planned levels of investment expenditure.  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 key markets, as we
believe this is essential to the long term value of our operations. We intend to
maintain sufficient investment to protect these strengths. Taking all these
factors into account, we expect that we will see a decline in Net Revenues and
EBITDA in 2009 in local currency in all of our markets except
Croatia.




When the
global economic climate improves, we expect growth will resume in our markets.
As a result, we expect that over the medium term we will see a return to higher
levels of GDP growth, as higher well as general advertising and television
advertising spending growth in our markets than in Western European or U.S.
markets.




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. The
only markets where we currently face significant competition from other
distribution platforms are Romania and Slovenia, where cable penetration exceeds
50% of television households.




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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 operating countries and the strength of
our existing brands place us in a solid position to manage increased
competition, including by launching new niche channels to target niche audiences
as these new technologies develop.




Internet




Internet
broadband penetration is low in all of our markets in comparison to Western
European and U.S. markets. We anticipate broadband penetration 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 users. 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.




Financial
Position




We
believe our financial resources are sufficient to meet our current financial
obligations.  Although further deterioration in the advertising
markets or continued strengthening of the dollar against the currencies of the
markets in which our cash flow is generated could reduce our liquidity reserves,
the anticipated investment by Time Warner provides adequate financial security.
We do not have any imminent refinancing need as the earliest maturity date of
our Senior Notes or Convertible Notes is in 2012 and our EBRD Loan, which
amortizes from May 2009, and matures until 2011. We may be constrained in
accessing new funding due to prevailing credit market conditions and our
increasing leverage as Segment EBITDA falls.   We recognize the
need to remain alert to the financial consequences of rapidly changing market
conditions and in order to protect and develop our business we will continue to
review opportunities to raise additional liquidity. This may include
restructuring our debt, issuing equity or additional local debt as market
conditions allow, or seeking solutions to reduce the financing burden of our
developing market operations.




CME
Strategy




We enjoy
very strong positions in our established 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 as and when growth resumes.




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




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Optimizing
the value of our resources through diversification of revenue
sources:




·
            we
      intend to reorganize our operating structure into three areas -
      (broadcast) channel operations, content, and internet – to leverage our
      content strengths to develop a significant new revenue source over the
      medium term; and




·
            as
      this structure becomes established, we intend to continue our
      transformation from a television broadcaster to a broad based media
      company by capitalizing on our core strengths and expanding our revenue
      base into five main sources: advertising, subscription, content
      distribution, internet and management
services.




Further
development of our operations:




·
            we
      will continue developing our Bulgaria and Ukraine operations in a
      controlled manner to secure consistent performance and a leading position
      in those markets; and.




·
            we
      will assess 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 ensuring that this does not lead to the erosion of our brands
and competitive strength.




III.
Analysis of 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 either do
not impact our cash flows or the operating results of our
stations.  EBITDA is also used as a component in determining
management bonuses.


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





SEGMENT
      FINANCIAL INFORMATION
                For
      the Three Months Ended March 31, (US$ 000's)2009
              
              
              (1)
              
              
              2008
              
              
              (1)Net
      RevenuesBulgaria
      (TV2, RING TV) (2)
              
              $
              596
              
              
              
              -
              %
              
              $
              -
              
              
              
              -
              %Croatia
      (NOVA TV)
              
              
              10,203
              
              
              
              7
              %
              
              
              11,534
              
              
              
              5
              %Czech
      Republic (TV NOVA, NOVA CINEMA and NOVA SPORT)
              
              
              56,127
              
              
              
              40
              %
              
              
              85,558
              
              
              
              38
              %Romania
      (3)
              
              
              35,689
              
              
              
              25
              %
              
              
              57,996
              
              
              
              26
              %Slovak
      Republic (TV MARKIZA)
              
              
              20,571
              
              
              
              15
              %
              
              
              26,234
              
              
              
              12
              %Slovenia
      (POP TV, KANAL A)
              
              
              13,134
              
              
              
              9
              %
              
              
              17,951
              
              
              
              8
              %Ukraine
      (STUDIO 1+1, KINO) (4)
              
              
              4,901
              
              
              
              4
              %
              
              
              23,750
              
              
              
              11
              %Total
      Net Revenues
              
              $
              141,221
              
              
              
              100
              %
              
              $
              223,023
              
              
              
              100
              %Represented
      by:Broadcast
      operations
              
              
              139,433
              
              
              
              99
              %
              
              $
              221,050
              
              
              
              99
              %Non-broadcast
      operations
              
              
              1,788
              
              
              
              1
              %
              
              
              1,973
              
              
              
              1
              %Total
      Net Revenues
              
              $
              141,221
              
              
              
              100
              %
              
              $
              223,023
              
              
              
              100
              %EBITDABulgaria
      (TV2, RING TV) (2)
              
              $
              (6,730
              )
              
              
              (44
              )%
              
              $
              -
              
              
              
              -
              %Croatia
      (NOVA TV)
              
              
              (43
              )
              
              
              -
              %
              
              
              (2,730
              )
              
              
              (4
              )%Czech
      Republic (TV NOVA, NOVA CINEMA and NOVA SPORT)
              
              
              24,893
              
              
              
              161
              %
              
              
              43,845
              
              
              
              66
              %Romania
      (3)
              
              
              7,147
              
              
              
              46
              %
              
              
              23,376
              
              
              
              36
              %Slovak
      Republic (TV MARKIZA)
              
              
              3,728
              
              
              
              24
              %
              
              
              9,137
              
              
              
              14
              %Slovenia
      (POP TV and KANAL A)
              
              
              3,010
              
              
              
              20
              %
              
              
              4,340
              
              
              
              7
              %Ukraine
      (STUDIO 1+1, KINO) (4)
              
              
              (12,280
              )
              
              
              (79
              )%
              
              
              (2,694
              )
              
              
              (4
              )%$
              19,725
              
              
              
              
              
              
              $
              75,274Corporate
              
              
              (4,259
              )
              
              
              (28
              )%
              
              
              (9,806
              )
              
              
              (15
              )%Total
      EBITDA
              
              $
              15,466
              
              
              
              100
              %
              
              $
              65,468
              
              
              
              100
              %Represented
      by:Broadcast
      operations
              
              $
              21,611
              
              
              
              139
              %
              
              $
              76,752
              
              
              
              117
              %Non-broadcast
      operations
              
              
              (1,886
              )
              
              
              (11
              )%
              
              
              (1,478
              )
              
              
              (2
              )%Corporate
              
              
              (4,259
              )
              
              
              (28
              )%
              
              
              (9,806
              )
              
              
              (15
              )%Total
      EBITDA
              
              $
              15,466
              
              
              
              100
              %
              
              $
              65,468
              
              
              
              100
              %EBITDA
      Margin (5)
              
              
              11
              %
              
              
              
              
              
              
              29
              %




(1)
Percentage of Net Revenues and EBITDA.




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




(3)
Romania channels are PRO TV, PRO CINEMA, ACASA, PRO TV INTERNATIONAL, SPORT.RO
and MTV Romania.




(4)
Ukraine channels are STUDIO 1+1 and KINO. 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) We
define EBITDA margin as the ratio of EBITDA to Net Revenues.




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55
 Index




ANALYSIS
BY GEOGRAPHIC SEGMENT





We, like
other television operators, experience seasonality, with advertising sales
tending to be lower during the first and third quarters of each calendar year,
particularly during the summer holiday period (typically July and August) and
higher during the second and fourth quarters of each calendar year, particularly
toward the end of the year.




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




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 their
major competitors, based on our channels’ target demographics.





Spot Sales.Our main unit of
sale is the commercial gross rating point (“GRP”).  This is a measure
of the number of people watching when the advertisement is aired. Generally we
will contract with a client to provide an agreed number of GRPs for an agreed
price (“cost per point” or “CPP”). Much less frequently, and usually only for
small niche channels, 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.




Generally,
demand for broadcast advertising is highest in the fourth quarter of the year,
followed by the second quarter; demand for broadcast advertising tends to be
lowest in the third quarter of the year.





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 more useful to provide
percentage movements based on like-for-like (“% Lfl”) or constant currency
percentage movements as well as actual (“% Act”) percentage movements (which
includes the effect of foreign exchange).


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56
 Index





(A)
BULGARIA




We
acquired our Bulgaria operations on August 1, 2008.  We hold an
indirect 80.0% voting and economic interest in each of TV2, a start-up national
terrestrial channel, and RING TV, a cable sports channel.  TV2 was
launched in November 2007.


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 experienced management support from Romania and other
markets while we build the new local management team. We continue to enhance our
management team and have commenced in-house productions to be aired later in the
year.  We intend to relaunch TV2 and RING TV in the second half of
2009.





Market Background: We estimate
that the net television advertising market in Bulgaria was approximately US$ 175
to US$ 185 million in 2008. We estimate that the local currency television
advertising market declined by 30% in the first quarter.  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 local currency
television advertising market to decline by between 15% and 20% in 2009. If
market conditions continue to worsen, a larger decline in the total advertising
market could occur.





Audience
Share and Ratings Performance





For sales
purposes, TV2’s target audience demographic is 18-49 Urban. All audience data
shown below is based on the target demographic of TV2.





For
      the three months ended March 31, 2009All
      day audience share
            
            
            2.4
            %All
      day ratings
            
            
            0.3
            %Prime
      time audience share
            
            
            2.3
            %Prime
      time ratings
            
            
            0.7
            %





Our major
competitors are the privately owned broadcasters bTV and NOVA TV and the public
broadcaster BNT. In the three months ended March 31, 2009, bTV had an all day
audience share of 35.2%, NOVA TV had an all day audience share of 22.2% and BNT
had an all day audience share of 9.1%.  In terms of its audience
share, TV2 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 three months ended March 31, 2009 of 2.8% and 0.9%, respectively
and FOX LIFE with 2.6%.





Prime
time audience share for the three months ended March 31, 2009 was 40.6% for bTV,
25.1% for NOVA TV and 10.3% for BNT.  Prime time audience shares for
the three months ended March 31, 2009 for DIEMA +, DIEMA 2 and FOX LIFE were
2.4%, 0.6% and 1.2%, respectively.


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57
 Index




BULGARIA
      FINANICIAL INFORMATIONFor
      the three months ended March 31, 2009
              (US$
      000’s)Spot
      revenues
            
            
            $
            219Non-spot
      revenues
            
            
            377Net
      Revenues
            
            $
            596Represented
      by:Broadcast
      operations
            
            $
            596Non-broadcast
      operations
            
            
            -Net
      Revenues
            
            $
            596EBITDA
            
            $
            (6,730
            )Represented
      by:Broadcast
      operations
            
            $
            (6,670
            )Non-broadcast
      operations
            
            
            (60
            )EBITDA
            
            $
            (6,730
            )EBITDA
      Margin
            
            Nm





·
            Net Revenues for the
      three months ended March 31, 2009 were US$ 0.6 million. Spot revenues were
      US$ 0.2 million. Non-spot revenues were US$ 0.4 million, primarily from
      cable revenues.





·
            EBITDA losses for the
      three months ended March 31, 2009 were US$ 6.7 million. We incurred
      programming costs of US$ 4.7 million, other operating costs of US$ 1.4
      million and selling, general and administrative costs of US$ 1.3
      million.




(B)
CROATIA





NOVA TV
(Croatia) achieved a 6% increase in like-for-like revenues during the first
quarter despite an 8% decline in the television advertising
market.  Our prime time audience share was slightly lower than in the
same period of 2008 due to the implementation of a low cost programming schedule
and to 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, achieving an
average audience share of 36% and the average prime time audience share of
almost 33% in the first week of March, which was the highest audience share ever
achieved by NOVA TV (Croatia).





Our news
portal achieved its best ever result in March with approximately 1.3 million
unique users and we launched several new themed microsites supporting popular
programs and sports events.





We
revised our estimates of future cash flows based on our expectations of a
heavier contraction in the advertising market in 2009, lower growth in future
years and a more prolonged downturn. We concluded that Long-Lived Assets in the
TV2 asset group were no longer recoverable and recorded a charge to write them
down to their fair value of US$ nil.





