UNITED STATES


SECURITIES AND EXCHANGE
COMMISSION


Washington, D.C.
20549




FORM
10-Q /A


AMENDMENT
NO.1 TO FORM 10-Q
  T           QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934





For the quarterly period ended
September 30, 2007





£           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: 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 T No £





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





Large
      accelerated filer  T
            Accelerated
      filer  £
            Non-accelerated
      filer  £





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





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





Class
            Outstanding as of
      October 30, 2007Class
      A Common Stock, par value $0.08
            35,961,948Class
      B Common Stock, par value $0.08
            6,312,839













THIS PAGE
INTENTIONALLY LEFT BLANK











EXPLANATORY
NOTE
  This
is Amendment No. 1 to the Form 10-Q for the period ended September 30, 2001 of
Central European Media Enterprises Ltd., as originally filed on November 1,
2007.
 
 We are
filing this Amendment No. 1 to correct the classification of certain provisions
for legal contingencies, which had previously been reported as non-operating
expenses within our condensed Consolidated Statement of Operations and are now
being reported as operating expenses.
 
 This
modification resulted in changes in Item 1. Financial Statements, where the
condensed Consolidated Statements of Operations for the three and nine months
ended September 30, 2007 have been amended, and in Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations, where
the analysis of Corporate Operating Costs, Operating Income and Other Income /
(Expense) for the three and nine months ended September 30, 2007 has been
amended.
 
 We
have not otherwise updated this Quarterly Report on Form 10-Q/A to modify
disclosures in the Quarterly Report on Form 10-Q for the period ended September
30, 2007 for events occurring subsequent to the original November 1, 2007
filing date; and except for the modifications referred to in the preceding
paragraph, it continues to speak as of November 1, 2007.




CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.





FORM
10-Q /A


AMENDMENT
NO.1 TO FORM 10-Q


For the quarterly period ended
September 30, 2007





INDEX




PagePart
      I. Financial informationItem 1. Financial StatementsCondensed consolidated Balance Sheets as at September 30,
      2007 and December 31, 2006
              2Condensed consolidated Statements of Operations for the
      Three and Nine Months Ended September 30, 2007 , as
      restated,  and 2006
              4Condensed consolidated Statements of Shareholders' Equity
      for the Nine Months Ended September 30, 2007 and 2006
              6Condensed consolidated Statements of Cash Flows for the Nine
      Months Ended September 30, 2007 and 2006
              7Notes to the condensed consolidated Financial
      Statements
              8Item 2. Management's Discussion and Analysis of Financial
      Condition and Results of Operations
              41Part
      II. Other InformationItem 6. Exhibits
              84Signatures
              85Exhibit Index
              86




Page
1
 Index





Part I.  Financial
Information





Item
1.  Financial Statements





CENTRAL EUROPEAN MEDIA
ENTERPRISES LTD.


CONDENSED CONSOLIDATED BALANCE
SHEETS


(US$ 000’s)


(Unaudited)




September 30,
              2007
            
            
            December 31,
              2006ASSETSCurrent
      assetsCash
      and cash equivalents
            
            $
            192,569
            
            
            $
            145,904Restricted
      cash (Note 6)
            
            
            1,246
            
            
            
            4,954Accounts
      receivable (net of allowance) (Note 7)
            
            
            149,540
            
            
            
            152,505Income
      taxes receivable
            
            
            3,222
            
            
            
            3,053Program
      rights, net
            
            
            72,533
            
            
            
            59,645Other
      current assets (Note 8)
            
            
            70,288
            
            
            
            47,555Total current
      assets
            
            
            489,398
            
            
            
            413,616Non-current
      assetsInvestments
            
            
            16,563
            
            
            
            19,214Property,
      plant and equipment, net (Note 9)
            
            
            154,996
            
            
            
            115,805Program
      rights, net
            
            
            100,222
            
            
            
            76,638Goodwill
      (Note 4)
            
            
            1,025,544
            
            
            
            905,580Broadcast
      licenses, net (Note 4)
            
            
            230,224
            
            
            
            198,730Other
      intangible assets, net (Note 4)
            
            
            131,170
            
            
            
            71,942Other
      non-current assets (Note 8)
            
            
            19,420
            
            
            
            17,475Total non-current
      assets
            
            
            1,678,139
            
            
            
            1,405,384Total
    assets
            
            $
            2,167,537
            
            
            $
            1,819,000




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





Page
2
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


CONDENSED CONSOLIDATED BALANCE SHEETS
(continued)


(US$ 000’s)


(Unaudited)




September 30,
              2007
            
            
            December 31,
              2006LIABILITIES AND SHAREHOLDERS’
      EQUITYCurrent
      liabilitiesAccounts
      payable and accrued liabilities (Note 10)
            
            $
            169,624
            
            
            $
            119,717Duties
      and other taxes payable
            
            
            42,921
            
            
            
            31,707Income
      taxes payable
            
            
            12,531
            
            
            
            12,434Credit
      facilities and obligations under capital leases (Note 11)
            
            
            13,371
            
            
            
            13,057Dividends
      payable to minority shareholders in subsidiaries
            
            
            2,983
            
            
            
            -Deferred
      consideration – Croatia
            
            
            -
            
            
            
            4,010Deferred
      consideration – Ukraine
            
            
            -
            
            
            
            200Deferred
      tax
            
            
            4,213
            
            
            
            1,836Total current
      liabilities
            
            
            245,643
            
            
            
            182,961Non-current
      liabilitiesCredit
      facilities and obligations under capital leases (Note 11)
            
            
            5,886
            
            
            
            6,359Senior
      Notes (Note 5)
            
            
            560,045
            
            
            
            487,291Income
      taxes payable
            
            
            4,719
            
            
            
            3,000Deferred
      tax
            
            
            76,614
            
            
            
            58,092Other
      non-current liabilities
            
            
            11,819
            
            
            
            19,342Total non-current
      liabilities
            
            
            659,083
            
            
            
            574,084Commitments
      and contingencies (Note 18)Minority interests in
      consolidated subsidiaries
            
            
            15,780
            
            
            
            26,189SHAREHOLDERS'
      EQUITY:Nil
      shares of Preferred Stock of $0.08 each (December 31, 2006 –
      nil)
            
            
            -
            
            
            
            -35,916,948
      shares of Class A Common Stock of $0.08 each (December 31, 2006 –
      34,412,138)
            
            
            2,877
            
            
            
            2,7536,312,839
      shares of Class B Common Stock of $0.08 each (December 31, 2006 –
      6,312,839)
            
            
            505
            
            
            
            505Additional
      paid-in capital
            
            
            1,048,924
            
            
            
            931,108Accumulated
      deficit
            
            
            (19,372
            )
            
            
            (31,730
            )Accumulated
      other comprehensive income
            
            
            214,097
            
            
            
            133,130Total shareholders’
      equity
            
            
            1,247,031
            
            
            
            1,035,766Total liabilities and
      shareholders’ equity
            
            $
            2,167,537
            
            
            $
            1,819,000




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





Page
3
 Index





CENTRAL EUROPEAN MEDIA
ENTERPRISES LTD.


CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE INCOME


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


(Unaudited)




For
      the Three Months Ended September 30,
              
              
              For
      the Nine Months Ended September 30,2007
                (as
      restated,
                see
      Note 2)
              
              
              2006
              
              
              2007
                (as
      restated,
                see
      Note 2)
              
              
              2006Net
      revenues
              
              $
              174,836
              
              
              $
              112,482
              
              
              $
              539,032
              
              
              $
              388,825Operating
      costs
              
              
              27,166
              
              
              
              22,073
              
              
              
              83,767
              
              
              
              71,087Cost
      of programming
              
              
              65,909
              
              
              
              47,920
              
              
              
              215,035
              
              
              
              149,188Depreciation
      of station property, plant and equipment
              
              
              8,768
              
              
              
              6,080
              
              
              
              23,347
              
              
              
              17,841Amortization
      of broadcast licenses and other intangibles (Note 4)
              
              
              6,595
              
              
              
              5,015
              
              
              
              16,922
              
              
              
              13,967Cost
      of revenues
              
              
              108,438
              
              
              
              81,088
              
              
              
              339,071
              
              
              
              252,083Station
      selling, general and administrative expenses
              
              
              17,609
              
              
              
              16,481
              
              
              
              49,089
              
              
              
              45,188Corporate
      operating costs
              
              
              20,396
              
              
              
              8,342
              
              
              
              42,613
              
              
              
              24,019Impairment
      charge
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              748Operating
      income
              
              
              28,393
              
              
              
              6,571
              
              
              
              108,259
              
              
              
              66,787Interest
      income
              
              
              1,180
              
              
              
              1,554
              
              
              
              4,326
              
              
              
              4,748Interest
      expense
              
              
              (11,883
              )
              
              
              (11,066
              )
              
              
              (42,717
              )
              
              
              (32,921
              )Foreign
      currency exchange (loss) / gain, net
              
              
              (23,300
              )
              
              
              6,018
              
              
              
              (28,552
              )
              
              
              (25,469
              )Change
      in fair value of derivatives (Note 12)
              
              
              (8,555
              )
              
              
              (881
              )
              
              
              3,497
              
              
              
              (2,757
              )Other
      income / (expense)
              
              
              44
              
              
              
              (412
              )
              
              
              (746
              )
              
              
              (793
              )(Loss)
      / income before provision for income taxes, minority interest, equity in
      loss of unconsolidated affiliates and discontinued
    operations
              
              
              (14,121
              )
              
              
              1,784
              
              
              
              44,067
              
              
              
              9,595Provision
      for income taxes
              
              
              (131
              )
              
              
              (1,235
              )
              
              
              (18,609
              )
              
              
              (8,811
              )(Loss)
      / income before minority interest, equity in loss of unconsolidated
      affiliates and discontinued operations
              
              
              (14,252
              )
              
              
              549
              
              
              
              25,458
              
              
              
              784Minority
      interest in income of consolidated subsidiaries
              
              
              (4,511
              )
              
              
              (461
              )
              
              
              (9,881
              )
              
              
              (7,178
              )Equity
      in loss of unconsolidated affiliates
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (730
              )Gain
      on sale of unconsolidated affiliate
              
              
              -
              
              
              
              6,179
              
              
              
              -
              
              
              
              6,179Net
      (loss) / income  from continuing operations
              
              
              (18,763
              )
              
              
              6,267
              
              
              
              15,577
              
              
              
              (945
              )Discontinued
      operations (Note 17):Tax
      on disposal of discontinued operations (Czech Republic)
              
              
              -
              
              
              
              (2,333
              )
              
              
              -
              
              
              
              (4,863
              )Net
      loss from discontinued operations
              
              
              -
              
              
              
              (2,333
              )
              
              
              -
              
              
              
              (4,863
              )Net
      (loss) / income
              
              $
              (18,763
              )
              
              $
              3,934
              
              
              $
              15,577
              
              
              $
              (5,808
              )Currency
      translation adjustment, net
              
              
              100,470
              
              
              
              3,507
              
              
              
              80,967
              
              
              
              80,672Total
      comprehensive income
              
              $
              81,707
              
              
              $
              7,441
              
              
              $
              96,544
              
              
              $
              74,864




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





Page
4
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE INCOME (continued)


(US$ 000’s, except per share
data)


(Unaudited)




For the Three Months
      Ended
              September 30,
            
            
            For the Nine Months
      Ended
              September 30,2007
            
            
            2006
            
            
            2007
            
            
            2006PER SHARE DATA (Note
      15):Net income / (loss) per
      share:Continuing
      operations – Basic
            
            $
            (0.45
            )
            
            $
            0.15
            
            
            $
            0.38
            
            
            $
            (0.02
            )Continuing
      operations – Diluted
            
            
            (0.45
            )
            
            
            0.15
            
            
            
            0.37
            
            
            
            (0.02
            )Discontinued
      operations – Basic
            
            
            0.00
            
            
            
            (0.06
            )
            
            
            0.00
            
            
            
            (0.12
            )Discontinued
      operations – Diluted
            
            
            0.00
            
            
            
            (0.06
            )
            
            
            0.00
            
            
            
            (0.12
            )Net
      income / (loss) – Basic
            
            
            (0.45
            )
            
            
            0.09
            
            
            
            0.38
            
            
            
            (0.14
            )Net
      income / (loss) – Diluted
            
            $
            (0.45
            )
            
            $
            0.09
            
            
            $
            0.37
            
            
            $
            (0.14
            )Weighted average common shares
      used in computing per share amounts (000’s):Basic
            
            
            41,489
            
            
            
            40,651
            
            
            
            41,077
            
            
            
            39,792Diluted
            
            
            41,489
            
            
            
            41,188
            
            
            
            41,553
            
            
            
            39,792




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





Page
5
 Index





CENTRAL EUROPEAN MEDIA
ENTERPRISES LTD.


CONDENSED CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY


(US$ 000’s)


(Unaudited)




Class A Common
      Stock
            
            
            Class B Common
      StockNumber of
      shares
            
            
            Par
value
            
            
            Number of
      shares
            
            
            Par
value
            
            
            Additional Paid-In
      Capital
            
            
            Accumulated
      Deficit
            
            
            Accumulated Other Comprehensive
      Income / (Loss)
            
            
            Total Shareholders'
      EquityBALANCE,
              December 31,
      2006
            
            
            34,412,138
            
            
            $
            2,753
            
            
            
            6,312,839
            
            
            $
            505
            
            
            $
            931,108
            
            
            $
            (31,730
            )
            
            $
            133,130
            
            
            $
            1,035,766Impact
      of adoption of FIN 48
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (3,219
            )
            
            
            -
            
            
            
            (3,219
            )BALANCE,
      upon the adoption of FIN 48
            
            
            34,412,138
            
            
            $
            2,753
            
            
            
            6,312,839
            
            
            $
            505
            
            
            $
            931,108
            
            
            $
            (34,949
            )
            
            $
            133,130
            
            
            $
            1,032,547Stock-based
      compensation
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            4,610
            
            
            
            -
            
            
            
            -
            
            
            
            4,610Shares
      issued, net of fees
            
            
            1,275,227
            
            
            
            102
            
            
            
            -
            
            
            
            -
            
            
            
            109,751
            
            
            
            -
            
            
            
            -
            
            
            
            109,853Stock
      options exercised
            
            
            274,583
            
            
            
            22
            
            
            
            -
            
            
            
            -
            
            
            
            3,455
            
            
            
            -
            
            
            
            -
            
            
            
            3,477Net
      income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            
            15,577
            
            
            
            -
            
            
            
            15,577Currency
      translation adjustment
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            
            80,967
            
            
            
            80,967BALANCE,
              September 30,
      2007
            
            
            35,961,948
            
            
            $
            2,877
            
            
            
            6,312,839
            
            
            $
            505
            
            
            $
            1,048,924
            
            
            $
            (19,372
            )
            
            $
            214,097
            
            
            $
            1,247,031








Class A Common
      Stock
            
            
            Class B Common
      StockNumber of
      Shares
            
            
            Par
Value
            
            
            Number of
      Shares
            
            
            Par
Value
            
            
            Additional Paid-In
      Capital
            
            
            Accumulated
      Deficit
            
            
            Accumulated Other Comprehensive
      Income / (Loss)
            
            
            Total Shareholders'
      EquityBALANCE,
              December 31,
      2005
            
            
            31,032,994
            
            
            $
            2,482
            
            
            
            6,966,533
            
            
            $
            558
            
            
            $
            754,061
            
            
            $
            (52,154
            )
            
            $
            (24,394
            )
            
            $
            680,553Stock-based
      compensation
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            2,385
            
            
            
            -
            
            
            
            -
            
            
            
            2,385Stock
      options exercised
            
            
            95,450
            
            
            
            8
            
            
            
            100,000
            
            
            
            8
            
            
            
            3,608
            
            
            
            -
            
            
            
            -
            
            
            
            3,624Shares
      issued, net of fees
            
            
            2,530,000
            
            
            
            202
            
            
            
            -
            
            
            
            -
            
            
            
            168,397
            
            
            
            -
            
            
            
            -
            
            
            
            168,599Conversion
      of Class B to Class A Common Shares
            
            
            753,694
            
            
            
            61
            
            
            
            (753,694
            )
            
            
            (61
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Net
      loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (5,808
            )
            
            
            -
            
            
            
            (5,808
            )Currency
      translation adjustment
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            80,672
            
            
            
            80,672BALANCE,
              September 30,
      2006
            
            
            34,412,138
            
            
            $
            2,753
            
            
            
            6,312,839
            
            
            $
            505
            
            
            $
            928,451
            
            
            $
            (57,962
            )
            
            $
            56,278
            
            
            $
            930,025




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





Page
6
 Index





CENTRAL EUROPEAN MEDIA
ENTERPRISES LTD.


CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS


(US$ 000’s)


(Unaudited)




For the Nine Months
      Ended
              September30,2007
            
            
            2006CASH FLOWS FROM OPERATING
      ACTIVITIES:Net income /
      (loss)
            
            $
            15,577
            
            
            $
            (5,808
            )Adjustments
      to reconcile net income / (loss) to net cash generated from operating
      activities:Loss
      from discontinued operations (Note 17)
            
            
            -
            
            
            
            4,863Equity
      in loss of unconsolidated affiliates, net of dividends
      received
            
            
            -
            
            
            
            730Gain
      on sale of unconsolidated affiliate
            
            
            -
            
            
            
            (6,179
            )Depreciation
      and amortization
            
            
            165,889
            
            
            
            111,443Impairment
      charge
            
            
            -
            
            
            
            748Loss
      on disposal of fixed asset
            
            
            -
            
            
            
            1,503Stock-based
      compensation (Note 14)
            
            
            4,098
            
            
            
            2,385Minority
      interest in income of consolidated subsidiaries
            
            
            9,881
            
            
            
            7,178Change
      in fair value of derivative instruments
            
            
            (3,497
            )
            
            
            2,757Foreign
      currency exchange loss, net
            
            
            28,552
            
            
            
            25,469Net
      change in (net of effects of acquisitions and disposals of
      businesses):Accounts
      receivable
            
            
            11,616
            
            
            
            15,248Program
      rights
            
            
            (170,610
            )
            
            
            (110,315
            )Other
      assets
            
            
            (7,430
            )
            
            
            (987
            )Accounts
      payable and accrued liabilities
            
            
            27,319
            
            
            
            8,371Income
      taxes payable
            
            
            557
            
            
            
            (5,663
            )Deferred
      taxes
            
            
            4,202
            
            
            
            4,600VAT
      and other taxes payable
            
            
            9,735
            
            
            
            11,564Net cash generated from
      continuing operating activities
            
            
            95,889
            
            
            
            67,907CASH FLOWS FROM INVESTING
      ACTIVITIES:Purchase
      of property, plant and equipment
            
            
            (46,277
            )
            
            
            (31,767
            )Proceeds
      from disposal of property, plant and equipment
            
            
            123
            
            
            
            19Investments
      in subsidiaries and unconsolidated affiliates
            
            
            (142,709
            )
            
            
            (69,470
            )Repayment
      of loans and advances to related parties
            
            
            400
            
            
            
            400Net cash used in continuing
      investing activities
            
            
            (188,463
            )
            
            
            (100,818
            )CASH FLOWS FROM FINANCING
      ACTIVITIES:Proceeds
      from credit facilities
            
            
            177,515
            
            
            
            35,878Payment
      of credit facilities and capital leases
            
            
            (182,391
            )
            
            
            (74,773
            )Net
      proceeds from issuance of Senior Notes
            
            
            199,400
            
            
            
            -Redemption
      of Senior Notes
            
            
            (169,010
            )
            
            
            -Proceeds
      from exercise of stock options
            
            
            3,477
            
            
            
            3,624Issuance
      of shares of Class A Common Stock
            
            
            109,853
            
            
            
            168,599Excess
      tax benefits from share-based payment arrangements
            
            
            512
            
            
            
            -Dividends
      paid to minority shareholders
            
            
            (2,910
            )
            
            
            (1,101
            )Net cash received from
      continuing financing activities
            
            
            136,446
            
            
            
            132,227NET
      CASH USED IN DISCONTINUED OPERATIONS – OPERATING
ACTIVITIES
            
            
            (2,164
            )
            
            
            (1,690
            )Impact of exchange rate
      fluctuations on cash
            
            
            4,957
            
            
            
            (4,782
            )Net
      increase in cash and cash equivalents
            
            
            46,665
            
            
            
            92,844CASH AND CASH EQUIVALENTS,
      beginning of period
            
            
            145,904
            
            
            
            71,658CASH AND CASH EQUIVALENTS, end
      of period
            
            $
            192,569
            
            
            $
            164,502




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





Page
7
 Index





CENTRAL EUROPEAN MEDIA
ENTERPRISES LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





1.  ORGANIZATION AND
BUSINESS





Central
European Media Enterprises Ltd., a Bermuda corporation, was formed in June
1994.  Our assets are held through a series of Dutch and Netherlands
Antilles holding companies.  We invest in, develop and operate
national and regional commercial television stations and channels in Central and
Eastern Europe.  At September 30, 2007, we had television operations
in Croatia, the Czech Republic, Romania, the Slovak Republic, Slovenia and
Ukraine.





Our
principal subsidiaries, equity-accounted affiliates and cost investments as at
September 30, 2007 were:


Company
    Name
            Effective Voting
      Interest
            Jurisdiction of
      Organization
            Type of Affiliate
      (1)Nova
      TV d.d. (“Nova TV (Croatia)”)
            100.0%
            Croatia
            SubsidiaryMedia
      House d.o.o.
            100.0%
            Croatia
            SubsidiaryInternet
      Dnevnik d.o.o.
            76.0%
            Croatia
            SubsidiaryCME
      Media Investments, s.r.o.
            100.0%
            Czech
      Republic
            SubsidiaryVILJA,
      a.s.
            100.0%
            Czech
      Republic
            SubsidiaryCET
      21 spol., s r.o. (“CET 21”)
            100.0%
            Czech
      Republic
            SubsidiaryERIKA
      a.s.
            100.0%
            Czech
      Republic
            SubsidiaryMEDIA
      CAPITOL a.s.
            100.0%
            Czech
      Republic
            SubsidiaryHARTIC,
      a.s.
            100.0%
            Czech
      Republic
            SubsidiaryGalaxie
      sport s r.o. (“Galaxie Sport”)
            100.0%
            Czech
      Republic
            SubsidiaryMedia
      Pro International S.A.  (“MPI”)
            95.0%
            Romania
            SubsidiaryMedia
      Vision SRL (“Media Vision”)
            95.0%
            Romania
            SubsidiaryMPI
      Romania B.V.
            95.0%
            Netherlands
            SubsidiaryPro
      TV S.A. (“Pro TV”)
            95.0%
            Romania
            SubsidiarySport
      Radio TV Media SRL (“Sport.ro”)
            95.0%
            Romania
            SubsidiaryMedia
      Pro B.V.
            10.0%
            Netherlands
            Cost
      investmentMedia
      Pro Management S.A.
            8.7%
            Romania
            Cost
      investmentA.R.J.
      a.s.
            100.0%
            Slovak
      Republic
            SubsidiaryMedia
      Invest s.r.o. (“Media Invest”)
            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)A.D.A.M.,
      a.s.
            100.0%
            Slovak
      Republic
            Subsidiary
      (in liquidation)MMTV
      1 d.o.o.
            100.0%
            Slovenia
            SubsidiaryProdukcija
      Plus d.o.o. (“Pro Plus”)
            100.0%
            Slovenia
            SubsidiaryPOP
      TV d.o.o. (“Pop TV”)
            100.0%
            Slovenia
            SubsidiaryKanal
      A d.o.o. (“Kanal A”)
            100.0%
            Slovenia
            SubsidiaryEuro
      3 TV d.o.o
            42.0%
            Slovenia
            Equity-Accounted
      AffiliateMTC
      Holding d.o.o.
            24.0%
            Slovenia
            Equity-Accounted
      Affiliate (in liquidation)





Page
8
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





Company
    Name
            Effective Voting
      Interest
            Jurisdiction of
      Organization
            Type of Affiliate
      (1)Ukrainian
      Media Services LLC (“UMS”)
            99.9%
            Ukraine
            SubsidiaryInternational
      Media Services Ltd. (“IMS”)
            60.0%
            Bermuda
            SubsidiaryInnova
      Film GmbH (“Innova”)
            60.0%
            Germany
            SubsidiaryForeign
      Enterprise “Inter-Media”  (“Inter-Media”)
            60.0%
            Ukraine
            SubsidiaryTV
      Media Planet Ltd.
            60.0%
            Cyprus
            SubsidiaryStudio
      1+1 LLC (“Studio 1+1”)
            60.0%
            Ukraine
            SubsidiaryUkrpromtorg
      -2003 LLC (“Ukrpromtorg”)
            65.5%
            Ukraine
            SubsidiaryGravis
      LLC
            60.4%
            Ukraine
            SubsidiaryDelta
      JSC
            60.4%
            Ukraine
            SubsidiaryNart
      LLC
            65.5%
            Ukraine
            SubsidiaryTV
      Stimul LLC
            49.1%
            Ukraine
            Equity-Accounted
      AffiliateTor
      LLC (“Tor”)
            60.4%
            Ukraine
            SubsidiaryZhysa
      LLC (“Zhysa”)
            60.4%
            Ukraine
            SubsidiaryCME
      Media Enterprises B.V.
            100.0%
            Netherlands
            SubsidiaryCME
      Czech Republic II B.V.
            100.0%
            Netherlands
            SubsidiaryCME
      Romania B.V.
            100.0%
            Netherlands
            SubsidiaryCME
      Slovak Holdings B.V.
            100.0%
            Netherlands
            SubsidiaryCentral
      European Media Enterprises N.V.
            100.0%
            Netherlands
      Antilles
            SubsidiaryCentral
      European Media Enterprises II B.V.
            100.0%
            Netherlands
      Antilles
            SubsidiaryCME
      SR d.o.o.
            100.0%
            Serbia
            Subsidiary
      (in liquidation)CME
      Ukraine Holding GmbH
            100.0%
            Austria
            SubsidiaryCME
      Cyprus Holding Ltd.
            100.0%
            Cyprus
            SubsidiaryCME
      Development Corporation
            100.0%
            Delaware
            Subsidiary




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





Page
9
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)







Page
10
 Index




CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





Croatia





We own
100.0% of Nova TV (Croatia), which holds a national terrestrial broadcast
license for Croatia that expires in April 2010.





Czech Republic





We own
100.0% of CET 21, which holds the national terrestrial broadcast license for TV
NOVA (Czech Republic) that expires in 2017.





Romania





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 Chief Operating Officer.  Pro TV holds the licenses for the PRO
TV, ACASA, PRO TV INTERNATIONAL, PRO CINEMA and SPORT.RO channels. These
licenses expire on various dates between November 2007 and September
2016.





We own
10.0% of Media Pro BV 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, entertainment and radio in
Romania.





Slovak Republic





We own
100.0% of Markiza, which holds a national terrestrial broadcast license for the
Slovak Republic that expires in September 2019.





Slovenia





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 network, and Kanal A, which holds the licenses
for the KANAL A network.  All such licenses expire in August
2012.





Ukraine (Studio
1+1)





The
Studio 1+1 Group is comprised of several entities in which we hold direct or
indirect interests.  We hold a 60.0% voting and economic interest in
each of Studio 1+1, Innova, IMS and TV Media Planet.  Innova owns
100.0% of Inter-Media, a Ukrainian company, which in turn holds a 30.0% voting
and economic interest in Studio 1+1. In addition, we hold a 99.9% interest in
UMS, which owns a 42.0% direct voting and economic interest in Studio 1+1, the
license holder for the STUDIO 1+1 channel.  The license covering
fifteen hours including prime time expires in December 2016.  The
second license for the remaining nine hours expires in 2014.





Ukraine (KINO,
CITI)





We hold a
65.5% interest in Ukrpromtorg. Ukrpromtorg owns (i) 92.2% of Gravis, which
operates the local channels KINO and CITI; (ii) 100.0% of Nart LLC, which holds
a satellite broadcasting license; and (iii) 75.0% of TV Stimul LLC, which
operates TV STIMUL.  We also own a 60.4% interest in each of Zhysa and
Tor, two regional broadcasters. Licenses used for the KINO and CITI channels
expire on dates ranging from June 2008 to July 2016.





Page
11
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





2.  SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES





Basis of
Presentation





The
interim financial statements for the three and nine months ended September 30,
2007 should be read in conjunction with the Consolidated Financial Statements
contained in our Annual Report on Form 10-K for the period ended December 31,
2006.  Our significant accounting policies have not changed since
December 31, 2006, except as noted below.





In the
opinion of management, the accompanying condensed 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 year-end condensed
balance sheet data was derived from audited financial statements, but does not
include all disclosures required by US GAAP.





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.  We consolidate the financial
statements of entities in which we hold at least a majority voting interest and
also those entities which are deemed to be a Variable Interest Entity of which
we are the primary beneficiary as defined by FASB Interpretation No. 46 (revised
December 2003), “Consolidation of Variable Interest Entities” ("FIN
46(R)").  Entities in which we hold less than a majority voting
interest but over which we have the ability to exercise significant influence
are accounted for using the equity method.  Other investments are
accounted for using the cost method.





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.





The terms
“Company”, “we”, “us”, and “our” are used in this Form 10-Q /A 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$” or “dollars” are to US dollars, all
references to “HRK” are to Croatian kuna, all references to “CZK” are to Czech
korunas, all references to “RON” are to the New Romanian lei, all references to
“SKK” are to Slovak korunas, all references to “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.





Income Taxes





We
account for income taxes under the asset and liability method as set out in FAS
No. 109, “Accounting for Income Taxes” (“FAS 109”).  Deferred tax
assets and liabilities are recognized for the expected tax consequences of
temporary differences between the tax bases of assets and liabilities and their
reported amounts.  Valuation allowances are established when necessary
to reduce deferred tax assets to amounts which are more likely than not to be
realized.





On
January 1, 2007, we adopted FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109” (“FIN
48”), which clarifies the accounting for uncertainty in tax
positions.  The evaluation of a tax position under FIN 48 is a
two-step process.  The first step is recognition: Tax positions taken
or expected to be taken in a tax return should be recognized only if those
positions are more likely than not to be sustained upon examination, based on
the technical merits of the position.  In evaluating whether a tax
position has met the more likely than not recognition threshold, it should be
presumed that the position will be examined by the relevant taxing authority and
that they would have full knowledge of all relevant information.  The
second step is measurement: Tax positions that meet the recognition criteria are
measured at the largest amount of benefit that is greater than 50 percent likely
of being recognized upon ultimate settlement.





Page
12
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





As a
result of the implementation of FIN 48, we recognized a liability of
approximately US$ 2.0 million for unrecognized tax benefits, of which US$ 1.7
million was accounted for as a reduction to accumulated retained deficit as at
January 1, 2007. The total amount of unrecognized benefits that, if recognized,
would affect the effective tax rate amounts to US$ 2.0 million, all of which
would reduce the effective tax rate accordingly.





We
recognize interest accrued and penalties related to unrecognized tax benefits
within the provision for income taxes. As at January 1, 2007, we accrued US$ 1.8
million in respect of interest and penalties, of which US$ 1.5 million was
accounted for as a reduction to accumulated retained deficit.





Our
subsidiaries file income tax returns in the Netherlands and various other tax
jurisdictions including the United States. As at January 1, 2007, analyzed by
major tax jurisdictions, the Company’s subsidiaries are no longer subject to
income tax examinations for years before:





Jurisdiction
            YearCroatia
            2003Czech
      Republic
            2002Germany
            2000Netherlands
            2004Romania
            2002Slovak
      Republic
            2001Slovenia
            2001Ukraine
            2003United
      States
            2001





Since January
1, 2007, the German tax authorities concluded an income tax audit of our
German subsidiary covering the years up to and including 2004, and determined
that no material additional amounts of income tax were payable for
such periods.  Therefore, years before 2005 are no longer subject to income
tax examination in Germany.





Recent Accounting
Pronouncements





In
September 2006, the FASB issued FASB Statement No. 157, “Fair Value
Measurements” (“FAS 157”).  FAS 157 addresses the need for increased
consistency in fair value measurements, defining fair value as the price that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.  It
also establishes a framework for measuring fair value and expands disclosure
requirements.  FAS 157 is effective for us beginning January 1,
2008.  We are currently evaluating the impact of the adoption of FAS
157 on our financial position and results of operations.





In
February 2007, the FASB issued FASB Statement No. 159, "The Fair Value Option
for Financial Assets and Financial Liabilities" ("FAS 159"). FAS 159 gives
entities the option to prospectively measure many financial instruments and
certain other items at fair value in the balance sheet with changes in the fair
value recognized in the income statement. FAS 159 is effective for fiscal years
beginning after November 15, 2008, although entities may elect to adopt the
statement early. We are currently evaluating the impact of the adoption of FAS
159 on our financial position and results of operations.





Page
13
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)




Restatement
 
 Classification
of legal provisions
 
 Subsequent
to the issuance of our financial statements as of and for the period ended
September 30, 2007, we determined that the current year provisions recorded in
anticipation of the settlement of our Croatia litigation should be classified
within operating expenses.  In our previously issued 2007 quarterly
condensed Consolidated Statement of Operations these provisions had been
classified within non-operating expenses.  As a result, we have
restated Corporate Operating Costs and Other Income / (Expense) to correct the
classification of these legal contingencies.
 The
restatement had the impact on our previously presented financial information as
set out below.  All amounts are in US$ 000’s:
  As
      reported previously
                
                
                Adjustment
                
                
                As
      restatedCondensed
      Consolidated Statement of Operations (for the three months ended September
      30, 2007)Net
      revenues
                
                
                174,836
                
                
                
                -
                
                
                
                174,836Corporate
      operating costs
                
                
                13,839
                
                
                
                6,557
                
                
                
                20,396Operating
      income
                
                
                34,950
                
                
                
                (6,557
                )
                
                
                28,393Other
      income / (expense)
                
                
                (6,513
                )
                
                
                6,557
                
                
                
                44Net
      loss
                
                
                (18,763
                )
                
                
                -
                
                
                
                (18,763
                )
 
 As
      reported previously
                
                
                Adjustment
                
                
                As
      restatedCondensed
      Consolidated Statement of Operations (for the nine months ended September
      30, 2007)Net
      revenues
                
                
                539,032
                
                
                
                -
                
                
                
                539,032Corporate
      operating costs
                
                
                30,087
                
                
                
                12,526
                
                
                
                42,613Operating
      income
                
                
                120,785
                
                
                
                (12,526
                )
                
                
                108,259Other
      income / (expense)
                
                
                (13,272
                )
                
                
                12,526
                
                
                
                (746
                )Net
      income
                
                
                15,577
                
                
                
                -
                
                
                
                15,577


3.  ACQUISITIONS AND
DISPOSALS





Romania





Acquisition of additional interest –
Sport.ro





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





On
February 20, 2007, we acquired control of Sport.ro by acquiring an additional
50.0% interest from Nolsom Limited for cash consideration of EUR 4.2 million
(approximately US$ 5.3 million).  We acquired the remaining 30.0% of
Sport.ro, also from Nolsom Limited, on March 15, 2007 for cash consideration of
EUR 2.5 million (approximately US$ 3.1 million).