Market
Background:  We estimate that the television advertising market
in Croatia experienced no growth in local currency between 2007 and 2008,
reflecting a reduction in demand from international advertisers in the fourth
quarter of 2008.  We estimate that the local currency television
advertising market declined by 8% in the first quarter of
2009.  Economic projections for Croatia in 2009 are poor and continue
to worsen. Due to the resulting uncertainty among advertisers we cannot predict
future market development accurately.  However, we currently expect
the local currency television advertising market to decline by between 8% and
12% in 2009. If market conditions have continued to worsen since the start of
the year, a further decline in the television advertising market can be
expected.


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58
 Index


Audience  Share
and Ratings Performance





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 Three Months Ended March 31,2009
            
            
            2008
            
            
            MovementAll
      day audience share
            
            
            22.6
            %
            
            
            23.1
            %
            
            
            (0.5
            )%All
      day ratings
            
            
            4.4
            %
            
            
            4.1
            %
            
            
            0.3
            %Prime
      time audience share
            
            
            25.7
            %
            
            
            26.4
            %
            
            
            (0.7
            )%Prime
      time ratings
            
            
            11.0
            %
            
            
            10.7
            %
            
            
            0.3
            %





Our major
competitors are the privately owned broadcaster RTL, with an all day audience
share for the three months ended March 31, 2009 of 29.4%, and two channels of
the public broadcaster, HRT1 and HRT2, with all day audience shares of 22.8% and
13.3% respectively.





In the
three months ended March 31, 2009 NOVA TV (Croatia) remained the second highest
ranked channel despite a decrease in its prime time audience share from 26.4% in
the three months ended March 31, 2008 to 25.7% in the three months ended March
31, 2009. The prime time audience share for RTL increased from 27.8% to 29.4%
over the same period, in part due to its broadcasting of the World Handball
Championship, held in Zagreb, Croatia in January 2009 in which Croatia performed
well. The prime time audience shares of HRT1 and HRT2 decreased from 23.6% to
22.8% and from 14.4% to 13.3% respectively.





Prime
time ratings for the Croatia market increased from 40.4% to 42.8% for the
comparable three month period.


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59
 Index


Three
months ended March 31, 2009 compared to three months ended March 31,
2008





CROATIA
      FINANCIAL INFORMATIONFor
      the Three Months Ended March 31, (US$ 000's)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)Spot
      revenues
            
            $
            8,213
            
            
            $
            9,662
            
            
            
            (15.0
            )%
            
            
            1.4
            %Non-spot
      revenues
            
            
            1,990
            
            
            
            1,872
            
            
            
            6.3
            %
            
            
            26.9
            %Net
      Revenues
            
            $
            10,203
            
            
            $
            11,534
            
            
            
            (11.5
            )%
            
            
            5.5
            %Represented
      byBroadcast
      operations
            
            $
            10,080
            
            
            $
            11,405
            
            
            
            (11.6
            )%
            
            
            5.4
            %Non-broadcast
      operations
            
            
            123
            
            
            
            129
            
            
            
            (4.7
            )%
            
            
            14.1
            %Net
      Revenues
            
            $
            10,203
            
            
            $
            11,534
            
            
            
            (11.5
            )%
            
            
            5.5
            %EBITDA
            
            $
            (43
            )
            
            $
            (2,730
            )
            
            
            98.4
            %
            
            
            98.2
            %Represented
      byBroadcast
      operations
            
            $
            228
            
            
            $
            (2,587
            )
            
            
            108.8
            %
            
            
            109.9
            %Non-broadcast
      operations
            
            
            (271
            )
            
            
            (143
            )
            
            
            (89.5
            )%
            
            
            (126.7
            )%EBITDA
            
            $
            (43
            )
            
            $
            (2,730
            )
            
            
            98.4
            %
            
            
            98.2
            %EBITDA
      Margin
            
            
            (0
            )
      %
            
            
            (24
            )%
            
            
            24
            %
            
            
            24
            %


(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.








·
            Net Revenues for the
      three months ended March 31, 2009 decreased by 12%, compared to the three
      months ended March 31, 2008.  In constant currency, Net Revenues
      increased by 6%.  Spot revenues for the three months ended March
      31, 2009 increased by 1% in constant currency compared to the same period
      in 2008. This is as a result of an increase in the volume of GRPs sold in
      off prime time, which more than offset a weakening in prices as a result
      of market conditions.  Non-spot revenues increased by 27% in
      constant currency in the three months ended March 31, 2009 compared to the
      same period in 2008.





·
            EBITDAlosses for the
      three months ended March 31, 2009 decreased by 98% compared to the three
      months ended March 31, 2008.  In constant currency, Segment
      EBITDA losses decreased by 98%.





Costs
charged in arriving at EBITDA for the three months ended March 31, 2009
decreased by 15% in constant currency compared to the three months ended March
31, 2008.  Cost of programming decreased by 23% in constant currency
primarily due to lower acquired programming costs partially offset by a higher
proportion of locally produced programs included in our schedule, such as ”The
Farm 2” and “IN magazin”.  Other operating costs increased by 1% in
constant currency due to higher staff-related costs partially offset by lower
broadcast operating expenses.  Staff-related costs increased due to
increases in headcount.  Selling, general and administrative expenses
increased by 1% in constant currency.


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 Index




(B)
CZECH REPUBLIC





Our Czech
Republic operations maintained their clear leadership position in the market
with an average prime time share in their target group of 47.9% for the three
months ended March 31, 2009. This was
achieved despite the introduction of a more cost efficient spring schedule. In
addition to our already successful series “Ulice” and “Ordinace”, this schedule
included a new season of the Czech sitcom “Comeback”, realty show “WifeSwap” and
a new make-over reality show, “Second Chance”. NOVA CINEMA increased its
coverage in its target group to 66% from 43% since it began broadcasting in
Digital Video Broadcasting - Terrestrial (“DVB-T”) on December 15, 2008 and we
started to monetize its ratings in the three months ended March 31,
2009.  Prima, our leading commercial competitor, has launched a
digital second channel, “Cool”, in April 2009 with a target audience of male
20-40,  we have not experienced a decrease in our audience shares
since its launch.





The
number of unique daily users to our internet sites grew from approximately
73,000 in the three months ended March 31, 2008 to 613,000 in the three months
ended March 31, 2009 primarily due to the launch of a new 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.





Market
Background:   We estimate that the television advertising
market in the Czech Republic grew by approximately 7% to 9% in local currency
during 2008, although it declined noticeably in December.  We estimate
that the local currency television advertising market declined by 15% in the
first quarter of 2009.  Economic projections for the Czech Republic in
2009 are poor and continue to worsen.  Due to the resulting
uncertainty among advertisers we cannot predict future market development
accurately.  However, we currently expect the local currency
television advertising market to decline by between 10% and 15% in 2009. If
market conditions continue to worsen, a further decline in the television
advertising market can be expected.





Audience
Share and Ratings Performance





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 Three Months Ended March 31,2009(1)
            
            
            2008
            
            
            MovementAll
      day audience share
            
            
            44.0
            %
            
            
            41.7
            %
            
            
            2.3
            %All
      day ratings
            
            
            5.5
            %
            
            
            5.1
            %
            
            
            0.4
            %Prime
      time audience share
            
            
            47.9
            %
            
            
            45.9
            %
            
            
            2.0
            %Prime
      time ratings
            
            
            15.1
            %
            
            
            14.6
            %
            
            
            0.5
            %





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





Our main
competitors are the two channels operated by the public broadcaster, CT1 and
CT2, with all day audience shares for the three months ended March 31, 2009 of
16.4% and 5.8%, respectively, and privately owned broadcaster TV Prima, with an
all day audience share of 16.0%.




Prime
time audience share for CT1 decreased from 18.8% in the three months ended March
31, 2008 to 18.4% in the three months ended March 31, 2009, while the shares of
CT2 and TV Prima decreased from 5.6% to 4.6% and from 17.0% to 16.5%,
respectively.





Prime
time ratings for our Czech Republic operations were 15.1% in the three months
ended March 31, 2009 compared to 14.6% in the three months ended March 31, 2008
which included NOVA CINEMA, while total prime time ratings in the Czech Republic
declined from 31.9% in 2008 to 31.5% in 2009 for the same period.




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61
 Index







Three
months ended March 31, 2009 compared to three months ended March 31,
2008





CZECH
      REPUBLIC FINANCIAL INFORMATIONFor
      the Three Months Ended March 31, (US$ 000's)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)Spot
      revenues
            
            $
            50,199
            
            
            $
            77,603
            
            
            
            (35.3
            )%
            
            
            (18.1
            )%Non-spot
      revenues
            
            
            5,928
            
            
            
            7,955
            
            
            
            (25.5
            )%
            
            
            (6.1
            )%Net
      Revenues
            
            $
            56,127
            
            
            $
            85,558
            
            
            
            (34.4
            )%
            
            
            (17.0
            )%Represented
      byBroadcast
      operations
            
            $
            55,456
            
            
            $
            85,383
            
            
            
            (35.1
            )%
            
            
            (17.8
            )%Non-broadcast
      operations
            
            
            671
            
            
            
            175
            
            
            Nm(3)
            
            
            Nm(3)Net
      Revenues
            
            $
            56,127
            
            
            $
            85,558
            
            
            
            (34.4
            )%
            
            
            (17.0
            )%EBITDA
            
            $
            24,893
            
            
            $
            43,845
            
            
            
            (43.2
            )%
            
            
            (27.7
            )%Represented
      byBroadcast
      operations
            
            $
            25,587
            
            
            $
            44,236
            
            
            
            (42.2
            )%
            
            
            (26.3
            )%Non-broadcast
      operations
            
            
            (694
            )
            
            
            (391
            )
            
            
            (77.5
            )%
            
            
            (124.7
            )%EBITDA
            
            $
            24,893
            
            
            $
            43,845
            
            
            
            (43.2
            )%
            
            
            (27.7
            )%EBITDA
      Margin
            
            
            44
            %
            
            
            51
            %
            
            
            (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.





·
            Net Revenuesfor the
      three months ended March 31, 2009 decreased by 34% compared to the three
      months ended March 31, 2008. In constant currency, Net Revenues decreased
      by 17%. Spot revenues for the three months ended March 31, 2009 decreased
      by 18% in constant currency compared to the three months ended March 31,
      2008 due to a decrease in price and the volume of GRPs sold as a result of
      the weaker market.  Non-spot revenue revenues decreased by 6% in
      constant currency.





·
            EBITDA for the three
      months ended March 31, 2009 decreased by 43% compared to the three months
      ended March 31, 2008, resulting in an EBITDA margin of 44% compared to 51%
      in the same period in 2008.  In constant currency, EBITDA
      decreased by 28%.





Costs
charged in arriving at EBITDA for the three months ended March 31, 2009
decreased by 6% in constant currency compared to the three months ended March
31, 2008. Cost of programming decreased by 9% in constant currency primarily due
to increased scheduling of acquired programming, which is less expensive than
locally produced content. Other operating costs increased by 8%, primarily due
to higher fees paid for digital transmission as a result of broadcasting two of
our channels in DVB-T with a higher coverage than in the same period in 2008;
partially offset by lower staff-related costs. Selling, general and
administrative expenses decreased by 16% in constant currency, primarily due to
lower marketing and travel expenses.


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62
 Index


(C) ROMANIA





Our
Romania operations enjoyed another successful quarter with a 1% increase in
prime time audience share despite implementation of a low cost programming
schedule.  Local programming continued to perform strongly with
‘Regina’, the spin-off from the successful ‘Gypsy Heart’ series, delivering an
audience share of 27.3%. The Romanian management team has also provided strong
support to our developing operations in Ukraine and Bulgaria.




Our
internet operations continued to develop strongly, reaching 419,000 average
daily unique users by the end of March 2009, a year-on-year growth of
35%.





Market
Background:We estimate that the television advertising market
grew by approximately 27% to 29% in local currency during 2008. However, there
was a marked slowdown in the market towards the end of 2008 and we estimate that
market declined by 27% in the first quarter of 2009.




Economic
projections for Romania continue to worsen.  Due to the resulting
uncertainty among advertisers, the progress of sales contract negotiation in the
early months of 2009 has been slower than usual and consequently we cannot
predict future market development accurately. However, we currently expect the
local currency television advertising market to decline between 10% and 20% in
2009. If market conditions continue to worsen, a further decline in the
television advertising market can be expected.





Audience
Share and Ratings Performance





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 Three Months Ended March 31,2009
            
            
            2008
            
            
            MovementAll
      day audience share
            
            
            27.8
            %
            
            
            29.0
            %
            
            
            (1.2
            )%All
      day ratings
            
            
            5.1
            %
            
            
            5.1
            %
            
            
            0.0
            %Prime
      time audience share
            
            
            34.3
            %
            
            
            33.3
            %
            
            
            1.0
            %Prime
      time ratings
            
            
            13.2
            %
            
            
            12.4
            %
            
            
            0.8
            %





Our main
competitors are the privately owned broadcaster Antena 1, which had an all day
audience share for the three months ended March 31, 2009 of 12.2%, and the two
channels operated by the public broadcaster, TVR1 and TVR2, which had all day
audience shares of 3.0% and 1.5%, respectively.




Prime
time audience share for Antena 1 increased from 11.1% in the three months ended
March 31, 2008 to 12.9% in the three months ended March 31, 2009, while the
prime time audience shares of TVR1 and TVR2 decreased from 4.1% to 3.4% and from
1.4% to 1.2%, respectively.





Prime
time ratings for PRO TV were 7.7% in the three months ended March 31, 2008
compared to 8.1% in the three months ended March 31, 2009 while total prime time
ratings for the Romania market increased from 37.6% in the three months ended
March 31, 2008 to 38.6% in the three months ended March 31,
2009.


Page
63
 Index


Three
months ended March 31, 2009 compared to three months ended March 31,
2008





ROMANIA
      FINANCIAL INFORMATIONFor
      the Three Months Ended March 31, (US$ 000's)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)Spot
      revenues
            
            $
            30,511
            
            
            $
            53,032
            
            
            
            (42.5
            )%
            
            
            (23.6
            )%Non-spot
      revenues
            
            
            5,178
            
            
            
            4,964
            
            
            
            4.3
            %
            
            
            38.7
            %Net
      Revenues
            
            $
            35,689
            
            
            $
            57,996
            
            
            
            (38.5
            )%
            
            
            (18.3
            )%Represented
      byBroadcast
      operations
            
            $
            35,558
            
            
            $
            57,799
            
            
            
            (38.5
            )%
            
            
            (18.3
            )%Non-broadcast
      operations
            
            
            131
            
            
            
            197
            
            
            
            (33.5
            )%
            
            
            (10.7
            )%Net
      Revenues
            
            $
            35,689
            
            
            $
            57,996
            
            
            
            (38.5
            )%
            
            
            (18.3
            )%EBITDA
            
            $
            7,147
            
            
            $
            23,376
            
            
            
            (69.4
            )%
            
            
            (59.3
            )%Represented
      byBroadcast
      operations
            
            $
            7,525
            
            
            $
            23,566
            
            
            
            (68.1
            )%
            
            
            (57.5
            )%Non-broadcast
      operations
            
            
            (378
            )
            
            
            (190
            )
            
            
            (98.9
            )%
            
            
            160.0
            %EBITDA
            
            $
            7,147
            
            
            $
            23,376
            
            
            
            (69.4
            )%
            
            
            (59.3
            )%EBITDA
      Margin
            
            
            20
            %
            
            
            40
            %
            
            
            (20
            )%
            
            
            (20
            )%


(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.





·
            Net Revenuesfor the three months
      ended March 31, 2009 decreased by 39%, compared to the three months ended
      March 31, 2008. In constant currency, Net Revenues decreased by 18%, spot
      revenues decreased by 24% and non-spot revenues increased by 39%. The
      decrease in net spot revenues is attributable to decreases in price and
      the volume of GRPs sold.  We sold a lower proportion of the GRPs
      that we generated in the three months ended March 31, 2009 than in the
      same period in 2008 as a result of the continued reduction in advertiser
      spending. The increase in non-spot revenue was primarily due to increased
      cable tariff revenue generated by PRO TV INTERNATIONAL, SPORT.RO, PRO
      CINEMA and MTV ROMANIA.





·
            EBITDAfor the three
      months ended March 31, 2009 decreased by 69%, compared to the three months
      ended March 31, 2008, resulting in an EBITDA margin of 20%, compared to
      40% in the same period in 2008. In constant currency, EBITDA decreased by
      59%.





Costs
charged in arriving at EBITDA for the three months ended March 31, 2009
decreased by 18%, compared to the three months ended March 31, 2008. In constant
currency, total costs increased by 9%. In constant currency, cost of programming
grew by 12%, reflecting an increase in the cost of foreign acquired programming
and an increase in acquired sport events such as the new season of the UEFA
Champions League. Production expenses and other operating costs increased in
constant currency by 15% and 4% respectively as a result of our acquisition of
Radio Pro on April 17, 2008.  Selling, general and administrative
expenses grew by 5% in constant currency, reflecting increases in costs
associated with new premises occupied in October 2008.


Page
64
 Index


D)
SLOVAK REPUBLIC





TV
Markiza’s prime time audience share declined to 32.7% in the first quarter from
39.1% in the same period of 2008.  This reflects both our decision to
remove high-cost local productions from the program schedule to reduce costs in
an off-season quarter and continued strong performance from our leading
competitor, TV JOJ.





With
effect from January 1, 2009 State TV reduced the amount of total broadcast time
devoted to advertising to 2.5% and we have been required to pay 2.0% of our
revenues to a new Audiovisual Fund, which increased our cost base.





We saw an
increase of approximately 82% in the number of daily unique users to our
websites during March 2009 compared to the same period of 2008, reflecting the
continued success of our news website.





The
Slovak Republic adopted the Euro on January 1, 2009.





Market
Background:  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 local currency television advertising
market declined by 23% in the first quarter of 2009, due to general economic
conditions, augmented by the impact on the Slovak Republic of the dispute
between Russia and Ukraine over gas supplies.  Economic projections
for the Slovak Republic in 2009 are poor and continue to worsen.  Due
to the resulting uncertainty among advertisers we cannot predict future market
development accurately. However, we expect the local currency television
advertising market to decline by between 10% and 20% in 2009. If market
conditions continue to worsen, a further decline in the television advertising
market can be expected.





Audience
Share and Ratings Performance





For
advertising sales purposes, TV MARKIZA’s target audience is the 12+ demographic
and all audience data shown below is on this basis.




For
      the Three Months Ended March 31,2009
            
            
            2008
            
            
            MovementAll
      day audience share
            
            
            31.5
            %
            
            
            36.7
            %
            
            
            (5.2
            )%All
      day ratings
            
            
            4.7
            %
            
            
            5.4
            %
            
            
            (0.7
            )%Prime
      time audience share
            
            
            32.7
            %
            
            
            39.1
            %
            
            
            (6.4
            )%Prime
      time ratings
            
            
            11.9
            %
            
            
            14.1
            %
            
            
            (2.2
            )%




Our
principal competitor is the main channel operated by a privately owned company,
TV JOJ, with an all day audience share of 18.9% in the three months ended March
31, 2009.  The all day audience share of STV1, the only significant
public broadcaster, was 15.8% in the three months ended March 31,
2009.




Prime
time audience share for STV1 decreased from 18.4% in the three months ended
March 31, 2008 to 18.0% in the three months ended March 31, 2009, while prime
time share for TV JOJ increased from 18.2% to 21.8%.  Prime time
ratings for TV MARKIZA were 11.9% in the three months ended March 31, 2009
compared to 14.1% in the three months ended March 31, 2008. Total prime time
ratings for the market decreased from 29.3% in the three months ended March 31,
2008 to 29.1% in the three months ended March 31, 2009.




Page
65
 Index





Three
months ended March 31, 2009 compared to three months ended March 31,
2008




SLOVAK
      REPUBLIC FINANCIAL INFORMATIONFor
      the Three Months Ended March 31, (US$ 000's)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)Spot
      revenues
            
            $
            19,171
            
            
            $
            24,479
            
            
            
            (21.7
            )%
            
            
            (16.9
            )%Non-spot
      revenues
            
            
            1,400
            
            
            
            1,755
            
            
            
            (20.2
            )%
            
            
            (14.2
            )%Net
      Revenues
            
            $
            20,571
            
            
            $
            26,234
            
            
            
            (21.6
            )%
            
            
            (16.7
            )%Represented
      byBroadcast
      operations
            
            $
            20,463
            
            
            $
            26,213
            
            
            
            (21.9
            )%
            
            
            (17.1
            )%Non-broadcast
      operations
            
            
            108
            
            
            
            21
            
            
            Nm(3)
            
            
            Nm(3)Net
      Revenues
            
            $
            20,571
            
            
            $
            26,234
            
            
            
            (21.6
            )%
            
            
            (16.7
            )%EBITDA
            
            $
            3,728
            
            
            $
            9,137
            
            
            
            (59.2
            )%
            
            
            (55.9
            )%Represented
      byBroadcast
      operations
            
            $
            3,970
            
            
            $
            9,380
            
            
            
            (57.7
            )%
            
            
            (54.3
            )%Non-broadcast
      operations
            
            
            (242
            )
            
            
            (243
            )
            
            
            (0.4
            )%
            
            
            4.9
            %EBITDA
            
            $
            3,728
            
            
            $
            9,137
            
            
            
            (59.2
            )%
            
            
            (55.9
            )%EBITDA
      Margin
            
            
            18
            %
            
            
            35
            %
            
            
            (17
            )%
            
            
            (16
            )%


(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.




·
            Net Revenuesfor the
      three months ended March 31, 2009 decreased by 22% compared to the three
      months ended March 31, 2008. In constant currency, Net Revenues decreased
      by 17%. The decrease in spot revenues was mainly due to a lower volume of
      GRPs sold and a decrease in our pricing to remain competitive in the
      declining television advertising market.  Non-spot revenues
      decreased by 14% in constant currency in the three months ended March 31,
      2009 compared to the three months ended March 31, 2008 primarily due to
      lower sponsorship revenues.





·
            EBITDA for the three
      months ended March 31, 2009 decreased by 59% compared to the three months
      ended March 31, 2008, and the EBITDA margin decreased from 35% to 18%. In
      constant currency, EBITDA decreased by
56%.





Costs
charged in arriving at EBITDA for the three months ended March 31, 2009
increased by 4% in constant currency compared to the three months ended March
31, 2008. Cost of programming remained unchanged, as the increased volume of
acquired foreign programming  offset savings in production costs as a
result of a reduction in the proportion of high cost local programming in our
schedule.


Page
66
 Index


(E)
SLOVENIA





During
the first quarter, our Slovenia operations increased prime time audience share
as a result of the continued popularity of our innovative local programming,
with ‘Can U Dig It?!’ and ‘Neighbors’ each delivering average prime time
audience shares of 42%.  Over the last two months Kanal A’s access
prime news program ‘SVET’ has delivered higher ratings than the main evening
news on public TV, which is aired in prime time.  We have withdrawn a
number of high cost programs such as ‘Big Brother’ and ‘Deal or No Deal’ in
order to reduce costs.





Our
internet sites saw a 70% increase in unique daily users in the three months
ended March 31, 2009. Of this increase, 30% originated from our 24ur.com website
and the remaining increase was as a result of our niche microsites, launched in
2008.





Market
Background:  We estimate the television advertising market in
Slovenia grew by approximately 7% to 9% in local currency in 2008, reflecting
strong growth in the first nine months of the year followed by a sharp decline
in the fourth quarter.  We estimate that the local currency television
market declined by 18% in the first quarter of 2009.  Economic
projections for Slovenia in 2009 are poor and continue to worsen.  Due
to the resulting uncertainty among advertisers we cannot predict future market
development accurately. However, we currently expect the local currency total
advertising market to decline by between 15% and 20% in 2009. If market
conditions continue to worsen, a further decline in the total advertising market
can be expected.





Audience
Share and Ratings Performance





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 Three Months Ended March 31,2009
            
            
            2008
            
            
            MovementAll
      day audience share
            
            
            37.3
            %
            
            
            38.1
            %
            
            
            (0.8
            )%All
      day ratings
            
            
            3.9
            %
            
            
            4.2
            %
            
            
            (0.3
            )%Prime
      time audience share
            
            
            46.8
            %
            
            
            45.4
            %
            
            
            1.4
            %Prime
      time ratings
            
            
            12.9
            %
            
            
            12.4
            %
            
            
            0.5
            %




Our major
competitors are the two channels operated by the public broadcaster, SLO1 and
SLO2, with all day audience shares for the three months ended March 31, 2009 of
15.9% and 9.8%, respectively, and privately owned broadcaster TV3, with an all
day audience share of 6.9%.