Page
14
 Index


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




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





Fair Value on
              AcquisitionProperty,
      plant and equipment
            
            $
            35Intangible
      assets subject to amortization (1)
            
            
            4,784Intangible
      assets not subject to amortization (2)
            
            
            8,974Other
      assets
            
            
            2,904Goodwill
            
            
            2,311Deferred
      tax liability
            
            
            (1,575
            )Other
      liabilities
            
            
            (6,398
            )Total purchase
      price
            
            $
            11,035





(1) The
intangible assets subject to amortization comprise customer relationships, which
are being amortized over one to twenty years (weighted average: 15.5 years) and
trademarks, which are being amortized over two years.





(2)
Intangible assets not subject to amortization represent television broadcast
licenses.





Acquisition of additional interest
–Media Vision, MPI and Pro TV





On May
16, 2007, we acquired an additional 20.0% of Media Vision and subsequently on
June 1, 2007 we acquired an additional 5.0% of Pro TV and MPI from companies
owned by, or individuals associated with, Adrian Sarbu, for aggregate
consideration of US$ 51.6 million including acquisition costs. We now own 95.0%
voting and economic interests in Pro TV, MPI and Media Vision.  We
performed a fair value exercise to allocate the purchase price to the acquired
assets and liabilities, and identified separately identifiable
assets.  The following table summarizes the fair values of the assets
acquired and liabilities assumed at the date of acquisition:






Fair Value on
              AcquisitionIntangible
      assets subject to amortization (1)
            
            $
            4,517Intangible
      assets not subject to amortization (2)
            
            
            23,597Goodwill
            
            
            23,974Deferred
      tax liability
            
            
            (4,498
            )Minority
      interests
            
            
            4,029Total purchase
      price
            
            $
            51,619





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





(2)
Intangible assets not subject to amortization comprise approximately US$ 9.2
million in trademarks and US$ 14.4 million relating to television broadcast
licenses.




Page
15
 Index




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




Mr. Sarbu
has the right to sell the remaining shareholding in Pro TV and
MPI  that he holds personally 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.  Mr. Sarbu’s right to put his remaining shareholding to us 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
to him our shareholding in Media Pro. As at September 30, 2007, we consider the
fair value of Mr. Sarbu’s put option to be approximately US$ nil.






Slovak Republic





Acquisition – Media
Invest





On July
13, 2007 we purchased 100% of Media Invest from Jan Kovacik for cash
consideration of SKK 1.9 billion (approximately US$ 78.5 million). Media Invest
owns a 20.0% voting and economic interest in Markiza. Following this
acquisition, we now have a 100.0% voting and economic interest in
Markiza.





We
performed a preliminary fair value exercise to allocate the purchase price to
the acquired assets and liabilities, and identified separately identifiable
assets as at July 13, 2007 which is complete subject to the completion of
detailed analysis of potential tax liabilities in Media Invest.  The
following table summarizes the fair values of the assets acquired and
liabilities assumed at the date of acquisition:




CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





Fair Value on
              AcquisitionProperty
      Plant and Equipment
            
            
            2,590Intangible
      assets subject to amortization (1)
            
            
            46,906Intangible
      assets not subject to amortization (2)
            
            
            2,405Goodwill
      (3)
            
            
            26,334Deferred
      tax liability
            
            
            (9,860
            )Minority
      interest
            
            
            10,268Total purchase price
      (4)
            
            $
            78,643





(1) The
intangible assets subject to amortization comprises US$ 8.7 million relating to
television broadcasting licenses which are being amortized over 13 years
and  US$ 37.9 million in  customer relationships, which are
being amortized over one to fourteen years (weighted average: 13.8
years).





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





(3) No
goodwill is expected to be deductible for tax purposes.





(4) Total
purchase price includes US$ 0.1 million of capitalized acquisition
costs.








Croatia





Acquisition- Internet
Dnevnik





On June
6, 2007, we purchased 76.0% of Internet Dnevnik d.o.o from Zeljko Anderlon and
Dario Markus for cash consideration of EUR 0.5 million (US$ 0.7 million).
Internet Dnevnik d.o.o operates the largest blogging website in Croatia,
Blog.hr.




Ukraine (KINO,
CITI)




Page
16
 Index




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




Acquisition- Tor and
Zhysa





On June
21, 2007, we completed the acquisition of a 60.4% interest in each of Tor and
Zhysa from Dertus Finance Group Limited for total consideration of US$ 3.1
million including acquisition costs. Zhysa and Tor are regional broadcasters in
Ukraine.





We have
completed a preliminary fair value exercise to allocate the purchase price to
the acquired assets and liabilities and have allocated US $ 0.3 million to
broadcast licenses and US $ 3.0 million to goodwill. Professional estimates of
the fair value of land and buildings are still outstanding and the value of
goodwill may be adjusted in future periods to reflect this.




4.  GOODWILL AND INTANGIBLE
ASSETS





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





Goodwill:





Goodwill
by operating segment as at September 30, 2007 and December 31, 2006 is
summarized as follows:





Balance
              December
              31, 2006
            
            
            Additions
            
            
            Foreign
              currency
              movement
            
            
            Balance
              September
              30, 2007Croatia
            
            $
            -
            
            
            $
            712
            
            
            $
            40
            
            
            $
            752Czech
      Republic
            
            
            823,786
            
            
            
            -
            
            
            
            59,398
            
            
            
            883,184Romania
            
            
            31,130
            
            
            
            26,285
            
            
            
            -
            
            
            
            57,415Slovak
      Republic
            
            
            25,483
            
            
            
            26,335
            
            
            
            2,928
            
            
            
            54,746Slovenia
            
            
            16,458
            
            
            
            -
            
            
            
            1,257
            
            
            
            17,715Ukraine
      (STUDIO 1+1)
            
            
            4,096
            
            
            
            -
            
            
            
            -
            
            
            
            4,096Ukraine
      (KINO, CITI)
            
            
            4,627
            
            
            
            3,009
            
            
            
            -
            
            
            
            7,636Total
            
            $
            905,580
            
            
            $
            56,341
            
            
            $
            63,623
            
            
            $
            1,025,544








Broadcast
licenses:





The net
book value of our broadcast licenses as at September 30, 2007 and December 31,
2006 is summarized as follows:





Indefinite-Lived
              Broadcast
              Licenses
            
            
            Amortized
              Broadcast
              Licenses
            
            
            TotalBalance, December 31,
      2006
            
            $
            26,344
            
            
            $
            172,386
            
            
            $
            198,730Additions
            
            
            23,321
            
            
            
            8,974
            
            
            
            32,295Amortization
            
            
            -
            
            
            
            (12,982
            )
            
            
            (12,982
            )Foreign
      currency movements
            
            
            705
            
            
            
            11,476
            
            
            
            12,181Balance, September 30,
      2007
            
            $
            50,370
            
            
            $
            179,854
            
            
            $
            230,224




Page
17
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





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.  Our licenses in Ukraine have economic useful lives of, and
are amortized on a straight-line basis over, between two and ten years. Our
license in the Czech Republic has an economic useful life of, and is
amortized on a straight-line basis over, twelve years.  Our license in
the Slovak Republic has an economic useful life of, and is amortized on a
straight-line basis over thirteen years.




The gross
value and accumulated amortization of amortized broadcast licenses was as
follows at September 30, 2007 and December 31, 2006:





September 30,
              2007
            
            
            December 31,
              2006Gross
      value
            
            $
            225,336
            
            
            $
            201,994Accumulated
      amortization
            
            
            (45,482
            )
            
            
            (29,608
            )Total net book
      value
            
            $
            179,854
            
            
            $
            172,386





Other intangible
assets:





The net
book value of our other intangible assets as at September 30, 2007 and December
31, 2006 is summarized as follows:





Trademarks
            
            
            Customer
              Relationships
            
            
            Other
            
            
            TotalBalance, December 31,
      2006
            
            $
            44,026
            
            
            $
            27,213
            
            
            $
            703
            
            
            $
            71,942Additions
            
            
            12,192
            
            
            
            46,554
            
            
            
            425
            
            
            
            59,171Amortization
            
            
            (186
            )
            
            
            (3,363
            )
            
            
            (391
            )
            
            
            (3,940
            )Foreign
      currency movements
            
            
            2,010
            
            
            
            1,938
            
            
            
            49
            
            
            
            3,997Balance, September 30,
      2007
            
            $
            58,042
            
            
            $
            72,342
            
            
            $
            786
            
            
            $
            131,170








Customer
relationships are deemed to have an economic useful life of, and are amortized
on a straight-line basis over, one to fourteen years.  Other than the
trademark acquired with Sport.ro, which has an economic life of, and is being
amortized on a straight line basis over, two years, trademarks have an
indefinite life.





The gross
value and accumulated amortization of other intangible assets was as follows at
September 30, 2007 and December 31, 2006:





September 30,
              2007
            
            
            December 31,
              2006Gross
      value
            
            $
            140,429
            
            
            $
            76,695Accumulated
      amortization
            
            
            (9,259
            )
            
            
            (4,753
            )Total net book
      value
            
            $
            131,170
            
            
            $
            71,942





Page
18
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





5.  SENIOR
NOTES





Our
Senior Notes consist of the following:





Carrying
      Value
            
            
            Fair
    ValueSeptember 30,
              2007
            
            
            December 31,
              2006
            
            
            September 30,
              2007
            
            
            December 31,
              2006EUR
      245.0 million 8.25% Senior Notes
            
            $
            347,370
            
            
            $
            322,666
            
            
            $
            363,002
            
            
            $
            353,722EUR
      125.0 million Floating Rate Senior Notes
            
            
            -
            
            
            
            164,625
            
            
            
            -
            
            
            
            170,181EUR
      150.0 million Floating Rate Senior Notes
            
            
            212,675
            
            
            
            -
            
            
            
            202,042
            
            
            
            -$
            560,045
            
            
            $
            487,291
            
            
            $
            565,044
            
            
            $
            523,903





On May 5,
2005, we issued senior notes in the aggregate principal amount of EUR 370.0
million consisting of EUR 245.0 million of 8.25% senior notes due May 2012 (the
“Fixed Rate Notes”) and EUR 125.0 million of floating rate senior notes due May
2012 (the “2012 Floating Rate Notes”), which bore interest at six-month Euro
Inter-Bank Offered Rate (“EURIBOR”) plus 5.50%.





On May
15, 2007 we redeemed the 2012 Floating Rate Notes. Upon redemption we recorded a
loss of US$ 6.9 million within interest expense comprising US$ 3.4 million of
redemption premium and US$ 3.5 million to write off unamortized debt
costs.





On May
16, 2007 we issued floating rate senior notes due May 2014 (the “2014 Floating
Rate Notes”, and collectively with the Fixed Rate Notes, the “Senior Notes”) in
the aggregate principal amount of EUR 150.0 million, which bear interest at
six-month EURIBOR plus 1.625% (5.80% was applicable at September 30,
2007).





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 September 30, 2007
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 indebtedness restrict the manner in which
our business is conducted, including the incurrence of additional indebtedness,
the making of investments, the payment of dividends or the making of other
distributions, entering into certain affiliate transactions and the sale of
assets.





In the
event that (A) there is a change in control by which (i) any party other than
our present shareholders becomes the beneficial owner of more than 35.0% of our
total voting power; (ii) we agree to sell substantially all of our operating
assets; or (iii) there is a change in the composition of a majority of our Board
of Directors; and (B) on the 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
19
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





The 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%





At any
time prior to May 15, 2008, we may redeem up to 35.0% of the Fixed Rate Notes
with the proceeds of any public equity offering at a price of 108.250% of the
principal amount of such notes, plus accrued and unpaid interest, if any, to the
redemption date.





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





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





2014 Floating Rate
Notes





Interest
is payable semi-annually in arrears on each May 15 and November
15.  The fair value of the 2014 Floating Rate Notes as at September
30, 2007 was calculated by multiplying the outstanding debt by the traded market
price.





The 2014
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 indebtedness restrict the manner
in which our business is conducted, including the incurrence of additional
indebtedness, the making of investments, the payment of dividends or the making
of other distributions, entering into certain affiliate transactions and the
sale of assets.





In the
event that (A) there is a change in control by which (i) any party other than
our present shareholders becomes the beneficial owner of more than 35.0% of our
total voting power; (ii) we agree to sell substantially all of our operating
assets; or (iii) there is a change in the composition of a majority of our Board
of Directors; and (B) on the 60thday following
any such change of control the rating of the 2014 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 2014 Floating Rate
Notes at a purchase price in cash equal to 101.0% of the principal amount of the
2014 Floating Rate Notes plus accrued and unpaid interest to the date of
purchase.





The 2014
Floating Rate Notes are redeemable at our option, in whole or in part, at the
redemption prices set forth below:





Page
20
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





From:
            2014 Floating Rate
      Notes
              Redemption
      PriceNovember
      15, 2007 to May 14, 2008
            102.000%May
      15, 2008 to May 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
2014 Floating Rate Notes; but as they are considered clearly and closely related
to those notes, they are not accounted for separately.








6.  RESTRICTED
CASH





Restricted
cash consists of the following at September 30, 2007 and December 31,
2006:





September 30,
              2007
            
            
            December 31,
              2006Croatia
            
            $
            417
            
            
            $
            4,183Slovenia
            
            
            780
            
            
            
            724Ukraine
      (STUDIO 1+1)
            
            
            49
            
            
            
            47Total restricted
      cash
            
            $
            1,246
            
            
            $
            4,954





Restricted
cash held in escrow in Croatia was paid out to the former owners of our Croatia
operations on May 11, 2007.





Page
21
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





7.  ACCOUNTS
RECEIVABLE





Accounts
receivable consist of the following at September 30, 2007 and December 31,
2006:


September 30,
              2007
            
            
            December 31,
              2006Trading:Third-party
      customers
            
            $
            158,020
            
            
            $
            156,701Less:
      allowance for bad debts and credit notes
            
            
            (13,860
            )
            
            
            (11,472
            )Related
      parties
            
            
            5,522
            
            
            
            7,655Less:
      allowance for bad debts and credit notes
            
            
            (266
            )
            
            
            (798
            )Total
      trading
            
            $
            149,416
            
            
            $
            152,086Other:Third-party
      customers
            
            $
            240
            
            
            $
            359Less:
      allowance for bad debts and credit notes
            
            
            (116
            )
            
            
            (103
            )Related
      parties
            
            
            61
            
            
            
            454Less:
      allowance for bad debts and credit notes
            
            
            (61
            )
            
            
            (291
            )Total
    other
            
            $
            124
            
            
            $
            419Total accounts
      receivable
            
            $
            149,540
            
            
            $
            152,505




At
September 30, 2007, CZK 294 million (approximately US$ 15.1 million) (December
31, 2006: CZK 600.0 million, approximately US$ 30.8 million) of receivables in
the Czech Republic were pledged as collateral subject to a factoring agreement
(see Note 11).





8.  OTHER
ASSETS





Other
current and non-current assets consist of the following at September 30, 2007
and December 31, 2006:




September 30,
              2007
            
            
            December 31,
              2006Current:Prepaid
      programming
            
            $
            40,832
            
            
            $
            23,072Other
      prepaid expenses
            
            
            14,737
            
            
            
            13,177Deferred
      tax
            
            
            1,966
            
            
            
            2,124VAT
      recoverable
            
            
            3,600
            
            
            
            2,562Loan
      to related party
            
            
            600
            
            
            
            600Capitalized
      debt costs
            
            
            3,077
            
            
            
            2,908Other
            
            
            5,476
            
            
            
            3,112Total other current
      assets
            
            $
            70,288
            
            
            $
            47,555Non-current:Capitalized
      debt costs
            
            $
            11,023
            
            
            $
            11,264Loan
      to related party
            
            
            1,334
            
            
            
            1,603Deferred
      tax
            
            
            4,557
            
            
            
            3,443Other
            
            
            2,506
            
            
            
            1,165Total other non-current
      assets
            
            $
            19,420
            
            
            $
            17,475





Page
22
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





Capitalized
debt costs primarily comprise the costs incurred in connection with the issuance
of our Senior Notes in May 2005 and May 2007 (see Note 5) and are being
amortized over the terms of the Senior Notes.