Prime
time audience share for TV3 increased from 4.6% in the three months ended March
31, 2008 to 5.9% in the three months ended March 31, 2009.  The prime
time audience shares of SLO 1 and SLO 2 decreased from 20.7% to 19.9% and from
6.6% to 5.8%, respectively.




The
combined prime time ratings for POP TV and KANAL A were 12.9% in the three
months ended March 31, 2009 compared to 12.4% in the three months ended March
31, 2008.  Total prime time ratings for the market decreased from
28.2% in the three months ended March 31, 2008 to 26.5% in the three months
ended March 31, 2009.


Page
67
 Index


Three
months ended March 31, 2009 compared to three months ended March 31,
2008





SLOVENIA
      FINANCIAL INFORMATIONFor
      the Three Months Ended March 31, (US$ 000's)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)Spot
      revenues
            
            $
            11,645
            
            
            $
            15,307
            
            
            
            (23.9
            )%
            
            
            (11.2
            )%Non-spot
      revenues
            
            
            1,489
            
            
            
            2,644
            
            
            
            (43.7
            )%
            
            
            (34.0
            )%Net
      Revenues
            
            $
            13,134
            
            
            $
            17,951
            
            
            
            (26.8
            )%
            
            
            (14.6
            )%Represented
      byBroadcast
      operations
            
            $
            12,410
            
            
            $
            16,500
            
            
            
            (24.8
            )%
            
            
            (12.2
            )%Non-broadcast
      operations
            
            
            724
            
            
            
            1,451
            
            
            
            (50.1
            )%
            
            
            (41.7
            )%Net
      Revenues
            
            $
            13,134
            
            
            $
            17,951
            
            
            
            (26.8
            )%
            
            
            (14.6
            )%EBITDA
            
            $
            3,010
            
            
            $
            4,340
            
            
            
            (30.6
            )%
            
            
            (18.2
            )%Represented
      byBroadcast
      operations
            
            $
            2,927
            
            
            $
            4,652
            
            
            
            (37.1
            )%
            
            
            (26.0
            )%Non-broadcast
      operations
            
            
            83
            
            
            
            (312
            )
            
            
            126.6
            %
            
            
            (129.8
            )%EBITDA
            
            $
            3,010
            
            
            $
            4,340
            
            
            
            (30.6
            )%
            
            
            (18.2
            )%EBITDA
      Margin
            
            
            23
            %
            
            
            24
            %
            
            
            (1
            )%
            
            
            (1
            )%


(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.





·
            Net Revenuesfor the
      three months ended March 31, 2009 decreased by 27% compared to the three
      months ended March 31, 2008.  In constant currency, Net Revenues
      decreased by 15%. Spot revenues decreased by 11% in the three months ended
      March 31, 2009 in constant currency compared to 2008, due to decreased
      spending from existing customers and lower pricing as a result of a
      difficult trading environment.  Non-spot revenues decreased by
      34% in constant currency compared to the three months ended March 31,
      2008, primarily driven by lower sponsorship and telephone voting
      revenues.





·
            EBITDAfor the three
      months ended March 31, 2009 decreased by 31% compared to the three months
      ended March 31, 2008. In constant currency, EBITDA decreased by 18% while
      EBITDA margin decreased by 1% to
23%.





Costs
charged in arriving at EBITDA for the three months ended March 31, 2009
decreased by 13% in constant currency compared to the three months ended March
31, 2008. Cost of programming decreased by 11% in constant currency due to a
reduction in the proportion of locally produced programming in the programming
schedule.  Other operating costs decreased by 1% in constant
currency.  Selling, general and administrative expenses decreased by
40%, primarily due to lower marketing and travel expenses.


Page
68
 Index


(F)
UKRAINE





We have
continued to restructure our operating processes and have reduced 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 have established an in-house sales function that has
direct responsibility for all sales for our Ukraine operations.  We
have commenced local productions, and the series ‘Only Love’ is scheduled to be
broadcast later in the year.  Our restructuring initiatives will
continue into the second half of the year.





We have
maintained our prime time audience share despite a significant reduction in the
cost of programming.





We
adopted the Hryvna as the functional currency of our Ukraine operations on
January 1, 2009.








Market
Background:  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 currency advertising market
declined by 55% in the first quarter of 2009.





Economic
projections for Ukraine in 2009 remain extremely poor. We expect the local
currency television advertising market to decline by up to 30% and 40% during
2009 due to a combination of the continued worsening of economic conditions and
significant price reductions by a majority of leading market participants. If
market conditions continue to worsen, a further decline in the television
advertising market can be expected.





Audience
Share and Ratings Performance





For
advertising sales purposes, STUDIO 1+1’s target audience is the 18-54 (50+)
demographic and all audience data is shown below on this basis.




For
      the Three Months Ended March 31,20092009
            
            
            2008
            
            
            MovementAll
      day audience share
            
            
            10.2
            %
            
            
            12.5
            %
            
            
            (2.3
            )%All
      day ratings
            
            
            1.6
            %
            
            
            1.8
            %
            
            
            (0.2
            )%Prime
      time audience share
            
            
            13.3
            %
            
            
            13.3
            %
            
            
            0
            %Prime
      time ratings
            
            
            4.9
            %
            
            
            4.7
            %
            
            
            0.2
            %




Our main
competitors include Inter, with an all day audience share for the three months
ended March 31, 2009 of 14.2%, Novy Kanal with 10.5%, ICTV with 9.5% and STB
with 9.3%.





Prime
time audience share for Inter decreased from 24.9% the three months ended March
31, 2008 to 16.0% for the three months ended March 31, 2009, while the prime
time audience shares of Novy Kanal, ICTV and STB increased from 9.1% to 12.2%,
from 8.4% to 9.5% and from 7.6% to 8.6%, respectively.





Prime
time ratings for STUDIO 1+1 increased from 4.7% in the three months ended March
31, 2008 to 4.9% in the three months ended March 31, 2009.  Prime time
ratings in the Ukraine market increased marginally from 24.4% in the three
months ended March 31, 2008 to 24.6% in the three months ended March 31,
2009.


Page
69
 Index


Three
months ended March 31, 2009 compared to three months ended March 31,
2008





UKRAINE
      FINANCIAL INFORMATIONFor
      the Three Months Ended March 31, (US$ 000's)Movement2009
            
            
            2008
            
            
            %
      Act(1)
            
            
            %
      Lfl(2)Spot
      revenues
            
            $
            2,594
            
            
            $
            18,626
            
            
            
            (86.1
            )%
            
            
            -Non-spot
      revenues
            
            
            2,307
            
            
            
            5,124
            
            
            
            (55.0
            )%
            
            
            -Net
      Revenues
            
            $
            4,901
            
            
            $
            23,750
            
            
            
            (79.4
            )%
            
            
            -Represented
      byBroadcast
      operations
            
            $
            4,870
            
            
            $
            23,750
            
            
            
            (79.5
            )%
            
            
            -Non-broadcast
      operations
            
            
            31
            
            
            
            -
            
            
            
            100.0
            %
            
            
            -Net
      Revenues
            
            $
            4,901
            
            
            $
            23,750
            
            
            
            (79.4
            )%
            
            
            -EBITDA
            
            $
            (12,280
            )
            
            $
            (2,694
            )
            
            Nm(3)
            
            
            
            -Represented
      byBroadcast
      operations
            
            $
            (11,956
            )
            
            $
            (2,495
            )
            
            Nm(3)
            
            
            
            -Non-broadcast
      operations
            
            
            (324
            )
            
            
            (199
            )
            
            
            (62.8
            )%
            
            
            -EBITDA
            
            $
            (12,280
            )
            
            $
            (2,694
            )
            
            Nm(3)
            
            
            
            -EBITDA
      Margin
            
            Nm(3)
            
            
            
            (11
            )%
            
            Nm(3)
            
            
            
            -


(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.


(3)
Number is not meaningful.





·
            Net Revenues for the
      three months ended March 31, 2009 decreased by 79% compared to the three
      months ended March 31, 2008.  Spot revenues decreased by 86% in
      the three months ended March 31, 2009, as we faced a combination of a
      decline in the television advertising market and strong competition from
      the sales house Inter-Reklama, which controls the majority of inventory in
      the television market.  Non-spot revenues decreased by 55%
      compared to the three months ended March 31,
  2008.





·
            EBITDA for the three
      months ended March 31, 2009 decreased by US$ 9.6 million compared to the
      three months ended March 31, 2008.





Costs
charged in arriving at EBITDA for the three months ended March 31, 2009
decreased by 35% compared to the three months ended March 31, 2008. Cost of
programming decreased by 42% due to implementation of a lower cost
schedule.  Other operating costs decreased by 25% primarily due to a
reduction in headcount.  Selling, general and administrative expenses
decreased by 11% primarily due to lower office overheads.


Page
70
 Index


PROGRAMMING
PAYMENTS AND PROGRAM AMORTIZATION





Our
consolidated cost of programming for the three months ended March 31, 2009 and
2008 was as follows:





For
      the Three Months Ended March 31, (US$ 000's)2009
            
            
            2008Production
      expenses
            
            $
            34,456
            
            
            $
            41,708Program
      amortization
            
            
            40,466
            
            
            
            52,379Cost
      of programming
            
            $
            74,922
            
            
            $
            94,087





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





Total
consolidated programming costs (including amortization of programming rights and
production costs) decreased by US$ 19.2 million, or 20%, in the three months
ended March 31, 2009 compared to the three months ended March 31, 2008 primarily
due to:





·
            US$
      6.6 million of reduced programming costs from our Czech Republic
      operations;





·
            US$
      3.8 million of reduced programming costs from our Romania
      operations;





·
            US$
      0.5 million of reduced programming costs from our Slovak Republic
      operations;





·
            US$
      7.6 million of reduced programming costs from our Ukraine
      operations;





·
            US$
      2.0 million of reduced programming costs from our Slovenia operations;
      and





·
            US$
      3.3 million of reduced programming costs from our Croatia operations;
      offset by





·
            US$
      4.7 million of programming costs from our Bulgaria
    operations.





The
amortization of acquired programming for each of our consolidated operations for
the three months ended March 31, 2009 and 2008 is set out in the table
below.  For comparison, the table also shows the cash paid for
programming by each of our operations in the respective periods.  The
cash paid for programming by our operations in Bulgaria, Croatia, the Czech
Republic, Romania, the Slovak Republic, Slovenia and Ukraine is reflected within
net cash provided by continuing operating activities in our consolidated
statement of cash flows.


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 Index




For
      the Three Months Ended March 31, (US$ 000's)2009
                              
                              
                              2008Program
      amortization:Bulgaria
      (TV2, RING TV) (1)
                              
                              $
                              2,297
                              
                              
                              $
                              -Croatia
      (NOVA TV)
                              
                              
                              2,544
                              
                              
                              
                              5,855Czech
      Republic (TV NOVA, NOVA CINEMA and NOVA SPORT)
                              
                              
                              9,793
                              
                              
                              
                              13,055Romania
      (2)
                              
                              
                              9,774
                              
                              
                              
                              11,988Slovak
      Republic (TV MARKIZA)
                              
                              
                              5,076
                              
                              
                              
                              3,963Slovenia
      (POP TV and KANAL A)
                              
                              
                              2,974
                              
                              
                              
                              2,956Ukraine
      (STUDIO 1+1, KINO) (3)
                              
                              
                              8,008
                              
                              
                              
                              14,562$
                              40,466
                              
                              
                              $
                              52,379Cash
      paid for programming:Bulgaria
      (TV2, RING TV) (1)
                              
                              $
                              3,492
                              
                              
                              $
                              -Croatia
      (NOVA TV)
                              
                              
                              4,205
                              
                              
                              $
                              7,423Czech
      Republic (TV NOVA, NOVA CINEMA and NOVA SPORT)
                              
                              
                              9,347
                              
                              
                              
                              11,869Romania
      (2)
                              
                              
                              26,617
                              
                              
                              
                              13,866Slovak
      Republic (TV MARKIZA)
                              
                              
                              6,098
                              
                              
                              
                              5,568Slovenia
      (POP TV and KANAL A)
                              
                              
                              2,348
                              
                              
                              
                              2,242Ukraine
      (STUDIO 1+1, KINO) (3)
                              
                              
                              38
                              
                              
                              
                              7,331$
                              52,145
                              
                              
                              $
                              48,299




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


(2)
Romania channels are PRO TV, PRO CINEMA, ACASA, PRO TV INTERNATIONAL, SPORT.RO
and MTV ROMANIA for the three months ended March 31, 2009.


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








IV.
Analysis of the Results of Consolidated Operations





IV
(a) Net Revenues for the three months ended March 31, 2009 compared to the three
months ended March 31, 2008





Consolidated
      Net RevenuesFor
      the Three Months Ended March 31, (US$ 000's)2009
            
            
            2008
            
            
            MovementBulgaria
            
            $
            596
            
            
            $
            -
            
            
            -
            %Croatia
            
            
            10,203
            
            
            
            11,534
            
            
            
            (11.5
            )%Czech
      Republic
            
            
            56,127
            
            
            
            85,558
            
            
            
            (34.8
            )%Romania
            
            
            35,689
            
            
            
            57,996
            
            
            
            (38.5
            )%Slovak
      Republic
            
            
            20,571
            
            
            
            26,234
            
            
            
            (21.6
            )%Slovenia
            
            
            13,134
            
            
            
            17,951
            
            
            
            (26.8
            )%Ukraine
            
            
            4,901
            
            
            
            23,750
            
            
            
            (79.4
            )%Total
      Net Revenues
            
            $
            141,221
            
            
            $
            223,023
            
            
            
            (36.7
            )%




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Our
consolidated net revenues for the three months ended March 31, 2009 decreased by
US$ 81.8 million, or 37%, compared to the three months ended March 31,
2008.  See III, “Analysis of Segment Results”.





IV
(b) Cost of Revenues for the three months ended March 31, 2009 compared to the
three months ended March 31, 2008





Consolidated
      Cost of RevenuesFor
      the Three Months Ended March 31, (US$ 000's)2009
            
            
            2008
            
            
            MovementOperating
      costs
            
            $
            29,393
            
            
            $
            33,015
            
            
            
            (11.0
            )%Cost
      of programming
            
            
            74,922
            
            
            
            94,087
            
            
            
            (20.4
            )%Depreciation
      of station property, plant and equipment
            
            
            11,616
            
            
            
            12,114
            
            
            
            (4.1
            )%Amortization
      of broadcast licenses and other intangibles
            
            
            6,101
            
            
            
            7,670
            
            
            
            (20.5
            )%Total
      Cost of Revenues
            
            $
            122,032
            
            
            $
            146,886
            
            
            
            (16.9
            )%





Total
cost of revenues for the three months ended March 31, 2009 decreased by US$ 24.9
million, or 17%, compared to the three months ended March 31, 2008.





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 March 31, 2009 decreased by
US$ 3.6 million, or 11%, compared to the three months ended March 31, 2008 (see
section III, “Analysis of Segment Results”).





Cost of
programming:Programming costs (including amortization of
programming rights and production costs) for the three months ended March 31,
2009 decreased by US$ 19.2 million, or 20%, compared to the three months ended
March 31, 2008 (see section III, “Analysis of Segment Results”).





Depreciation of station property,
plant and equipment:  Total depreciation of property, plant and
equipment for the three months ended March 31, 2009 decreased by US$ 0.5
million, or 4%, compared to the three months ended March 31, 2008, primarily due
to the impact of the appreciation of the dollar.  In constant
currency, depreciation increased by 16% 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 three months ended March 31, 2009
decreased by US$ 1.6 million, or 20%, compared to the three months ended March
31, 2008, 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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IV
(c) Selling, General and Administrative Expenses for the three months ended
March 31, 2009 compared to the three months ended March 31, 2008





Selling,
      General and Administrative ExpensesFor
      the Three Months Ended March 31, (US$ 000's)2009
            
            
            2008
            
            
            MovementBulgaria
            
            $
            1,274
            
            
            $
            -
            
            
            
            -
            %Croatia
            
            
            1,330
            
            
            
            1,560
            
            
            
            (14.7
            )%Czech
      Republic
            
            
            5,236
            
            
            
            7,775
            
            
            
            (32.7
            )%Romania
            
            
            3,069
            
            
            
            3,815
            
            
            
            (19.6
            )%Slovak
      Republic
            
            
            2,562
            
            
            
            2,397
            
            
            
            6.9
            )%Slovenia
            
            
            1,123
            
            
            
            2,193
            
            
            
            (48.8
            )%Ukraine
            
            
            2,587
            
            
            
            2,907
            
            
            
            (11.0
            )%Corporate
            
            
            4,647
            
            
            
            10,017
            
            
            
            (53.6
            )%Total
      Selling, General and Administrative Expenses
            
            $
            21,828
            
            
            $
            30,664
            
            
            
            (28.8
            )%





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





Corporate
costs for the three months ended March 31, 2009 decreased by US$ 5.4 million, or
54%, compared to the three months ended March 31, 2008 as the benefits of our
ongoing cost reduction measures began to be realized in all cost
lines.  We reduced staff-related costs by approximately 37% compared
to the same period in 2008 through a combination of headcount reduction, pay
freezes and savings in travel.  We have transferred a number of
functions to lower cost locations and are relocating our London administrative
office to smaller premises during the second quarter, and expect to reduce
establishment costs still further as a result.





Corporate
costs for the three months ended March 31, 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 19 “Commitments and Contingencies, Lehman Brothers
bankruptcy claim”).


Corporate
costs for the three months ended March 31, 2009 include a charge of US$ 1.5
million (three months ended March 31, 2008: US$ 1.8 million) in respect of
non-cash stock-based compensation (see Item 1, Note 14, “Stock-Based
Compensation”).





IV
(d) Impairment Charge





For
      the Three Months Ended March 31, (US$ 000's)2009
            
            
            2008
            
            
            MovementImpairment
      charge
            
            $
            81,483
            
            
            $
            -
            
            
            
            -
            %





We
revised our estimates of future cash flows in our Bulgaria operations 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 TV2 asset group
were no longer recoverable and recorded a charge to write them down to their
fair value of US$ nil.


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IV
(e) Operating Income for the three months ended March 31, 2009 compared to the
three months ended March 31, 2008





For
      the Three Months Ended March 31, (US$ 000's)2009
            
            
            2008
            
            
            MovementOperating
      Income
            
            $
            (84,482
            )
            
            $
            45,473
            
            
            
            Nm
            (1)




(1)
Number is not meaningful


Due to
the foregoing, operating income for the three months ended March 31, 2009
decreased by US$ 130.0 million, compared to the three months ended March
31, 2008.  Operating margin was (59.8)%, compared to 20.4% for the
three months ended March 31, 2008.








IV
(f) Other income / (expense) items for the three months ended March 31, 2009
compared to the three months ended March 31, 2008





For
      the Three Months Ended March 31, (US$ 000's)2009
            
            
            2008
            
            
            MovementInterest
      income
            
            $
            744
            
            
            $
            2,180
            
            
            
            (65.9
            )%Interest
      expense
            
            
            (21,428
            )
            
            
            (15,229
            )
            
            
            40.7
            %Foreign
      currency exchange gain / (loss), net
            
            
            39,264
            
            
            
            (17,428
            )
            
            
            Nm
            (1)Change
      in fair value of derivatives
            
            
            6,130
            
            
            
            (10,258
            )
            
            
            159.8
            %Other
      income
            
            
            99
            
            
            
            651
            
            
            
            (84.8
            )%Provision
      for income taxes
            
            
            12,995
            
            
            
            10,283
            
            
            
            26.4
            %Discontinued
      operations
            
            
            (262
            )
            
            
            (750
            )
            
            
            (65.1
            )%Noncontrolling
      Interest in (loss) / income of consolidated subsidiaries
            
            
            2,502
            
            
            
            (477
            )
            
            
            Nm
            (1)Currency
      Translation Adjustment, net
            
            
            (192,860
            )
            
            
            191,467
            
            
            
            Nm
            (1)




(1)
Number is not meaningful


Interest income for the three
months ended March 31, 2009 decreased by US$ 1.4 million compared to the three
months ended March 31, 2008, primarily as a result of the reduction in interest
rates as well as our maintaining lower average cash balances.





Interest
expensefor the three months ended March 31, 2009 increased by US$ 6.2
million compared to the three months ended March 31, 2008.  The
increase reflects a full three months’ interest and amortization of the related
debt issuance discount on our Convertible Notes issued on March 10, 2008 as well
as an increase in our average borrowings.





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 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 March 31, 2009, we recognized a net gain of US$ 39.3
million comprising: transaction gains of US$ 30.5 million relating to the
revaluation of intercompany loans; a transaction gain of approximately US$ 24.1
million on the Senior Notes due to the strengthening of the dollar against the
Euro between December 31, 2008 and March 31, 2009; and transaction losses of US$
15.2 million relating to the revaluation of monetary assets and liabilities
denominated in currencies other than the local functional currency of the
relevant subsidiary.


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During
the three months ended March 31, 2008 we recognized a net loss of US$ 17.4
million comprising a transaction loss of approximately US$ 43.1 million on the
Senior Notes due to the strengthening of the Euro against the dollar between
December 31, 2007 and March 31, 2008, partially offset by gains of US$ 9.5
million relating to the revaluation of monetary assets and liabilities
denominated in currencies other than the US dollar and US$ 16.2 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 the loan in the period from January
1, 2009 to February 19, 2009.





Change in fair value of
derivatives: For the three months ended March 31, 2009 we recognized
income of US$ 6.1 million as a result of the change in the fair value of the
currency swaps entered into on April 27, 2006 compared to losses of US$ 10.3
million for the three months ended March 31, 2008.





Other income/
(expense):  For the three months ended March 31, 2009 we
recognized other income of US$ 0.1 million compared to US$ 0.7 million for the
three months ended March 31, 2008.





Provision for income
taxes:  The provision for income taxes for the three months
ended March 31 2009 was a net credit of US $ 13.0 million, which included a
benefit of US$ 7.1 million from the impairment of assets in
Bulgaria.  The provision for income taxes also benefited from the
release of valuation allowances as we utilized brought forward losses.
  The provision for income taxes for the three months ended March 31,
2008 was a net credit of US $ 10.3 million and included a credit of $19.3
million relating to movements in foreign exchange rates on intercompany loans,
with a corresponding charge recognised in other comprehensive income.





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
each period presented.





Noncontrolling Interest in income of
consolidated subsidiaries:  For the three months ended March
31, 2009, we recognized income of US$ 2.5 million in respect of the
Noncontrolling interest in the loss of consolidated subsidiaries, compared to an
expense of US$ 0.5 million for the three months ended March 31, 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.  In the three months ended March 31, 2009, we recognized a
loss of US$ 192.9 million on the revaluation of our net investments in
subsidiaries compared to a gain of US$ 191.5 million in the three months ended
March 31, 2008.




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 Index





The
dollar appreciated significantly against all functional currencies of our
operations during 2009. The following table illustrates the change in the
exchange rates between the US dollar and the functional currencies of our
operations during the three months ended March 31, 2009 compared to the same
period in 2008:




Three
      months ended March 31,2009
            
            
            2008Bulgarian
      Lev (1)
            
            
            5
            %
            
            
            -Croatian
      Kuna
            
            
            8
            %
            
            
            (8
            )%Czech
      Koruna
            
            
            6
            %
            
            
            (11
            )%Euro
            
            
            5
            %
            
            
            (7
            )%New
      Romanian Lei
            
            
            12
            %
            
            
            (4
            )%Ukraine
      Hryvna (2)
            
            
            3
            %
            
            
            -




(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
dollar’s performance against the Hryvna for the three months ended March 31,
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.




The net
loss on translation for the three months ended March 31, 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$ 75.8 million for the same
period in 2008.  Since February 19, 2009, any exchange difference
arising on the revaluation of the loan has been recognized in the income
statement.