9.  PROPERTY, PLANT AND
EQUIPMENT





Property,
plant and equipment consists of the following at September 30, 2007 and December
31, 2006:





September 30,
              2007
            
            
            December 31,
              2006Land
      and buildings
            
            $
            74,753
            
            
            $
            56,212Station
      machinery, fixtures and equipment
            
            
            140,644
            
            
            
            115,238Other
      equipment
            
            
            28,580
            
            
            
            21,980Software
      licenses
            
            
            18,581
            
            
            
            15,495Construction
      in progress
            
            
            19,487
            
            
            
            4,070Total
    cost
            
            
            282,045
            
            
            
            212,995Less:  Accumulated
      depreciation
            
            
            (127,049
            )
            
            
            (97,190
            )Total net book
      value
            
            $
            154,996
            
            
            $
            115,805Assets held under capital
      leases (included above)Land
      and buildings
            
            $
            5,965
            
            
            $
            5,541Station
      machinery, fixtures and equipment
            
            
            1,344
            
            
            
            2,330Total
    cost
            
            
            7,309
            
            
            
            7,871Less:
      Accumulated depreciation
            
            
            (1,698
            )
            
            
            (1,877
            )Net book
      value
            
            $
            5,611
            
            
            $
            5,994





10.  ACCOUNTS PAYABLE AND
ACCRUED LIABILITIES





Accounts
payable and accrued liabilities consist of the following at September 30, 2007
and December 31, 2006:




September 30,
              2007
            
            
            December 31,
              2006Accounts
      payable
            
            $
            24,155
            
            
            $
            47,447Programming
      liabilities
            
            
            40,111
            
            
            
            32,316Accrued
      interest payable
            
            
            15,902
            
            
            
            5,375Deferred
      income
            
            
            26,368
            
            
            
            3,212Accrued
      staff costs
            
            
            21,950
            
            
            
            12,947Accrued
      production costs
            
            
            5,385
            
            
            
            7,435Accrued
      legal costs
            
            
            15,769
            
            
            
            3,619Accrued
      rent costs
            
            
            1,184
            
            
            
            1,163Authors’
      rights
            
            
            4,767
            
            
            
            943Onerous
      contracts
            
            
            1,804
            
            
            
            -Other
      accrued liabilities
            
            
            12,229
            
            
            
            5,260Total accounts payable and
      accrued liabilities
            
            $
            169,624
            
            
            $
            119,717





Page
23
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





11.  CREDIT FACILITIES AND
OBLIGATIONS UNDER CAPITAL LEASES





Group
loan obligations and overdraft facilities consist of the following at September
30, 2007 and December 31, 2006:




September 30,
              2007
            
            
            December 31,
              2006Credit
      facilities:Corporate
            (a)
            
            $
            -
            
            
            $
            -Croatia
            (b)
            
            
            -
            
            
            
            847Czech
      Republic
            (c)
      – (e)
            
            
            12,839
            
            
            
            11,975Romania
            (f)
            
            
            -
            
            
            
            -Slovenia
            (g)
            
            
            -
            
            
            
            -Ukraine
      (KINO, CITI)
            (h)
            
            
            1,700
            
            
            
            1,703Total credit
      facilities
            
            
            $
            14,539
            
            
            $
            14,525Capital
      leases:Croatia
      operations, net of interest
            
            
            $
            -
            
            
            $
            19Romania
      operations, net of interest
            
            
            
            300
            
            
            
            495Slovak
      Republic operations, net of interest
            
            
            
            96
            
            
            
            154Slovenia
      operations, net of interest
            
            
            
            4,322
            
            
            
            4,223Total capital
      leases
            
            
            $
            4,718
            
            
            $
            4,891Total credit facilities and
      capital leases
            
            
            $
            19,257
            
            
            $
            19,416Less
      current maturities
            
            
            
            (13,371
            )
            
            
            (13,057
            )Total non-current
      maturities
            
            
            $
            5,886
            
            
            $
            6,359





Corporate





(a) On
July 21, 2006, we entered into a five-year revolving loan agreement for EUR
100.0 million (approximately US$ 141.8 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$ 70.9 million) also 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 participating in the EBRD Loan for EUR 75.0
million in the aggregate.





We also
entered into a supplemental agreement with EBRD on August 22, 2007 to amend the
interest rate payable on the EUR 100.0 million facility, as a result of
which  the EBRD Loan bears interest at a rate of three-month EURIBOR
plus 1.625% on the drawn amount.  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.





Covenants
contained in the EBRD Loan are similar to those contained in our Senior Notes
(see below and Note 5).  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.





Page
24
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





There
were no drawings under this facility as at December 31, 2006 or September 30,
2007.





Croatia





(b) On
March 28, 2007, we repaid EUR 0.6 million (approximately US$ 0.9 million) which
was the total amount outstanding to our Croatia operations under two loan
agreements with Hypo Alpe-Adria Bank d.d. Following repayment of this loan, the
security held by the bank was released.





Czech Republic





(c) As at
September 30, 2007, there were no drawings by CET 21 under a four-year credit
facility of CZK 1.2 billion (approximately US$ 61.6 million) available until
October 31, 2009 with CS.  This facility may, at the option of CET 21,
be drawn in CZK, US$ or EUR and bears interest at the three-month, six-month or
twelve-month London Inter-Bank Offered Rate (“LIBOR”), EURIBOR or Prague
Inter-Bank Offered Rate (“PRIBOR”) rate plus 1.95%.  This facility is
secured by a pledge of receivables, which are also subject to a factoring
arrangement with Factoring Ceska Sporitelna, a.s., a subsidiary of CS. On July
10, 2007, CZK 860.0 million (approximately US$ 44.2 million) was drawn down
under this facility, of which CZK 260.0 million (approximately US$ 13.4 million)
was repaid on July 31, 2007, and CZK 600.0 million (approximately US$ 30.8
million) was repaid on September 14, 2007.





(d) CZK
250.0 million (approximately US$ 12.8 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 April 30, 2008 and bearing interest at the three-month PRIBOR
plus 1.65% (three-month PRIBOR relevant to drawings under this facility at
September 30, 2007 was 3.5%, and was outstanding at December 31, 2006 and
September 30, 2007. This facility is secured by a pledge of receivables, which
are also subject to a factoring arrangement with Factoring Ceska Sporitelna,
a.s.





(e) As at
September 30, 2007, there were no drawings under a CZK 300.0 million
(approximately US$ 15.4 million) factoring facility with Factoring Ceska
Sporitelna, a.s. available until March 31, 2010.  The facility bears
interest at one-month PRIBOR plus 1.40% for the period that actively assigned
accounts receivable are outstanding.





Romania





(f) The
interest-free loan provided by one of the founding shareholders of Sport.ro was
repaid on August 31, 2007.





Slovenia





(g) On
July 29, 2005, Pro Plus entered into a revolving facility agreement for up to
EUR 37.5 million (approximately US$ 53.2 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 will 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.  As at September 30, 2007, EUR
30.0 million (approximately US$ 42.5 million) was available for drawing under
this revolving facility and there were no drawings outstanding.





Page
25
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





Ukraine (KINO,
CITI)





(h) Our
Ukraine (KINO, CITI) operations have entered into a number of three-year
unsecured loans with Glavred-Media, LLC, the minority shareholder in
Ukrpromtorg.  As at September 30, 2007, the total value of loans drawn
was US$ 1.7 million.  The loans are repayable between August 2009 and
December 2009 and bear interest at 9.0%.





Total Group





At
September 30, 2007, the maturity of our debt (including our Senior Notes) is as
follows:





2007
            
            $
            12,8392008
            
            
            -2009
            
            
            1,7002010
            
            
            -2011
            
            
            -2012
      and thereafter
            
            
            560,045Total
            
            $
            574,584





Capital Lease
Commitments





We lease
certain of our office and broadcast facilities as well as machinery and
equipment under various leasing arrangements.  The future minimum
lease payments from continuing operations, by year and in the aggregate, under
capital leases with initial or remaining non-cancelable lease terms in excess of
one year, consisted of the following at September 30, 2007:





2007
            
            $
            6792008
            
            
            1,0932009
            
            
            6792010
            
            
            4712011
            
            
            9492012
      and thereafter
            
            
            2,967$
            6,838Less:
      amount representing interest
            
            
            (2,120
            )Present value of net minimum
      lease payments
            
            $
            4,718








12.  FINANCIAL
INSTRUMENTS





On April
27, 2006, we entered into currency swap agreements with two counterparties
whereby we swapped a fixed annual coupon interest rate (of 9.0%) on notional
principal of CZK 10.7 billion (approximately US$ 549.5 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$ 533.0 million) receivable on July 15,
October 15, January 15, and April 15, to the termination date of April 15,
2012.





The fair
value of these financial instruments as at September 30, 2007 was a US$ 9.0
million liability, an increase of US$ 8.5 million from the liability as at June
30, 2007.





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). They are
financial instruments that are used to minimize currency risk and are considered
an economic hedge of foreign exchange rates.  These instruments have
not been designated as hedging instruments as defined under FASB Statement No.
133, “Accounting for Derivative Instruments and Hedging Activities”, 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.





Page
26
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





13.  SHAREHOLDERS’
EQUITY





Preferred Stock





5,000,000
shares of Preferred Stock, with a $0.08 par value, were authorized as at
September 30, 2007 and December 31, 2006.  None were issued and
outstanding as at September 30, 2007 and December 31, 2006.





Class A and B Common
Stock





100,000,000
shares of Class A Common Stock and 15,000,000 shares of Class B Common Stock
were authorized as at September 30, 2007 and December 31, 2006.  The
rights of the holders of Class A Common Stock and Class B Common Stock are
identical except for voting rights.  The shares of Class A Common
Stock are entitled to one vote per share and the shares of Class B Common Stock
are entitled to ten votes per share.  Class B Common Stock is
convertible into Class A Common Stock for no additional consideration on a
one-for-one basis.  Holders of each class of shares are entitled to
receive dividends and upon liquidation or dissolution are entitled to receive
all assets available for distribution to shareholders.  The holders of
each class have no preemptive or other subscription rights and there are no
redemption or sinking fund provisions with respect to such shares.








14.  STOCK-BASED
COMPENSATION





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





For the Three
      Months
              Ended September
      30,
            
            
            For the Nine
      Months
              Ended September
      30,2007
            
            
            2006
            
            
            2007
            
            
            2006Stock-based
      compensation charged under SFAS 123(R)
            
            $
            1,494
            
            
            $
            967
            
            
            $
            4,098
            
            
            $
            2,385





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.





2007 Option
Grants





Pursuant
to the Amended and Restated 1995 Stock Incentive Plan, the Compensation
Committee of our Board of Directors awarded grants of options to executives to
purchase 12,500 shares of our Class A Common Stock, with a vesting period of
four years and a contractual life of ten years, on April 2, 2007.





Pursuant
to the Amended and Restated 1995 Stock Incentive Plan, the Compensation
Committee of our Board of Directors awarded grants of options to non-executive
directors to purchase an aggregate of 35,000 shares of our Class A Common Stock
and 5,000 shares of our Class B Common Stock with a vesting period of one year
and a contractual life of five years on June 5, 2007.





Page
27
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





The
exercise price of the granted options ranges from US$ 87.91 to US$ 94.28 per
share.  The fair value of the option grants was estimated on the date
of the grant using the Black-Scholes option-pricing model, with the following
assumptions used:





Date of Option
      Grant
            
            Number of Options
              Granted
            
            
            Risk-free interest rate
              (%)
            
            
            Expected term
              (years)
            
            
            Expected
      volatility
              (%)
            
            
            Dividend
      yield
              (%)
            
            
            Weighted-average fair
      value
              ($/share)April
      2, 2007
            
            
            12,500
            
            
            
            4.57
            %
            
            
            6.25
            
            
            
            41.29
            %
            
            
            0
            %
            
            $
            42.25June
      5, 2007 (Class A)
            
            
            35,000
            
            
            
            4.92
            %
            
            
            3.00
            
            
            
            32.38
            %
            
            
            0
            %
            
            $
            25.19June
      5, 2007 (Class B)
            
            
            5,000
            
            
            
            4.92
            %
            
            
            3.00
            
            
            
            32.38
            %
            
            
            0
            %
            
            $
            23.35





The
expected stock price volatility was calculated based on an analysis of the
historical stock price volatility of our shares and shares of our peers for the
preceding 6.25 or 3.00-year period.  We consider this basis to
represent the best indicator of expected volatility over the life of the
option.  The expected dividend yield for these grants was assumed to
be 0%.  The weighted average fair value of all the grants made in the
nine months ended September 30, 2007 was US$ 29.08 per option.  In
accordance with SFAS 123(R), the fair value of the option grants made in the
nine months ended September 30, 2007 less expected forfeitures of US$ 1.5
million is being recognized as an expense in the consolidated statement of
operations over the requisite service period of the award.





A summary
of option activity for the nine months ended September 30, 2007 is presented
below:





Shares
            
            
            Weighted Average Exercise Price
      per Share
            
            
            Weighted Average Remaining
      Contractual Term (years)
            
            
            Aggregate Intrinsic
      ValueOutstanding
      at December 31, 2006
            
            
            1,288,575
            
            
            $
            35.51
            
            
            
            7.45
            
            
            $
            44,443Granted
            
            
            52,500
            
            
            
            89.77Exercised
            
            
            (274,583
            )
            
            
            12.66Forfeited
            
            
            (21,625
            )
            
            
            50.85Expired
            
            
            (20,000
            )
            
            
            23.00Outstanding at September 30,
      2007
            
            
            1,024,867
            
            
            $
            44.33
            
            
            
            7.06
            
            
            $
            48,569Vested
      or expected to vest at September 30, 2007
            
            
            954,951
            
            
            
            43.63
            
            
            
            9.38
            
            
            
            45,914Exercisable at September 30,
      2007
            
            
            440,325
            
            
            $
            24.68
            
            
            
            6.56
            
            
            $
            27,102





The
exercise of stock options is expected to generate a net operating loss
carryforward in our Delaware subsidiary of US$ 12.2 million. No tax benefit has
been recognized in respect of this loss, which will be recorded as an addition
to additional paid-in capital when it reduces income tax payable.





The
aggregate intrinsic value (the difference between the stock price on the last
day of trading of the third quarter of 2007 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 all option holders exercised
their options as of September 30, 2007.  This amount changes based on
the fair value of our Common Stock.  The total intrinsic value of
options exercised during the nine months ended September 30, 2007 and 2006,
respectively, was US$ 19.2 million and US$ 8.4 million,
respectively.  As of September 30, 2007, there was US$ 12.0 million of
total unrecognized compensation expense related to options.  The
expense is expected to be recognized over a weighted average period of 1.5
years.  Proceeds received from the exercise of stock options was US$
3.5 million and US$ 3.6 million for the nine months ended September 30, 2007 and
2006, respectively.





Page
28
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





15.  EARNINGS PER
SHARE





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





For the Three
      Months
              Ended September
      30,
            
            
            For the Nine
      Months
              Ended September
      30,2007
            
            
            2006
            
            
            2007
            
            
            2006Net income / (loss) available
      for common shareholders
            
            $
            (18,763
            )
            
            $
            3,934
            
            
            $
            15,577
            
            
            $
            (5,808
            )Weighted average outstanding
      shares of common stock (000’s)
            
            
            41,489
            
            
            
            40,651
            
            
            
            41,077
            
            
            
            39,792Dilutive
      effect of employee stock options (000’s)
            
            
            -
            
            
            
            537
            
            
            
            476
            
            
            
            -Common stock and common stock
      equivalents (000’s)
            
            
            41,489
            
            
            
            41,188
            
            
            
            41,553
            
            
            
            39,792Net income / (loss) per
      share:Basic
            
            $
            (0.45
            )
            
            $
            0.09
            
            
            $
            0.38
            
            
            $
            (0.14
            )Diluted
            
            $
            (0.45
            )
            
            $
            0.09
            
            
            $
            0.37
            
            
            $
            (0.14
            )





At
September 30, 2007, 228,500 (2006: 407,000) 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.








16.  SEGMENT
DATA





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





We
evaluate the performance of our business segments based on Segment Net Revenues
and Segment EBITDA.  Segment Net Revenues and Segment EBITDA include
our operations in the Slovak Republic which were not consolidated prior to
January 23, 2006.





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





Segment
EBITDA is determined as segment net income / (loss), which includes program
rights amortization costs, before interest, taxes, depreciation and amortization
of intangible assets.  Items that are not allocated to our business
segments for purposes of evaluating their performance and therefore are not
included in Segment EBITDA, include:





·
            expenses
      presented as corporate operating costs in our consolidated statements of
      operations and comprehensive
income;


·
            stock-based
      compensation charges;


·
            foreign
      currency exchange gains and losses;


·
            changes
      in fair value of derivatives; and


·
            certain
      unusual or infrequent items (e.g., extraordinary gains and losses,
      impairments on assets or
investments).