IV
(g) Condensed consolidated balance sheet as at March 31, 2009 compared to
December 31, 2008





Summarized
      Condensed Consolidated Balance Sheet (US$ 000’s)March 31,
      2009
            
            
            December 31,
      2008
            
            
            MovementCurrent
      assets
            
            $
            642,163
            
            
            $
            494,756
            
            
            
            29.8
            %Non-current
      assets
            
            
            1,682,314
            
            
            
            1,911,860
            
            
            
            (12.0
            )%Current
      liabilities
            
            
            242,541
            
            
            
            228,673
            
            
            
            6.0
            %Non-current
      liabilities
            
            
            1,244,801
            
            
            
            1,079,498
            
            
            
            15.3
            )%CME
      Ltd. shareholders’ equity
            
            
            836,577
            
            
            
            1,095,258
            
            
            
            (23.6
            )%Noncontrolling
      interests in consolidated subsidiaries
            
            $
            558
            
            
            $
            3,187
            
            
            
            (82.5
            )%





Current
assets:  Current assets at March 31, 2009 increased US$ 147.4
million compared to December 31, 2008, primarily as a result of an increase in
cash and cash equivalents as we drew our unutilized revolving credit facilities
and collected our fourth quarter revenues.


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77
 Index


Non-current
assets:  Non-current assets at March 31, 2009 decreased US$
229.5 million compared to December 31, 2008, primarily as a result of the
impairment of goodwill relating to our Bulgaria operations as well as the impact
of the strengthening dollar on the value of our non-current assets denominated
in foreign currencies.





Current
liabilities:  Current liabilities at March 31, 2009 increased
US$ 13.9 million compared to December 31, 2008 as we drew our unutilized
revolving credit facilities.





Non-current
liabilities:  Non-current liabilities at March 31, 2009
increased US$ 165.3 million compared to December 31, 2008, primarily as a result
of our having drawn our unutilized revolving credit facilities.  The
movement also reflects a US$ 24.1 million decrease in the carrying value of our
Senior Notes as a result of the movement in the spot rate between December 31,
2008 and March 31, 2009; and a US$ 6.1 million decrease in the value of our
liabilities under currency swaps.





CME Ltd. shareholders’
equity:  Total shareholders’ equity at March 31, 2009 decreased
US$ 258.7 million compared to December 31, 2008, primarily as a result of a
reduction in Other Comprehensive Income of US$ 192.7 million, reflecting the
impact of the strengthening in the dollar on our foreign currency denominated
assets.  We also recognized a net loss of US$ 44.4 million for the
three months ended March 31, 2009, a reduction in equity of US $23.3 million in
connection with our acquisition of KINO and a stock-based compensation charge of
US$ 1.7 million.





Noncontrolling interests in
consolidated subsidiaries:  Noncontrolling interests in
consolidated subsidiaries at March 31, 2009 decreased US$ 2.6 million compared
to December 31, 2008 primarily due to the losses of our Bulgaria
operations.





V.
Liquidity and Capital Resources





V
(a) Summary of cash flows





Cash and
cash equivalents increased by US$ 199.1 million during the three months ended
March 31, 2009.  The change in cash and cash equivalents is summarized
as follows:





For the Three Months
      Ended March 31, (US$ 000's)2009
                  
                  
                  2008Net
      cash generated from continuing operating activities
                  
                  $
                  22,548
                  
                  
                  $
                  84,618Net
      cash used in continuing investing activities
                  
                  
                  (29,933
                  )
                  
                  
                  (23,622
                  )Net
      cash received from continuing  financing
    activities
                  
                  
                  224,770
                  
                  
                  
                  398,270Net
      cash used in discontinued operations – operating
activities
                  
                  
                  (1,294
                  )
                  
                  
                  (2,237
                  )Net
      cash used in discontinued operations – investing
activities
                  
                  
                  -
                  
                  
                  
                  (121
                  )Net
      increase in cash and cash equivalents
                  
                  $
                  199,120
                  
                  
                  $
                  451,730





Operating
Activities





Cash
generated from continuing operations in the three months ended March 31, 2009
decreased from US$ 84.6 million to US$ 22.5 million, reflecting the impact of
the market slowdown on the level of cash generated by our
operations.  We continued to generate positive cash flow in Czech
Republic, Romania, Slovak Republic and Slovenia operations, which was partially
offset by the negative cash flows of our Bulgaria, Croatia and Ukraine
operations.





Investing
Activities





Cash used
in investing activities in the three months ended March 31, 2009 increased from
US$ 23.6 million to US$ 29.9 million.  Our investing cash flows in the
three months ended March 31, 2009 primarily comprised US$ 22.0 million paid in
connection with the KINO buyout (see Item 1, Note 3, “Acqusitions and
Disposals”) and capital expenditure of US$ 7.8 million.


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 Index


Financing
Activities





Net cash
received from financing activities in the three months ended March 31, 2009 was
US$ 224.8 million compared to US$ 398.3 million in the three months ended March
31, 2008.  The amount of cash received in the three months ended March
31, 2009 reflects the draw down of our revolving credit facilities to maximize
liquidity.





Discontinued
Operations





In the
three months ended March 31, 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$ 1.7 million in the three months ended March 31,
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 three months ended
March 31, 2008.





V
(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 12 months and we do not anticipate additional
cash requirements in the near future, subject to the matters disclosed under
“Contractual Obligations, Commitments and Off-Balance Sheet Arrangements” and
“Cash Outlook” below.





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





Corporate
law in the Central and Eastern European countries in which we operate stipulates
generally that dividends may be declared by the partners or shareholders out of
yearly profits subject to the maintenance of registered capital, required
reserves and after the recovery of accumulated losses. 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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V
(c) Contractual Obligations, Commitments and Off-Balance Sheet
Arrangements





Our
future contractual obligations as of March 31, 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
            
            $
            1,305,896
            
            
            $
            65,045
            
            
            $
            240,185
            
            
            $
            801,046
            
            
            $
            199,620Long-Term
      Debt – interest (1)
            
            
            248,117
            
            
            
            65,448
            
            
            
            119,747
            
            
            
            57,493
            
            
            
            5,429Capital
      Lease Obligations
            
            
            5,881
            
            
            
            1,022
            
            
            
            1,279
            
            
            
            1,112
            
            
            
            2,468Operating
      Leases
            
            
            19,351
            
            
            
            5,365
            
            
            
            7,244
            
            
            
            3,631
            
            
            
            3,111Unconditional
      Purchase Obligations
            
            
            442,728
            
            
            
            116,711
            
            
            
            242,262
            
            
            
            69,020
            
            
            
            14,735Other
      Long-Term Obligations
            
            
            931
            
            
            
            931
            
            
            
            -
            
            
            
            -
            
            
            
            -FIN
      48 Obligations
            
            
            1,364
            
            
            
            127
            
            
            
            1,237
            
            
            
            -
            
            
            
            -Consideration
      payable
            
            
            5,889
            
            
            
            4,500
            
            
            
            1,389
            
            
            
            -
            
            
            
            -Total
      Contractual Obligations
            
            $
            2,030,157
            
            
            $
            259,149
            
            
            $
            613,343
            
            
            $
            932,302
            
            
            $
            225,363


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





Long-Term
Debt





As at
March 31, 2009, we had the following debt outstanding:





March
      31, 2009
              (US$
      000’s)Corporate
            (1)
      – (4)
            
            $
            1,108,653Czech
      Republic
            (5)
      – (7)
            
            
            70,508Slovak
      Republic
            (8)
            
            
            -Slovenia
            (9)
            
            
            34,933Ukraine
            (10)
            
            
            164Total
            
            
            $
            1,214,258





(1)
            As
      at March 31, 2009 we had EUR 395.0 million (approximately US$ 525.7
      million) of Senior Notes outstanding, comprising EUR 245.0 million
      (approximately US$ 326.0 million) of the 2005 Fixed Rate Notes and EUR
      150.0 million (approximately US$ 199.6 million) of the 2007 Floating Rate
      Notes, which bear interest at six-month Euro Inter-Bank Offered Rate
      (“EURIBOR”) plus 1.625%. The applicable rate at March 31, 2009 was
      5.934%.





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 indebtedness,
the making of investments, the payment of dividends or the making of other
distributions, entering into certain affiliate transactions and the sale of
assets.





In the
event that (A) there is a change in control by which (i) any party other than
our present shareholders becomes the beneficial owner of more than 35.0% of our
total voting power; (ii) we agree to sell substantially all of our operating
assets; or (iii) there is a change in the composition of a majority of our Board
of Directors; and (B) on the 60th day following any such change of control the
rating of the Senior Notes is either withdrawn or downgraded from the rating in
effect prior to the announcement of such change of control, we can be required
to repurchase the Senior Notes at a purchase price in cash equal to 101.0% of
the principal amount of the Senior Notes plus accrued and unpaid interest to the
date of purchase.


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At any
time prior to May 15, 2009, we may redeem all or a part of the 2005 Senior Notes
at a redemption price equal to 100.0% of the principal amount of such notes,
plus a “make-whole” premium and accrued and unpaid interest, if any, to the
redemption date.





As of
March 31, 2009, Standard & Poor’s senior unsecured debt rating for our
Senior Notes was BB- with a negative outlook and our corporate credit rating was
also BB- with a negative outlook.  As of March 31, 2009 Moody’s
Investors Services (“Moody’s”) senior unsecured debt rating for our Senior Notes
and our corporate credit rating was Ba3 with a negative outlook.





(2)
            As
      at March 31, 2009 we had US$ 475.0 million 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$ 133.1 million) arranged by EBRD and
      on August 22, 2007, we entered into a second revolving loan agreement for
      EUR 50.0 million (approximately US$ 66.5 million) also arranged by EBRD
      (collectively the “EBRD Loan”). ING Bank N.V. (“ING”) and Ceska
      Sporitelna, a.s. (“CS”) are each participating in the EBRD Loan for EUR
      37.5 million (approximately US$ 49.9 million).  The EBRD Loan
      bears interest at a rate of three-month EURIBOR plus 1.625% on the drawn
      amount. A commitment charge of 0.8125% is payable on any undrawn portion
      of the EBRD Loan. The available amount of the EBRD Loan amortizes by 15%
      every six months from May 2009 to November 2010 and by 40% in May 2011. As
      at March 31, 2009, EUR 150.0 million (approximately US$ 199.6 million) was
      drawn.





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





The EBRD
Loan is a secured senior obligation and ranks pari passu with all existing and
future senior indebtedness, including the Senior Notes, and is effectively
subordinated to all existing and future indebtedness of our
subsidiaries.  The amount drawn is guaranteed by two subsidiary
holding companies and is secured by a pledge of shares of those subsidiaries as
well as an assignment of certain contractual rights.  The terms of the
EBRD Loan restrict the manner in which our business is conducted, including the
incurrence of additional indebtedness, the making of investments, the payment of
dividends or the making of other distributions, entering into certain affiliate
transactions and the sale of assets.





(4)
            We
      have an uncommitted multicurrency overdraft facility for EUR 10.0 million
      (approximately US$ 13.3 million) from Bank Mendes Gans (“BMG”), a
      subsidiary of ING. As at March 31, 2009, the entire facility was undrawn.
      Interest is payable at the prevailing money market rate plus 2.00% on the
      drawn amount. This facility is part of a cash pooling arrangement with BMG
      (the “BMG cash pool”). The cash pooling arrangement 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 with BMG
      by our participating subsidiaries is pledged as security against the
      drawings of other subsidiaries up to the amount deposited. As at March 31,
      2009, our subsidiaries in the Netherlands had approximately US$ 12.2
      million deposited in the BMG cash pool.  Our operations in the
      Czech Republic, the Slovak Republic, Slovenia and Ukraine had deposited
      approximately US$ 22.9 million, US$ 5.7 million, US$ 5.3 million and US$
      0.9 million, respectively in the BMG cash pool.    Our
      Ukraine operations had drawn approximately US$ 0.2 million from the BMG
      cash pool as at March 31, 2009.


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(5)
            CET
      21 had drawn the full CZK 1.2 billion (approximately US$ 58.4 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 2.44%
      applied to the balance outstanding at March 31, 2009. A utilization
      interest 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$ 12.2 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 March 31, 2009
      was 2.44% .This facility is secured by a pledge of receivables, which are
      also subject to a factoring arrangement with CS.  As at March
      31, 2009, the full CZK 250.0 million (approximately US$ 12.2 million) was
      drawn under this facility.





(7)
            As
      at March 31, 2009, there were no drawings under a CZK 300.0 million
      (approximately US$ 14.6 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 March 31, 2009, our Slovak Republic operations had made no drawings
      under a EUR 3.3 million (approximately US$ 4.4 million) overdraft facility
      with ING.  This can be utilized for short term advances up to
      six 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$ 49.9 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 will bear interest at
      a rate of EURIBOR for the period of drawing plus a margin of between 2.10%
      and 3.60% that varies according to the ratio of consolidated net debt to
      consolidated broadcasting cash flow for Pro Plus.  As at March
      31, 2009, the full EUR 26.3 million (approximately US$ 34.9 million)
      available under this facility was
drawn.





(10)
            Our
      Ukraine operations had drawn EUR 0.1 million (approximately US$ 0.2
      million) from the BMG cash pool as at March 31,
  2009.




Capital
Lease Obligations





Capital
lease obligations include future interest payments of US$ 1.3 million (see Item
1, Note 10, “Credit Facilities and Obligations Under Capital
Leases”).





Operating
Leases





For more
information on our operating lease commitments see Item 1, Note 19, “Commitments
and Contingencies”.


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Unconditional
Purchase Obligations





Unconditional
purchase obligations largely comprise future programming
commitments.  At March 31, 2009, we had commitments in respect of
future programming US$ 434.5 million (December 31, 2008: US$ 280.5
million).  This includes contracts signed with license periods
starting after March 31, 2009.  For more information on our
programming commitments see Item 1, Note 19, “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 19, “Commitments and
Contingencies”).





In
addition to the amounts disclosed above, Adrian Sarbu, our President and Chief
Operating 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.  A put option of 5.21%
of this 10.0% shareholding is exercisable from November 12, 2009 for a
twenty-year period thereafter.  Mr. Sarbu’s right to put the remaining
4.79% is also exercisable from November 12, 2009, provided that we have not
enforced a pledge over this 4.79% shareholding which Mr. Sarbu granted as
security for our right to put to him our 8.7% shareholding in Media Pro. As at
March 31, 2009, we consider the fair value of the put option of Mr. Sarbu to be
approximately US$ nil.






V
(d) Cash Outlook





Since
2005, our Czech Republic, Slovak Republic, Slovenia and Romania operations have
generated positive cash flows sufficient, in conjunction with new equity and
debt, to fund our operations, the launch of new channels, the acquisition of
non-controlling interests in our existing channels and expansion into new
territories. During the first quarter of 2009, we experienced a substantial
worsening of the adverse economic conditions that arose at the end of 2008 in
all of our markets.  This has caused reluctance among advertisers to
commit to spending. As a result, the cash generated by our Czech Republic,
Slovak Republic, Slovenia and Romania operations has fallen during the quarter
and it has become more difficult to predict the amount of cash our operations
will generate. However, we still expect that these operations will continue to
generate cash and, in conjunction with our current cash and available
facilities, we can fund these operations and our operations in Bulgaria, Croatia
and Ukraine for the next twelve months, as well as meet our other external
financial obligations. We expect the funding requirement for our developing
operations to be up to US$ 100.0 million during 2009. However, if market
conditions continue to deteriorate, we may have to provide additional funding.
As at March 31, 2009 we had US$ 338.8 million available in cash and credit
facilities (including uncommitted overdraft facilities).





With the
worsening of economic conditions in our markets in 2009, we have continued 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
significant reductions to our operating cost base through headcount reductions
and widespread cost optimization programs, deferral of capital expenditure and
the rescheduling of expansion plans. We have also begun to seek solutions to
reduce the financing burden of our developing operations.





On
February 2, 2009, we drew the remaining EUR 125.0 million (approximately US$
166.3 million) available under the EBRD Loan. On February 19, 2009, CET 21 drew
the full CZK 1.2 billion (approximately US$ 58.4 million) of its credit facility
with CS. At the same time, Pro Plus drew the full EUR 26.3 million
(approximately US$ 34.9 million) available under its five-year revolving
facility. 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.





On March
22, 2009, we entered into a subscription agreement with TWMH (the “Subscription
Agreement”), as reported in our Current Report on Form 8-K filed on March 23,
2009. Pursuant to the Subscription Agreement, we have agreed to issue to TWMH
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. We
expect to receive the aggregate offering price in cash of $241.5 million during
the second quarter of 2009. This will substantially improve our liquidity
position.


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As at
March 31, 2009, our Senior Notes and Convertible Notes represented 77% of our
total debt outstanding before considering the impact on the carrying value of
the Convertible Notes of bifurcating the embedded conversion option as required
by 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”). This debt does not begin to mature until May
2012, with the longest dated instrument maturing in May 2014. The EBRD Loan,
which represented 15% of our total debt outstanding at March 31, 2009, amortizes
by 15% every six months from May 2009 through November 2010, with the final 40%
payable in May 2011. We will not need to refinance the vast majority of our
existing senior debt in the near term and we have sufficient cash on hand to
meet scheduled repayments of loan principal for the next twelve
months.





We do not
have maintenance covenants in our Senior Notes and Convertible Notes or the EBRD
Loan. This means that there is no event of default on the Senior Notes and
Convertible Notes or the EBRD Loan related to a minimum level of EBITDA,
leverage or any other EBITDA related ratio. Both the Senior Notes and the EBRD
Loan are, however, subject to an incurrence covenant which restricts us from
raising new debt at the corporate level if the ratio of Indebtedness to
twelve-month Consolidated EBITDA (each as  defined in our Senior
Notes), exceeds 4.5 times, or if the raising of such debt would cause this ratio
to be exceeded.  If this ratio is exceeded we are not considered to be
in default, but we would be restricted from raising new debt with certain
defined exceptions. These exceptions include the refinancing of any of our
existing debt, the draw-down of our Slovenia and Czech facilities which are
currently drawn in the amount of US$ 93.6 million, the raising of a further US$
91.0 million of additional indebtedness (this would include any drawdown of our
undrawn US$ 32.3 million of overdrafts and factoring facilities) and the
incurrence of $ 30.4 million of capitalized leases and mortgages.  The
ratio of Indebtedness to Consolidated EBITDA at March 31, 2009 was 4.6 times.
Although neither the US$ 81.8 million of impairment charges we recognized in the
three months ended March 31, 2009 nor any future similar charges have an impact
on Consolidated EBITDA, we currently anticipate that twelve-month Consolidated
EBITDA will continue to decline during the course of 2009. As a result, we may
exceed this ratio.





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,
which has not eased in the first quarter of 2009, it may be difficult to raise
additional or replacement finance by issuing debt if additional liquidity is
required.





As at
March 31, 2009 our Senior and Convertible Notes were rated BB- with a negative
outlook by S&P, who also rated our corporate credit as BB- with a negative
outlook, following a downgrade of both ratings on February 26, 2009. As at March
31, 2009, Moody’s rated both our Senior Notes and our corporate credit as Ba3
with a negative outlook, also following a downgrade of both ratings on March 4,
2009.





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 5.1 times at March 31, 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 March 31, 2009,
our total gross debt of US$ 1,314.3 million was the sum of our credit facilities
(before considering the adoption of FSP APB 14-1) 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$ 258.1 million.





In view
of the deteriorating trend in our gross leverage ratio, which we expect will
continue during the year, it is likely that S&P and Moody’s will further
downgrade our credit rating by one or more levels during the course 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.  However, it would 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.


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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 12,
“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 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) (the “Lehman
Capped Call”) BNP Paribas (“BNP,” 1,583,333 shares) (the “BNP Capped
Call”)  and Deutsche Bank Securities Inc. (“DB,” 1,357,144 shares)
(the “DB Capped Call”, and, together with the Lehman Capped Call and the BNP
Capped Call, “Capped Calls”, (See Item 1, Note 19, “Commitments and
Contingencies”). Under the terms of the capped call options, the counterparties
are obliged to deliver, at our election following a conversion of 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 Brothers Holdings Inc, (“Lehman Holdings”, and
collectively with Lehman OTC, “Lehman Brothers”), the guarantor of the
obligations of Lehman OTC under the Lehman Capped Call, 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 the Lehman Capped Call and to claim for losses. We
exercised this right on September 16, 2008 and have 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. We have subsequently assigned our claim to an
unrelated third party for cash consideration of US$ 3.4 million.





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.





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.


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85
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V
(e) Off-Balance Sheet Arrangements





None.






VI.  Critical
Accounting Policies and Estimates





Our
accounting policies affecting our financial condition and results of operations
are more fully described in Part II, Item 8 of our Annual Report on Form 10-K
for the year ended December 31, 2008.  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 are as follows: 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.  There have been no significant
changes in our critical accounting policies since December 31, 2008 except as
follows:





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”), which establishes accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary.  FAS 160 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. 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 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 we began to attribute the net losses of our Bulgaria
operations to the holders of the noncontrolling interest. In accordance with
paragraph 15 of Accounting Research Bulletin No. 51 “Consolidated Financial
Statements” (“ARB 51”) 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 the impact on consolidated net income
attributable to CME and earnings per share would have been as
follows:


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For
      the three months ended March 31, 2009Net
      loss attributable to CME Ltd. as reported
            
            $
            (44,438
            )Deduct:
      noncontrolling interest income recognized since the adoption of FAS
      160
            
            
            (1,846
            )Pro
      Forma net loss
            
            $
            (46,284
            )Net
      loss per share – Basic (As reported)
            
            $
            (1.05
            )Net
      loss per share – Basic (Pro Forma)
            
            $
            (1.09
            )Net
      loss per share – Diluted (As reported)
            
            $
            (1.05
            )Net
      loss per share – Diluted (Pro Forma)
            
            $
            (1.09
            )





Other
than the reduction in net loss 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 as shown below.





Convertible
debt





On
January 1, 2009, we adopted FSP APB 14-1, which clarifies the accounting for
convertible debt instruments that may be settled in cash (including partial cash
settlement) upon conversion. FSP APB 14-1 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 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.





FSP APB
14-1 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 (net of allocated acquisition costs) of US$
108.1 million and US$ 364.2 million, respectively.


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The
impact on the 2008 comparative amounts for the quarterly period ended March 31,
2008 of the adoption of both FSP APB 14-1 and FAS 160 was as
follows:





For
      the Three Months ended March 31, 2008Impact
      of adoptingAs
      reported
            
            
            FSP
      APB 14-1
            
            
            FAS
      160
            
            
            As
      AdjustedConsolidated
      Statement of OperationsInterest
      expense
            
            $
            (14,250
            )
            
            $
            (979
            )
      (1)
            
            $
            -
            
            
            $
            (15,229
            )Minority
      interest in income of consolidated subsidiaries (2)
            
            
            (1,025
            )
            
            
            -
            
            
            
            548
            
            
            
            (477
            )As
      at December 31, 2008Impact
      of adoptingAs
      reported
            
            
            FSP
      APB 14-1
            
            
            FAS
      160
            
            
            As
      AdjustedConsolidated
      Balance SheetOther
      current assets
            
            $
            98,725
            
            
            $
            (639
            )
            
            $
            -
            
            
            $
            98,086Other
      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) The
impact of APB 14-1 is shown net of a reclassification of US$ 18 thousand of
interest expense attributable to discontinued operations.




(2) As
required by FAS 160, 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”.




Business
Combinations





On
January 1, 2008, we adopted FASB Statement No. 141(R), “BusinessCombinations”
(“FAS 141(R)”), 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) 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) 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) 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) 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).





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). 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, a defensive
intangible asset would need to be accounted 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 is effective for transactions occurring after
December 31, 2008. The adoption of this standard did not have a material
impact on our financial condition or results of operations.


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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”) 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), especially where the underlying arrangement includes renewal or extension
terms. The FSP is effective prospectively for fiscal years beginning after
December 15, 2008. The adoption of FSP FAS 142-3 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) which addresses certain
effects of SFAS Nos. 141R and 160 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 is effective for transactions
occurring after December 31, 2008. The adoption of this standard did not
have a material impact on our financial condition 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”) which enhances the disclosure requirements about derivatives and hedging
activities. FAS 161 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”), and what impact they have on financial position, results of
operations and cash flows. FAS 161 is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after November 15, 2008. The
adoption of FAS 161 did not have a material impact on our financial position or
results of operations.








Item3.  Quantitative and Qualitative Disclosures about
Market Risk





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





Foreign
Currency Exchange Risk Management





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





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





On April
27, 2006, we entered into currency swap agreements with two counterparties
whereby we swapped a fixed annual coupon interest rate (of 9.0%) on notional
principal of CZK 10.7 billion (approximately US$ 520.3 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$ 500.2 million) receivable on July 15, October 15, January 15,
and April 15, to the termination date of April 15, 2012.