Page
29
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





Below are
tables showing our Segment Net Revenues, Segment EBITDA, segment depreciation
and segment asset information by operation, including a reconciliation of these
amounts to our consolidated results for the three and nine months ended
September 30, 2007 and 2006 for condensed consolidated statement of operations
data and as at September 30, 2007 and December 31, 2006 for condensed
consolidated balance sheet data:






For
      the Three Months Ended September 30,Segment
      Net Revenues (1)
              
              
              Segment
      EBITDA2007
              
              
              2006
              
              
              2007
              
              
              2006Country:Croatia
      (NOVA TV)
              
              $
              7,055
              
              
              $
              4,288
              
              
              $
              (2,981
              )
              
              $
              (4,558
              )Czech
      Republic (TV NOVA, GALAXIE SPORT)
              
              
              51,140
              
              
              
              40,141
              
              
              
              25,989
              
              
              
              17,234Romania
      (2)
              
              
              44,412
              
              
              
              29,298
              
              
              
              19,486
              
              
              
              11,719Slovak
      Republic (MARKIZA TV)
              
              
              20,286
              
              
              
              13,895
              
              
              
              5,544
              
              
              
              2,408Slovenia
      (POP TV, KANAL A)
              
              
              11,545
              
              
              
              9,101
              
              
              
              854
              
              
              
              1,225Ukraine
      (STUDIO 1+1)
              
              
              39,582
              
              
              
              15,578
              
              
              
              16,599
              
              
              
              (838
              )Ukraine
      (KINO, CITI)
              
              
              816
              
              
              
              181
              
              
              
              (1,339
              )
              
              
              (1,182
              )Total
      segment data
              
              $
              174,836
              
              
              $
              112,482
              
              
              $
              64,152
              
              
              $
              26,008
  Reconciliation
to condensed consolidated statement of operations:
  Consolidated
      net revenues / (loss) / income before provision for income taxes, minority
      interest and discontinued operations
              
              $
              174,836
              
              
              $
              112,482
              
              
              $
              (14,121
              )
              
              $
              1,784Corporate
      operating costs
              
              
              -
              
              
              
              -
              
              
              
              20,396
              
              
              
              8,342Depreciation
      of station property, plant and equipment
              
              
              -
              
              
              
              -
              
              
              
              8,768
              
              
              
              6,080Amortization
      of broadcast licenses and other intangibles
              
              
              -
              
              
              
              -
              
              
              
              6,595
              
              
              
              5,015Interest
      income
              
              
              -
              
              
              
              -
              
              
              
              (1,180
              )
              
              
              (1,554
              )Interest
      expense
              
              
              -
              
              
              
              -
              
              
              
              11,883
              
              
              
              11,066Foreign
      currency exchange loss/(gain), net
              
              
              -
              
              
              
              -
              
              
              
              23,300
              
              
              
              (6,018
              )Change
      in fair value of derivatives
              
              
              -
              
              
              
              -
              
              
              
              8,555
              
              
              
              881Other
      income
              
              
              -
              
              
              
              -
              
              
              
              (44
              )
              
              
              412Total
      segment data
              
              $
              174,836
              
              
              $
              112,482
              
              
              $
              64,152
              
              
              $
              26,008




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


(2)
Romanian networks are PRO TV, PRO CINEMA, ACASA, PRO TV INTERNATIONAL and
SPORT.RO.


Page
30
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





For
      the Nine Months Ended September 30,Segment
      Net Revenues (1)
              
              
              Segment
      EBITDA2007
              
              
              2006
              
              
              2007
              
              
              2006Country:Croatia
      (NOVA TV)
              
              $
              24,701
              
              
              $
              13,745
              
              
              $
              (9,800
              )
              
              $
              (11,639
              )Czech
      Republic (TV NOVA, GALAXIE SPORT)
              
              
              183,203
              
              
              
              137,002
              
              
              
              99,251
              
              
              
              59,569Romania
      (2)
              
              
              135,978
              
              
              
              96,938
              
              
              
              57,152
              
              
              
              39,756Slovak
      Republic (MARKIZA TV)
              
              
              68,615
              
              
              
              45,147
              
              
              
              23,012
              
              
              
              9,258Slovenia
      (POP TV, KANAL A)
              
              
              44,309
              
              
              
              34,883
              
              
              
              12,243
              
              
              
              10,688Ukraine
      (STUDIO 1+1)
              
              
              80,358
              
              
              
              62,117
              
              
              
              14,794
              
              
              
              16,183Ukraine
      (KINO, CITI) (3)
              
              
              1,868
              
              
              
              754
              
              
              
              (5,511
              )
              
              
              (1,736
              )Total
      segment data
              
              $
              539,032
              
              
              $
              390,586
              
              
              $
              191,141
              
              
              $
              122,079





Reconciliation to condensed
consolidated statement of operations:




Consolidated
      net revenues / income before provision for income taxes, minority
      interest, equity in income of unconsolidated affiliates and discontinued
      operations
                
                $
                539,032
                
                
                $
                388,825
                
                
                $
                44,067
                
                
                $
                9,595Corporate
      operating costs
                
                
                -
                
                
                
                -
                
                
                
                42,613
                
                
                
                24,019Depreciation
      of station property, plant and equipment
                
                
                -
                
                
                
                -
                
                
                
                23,347
                
                
                
                17,841Amortization
      of broadcast licenses and other intangibles
                
                
                -
                
                
                
                -
                
                
                
                16,922
                
                
                
                13,967Impairment
      charge
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                748Unconsolidated
      equity affiliates (4)
                
                
                -
                
                
                
                1,761
                
                
                
                -
                
                
                
                (1,283
                )Interest
      income
                
                
                -
                
                
                
                -
                
                
                
                (4,326
                )
                
                
                (4,748
                )Interest
      expense
                
                
                -
                
                
                
                -
                
                
                
                42,717
                
                
                
                32,921Foreign
      currency exchange loss, net
                
                
                -
                
                
                
                -
                
                
                
                28,552
                
                
                
                25,469Change
      in fair value of derivatives
                
                
                -
                
                
                
                -
                
                
                
                (3,497
                )
                
                
                2,757Other
      expense
                
                
                -
                
                
                
                -
                
                
                
                746
                
                
                
                793Total
      segment data
                
                $
                539,032
                
                
                $
                390,586
                
                
                $
                191,141
                
                
                $
                122,079





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


(2)
Romanian networks are PRO TV, PRO CINEMA, ACASA, PRO TV INTERNATIONAL and
SPORT.RO.


(3) We
acquired our Ukraine (KINO, CITI) operations in January 2006.


(4) Our
Slovak Republic operations were accounted for as an equity affiliate until
January 23, 2006.





Page
31
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





For the Three
      Months
              Ended September
      30,
            
            
            For the Nine
      Months
              Ended September
      30,2007
            
            
            2006
            
            
            2007
            
            
            2006Depreciation of station
      property, plant and equipment and amortization of broadcast licenses and
      other intangibles:Croatia
            
            $
            918
            
            
            $
            793
            
            
            $
            2,650
            
            
            $
            2,224Czech
      Republic
            
            
            7,187
            
            
            
            5,957
            
            
            
            20,337
            
            
            
            17,365Romania
            
            
            2,703
            
            
            
            1,659
            
            
            
            6,630
            
            
            
            4,023Slovak
      Republic
            
            
            2,350
            
            
            
            791
            
            
            
            4,484
            
            
            
            3,139Slovenia
            
            
            1,212
            
            
            
            952
            
            
            
            3,308
            
            
            
            2,492Ukraine
      (STUDIO 1+1)
            
            
            792
            
            
            
            821
            
            
            
            2,336
            
            
            
            2,323Ukraine
      (KINO, CITI)
            
            
            201
            
            
            
            122
            
            
            
            524
            
            
            
            419Total
            
            $
            15,363
            
            
            $
            11,095
            
            
            $
            40,269
            
            
            $
            31,985





Reconciliation to condensed
consolidated statement of operations:




Unconsolidated
      equity affiliates
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (177
            )Total consolidated depreciation
      and amortization
            
            $
            15,363
            
            
            $
            11,095
            
            
            $
            40,269
            
            
            $
            31,808Represented
      as follows:Depreciation
      of station property, plant & equipment
            
            
            8,768
            
            
            
            6,080
            
            
            
            23,347
            
            
            
            17,841Amortization
      of broadcast licenses and other intangibles
            
            
            6,595
            
            
            
            5,015
            
            
            
            16,922
            
            
            
            13,967








Total assets
      (1):
            
            September 30,
              2007
            
            
            December 31,
              2006Croatia
            
            $
            35,640
            
            
            $
            30,394Czech
      Republic
            
            
            1,290,692
            
            
            
            1,200,894Romania
            
            
            301,132
            
            
            
            206,850Slovak
      Republic
            
            
            190,542
            
            
            
            86,872Slovenia
            
            
            79,168
            
            
            
            67,919Ukraine
      (STUDIO 1+1)
            
            
            89,442
            
            
            
            75,020Ukraine
      (KINO, CITI)
            
            
            18,481
            
            
            
            13,293Total segment
      assets
            
            $
            2,005,097
            
            
            $
            1,681,242Reconciliation to condensed
      consolidated balance sheets:Corporate
            
            
            162,440
            
            
            
            137,758Total
    assets
            
            $
            2,167,537
            
            
            $
            1,819,000





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





Page
32
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





Long-lived assets
      (1):
            
            September 30,
              2007
            
            
            December 31,
              2006Croatia
            
            $
            9,215
            
            
            $
            6,804Czech
      Republic
            
            
            51,440
            
            
            
            28,002Romania
            
            
            38,493
            
            
            
            32,312Slovak
      Republic
            
            
            24,699
            
            
            
            19,498Slovenia
            
            
            17,788
            
            
            
            15,595Ukraine
      (STUDIO 1+1)
            
            
            7,402
            
            
            
            7,965Ukraine
      (KINO, CITI)
            
            
            4,459
            
            
            
            3,674Total long-lived
      assets
            
            $
            153,496
            
            
            $
            113,850Reconciliation to condensed
      consolidated balance sheets:Corporate
            
            
            1,500
            
            
            
            1,955Total long-lived
      assets
            
            $
            154,996
            
            
            $
            115,805





(1)
Reflects property, plant and equipment.








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








17.  DISCONTINUED
OPERATIONS





For the Three
      Months
              Ended September
      30,
            
            
            For the Nine
      Months
              Ended September
      30,2007
            
            
            2006
            
            
            2007
            
            
            2006Tax
      on disposal of discontinued operations
            
            
            -
            
            
            
            (2,333
            )
            
            
            -
            
            
            
            (4,863
            )Net loss from discontinued
      operations
            
            $
            -
            
            
            $
            (2,333
            )
            
            $
            -
            
            
            $
            (4,863
            )





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
September 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 - 2008 and US$ 1.0 million for
2009.





We have
re-evaluated our forecasts of the amount of taxable income we expect to earn in
the Netherlands in the period to 2009.  As the tax payable on this
income is lower than the minimum amounts agreed with the Dutch tax authorities,
we have provided for the shortfall.  In our condensed consolidated
statement of operations, we recognized a charge of US$ nil (charge of US$ 2.3
million for the three months ended September 30, 2006), and a charge of US$ nil
(charge of US$ 4.9 million for the nine months ended September 30, 2006) through
discontinued operations for the three months and nine months ended September 30,
2007, respectively.





Page
33
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





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.  At this time there is no indication
that the Dutch tax authorities will issue such a decision.





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








18.  COMMITMENTS AND
CONTINGENCIES





Commitments





a) Station Programming Rights
Agreements





At
September 30, 2007 we had the following commitments in respect of future
programming, including contracts signed with license periods starting after the
balance sheet date:





September 30,
              2007Croatia
            
            $
            12,245Czech
      Republic
            
            
            46,697Romania
            
            
            36,489Slovak
      Republic
            
            
            10,497Slovenia
            
            
            4,221Ukraine
      (STUDIO 1+1)
            
            
            13,077Ukraine
      (KINO, CITI)
            
            
            192Total
            
            $
            123,418





Of the
amount shown in the table above, US$ 106.6 million is payable within one
year.





Page
34
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





b) Operating Lease
Commitments





For the
nine months ended September 30, 2007 and 2006 we incurred aggregate rent on all
facilities of US$ 8.7 million and US$ 7.0 million,
respectively.  Future minimum operating lease payments at September
30, 2007 for non-cancelable operating leases with remaining terms in excess of
one year (net of amounts to be recharged to third parties) are payable as
follows:





September 30,
              20072007
            
            $
            5932008
            
            
            2,0882009
            
            
            1,1592010
            
            
            9252011
            
            
            3942012
      and thereafter
            
            
            -Total
            
            $
            5,159





c) Acquisition of Minority
Shareholdings in Romania





Mr. Sarbu
has the right to sell to us the remaining shareholding in Pro TV and
MPI  that he holds personally 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 to us 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
to him our shareholding in Media Pro. As at September 30, 2007, we consider the
fair value of Mr. Sarbu’s put option to be approximately US$ nil.





d) Other





Dutch tax





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





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.  At this time there is no indication
that the Dutch tax authorities will issue such a decision.





As at
September 30, 2007, we provided US$ 3.3 million (US$ 1.5 million in non-current
liabilities and US$ 1.8 million in current liabilities) and as at December 31,
2006, we provided US$ 5.5 million (US$ 3.0 million in non-current liabilities
and US$ 2.5 million in current liabilities) 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
35
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





Czech Republic - Factoring of Trade
Receivables





CET 21
has a working capital credit facility of CZK 250 million (approximately US$ 12.8
million) with CS. This facility is secured by a pledge of receivables under the
factoring agreement with Factoring Ceska Sporitelna a.s.





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 those claims discussed below, we are
not presently a party to any such litigation, which could reasonably be expected
to have a material adverse effect on our business or
operations.  Unless otherwise disclosed, no provision has been made
against any potential losses that could arise.





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





Croatia





Global Communications
Disputes





On
October 29, 2004, Operativna Kompanija d.o.o. (“OK”), our former operating
company in Croatia, filed suit against Global Communications d.o.o. (“Global
Communications”) claiming approximately HRK 53.0 million (approximately US$ 10.3
million) in damages.  Global Communications is a company controlled by
Ivan Caleta, who had previously operated Nova TV (Croatia) through
OK.  Global Communications, together with GRP Media d.o.o., another
company controlled by Mr. Caleta, had provided certain goods and services to OK
and Nova TV (Croatia) in exchange for advertising time pursuant to an agreement
dated April 10, 2001 (the “Global Agreement”).  Global Communications
and GRP Media were functionally managing the advertising inventory of Nova TV
(Croatia).  On December 31, 2003, Global Communications entered into a
reconciliation agreement by which OK acknowledged that Global Communications was
entitled to approximately 375,000 seconds of advertising time for goods and
services previously provided.  Following our acquisition of Nova TV
(Croatia) and OK in July 2004, OK concluded that Global Communications had used
all of its seconds by June 2004 based on a substantial discrepancy discovered
between the utilization of advertising time recorded by Global Communications
and that recorded by AGB Puls (“AGB”), an independent television audience
measurement service operating in Croatia.  In the course of its
investigation of the usage of seconds by Global Communications, OK discovered
that computer records of advertising seconds kept for OK may have been
altered.  OK brought a suit to recover amounts for advertising time
used by Global Communications in excess of the 375,000 seconds
agreed.  Global Communications filed a counterclaim in January 2005
for HRK 68.0 million (approximately US$ 13.2 million), claiming that the AGB
data is unreliable and that it is entitled to additional seconds under the
previous agreement. The lower commercial court issued a judgment on July 12,
2006 in favor of Global Communications for the full amount of the counterclaim,
and we have appealed this decision on the basis of false and inadequate
disclosure, wrongful application of substantive law and procedural
error.  Global Communications separately brought a claim against Nova
TV (Croatia), on the same basis as the OK counterclaim.  Both Global
Communications and Nova TV (Croatia) requested the court to join this claim with
the OK counterclaim but this request was denied.  The lower commercial
court issued a judgment on August 1, 2006 in favor of Global Communications for
the full amount of the claim, after having denied submission of evidence
supporting our defense.  We have also appealed this decision. We have
accrued for the amounts we expect to be ultimately payable as a result of
engaging in settlement negotiations with Global Communications. Any such
settlement would also include a settlement of the former shareholder dispute
described below.





Page
36
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





On
January 25, 2007, Nova TV (Croatia) filed suit against Global Communications.
The facts underlying the claim are substantially the same as those of the
abovementioned claims, but Nova TV (Croatia) is claiming that the Global
Agreement and the two reconciliation agreements dated April 30, 2004 and June
30, 2004 (the “Reconciliation Agreements”), by which OK acknowledged the number
of seconds of advertising time to which Global Communications was purportedly
entitled, should be declared null and void under Article 141 of the Croatian
Obligations Act. This provision is intended to protect a contractual party which
has entered into unfair bargaining terms due to its dependency on the other
contractual party.  Global Communications, OK and Nova TV (Croatia)
were all related parties (controlled by Ivan Caleta) and the contractual terms
provided for the provision of 1,340,280 seconds by OK to Global Communications
in exchange for certain transmitters. These seconds were valued at an aggregate
of DEM 5 million (or DEM 3.73 per second; HRK 3.91 per second at the time)
whereas the rate card price was DEM 97.18 or HRK 380.00 per second (i.e. a price
that was 26 times higher). Other clients (unrelated parties) sampled from this
period were paying between 382.50 HRK to 491.85 HRK per second. Nova TV
(Croatia) is arguing for voidance of this contract because of its unconscionable
terms which were detrimental to OK and Nova TV (Croatia) and beneficial solely
to Global Communications (which, in its capacity as an advertising agency,
on-sold these seconds to its clients at market rates, thereby reaping an
extraordinary profit).  Nova TV (Croatia) is further claiming
restitution for advertising seconds appropriated by Global Communications under
the Global Agreement. The restitution amount is HRK 586.5 million (approximately
US$ 114.2 million). The first hearing was held on September 24, 2007, and the
judge denied the claim without permitting any arguments, evidence or witnesses.
We await the issuance of the written decision.





Former Shareholder
Dispute





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





On August
28, 2006, we received a lower court decision of an injunction against us
(decided without a hearing) that, inter alia, prohibits a sale or encumbrance of
75% of the shares of OK.  Although we appealed this decision, the
appellate commercial court upheld the lower court’s judgment on November 21,
2006.  On November 6, 2006, we were notified of a request for a
further injunction that would, inter alia, prohibit us from taking any actions
to decrease the value of OK and require the management of OK to report to a
delegate of the former shareholders. We have unsuccessfully sought the removal
of the presiding judge, Raul Dubravec (who also presided over the Global
Communications lawsuit against Nova TV (Croatia)). Mr. Dubravec ruled against us
on December 18, 2006, requiring imposition of a temporary director for OK, which
is not a remedy available under Croatian law under the facts of this action.
Further, the temporary director who has been appointed is one of the former
directors of OK who countersigned the Reconciliation Agreements and is an
associate of Ivan Caleta. Our appeal against this decision was denied on May 8,
2007. While we continue to vigorously contest all these actions in the face of
serious concerns as to the impartiality of the Croatian judicial system, we are
engaged in settlement negotiations with the former shareholders of
OK.





Page
37
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





Czech Republic





There are
no significant outstanding legal actions that relate to our business in the
Czech Republic.





Romania





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





Slovenia





On
November 20, 2002, we received notice of a claim filed by Mrs. Zdenka Meglic,
the founder and a former shareholder of MMTV 1 d.o.o (“MMTV”), against MMTV, a
subsidiary of CME Media Enterprises B.V.  In her claim against MMTV,
Mrs. Meglic is seeking an amount equal to EUR 0.8 million (approximately US$ 1.1
million) for repayment of monies advanced to MMTV from 1992 to 1994 (in the
amount of approximately EUR 0.1 million (approximately US$ 0.1 million))
plus accrued interest.  On September 9, 2004, the court of first
instance found against MMTV and issued a judgment requiring MMTV to pay an
amount equal to EUR 0.8 million (approximately US$ 1.1 million) plus
interest as well as costs.  On September 24, 2004, MMTV filed an
appeal against the judgment.  On December 15, 2004, the appellate
court vacated the judgment of the lower court and returned the case for further
proceedings. At a hearing on September 4, 2007, the lower court denied the claim
of Mrs. Meglic and ordered her to pay MMTV’s costs of litigation. Mrs. Meglic
filed an appeal on September 24, 2007.





Slovak Republic





There are
no significant outstanding legal actions that relate to our business in the
Slovak Republic.





Ukraine





On
December 23, 2005, we initiated international arbitration proceedings against
our partners Alexander Rodnyansky and Boris Fuchsmann to enforce our contractual
rights and compel a restructuring of the ownership of Studio 1+1 in order to
permit us to hold a 60.0% interest in Studio 1+1.  Following the
adoption of an amendment to the Ukraine Media Law in March 2006, our partners
acknowledged their obligation to structure had ripened; and in September 2006,
they entered into agreements to effect a restructuring. On November 9, 2006, the
arbitration proceedings were suspended by mutual consent to permit the parties
to implement the restructuring.   On August 30, 2007, we
succeeded in registering our Ukrainian subsidiary UMS as the owner of 42.0% of
Studio 1+1.  Together with our 18.0% indirect interest in Studio 1+1
held through Inter-Media, we now have a 60% interest in Studio 1+1.





On
September 4, 2007, Mr. Fuchsmann and Mr. Rodnyansky sought to file a cross
action in these international arbitration proceedings to compel the transfer by
us of an interest in Ukrpromtorg to Mr. Fuchsmann and Mr.Rodnyansky. They allege
that they are entitled to participate on a pro rata basis in our investment in
Ukrpromtorg. This claim is based on the terms of our shareholders’ agreement
pursuant to which we and our partners have a limited right to participate on a
pro rata basis in  investment opportunities in the Ukrainian media
sector undertaken by the other.   In our response to this cross
action, we intend to deny any breach of our shareholders’ agreement and request
that the tribunal hold the cross action inadmissible in the current arbitration
proceedings, whose subject matter is the restructuring, and terminate these
proceedings.


Page
38
 Index





CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)




b)
Licenses
  Regulatory
bodies in each country in which we operate control access to available
frequencies through licensing regimes. We believe that the licenses for our
license companies will be renewed prior to expiry. In Romania, the
Slovak Republic, Slovenia and Ukraine local regulations contain a qualified
presumption for extensions of broadcast licenses, according to which a broadcast
license may be renewed if the licensee has operated substantially in compliance
with the relevant licensing regime. To date, all expiring licenses have been
renewed; however, there can be no assurance that any of the licenses will be
renewed upon expiration of their current terms. The failure of any such license
to be renewed could adversely affect the results of our
operations.


The
following summarizes the expiry dates of our television broadcasting
licenses:




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


c) Restrictions on dividends from
Consolidated Subsidiaries and Unconsolidated Affiliates





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








19.  SUBSEQUENT
EVENTS





On
October 5, 2007, we entered into a framework agreement with Igor Kolomoisky and
certain parties related to him.  Under the framework agreement, Mr.
Kolomoisky has represented to CME that he has secured a valid right to purchase
a 21.665% interest in each of IMS and Innova from Boris Fuchsmann and a 15.164%
interest in Studio 1+1 from Alexander Rodnyansky (collectively, the “Optioned
Interests”).  We currently hold, directly and indirectly, a 60%
interest in each of IMS, Innova and Studio 1+1, which are the principal entities
through which the operations of Studio 1+1 are conducted.





This
framework agreement establishes a procedure by which we consent to the exercise
of such rights by Mr. Kolomoisky in order to permit Torcensta Holding Ltd
(“Torcensta”) to acquire, directly or indirectly, the Optioned Interests. Mr.
Kolomoisky is the sole beneficial owner of Torcensta. Following the exercise of
these option rights by Mr. Kolomoisky and the acquisition of the Optioned
Interests by Torcensta, we will have the right to acquire Torcensta from
Mr. Kolomoisky for consideration in cash or shares of our Class A Common
Stock in an amount that will not exceed US$ 140 million (as described below). We
have granted such consent and Mr. Kolomoisky has sought to exercise his purchase
rights. It is our understanding that our partners have not formally acknowledged
the exercise by Mr. Kolomoisky of this purchase right. Accordingly, the timing
of the acquisition of the Optioned Interests by Torcensta is very
uncertain.





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CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


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


(Unaudited)





On
October 30, 2007, we entered into a purchase agreement with Mr. Kolomoisky and
Torcensta and a pledge agreement with Mr. Kolomoisky and the two nominee
shareholders of Torcensta in order to implement certain terms of the framework
agreement.





Under the
purchase agreement, we will acquire 100% of Torcensta following its becoming the
owner of the Optioned Interests and the satisfaction of other conditions to
closing .  In the event we exercise such option, the consideration
shall be an amount equal to the lesser of (i) US$ 140.0 million and (ii) 4% of
the number of our outstanding shares of Class A Common Stock at the time the
Optioned Interests are acquired by Torcensta (using a weighted average trading
price), provided, that in the event the lesser amount is US$ 140.0 million, Mr.
Kolomoisky will have the option of receiving his consideration in cash or shares
of our Class A Common Stock (using the weighted average trading
price).





Under the
pledge agreement, Mr. Kolomoisky has pledged his beneficial interest in
Torcensta and the two nominee shareholders will pledge their shares in Torcensta
as security for the obligation under the purchase agreement to transfer
Torcensta to us.





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Item
2.  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 the impact of the competitive market dynamics and
political environment in Ukraine, the impact of legal proceedings in Croatia,
the results of additional investment in Croatia and Ukraine, the implementation
of an advertising sales strategy in the Czech Republic and cost reductions in
the Czech and Slovak Republics, our ability to develop and implement
multi-channel strategies generally, the growth of television advertising in our
markets, the future economic conditions in our markets, future investments in
television broadcast operations, the growth potential of advertising spending in
our markets, and other business strategies and commitments.  For these
statements and all other forward-looking statements, we claim the protection of
the safe harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995.  Forward-looking statements
are inherently subject to risks and uncertainties, many of which cannot be
predicted with accuracy or are otherwise beyond our control and some of which
might not even be anticipated.  Future events and actual results,
affecting our strategic plan as well as our financial position, results of
operations and cash flows, could differ materially from those described in or
contemplated by the forward-looking statements.  Important factors
that contribute to such risks include, but are not limited to, the general
regulatory environments where we operate and application of relevant laws and
regulations, the renewals of broadcasting licenses, our ability to implement
strategies regarding sales and multi-channel distribution, the rate of
development of advertising markets in countries where we operate, our ability to
acquire necessary programming and the ability to attract audiences, our ability
to obtain additional frequencies and licenses, and general market, regulatory,
political and economic conditions in these countries as well as in the United
States and Western Europe.





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





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II. Executive
Summary




The
accompanying Management’s Discussion and Analysis of Financial Condition and
Results of Operations reflects the restatement of the unaudited condensed
Consolidated Financial Statements for the three and nine months ended September
30, 2007 described in Item 1, Note 2.


Continuing
Operations





The
following table provides a summary of our consolidated results for the three and
nine months ended September 30, 2007 and 2006:




For
      the Three Months Ended September 30, (US$ 000's)2007
              
              
              2006
              
              
              MovementNet
      revenues
              
              $
              174,836
              
              
              $
              112,482
              
              
              $
              62,354Operating
      income
              
              
              28,393
              
              
              
              6,571
              
              
              
              21,822Net
      (loss) / income from continuing operations
              
              
              (18,763
              )
              
              
              6,267
              
              
              
              (25,030
              )Net
      (loss) / income
              
              $
              (18,763
              )
              
              $
              3,934
              
              
              $
              (22,697
              )For
      the Nine Months Ended September 30, (US$ 000's)2007
              
              
              2006
              
              
              MovementNet
      revenues
              
              $
              539,032
              
              
              $
              388,825
              
              
              $
              150,207Operating
      income
              
              
              108,259
              
              
              
              66,787
              
              
              
              41,472Net
      income / (loss) from continuing operations
              
              
              15,577
              
              
              
              (945
              )
              
              
              16,522Net
      income / (loss)
              
              $
              15,577
              
              
              $
              (5,808
              )
              
              $
              21,385




The
principal events for the three months ended September 30, 2007 are as
follows:





·
            In
      the three months ended September 30, 2007, we reported growth in Segment
      Net Revenues of 55% and Segment EBITDA of 147% compared to the three
      months ended September 30, 2006, delivering a Segment EBITDA margin of 37%
      compared to the 23% margin reported in the three months ended September
      30, 2006 (Segment EBITDA is defined and reconciled to our consolidated
      results in Part I, Item 1, Note
16).





·
            Each
      of our stations reported revenue growth in excess of 25% compared to the
      three months ended September 30, 2006, with particularly strong growth
      reported in Ukraine as a result of the level of political advertising
      ahead of the parliamentary elections on September 30,
  2007.





·
            On
      July 13, 2007, we acquired an additional 20.0% interest in Markiza for
      aggregate consideration of SKK 1.9 billion (approximately US$ 78.5
      million) and now own 100.0% of our Slovak Republic
      operations.





·
            On
      August 22, 2007, we entered into a new facility with EBRD, ING and CS in
      the amount of EUR 50.0 million, while at the same time reducing the
      interest payable on our existing EUR 100.0 facility to EURIBOR
      +1.625% from the previous EURIBOR +
2.75%.




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 Index




·
              On
      August 30, 2007 we issued 1,275,227 shares of our Class A Common Stock to
      Igor Kolomoisky for cash consideration of US$ 110.0
      million.  In connection with this investment,
      Mr. Kolomoisky was appointed to our Board of
    Directors.
 
 ·
              On
      August 30, 2007 we completed the registration of a 42% direct ownership
      interest in Studio 1+1  via a Ukrainian subsidiary company,
      thereby securing control over the Studio 1+1 broadcasting
      licenses.


·
            On
      September 10, 2007, Standard & Poor’s upgraded our corporate credit
      rating from BB- to BB.





Events
that occurred subsequent to September 30, 2007 have been as
follows:





·
            On
      October 17, 2007, we appointed Adrian Sarbu as our Chief Operating
      Officer.




Future
Developments





As our
markets mature and move towards digitalization, we anticipate more intense
competition for audience share and advertising spending from other incumbent
terrestrial broadcasters and, to a lesser extent, from local cable, satellite
and digital terrestrial broadcasters as these develop.  We believe the
strength of our brands and prudent investments in production programming and
technology will allow us to manage effectively such increased
competition.  In the near term we intend to continue to pursue further
improvements in the performance of our existing operations, including through
increased investment in local production, in order to maximize the potential for
organic growth. In Croatia, we believe that our strategy and investments are
beginning to bring consistent positive results, creating a solid foundation for
Nova TV (Croatia) to reach break even before the end of 2008 and in 2009 on a
full year basis. In Ukraine, we expect continued strong market growth over the
medium term. Our performance in the fourth quarter of 2007 will depend on our
ability to generate GRPs and sustained advertising spending following the
September parliamentary elections.





Our
priorities include:





·
            supporting
      the growth of television advertising spending in our markets through our
      existing operations and through the launch or acquisition of additional
      channels to expand our advertising inventory and target niche
      audiences;





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





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





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





In
particular, we are planning the following during the remainder of
2007:





·
            additional
      investment in Russian series and local programming by STUDIO 1+1, which
      have driven ratings historically, and in our other Ukraine channels KINO
      and CITI, which were launched in
2006;





·
            further
      development of our non-broadcast activities, particularly in new
      media;





·
            acquisition
      of additional shares in our operations in Ukraine if the opportunity
      arises; and





·
            continuing
      to invest in our Croatia
operations.





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III. Analysis of Segment
Results





OVERVIEW





We manage
our business on a geographic basis and review the performance of each business
segment using data that reflects 100% of operating and license company
results.  We also consider how much of our total revenues and earnings
are derived from our broadcast and non-broadcast operations. Our business
segments are comprised of Croatia, the Czech Republic, Romania, the Slovak
Republic, Slovenia and our two businesses in Ukraine.





We
evaluate the performance of our business segments based on Segment Net Revenues
and Segment EBITDA.  Segment Net Revenues and Segment EBITDA include
our operations in the Slovak Republic which were not consolidated prior to
January 23, 2006.





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





Segment
EBITDA is determined as segment net income/loss, which includes program rights
amortization costs, before interest, taxes, depreciation and amortization of
intangible assets.  Items that are not allocated to our segments for
purposes of evaluating their performance, and therefore are not included in
Segment EBITDA, include:





·
            expenses
      presented as corporate operating costs in our condensed consolidated
      statement of operations and comprehensive
  income;





·
            stock-based
      compensation charges;





·
            foreign
      currency exchange gains and losses;





·
            change
      in fair value of derivatives; and





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





EBITDA
may not be comparable to similar measures reported by other
companies.  Non-US GAAP measures should be evaluated in conjunction
with, and are not a substitute for, US GAAP financial measures.





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





For a
full reconciliation of our Segment Net Revenues and Segment EBITDA by operation
to our consolidated results for the three and nine months ended September 30,
2007 and 2006, see Part I, Item 1, Note 16.





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





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SEGMENT FINANCIAL
INFORMATION





For the Three Months Ended
      September 30, (US$ 000's)2007
            
            
            
            (1
            )
            
            2006
            
            
            
            (1
            )Segment Net
      RevenueCroatia
      (NOVA TV)
            
            $
            7,055
            
            
            
            4
            %
            
            $
            4,288
            
            
            
            4
            %Czech
      Republic (TV NOVA, GALAXIE SPORT)
            
            
            51,140
            
            
            
            29
            %
            
            
            40,141
            
            
            
            36
            %Romania
      (2)
            
            
            44,412
            
            
            
            25
            %
            
            
            29,298
            
            
            
            26
            %Slovak
      Republic (MARKIZA TV)
            
            
            20,286
            
            
            
            12
            %
            
            
            13,895
            
            
            
            12
            %Slovenia
      (POP TV, KANAL A)
            
            
            11,545
            
            
            
            7
            %
            
            
            9,101
            
            
            
            8
            %Ukraine
      (STUDIO 1+1)
            
            
            39,582
            
            
            
            23
            %
            
            
            15,578
            
            
            
            14
            %Ukraine
      (KINO, CITI)
            
            
            816
            
            
            
            -
            
            
            
            181
            
            
            
            -Total Segment Net
      Revenues
            
            $
            174,836
            
            
            
            100
            %
            
            $
            112,482
            
            
            
            100
            %Represented
      by:Broadcast
      operations
            
            $
            173,991
            
            
            
            100
            %
            
            $
            111,931
            
            
            
            100
            %Non-broadcast
      operations
            
            
            845
            
            
            
            -
            
            
            
            551
            
            
            
            -Total Segment
      Revenues
            
            $
            174,836
            
            
            
            100
            %
            
            $
            112,482
            
            
            
            100
            %Segment
      EBITDACroatia
      (NOVA TV)
            
            $
            (2,981
            )
            
            
            (5
            )%
            
            $
            (4,558
            )
            
            
            (17
            )%Czech
      Republic (TV NOVA, GALAXIE SPORT)
            
            
            25,989
            
            
            
            41
            %
            
            
            17,234
            
            
            
            66
            %Romania
      (2)
            
            
            19,486
            
            
            
            30
            %
            
            
            11,719
            
            
            
            45
            %Slovak
      Republic (MARKIZA TV)
            
            
            5,544
            
            
            
            9
            %
            
            
            2,408
            
            
            
            9
            %Slovenia
      (POP TV, KANAL A)
            
            
            854
            
            
            
            1
            %
            
            
            1,225
            
            
            
            5
            %Ukraine
      (STUDIO 1+1)
            
            
            16,599
            
            
            
            26
            %
            
            
            (838
            )
            
            
            (3
            )%Ukraine
      (KINO, CITI)
            
            
            (1,339
            )
            
            
            (2
            )%
            
            
            (1,182
            )
            
            
            (5
            )%Total Segment
      EBITDA
            
            $
            64,152
            
            
            
            100
            %
            
            $
            26,008
            
            
            
            100
            %Represented
      by:Broadcast
      operations
            
            $
            65,805
            
            
            
            103
            %
            
            $
            26,119
            
            
            
            100
            %Non-broadcast
      operations
            
            
            (1,653
            )
            
            
            (3
            )%
            
            
            (111
            )
            
            
            -Total Segment
      EBITDA
            
            $
            64,152
            
            
            
            100
            %
            
            $
            26,008
            
            
            
            100
            %Segment EBITDA Margin
      (3)
            
            
            37
            %
            
            
            
            
            
            
            23
            %





(1)
Percentage of Total Segment Net Revenues and Total Segment
EBITDA.