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The fair
value of these financial instruments as at March 31, 2009 was a liability of US$
3.8 million.





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 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 SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities”, and so changes in their fair value are
recorded in the consolidated statement of operations and in the consolidated
balance sheet in other non-current liabilities.








Interest
Rate Risk Management





As at
March 31, 2009, approximately 40% of the carrying value of our debt provides for
interest at a spread above a base rate of EURIBOR or PRIBOR, which mitigates the
impact of an increase in interbank rates on our overall debt.







Interest
Rate Table as at March 31, 2009





Expected
      Maturity Dates
            
            2009
            
            
            2010
            
            
            2011
            
            
            2012
            
            
            2013
            
            
            ThereafterTotal
      debt in Euro (000's)Fixed
      rate
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            245,000
            
            
            
            -
            
            
            
            -Average
      interest rate (%)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            8.25
            %
            
            
            -
            
            
            
            -Variable
      rate
            
            
            48,750
            
            
            
            67,500
            
            
            
            60,000
            
            
            
            -
            
            
            
            -
            
            
            
            150,000Average
      interest rate (%)
            
            
            3.36
            %
            
            
            3.70
            %
            
            
            3.73
            %
            
            
            -
            
            
            
            -
            
            
            
            5.93
            %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 (%)
            
            
            -
            
            
            
            4.09
            %
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -




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Variable
Interest Rate Sensitivity as at March 31, 2009





Yearly
      interest charge if interest rates increase by (US$
    000s):Value
      of Debt as at March 31, 2009
                              (US$
      000's)
                            
                            Interest
      Rate as at March 31, 2009
                            
                            
                            Yearly
      Interest Charge
                              (US$
      000’s)
                            
                            
                            
                            1
                            %
                            
                            
                            2
                            %
                            
                            
                            3
                            %
                            
                            
                            4
                            %
                            
                            
                            5
                            %434,173
                              (EUR
      326.3 million)
                            
                            
                            4.68
                            %
                            
                            
                            20,328
                            
                            
                            
                            24,669
                            
                            
                            
                            29,010
                            
                            
                            
                            33,351
                            
                            
                            
                            37,692
                            
                            
                            
                            42,03370,508
                              (CZK
      1,450.0 million)
                            
                            
                            4.09
                            %
                            
                            
                            2,884
                            
                            
                            
                            3,589
                            
                            
                            
                            4,294
                            
                            
                            
                            4,999
                            
                            
                            
                            5,704
                            
                            
                            
                            6,409Total
                            
                            
                            
                            
                            
                            
                            23,212
                            
                            
                            
                            28,258
                            
                            
                            
                            33,304
                            
                            
                            
                            38,350
                            
                            
                            
                            43,396
                            
                            
                            
                            48,442








Item4.  Controls and Procedures





Our
President and Chief Operating Officer and our 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 Operating 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 March 31, 2009 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.


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PART
II





OTHER
INFORMATION




Item1.  Legal Proceedings





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





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 B.V. dated
November 30, 2006 (the “parent agreement”), which was entered into in connection
with Studio 1+1 in Ukraine entering advertising and marketing services
agreements with LLC Video International-Prioritet, a Ukrainian subsidiary of
VI.  Pursuant to the advertising and marketing services agreements,
LLC Video International-Prioritet had been selling advertising and sponsorship
on the STUDIO 1+1 channel. We delivered notice of termination of all agreements
with the VI group on December 24, 2008; and as a result, all agreements with the
VI group terminated on March 24, 2009. 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 for advertising
and sponsorship sold by LLC Video International-Prioritet for the six months
prior to the termination date, multiplied by six. We have recorded a provision
of US$ 4.9 million, representing the amount we currently believe we will be
required to pay in connection with the termination of the 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 defending our position vigorously in
the arbitration proceedings.





Item1A.  Risk Factors




This
report and the following discussion of risk factors contain forward-looking
statements as discussed in Part 1, 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




We
cannot predict the extent to which adverse economic and political conditions in
the countries in which we operate will continue 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 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.  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 the severity of the impact of the continuance or occurrence of any of
these events on our financial position, results of operations and cash
flows.




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Our
operating results will be adversely affected if we cannot generate strong
advertising sales.




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 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 impact on our ability to maintain or increase our
advertising sales.  Our ability to maintain television viewing levels
and to generate gross rating points 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 could have a material adverse effect on
our financial position, results of operations and cash flows.




Our
increased debt service obligations following the issuance of the Senior Notes,
Convertible Notes and drawdowns under the EBRD Loan may restrict our ability to
fund our operations.




We have
significant debt service obligations under our Senior Notes, Convertible Notes
and the EBRD Loan and we are restricted in the manner in which our business is
conducted (see Part I, Item 1, Note 5, “Senior Debt” and Note 10, “Credit
Facilities and Obligations under Capital Leases”).  Our high leverage
could have 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.  We may have a higher
level of debt than certain of our competitors, which may put us at a competitive
disadvantage. A substantial portion of our cash flow from operations is required
to be dedicated to the payment of principal of, and interest on, our
indebtedness, which means that this cash flow is not available to fund our
operations, capital expenditures or other corporate purposes. 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.




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 amortizable intangible assets for impairment when events or changes in
circumstances indicate the carrying value may not be recoverable.  Goodwill
and indefinite-lived intangible assets are required to be tested for impairment
at least annually.  Factors that may be considered a change in
circumstances indicating that the carrying value of our goodwill or amortizable
intangible assets may not be recoverable include 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
three months ended March 31, 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.  When we calculated the value of our
business as at March 31, 2009, the fair value of each reporting unit had
decreased from the fourth quarter of 2008 and the “headroom“ of the fair value over the
carrying value had reduced.  In the case of our Czech Republic operations
this headroom was particularly small and minor changes to the assumptions
underlying our cash flow projections would have resulted in our being required
to record an impairment charge.  Although we considered all current
information in respect of calculating our impairment charge for the three months
ended March 31, 2009, if 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.


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




The
acquisition, ownership and operation of television broadcasting operations
requires substantial investment.  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 continue to deteriorate, if our assumptions
regarding future operating results prove to be inaccurate, if our costs increase
due to competitive pressures or other unanticipated developments, or if our
investment plans change, we may need to obtain additional
financing.  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
indentures pursuant to which our Senior Notes were issued in 2005 (the “2005
Indenture”) and in 2007 (the “2007 Indenture” and collectively with the 2005
Indenture, the “Indentures”) or pursuant to the terms of the EBRD
Loan.  Any additional debt or equity securities issued to raise funds
may have rights, preferences and privileges that are senior to shares of our
Class A common stock, and the issuance of additional equity, such as the
issuance of shares to TWMH pursuant to the Subscription Agreement, may dilute
the economic interest of the holders of shares of our common stock (see Part I,
Item 1, Note 13, “Shareholders‘ Equity”). 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.




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 quarter
compared to the prior year.  In addition, the Senior Notes and the
EBRD Loan are denominated in Euros.  We have not attempted to hedge
the foreign exchange exposure on the principal amount of the Senior Notes or the
EBRD Loan.  We may continue to experience significant gains and losses
on the translation of our revenues, the Senior Notes and the EBRD Loan 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 our Senior Notes, Convertible Notes,
the EBRD Loan and other indebtedness depends on our future operating performance
and our ability to generate sufficient cash, which in turn depends in part on
factors that are not within our control, including general economic, financial,
competitive, market, legislative, regulatory and other factors.  If
our cash flow and capital resources were 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.




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A
downgrading of our ratings may adversely affect our ability to raise additional
financing.




Our
Senior Notes, Convertible Notes and corporate credit are rated BB with a
negative outlook by Standard and Poor’s. Moody’s Investors Services have rated
both our Senior Notes and our corporate credit as Ba2 with a negative outlook.
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 it is therefore likely that our credit ratings will be
downgraded during the course of 2009 (see Part I, Item 2, V(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, Convertible Notes and the EBRD Loan, 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 Indentures, the indenture pursuant to which our Convertible
Notes were issued (the “2008 Indenture”) and the EBRD Loan, 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 Indentures, the 2008
Indenture or the EBRD Loan, the trustees under our Indentures and the 2008
Indenture or EBRD 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




If
we fail to successfully implement our strategic goals for Ukraine, our operating
results and cash flows will be materially adversely affected.




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
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 complete ownership of all of our broadcasting
assets in Ukraine and 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.  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 continue to experience rapid growth, including through
acquisition. The acquisition and integration of new businesses pose significant
risks to our existing operations, including:




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




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




·
            difficulties
      of expanding beyond our core expertise in the event that we acquire
      ancillary businesses;




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




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




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 profit margins.




In
addition, prospective competitors may have greater financial resources than us
and increased competition for target broadcasters may decrease the number of
potential acquisitions that are available on acceptable terms.




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.




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.




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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 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.




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 Operating 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. We may not be aware of all such 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 Senior Notes and the EBRD Loan. In addition, there
have been instances in the past where certain related party receivables have
been collected more slowly than unrelated third party receivables, which have
resulted in slower cash flow to our operating companies. 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.


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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.  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.




Our
analog broadcasting licenses expire at various times between April 2009 and
September 2020.  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.




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.




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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 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




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




CME
Holdco L.P. owns all our outstanding shares of Class B common stock, each of
which carries ten votes per share.  Ronald Lauder, the chairman of our
Board of Directors, is the majority owner of CME Holdco L.P. and, subject to
certain limitations described below, is entitled to vote those shares on behalf
of CME Holdco L.P.  The shares over which Ronald Lauder has voting
power represent 63.7% of the aggregate voting power of our outstanding common
stock.  On September 1, 2006, Adele (Guernsey) L.P., a fund affiliated
with Apax Partners, acquired 49.7% of CME Holdco L.P.  Under the terms
of the limited partnership agreement of CME Holdco L.P., Adele (Guernsey) L.P.
has certain consent rights in respect of the voting and disposition of our
shares of Class B common stock held by CME Holdco L.P.  CME Holdco
L.P. is in a position to control the outcome of corporate actions requiring
shareholder approval, such as the election of directors (including two directors
Adele (Guernsey) L.P. is entitled to recommend for appointment) or certain
transactions, including issuances of CME common stock 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 CME Holdco L.P. may not be the same as those of other
shareholders, and such shareholders will be unable to affect the outcome of such
corporate actions for so long as CME Holdco L.P. retains voting
control.




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The
price of our Class A common stock is likely to remain volatile.




The
market price of shares of our Class A common stock may be influenced by many
factors, some of which are beyond our control, including those described above
under “Risks Relating to our 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
April 24, 2009, we have a total of 1.3 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 March 2009 we entered into the Subscription Agreement with TWMH,
pursuant to which we have agreed to issue to TWMH 14.5 million Class A Shares
and 4.5 million Class B Shares (see Part I, Item 1, Note 13, “Shareholders‘
Equity”).




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 shares of Class A and Class B common stock to TWMH, 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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Item6.  Exhibits





a) The
following exhibits are attached:





10.1
            
            Subscription
      Agreement, by and between Central European Media Enterprises Ltd. and TW
      Media Holdings LLC, dated March 22, 2009.10.2
            
            Indemnity
      Agreement by and among Central European Media Enterprises Ltd., Ronald S.
      Lauder and RSL Savannah LLC, dated as of March 22,
2009.31.01
            
            Certification
      of President and Chief Operating 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 Chief 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 President and Chief Operating Officer and Chief 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).




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:
      April 29, 2009
            /s/ Adrian Sarbu
              Adrian
      Sarbu
              President
      and Chief Operating Officer
              (Principal
      Executive Officer)Date:
      April 29, 2009
            /s/ Wallace Macmillan
              Wallace
      Macmillan
              Chief
      Financial Officer
              (Principal
      Financial Officer and Accounting
Officer)





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EXHIBITINDEX




10.1
            
            Subscription
      Agreement, by and between Central European Media Enterprises Ltd. and TW
      Media Holdings LLC, dated March 22, 2009.10.2
            
            Indemnity
      Agreement by and among Central European Media Enterprises Ltd., Ronald S.
      Lauder and RSL Savannah LLC, dated as of March 22,
2009.31.01
            
            Certification
      of President and Chief Operating 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 Chief 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 President and Chief Operating Officer and Chief 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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