(2)
Romania networks are PRO TV, PRO CINEMA, ACASA, PRO TV INTERNATIONAL and
SPORT.RO.


(3) We
define Segment EBITDA margin as the ratio of Segment EBITDA to Segment Net
Revenue.





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45
 Index





SEGMENT FINANCIAL
INFORMATION





For the Nine Months Ended
      September 30, (US$ 000's)2007
            
            
            
            (1
            )
            
            2006
            
            
            
            (1
            )Segment Net
      RevenueCroatia
      (NOVA TV)
            
            $
            24,701
            
            
            
            5
            %
            
            $
            13,745
            
            
            
            3
            %Czech
      Republic (TV NOVA)
            
            
            183,203
            
            
            
            34
            %
            
            
            137,002
            
            
            
            35
            %Romania
      (2)
            
            
            135,978
            
            
            
            25
            %
            
            
            96,938
            
            
            
            25
            %Slovak
      Republic (MARKIZA TV) (3)
            
            
            68,615
            
            
            
            13
            %
            
            
            45,147
            
            
            
            12
            %Slovenia
      (POP TV, KANAL A)
            
            
            44,309
            
            
            
            8
            %
            
            
            34,883
            
            
            
            9
            %Ukraine
      (STUDIO 1+1)
            
            
            80,358
            
            
            
            15
            %
            
            
            62,117
            
            
            
            16
            %Ukraine
      (KINO, CITI) (4)
            
            
            1,868
            
            
            
            -
            
            
            
            754
            
            
            
            -Total Segment Net
      Revenues
            
            $
            539,032
            
            
            
            100
            %
            
            $
            390,586
            
            
            
            100
            %Represented
      by:Broadcast
      operations
            
            $
            536,964
            
            
            
            100
            %
            
            $
            388,906
            
            
            
            100
            %Non-broadcast
      operations
            
            
            2,068
            
            
            
            -
            
            
            
            1,680
            
            
            
            -Total Segment
      Revenues
            
            $
            539,032
            
            
            
            100
            %
            
            $
            390,586
            
            
            
            100
            %Segment
      EBITDACroatia
      (NOVA TV)
            
            $
            (9,800
            )
            
            
            (5
            )%
            
            $
            (11,639
            )
            
            
            (10
            )%Czech
      Republic (TV NOVA)
            
            
            99,251
            
            
            
            52
            %
            
            
            59,569
            
            
            
            49
            %Romania
      (2)
            
            
            57,152
            
            
            
            30
            %
            
            
            39,756
            
            
            
            32
            %Slovak
      Republic (MARKIZA TV) (3)
            
            
            23,012
            
            
            
            12
            %
            
            
            9,258
            
            
            
            8
            %Slovenia
      (POP TV, KANAL A)
            
            
            12,243
            
            
            
            6
            %
            
            
            10,688
            
            
            
            9
            %Ukraine
      (STUDIO 1+1)
            
            
            14,794
            
            
            
            8
            %
            
            
            16,183
            
            
            
            13
            %Ukraine
      (KINO, CITI) (4)
            
            
            (5,511
            )
            
            
            (3
            )%
            
            
            (1,736
            )
            
            
            (1
            )%Total Segment
      EBITDA
            
            $
            191,141
            
            
            
            100
            %
            
            $
            122,079
            
            
            
            100
            %Represented
      by:Broadcast
      operations
            
            $
            193,538
            
            
            
            101
            %
            
            $
            122,035
            
            
            
            100
            %Non-broadcast
      operations
            
            
            (2,397
            )
            
            
            (1
            )%
            
            
            44
            
            
            
            -Total Segment
      EBITDA
            
            $
            191,141
            
            
            
            100
            %
            
            $
            122,079
            
            
            
            100
            %Segment EBITDA Margin
      (5)
            
            
            35
            %
            
            
            
            
            
            
            31
            %





(1)
Percentage of Total Segment Net Revenues and Total Segment
EBITDA.


(2)
Romania networks are PRO TV, PRO CINEMA, ACASA, PRO TV INTERNATIONAL and
SPORT.RO.


(3) Our
Slovak Republic operations were accounted for as an equity affiliate until
January 23, 2006.


(4) We
acquired our Ukraine (KINO, CITI) operations on January 11,
2006.


(5) We
define Segment EBITDA margin as the ratio of Segment EBITDA to Segment Net
Revenue.





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ANALYSIS BY GEOGRAPHIC
SEGMENT





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





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





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





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





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





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 changes can be attributable
to combinations of price fluctuations, different inventory sales, seasonal or
time-of-day incentives, target-audience delivery of specific campaigns,
introductory pricing for new clients or audience movements based on our
competitors’ program schedule.





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





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(A) CROATIA





Market
Background:We estimate that the television advertising market
in Croatia experienced local currency growth of approximately 2% - 5% in 2006
and expect it to show single digit growth during 2007.





In the
nine months ended September 30, 2007, national all day audience share for NOVA
TV (Croatia) grew to 18.7% compared to 14.4% in the nine months ended September
30, 2006.  The major competitors are the two state-owned channels,
HRT1 and HRT2, with national all day audience shares for the nine months ended
September 30, 2007 of 26.3% and 18.1%, respectively, and privately owned
broadcaster RTL with 27.6%.





Prime
time audience share for NOVA TV (Croatia), which is our principal focus, grew
from 16.2% in the nine months ended September 30, 2006 to 19.8% in the nine
months ended September 30, 2007.  Our average prime time ratings
increased from 6.8% to 7.1% over comparable periods, while prime time ratings
for the whole market decreased from 42.3% in the nine months ended September 30,
2006, to 35.6% in the nine months ended September 30, 2007.





Three months ended September 30, 2007
compared to the three months ended September 30, 2006





CROATIA SEGMENT FINANCIAL
      INFORMATIONFor the Three Months Ended
      September 30, (US$ 000's)2007
            
            
            2006
            
            
            MovementSpot
      revenues
            
            $
            5,308
            
            
            $
            3,022
            
            
            $
            2,286Non-spot
      revenues
            
            
            1,747
            
            
            
            1,266
            
            
            
            481Segment Net
      Revenues
            
            $
            7,055
            
            
            $
            4,288
            
            
            $
            2,767Represented
      by:Broadcast
      operations
            
            $
            6,976
            
            
            $
            4,284
            
            
            $
            2,692Non-broadcast
      operations
            
            
            79
            
            
            
            4
            
            
            
            75Segment Net
      Revenues
            
            $
            7,055
            
            
            $
            4,288
            
            
            $
            2,767Segment
      EBITDA
            
            $
            (2,981
            )
            
            $
            (4,558
            )
            
            $
            1,577Represented
      by:Broadcast
      operations
            
            $
            (3,002
            )
            
            $
            (4,512
            )
            
            $
            1,510Non-broadcast
      operations
            
            
            21
            
            
            
            (46
            )
            
            
            67Segment
      EBITDA
            
            $
            (2,981
            )
            
            $
            (4,558
            )
            
            $
            1,577Segment EBITDA
      Margin
            
            
            (42
            )%
            
            
            (106
            )%
            
            
            64
            %








·
            Segment Net Revenues for
      the three months ended September 30, 2007 increased by US$ 2.8 million, or
      65%, compared to the three months ended September 30, 2006.  In
      local currency, Segment Net Revenues increased by 52%.  Spot
      revenues increased by US$ 2.3 million, or 76%, as a result of significant
      increases in the volume of GRPs sold and the average revenue per rating
      point sold.  Non-spot revenues increased by US$ 0.5 million, or
      38%, as a result of increased levels of
  sponsorship.





·
            Segment EBITDAfor the
      three months ended September 30, 2007 was a loss of US$ 3.0 million
      compared to a loss of US$ 4.6 million in the three months ended September
      30, 2006, an improvement of 35%.  In local currency, Segment
      EBITDA improved by 40%.





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48
 Index




Costs
charged in arriving at Segment EBITDA for the three months ended September 30,
2007 increased by US$ 1.2 million, or 13%, compared to the three months ended
September 30, 2006.  Cost of programming decreased by US$ 1.0 million,
or 16%, due largely to the reclassification of the salary-related costs of
production staff from cost of programming to operating costs in the three months
ended September 30, 2006; excluding the impact of this change in classification,
cost of programming increased by US$ 0.6 million, or 14%, primarily due to
increased investment in programming to continue to grow
ratings.  Other operating costs increased by US$ 1.7 million, or 316%,
primarily due to the difference in classification described above; excluding the
impact of this change in classification, other operating costs increased by US$
0.1 million, or 4%.  Selling, general and administrative expenses
increased by US$ 0.5 million, or 22%.





Nine months ended September 30, 2007
compared to the nine months ended September 30, 2006





CROATIA SEGMENT FINANCIAL
      INFORMATIONFor the Nine Months Ended
      September 30, (US$ 000's)2007
            
            
            2006
            
            
            MovementSpot
      revenues
            
            $
            18,812
            
            
            $
            10,773
            
            
            $
            8,039Non-spot
      revenues
            
            
            5,889
            
            
            
            2,972
            
            
            
            2,917Segment Net
      Revenues
            
            $
            24,701
            
            
            $
            13,745
            
            
            $
            10,956Represented
      by:Broadcast
      operations
            
            $
            24,592
            
            
            $
            13,741
            
            
            $
            10,851Non-broadcast
      operations
            
            
            109
            
            
            
            4
            
            
            
            105Segment Net
      Revenues
            
            $
            24,701
            
            
            $
            13,745
            
            
            $
            10,956Segment
      EBITDA
            
            $
            (9,800
            )
            
            $
            (11,639
            )
            
            $
            1,839Represented
      by:Broadcast
      operations
            
            $
            (9,769
            )
            
            $
            (11,593
            )
            
            $
            1,824Non-broadcast
      operations
            
            
            (31
            )
            
            
            (46
            )
            
            
            15Segment
      EBITDA
            
            $
            (9,800
            )
            
            $
            (11,639
            )
            
            $
            1,839Segment EBITDA
      Margin
            
            
            (40
            )%
            
            
            (85
            )%
            
            
            45
            %








·
            Segment Net Revenues for
      the nine months ended September 30, 2007 increased by US$ 11.0 million, or
      80%, compared to the nine months ended September 30, 2006.  In
      local currency, Segment Net Revenues increased by 67%.  Spot
      revenues increased by US$ 8.0 million, or 75%, as a result of a
      significant increase in the volume of GRPs sold, augmented by increased
      prices.  Non-spot revenues increased by US$ 2.9 million, or 98%,
      as a result of increased levels of
sponsorship.





·
            Segment EBITDAfor the
      nine months ended September 30, 2007 was a loss of US$ 9.8 million
      compared to a loss of US$ 11.6 million in the nine months ended September
      30, 2006, an improvement of 16%.  In local currency, Segment
      EBITDA improved by 22%.





Costs
charged in arriving at Segment EBITDA for the nine months ended September 30,
2007 increased by US$ 9.1 million, or 36%, compared to the nine months ended
September 30, 2006.  Cost of programming increased by US$ 6.8 million,
or 47%, due to increased investment in local productions and syndicated
programming in line with our plan to grow audience share.  Other
operating costs increased by US$ 0.9 million, or 15%, due to higher salary and
wage costs, higher transmission costs as a result of increased transmitter
coverage and also higher music rights costs.  Selling, general and
administrative expenses increased by US$ 1.4 million, or 29%.





Page
49
 Index





(B) CZECH
REPUBLIC





Market
Background:We estimate that the television advertising market
in the Czech Republic remained stable in local currency during
2006.  We expect the television advertising market to show high single
digit growth in 2007.  State television has reduced the amount of
airtime that can be devoted to commercial advertising to 0.5% in
2007.





The
national all day audience share of our channel, TV NOVA (Czech Republic), for
the nine months ended September 30, 2007 was 39.8% compared to 41.5% for the
nine months ended September 30, 2006.  The major competitors are the
two state-owned channels CT1 and CT2, with national all day audience shares for
the nine months ended September 30, 2007 of 22.6% and 8.2% respectively, and
privately owned broadcaster TV Prima with a national all day audience share of
19.8%.





Prime
time audience share for the nine months ended September 30, 2007 remained in
line with the nine months ended September 30, 2006 at 43.3%.  Our
average prime time ratings decreased from 16.7% to 15.8% over comparable
periods, while prime time ratings for the whole market decreased from 38.6% in
the nine months ended September 30, 2006 to 36.4% in the nine months ended
September 30, 2007, reflecting the extremely warm weather enjoyed by much of
Europe in 2007.





Three months ended September 30, 2007
compared to the three months ended September 30, 2006





CZECH REPUBLIC SEGMENT
      FINANCIAL INFORMATIONFor the Three Months Ended
      September 30, (US$ 000's)2007
            
            
            2006
            
            
            MovementSpot
      revenues
            
            $
            45,541
            
            
            $
            35,757
            
            
            $
            9,784Non-spot
      revenues
            
            
            5,599
            
            
            
            4,384
            
            
            
            1,215Segment Net
      Revenues
            
            $
            51,140
            
            
            $
            40,141
            
            
            $
            10,999Represented
      by:Broadcast
      operations
            
            $
            51,032
            
            
            $
            39,957
            
            
            $
            11,075Non-broadcast
      operations
            
            
            108
            
            
            
            184
            
            
            
            (76
            )Segment Net
      Revenues
            
            $
            51,140
            
            
            $
            40,141
            
            
            $
            10,999Segment
      EBITDA
            
            $
            25,989
            
            
            $
            17,234
            
            
            $
            8,755Represented
      by:Broadcast
      operations
            
            $
            26,258
            
            
            $
            17,202
            
            
            $
            9,056Non-broadcast
      operations
            
            
            (269
            )
            
            
            32
            
            
            
            (301
            )Segment
      EBITDA
            
            $
            25,989
            
            
            $
            17,234
            
            
            $
            8,755Segment EBITDA
      Margin
            
            
            51
            %
            
            
            43
            %
            
            
            8
            %








·
            Segment Net Revenues for
      the three months ended September 30, 2007 increased by US$ 11.0 million,
      or 27%, compared to the three months ended September 30,
      2006.  In local currency, Segment Net Revenues increased by
      16%.  Spot revenues increased by US$ 9.8 million, or 27%,
      primarily due to increased average revenue per rating point sold, as well
      as small increase in the volume of GRPs sold. Non-spot revenue increased
      by US$ 1.2 million, or 28%, primarily due to increased
      sponsorship.





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50
 Index





·
            Segment EBITDAfor the
      three months ended September 30, 2007 increased by US$ 8.8 million, or
      51%, compared to the three months ended September 30, 2006, resulting in
      an EBITDA margin of 51% compared to 43% in the three months ended
      September 30, 2006.  In local currency, Segment EBITDA increased
      by 36%.  Costs charged in arriving at Segment EBITDA for the
      three months ended September 30, 2007 increased by US$ 2.2 million, or
      10%, compared to the three months ended September 30,
      2006.  Cost of programming increased by US$ 2.6 million, or 23%,
      due to increased investment in both local productions and syndicated
      programming, particularly in July and August, in order to maintain market
      share.  Other operating costs decreased by US$ 0.7 million, or
      12%, due to lower salary and wage costs, partially offset by higher
      transmission costs as a result of increased transmitter coverage and also
      higher music rights costs.  Selling, general and administrative
      expenses increased by US$ 0.3 million, or 5%, primarily due to increased
      office running costs and marketing and research costs, partially offset by
      a reduction in consultancy fees.





Nine months ended September 30, 2007
compared to the nine months ended September 30, 2006





CZECH REPUBLIC SEGMENT
      FINANCIAL INFORMATIONFor the Nine Months Ended
      September 30, (US$ 000's)2007
            
            
            2006
            
            
            MovementSpot
      revenues
            
            $
            166,253
            
            
            $
            118,590
            
            
            $
            47,663Non-spot
      revenues
            
            
            16,950
            
            
            
            18,412
            
            
            
            (1,462
            )Segment Net
      Revenues
            
            $
            183,203
            
            
            $
            137,002
            
            
            $
            46,201Represented
      by:Broadcast
      operations
            
            $
            183,001
            
            
            $
            136,451
            
            
            $
            46,550Non-broadcast
      operations
            
            
            202
            
            
            
            551
            
            
            
            (349
            )Segment Net
      Revenues
            
            $
            183,203
            
            
            $
            137,002
            
            
            $
            46,201Segment
      EBITDA
            
            $
            99,251
            
            
            $
            59,569
            
            
            $
            39,682Represented
      by:Broadcast
      operations
            
            $
            100,017
            
            
            $
            59,521
            
            
            $
            40,496Non-broadcast
      operations
            
            
            (766
            )
            
            
            48
            
            
            
            (814
            )Segment
      EBITDA
            
            $
            99,251
            
            
            $
            59,569
            
            
            $
            39,682Segment EBITDA
      Margin
            
            
            54
            %
            
            
            43
            %
            
            
            11
            %








·
            Segment Net Revenues for
      the nine months ended September 30, 2007 increased by US$ 46.2 million, or
      34%, compared to the nine months ended September 30, 2006.  In
      local currency, Segment Net Revenues increased by 22%.  Spot
      revenues increased by US$ 47.7 million, or 40%, primarily due to an
      increase in the volume of GRPs sold, particularly in the first half as
      well as increased average revenue per rating point sold. Non-spot revenue
      decreased by US$ 1.5 million, or 8%, primarily due to a reduction in the
      number of shows generating voting revenue in the nine months ended
      September 30, 2007 compared to those programs broadcast in the nine months
      ended September 30, 2006 and a reduction in votes in the shows that were
      broadcast, partially offset by increased
  sponsorship.





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51
 Index





·
            Segment EBITDAfor the
      nine months ended September 30, 2007 increased by US$ 39.7 million, or
      67%, compared to the nine months ended September 30, 2006, resulting in an
      EBITDA margin of 54% compared to 43% in the nine months ended September
      30, 2006.  In local currency, Segment EBITDA increased by
      52%.  Costs charged in arriving at Segment EBITDA for the nine
      months ended September 30, 2007 increased by US$ 6.5 million, or 8%,
      compared to the nine months ended September 30, 2006.  Cost of
      programming increased by US$ 2.7 million, or 6%, due to a combination of
      the impact of price inflation on foreign programming and increased
      investment in local productions.  Other operating costs
      increased by US$ 3.6 million, or 19%, primarily due to increased accruals
      for performance-related bonus payments, as well as higher transmission
      costs as a result of increased transmitter coverage and also higher music
      rights costs.  Selling, general and administrative expenses
      increased by US$ 0.2 million, or 1%, due to increased office running costs
      and marketing and research costs, partially offset by a reduction in
      consultancy fees.








(C) ROMANIA





Market
Background:We estimate that the television advertising market
grew by approximately 32% - 37% in dollars during 2006.  We expect the
television advertising market to show continued growth in the range of 30% to
40% in 2007.





The
combined national all day audience share of PRO TV, ACASA and PRO CINEMA for the
nine months ended September 30, 2007 was 22.2% compared to 24.6% for the nine
months ended September 30, 2006.  On March 1, 2007, we acquired the
license to broadcast SPORT.RO which had an all day audience share of 2.0% in the
nine months ended September 30, 2007. We re-branded the channel SPORT.RO and
re-launched it under its new name during April 2007.  The major
competitors are TVR1 and ANTENNA, with national all day audience shares for the
nine months ended September 30, 2007 of 12.3% and 4.6%, respectively, and
privately owned broadcaster Antena 1 with 11.8%.





Prime
time audience share for PRO TV, ACASA and PRO CINEMA decreased from 26.4% in the
nine months ended September 30, 2006 to 23.4% in the nine months ended September
30, 2007.  ACASA suffered a decline in share by 3.1%, as the
popularity of our successful telenovellas has diminished following the decision
by other competing stations to produce similar programs, while an increase in
share for PRO CINEMA of 0.3% was offset by a 0.2% decrease in PRO
TV.  Our average prime time ratings decreased from 9.9% to 8.2% over
comparable periods, while prime time ratings for the whole market decreased from
38.0% in the nine months ended September 30, 2006 to 35.0% in the nine months
ended September 30, 2007, reflecting the unusually warm weather conditions as
well as the increased popularity of other forms of entertainment.





Page
52
 Index





Three months ended September 30, 2007
compared to the three months ended September 30, 2006





ROMANIA SEGMENT FINANCIAL
      INFORMATIONFor the Three Months Ended
      September 30, (US$ 000's)2007
            
            
            2006
            
            
            MovementSpot
      revenues
            
            $
            41,146
            
            
            $
            27,239
            
            
            $
            13,907Non-spot
      revenues
            
            
            3,266
            
            
            
            2,059
            
            
            
            1,207Segment Net
      Revenues
            
            $
            44,412
            
            
            $
            29,298
            
            
            $
            15,114Represented
      by:Broadcast
      operations
            
            $
            44,326
            
            
            $
            29,298
            
            
            $
            15,028Non-broadcast
      operations
            
            
            86
            
            
            
            -
            
            
            
            86Segment Net
      Revenues
            
            $
            44,412
            
            
            $
            29,298
            
            
            $
            15,114Segment
      EBITDA
            
            $
            19,486
            
            
            $
            11,719
            
            
            $
            7,767Represented
      by:Broadcast
      operations
            
            $
            19,613
            
            
            $
            11,733
            
            
            $
            7,880Non-broadcast
      operations
            
            
            (127
            )
            
            
            (14
            )
            
            
            (113
            )Segment
      EBITDA
            
            $
            19,486
            
            
            $
            11,719
            
            
            $
            7,767Segment EBITDA
      Margin
            
            
            44
            %
            
            
            40
            %
            
            
            4
            %








·
            Segment Net Revenues for
      the three months ended September 30, 2007 increased by US$ 15.1 million,
      or 52%, compared to the three months ended September 30, 2006. Spot
      revenues increased by US$ 13.9 million, or 51%, driven primarily by
      increases in the average revenue per rating point sold in each of our
      channels, which more than offset a decline in the volume of GRPs sold.
      Non-spot revenues increased by US$ 1.2 million, or 59%, primarily due to
      increased cable tariff revenue. The acquisition of Sport.ro added
      approximately US$ 1.9 million to our revenues for the three months ended
      September 30, 2007.





·
            Segment EBITDAfor the
      three months ended September 30, 2007 increased by US$ 7.8 million, or
      66%, compared to the three months ended September 30, 2006, resulting in
      an EBITDA margin of 44%, compared to 40% in the three months ended
      September 30, 2006.  Costs charged in arriving at Segment EBITDA
      for the three months ended September 30, 2007 increased by US$ 7.3
      million, or 42%, compared to the three months ended September 30,
      2006.  Cost of programming grew by US$ 4.4 million, or 41%, due
      partially to the inclusion of the salary-related costs of production staff
      within cost of programming rather than operating costs; excluding the
      impact of this change in classification, cost of programming increased by
      US$ 1.7 million, or 16%, as a result of increased market competition and
      investment in quality programming.  Other operating costs
      increased by US$ 1.5 million, or 30%, after the difference in
      classification described above; excluding the impact of this change in
      classification, other operating costs increased by US$ 4.2 million, or
      83%, primarily due to the impact of a weaker dollar on local currency
      denominated staffing costs and an increase in social security
      costs.  Selling, general and administrative expenses increased
      by US$ 1.4 million, or 79%, primarily due to increased consultancy fees,
      increased office running costs and increased marketing and research
      costs.  The acquisition of Sport.ro added approximately US$ 0.3
      million to our Segment EBITDA for the three months ended September 30,
      2007.





Page
53
 Index





Nine months ended September 30, 2007
compared to the nine months ended September 30, 2006





ROMANIA SEGMENT FINANCIAL
      INFORMATIONFor the Nine Months Ended
      September 30, (US$ 000's)2007
            
            
            2006
            
            
            MovementSpot
      revenues
            
            $
            126,750
            
            
            $
            91,109
            
            
            $
            35,641Non-spot
      revenues
            
            
            9,228
            
            
            
            5,829
            
            
            
            3,399Segment Net
      Revenues
            
            $
            135,978
            
            
            $
            96,938
            
            
            $
            39,040Represented
      by:Broadcast
      operations
            
            $
            135,836
            
            
            $
            96,938
            
            
            $
            38,898Non-broadcast
      operations
            
            
            142
            
            
            
            -
            
            
            
            142Segment Net
      Revenues
            
            $
            135,978
            
            
            $
            96,938
            
            
            $
            39,040Segment
      EBITDA
            
            $
            57,152
            
            
            $
            39,756
            
            
            $
            17,396Represented
      by:Broadcast
      operations
            
            $
            57,512
            
            
            $
            39,770
            
            
            $
            17,742Non-broadcast
      operations
            
            
            (360
            )
            
            
            (14
            )
            
            
            (346
            )Segment
      EBITDA
            
            $
            57,152
            
            
            $
            39,756
            
            
            $
            17,396Segment EBITDA
      Margin
            
            
            42
            %
            
            
            41
            %
            
            
            1
            %





·
            Segment Net Revenues for
      the nine months ended September 30, 2007 increased by US$ 39.0 million, or
      40%, compared to the nine months ended September 30, 2006. Spot revenues
      increased by US$ 35.6 million, or 39%, driven primarily by increases in
      the average revenue per rating point sold in each of our channels, which
      more than offset a decline in the volume of GRPs sold, particularly in the
      first half. Non-spot revenues increased by US$ 3.4 million, or 58%,
      primarily due to increased cable tariff revenue. The acquisition of
      Sport.ro added approximately US$ 4.8 million to our revenues for the nine
      months ended September 30, 2007.





·
              Segment EBITDAfor the
      three months ended September 30, 2007 increased by US$ 7.8 million, or
      66%, compared to the three months ended September 30, 2006, resulting in
      an EBITDA margin of 44%, compared to 40% in the three months ended
      September 30, 2006.  Costs charged in arriving at Segment EBITDA
      for the three months ended September 30, 2007 increased by US$ 7.3
      million, or 42%, compared to the three months ended September 30,
      2006.  Cost of programming grew by US$ 4.4 million, or 41%, due
      partially to the inclusion of the salary-related costs of production staff
      within cost of programming rather than operating costs; excluding the
      impact of this change in classification, cost of programming increased by
      US$ 1.7 million, or 16%, as a result of increased market competition and
      investment in quality programming.  Other operating costs
      increased by US$ 1.5 million, or 30%, after the difference in
      classification described above; excluding the impact of this change in
      classification, other operating costs increased by US$ 4.2 million, or
      83%, primarily due to the impact of a weaker dollar on local currency
      denominated staffing costs and an increase in social security
      costs.  Selling, general and administrative expenses increased
      by US$ 1.4 million, or 79%, primarily due to increased consultancy fees,
      increased office running costs and increased marketing and research
      costs.  The acquisition of Sport.ro added approximately US$ 0.3
      million to our Segment EBITDA for the three months ended September 30,
      2007.


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54
 Index





(D) SLOVAK
REPUBLIC





Market
Background:  We estimate that the television advertising market
in the Slovak Republic experienced local currency growth of approximately 5% -
7% in 2006.  We expect the television advertising market to show
growth in the range of 20% - 30% in 2007.





MARKIZA
TV is the leading channel in the Slovak Republic.  National all day
audience share for the nine months ended September 30, 2007 was 34.5% compared
to 32.5% for the nine months ended September 30, 2006.  The major
competitor is the state-owned channel STV1, with a national all day audience
share of 17.8% for the nine months ended September 30, 2007.  The
national all day audience share of TV JOJ, the only other significant privately
owned channel, was 15.9% for the nine months ended September 30,
2007.





Our prime
time audience share increased from 34.0% in the nine months ended September 30,
2006 to 38.1% in the nine months ended September 30, 2007 primarily due to
strong local programs such as Bailando and Neighbors.  Our average
prime time ratings increased from 12.7% to 14.0% over comparable periods, while
prime time ratings for the whole market decreased from 37.3% in the nine months
ended September 30, 2006 to 36.6% in the nine months ended September 30,
2007.





Three months ended September 30, 2007
compared to the three months ended September 30, 2006





SLOVAK REPUBLIC SEGMENT
      FINANCIAL INFORMATIONFor the Three Months Ended
      September 30, (US$ 000's)2007
            
            
            2006
            
            
            MovementSpot
      revenues
            
            $
            19,344
            
            
            $
            12,735
            
            
            $
            6,609Non-spot
      revenues
            
            
            942
            
            
            
            1,160
            
            
            
            (218
            )Segment Net
      Revenues
            
            $
            20,286
            
            
            $
            13,895
            
            
            $
            6,391Represented
      by:Broadcast
      operations
            
            $
            20,183
            
            
            $
            13,880
            
            
            $
            6,303Non-broadcast
      operations
            
            
            103
            
            
            
            15
            
            
            
            88Segment Net
      Revenues
            
            $
            20,286
            
            
            $
            13,895
            
            
            $
            6,391Segment
      EBITDA
            
            $
            5,544
            
            
            $
            2,408
            
            
            $
            3,136Represented
      by:Broadcast
      operations
            
            $
            5,656
            
            
            $
            2,460
            
            
            $
            3,196Non-broadcast
      operations
            
            
            (112
            )
            
            
            (52
            )
            
            
            (60
            )Segment
      EBITDA
            
            $
            5,544
            
            
            $
            2,408
            
            
            $
            3,136Segment EBITDA
      Margin
            
            
            27
            %
            
            
            17
            %
            
            
            10
            %








·
            Segment Net Revenues for
      the three months ended September 30, 2007 increased by US$ 6.4 million, or
      46%, compared to the three months ended September 30, 2006.  In
      local currency, Segment Net Revenues increased by 19%.  The
      increase in Segment Net Revenues was due to an increase of US$ 6.6
      million, or 52%, in spot revenues, offset by a decrease of US$ 0.2
      million, or 19%, in non-spot revenues.  The increase in spot
      revenues is mainly due to an increase in the average revenue per rating
      point sold, as well as a slight increase in the volume of GRPs
      sold.





·
            Segment EBITDAfor the
      three months ended September 30, 2007 increased by US$ 3.1 million, or
      130%, compared to the three months ended September 30, 2006, resulting in
      an EBITDA margin of 27%, compared to 17% in the three months ended
      September 30, 2006.  In local currency, Segment EBITDA increased
      by 88%.  Costs charged in arriving at Segment EBITDA for the
      three months ended September 30, 2007 increased by US$ 3.3 million, or
      29%, compared to the three months ended September 30,
      2006.  Cost of programming increased by US$ 2.4 million, or 45%,
      primarily due to increased investment in local productions such as a local
      version of Pop Idol, which was launched in September 2007, and syndicated
      programming.  Other operating costs increased by US$ 0.9
      million, or 22%, primarily due to increased salary and wage costs and
      increased broadcast and operating expenses.  Selling, general
      and administrative expenses were in line with the three months ended
      September 30, 2006.





Page
55
 Index





Nine months ended September 30, 2007
compared to the nine months ended September 30, 2006





SLOVAK REPUBLIC SEGMENT
      FINANCIAL INFORMATIONFor the Nine Months Ended
      September 30, (US$ 000's)2007
            
            
            2006
            
            
            MovementSpot
      revenues
            
            $
            65,913
            
            
            $
            42,231
            
            
            $
            23,682Non-spot
      revenues
            
            
            2,702
            
            
            
            2,916
            
            
            
            (214
            )Segment Net
      Revenues
            
            $
            68,615
            
            
            $
            45,147
            
            
            $
            23,468Represented
      by:Broadcast
      operations
            
            $
            68,408
            
            
            $
            45,126
            
            
            $
            23,282Non-broadcast
      operations
            
            
            207
            
            
            
            21
            
            
            
            186Segment Net
      Revenues
            
            $
            68,615
            
            
            $
            45,147
            
            
            $
            23,468Segment
      EBITDA
            
            $
            23,012
            
            
            $
            9,258
            
            
            $
            13,754Represented
      by:Broadcast
      operations
            
            $
            23,409
            
            
            $
            9,329
            
            
            $
            14,080Non-broadcast
      operations
            
            
            (397
            )
            
            
            (71
            )
            
            
            (326
            )Segment
      EBITDA
            
            $
            23,012
            
            
            $
            9,258
            
            
            $
            13,754Segment EBITDA
      Margin
            
            
            34
            %
            
            
            21
            %
            
            
            13
            %








·
            Segment Net Revenues for
      the nine months ended September 30, 2007 increased by US$ 23.5 million, or
      52%, compared to the nine months ended September 30, 2006.  In
      local currency, Segment Net Revenues increased by 31%.  The
      increase in Segment Net Revenues was due to an increase of US$ 23.7
      million, or 56%, in spot revenues, partially offset by a decrease of US$
      0.2 million in non-spot revenues.  The increase in spot revenues
      is mainly due to an increase in the average revenue per rating point sold
      as well as an increase in the volume of GRPs sold.  Our
      advertising revenues benefited from the launch of a new mobile phone
      operator during the nine months ended September 30, 2007, as well as
      increased spending from existing customers, particularly in the
      pharmaceutical sector.  Segment Net Revenues for the nine months
      ended September 30, 2006 included approximately US$ 1.8 million in respect
      of the period prior to January 23, 2006 when Markiza was accounted for as
      an equity affiliate.





·
            Segment EBITDAfor the
      nine months ended September 30, 2007 increased by US$ 13.8 million, or
      149%, compared to the nine months ended September 30, 2006, resulting in
      an EBITDA margin of 34% compared to 21% in the nine months ended September
      30, 2006.  In local currency, Segment EBITDA increased by
      81%.  Costs charged in arriving at Segment EBITDA for the nine
      months ended September 30, 2007 increased by US$ 9.7 million, or 27%,
      compared to the nine months ended September 30, 2006.  Cost of
      programming increased by US$ 5.6 million, or 30%, due to increased
      investment in local productions and syndicated programming; the amount
      charged in the nine months ended September 30, 2006 included a charge of
      US$ 0.7 million to write off an unsuccessful show.  Other
      operating costs increased by US$ 3.2 million, or 28%, due to increase
      salary and wage costs, increased accruals for performance-related bonus
      payments, increased broadcast and operating expenses and increased music
      right costs.  Selling, general and administrative expenses
      increased by US$ 0.9 million, or 16%, primarily due to increased
      consultancy and increased marketing and research costs, in addition to
      increased office running costs.  Costs charged in arriving at
      Segment EBITDA for the nine months ended September 30, 2006 included US$
      1.7 million of programming costs, US$ 0.9 million of other operating costs
      and US$ 0.4 million of selling, general and administrative expenses in
      respect of the period prior to January 23, 2006, when Markiza was
      accounted for as an equity
affiliate.





Page
56
 Index





(E) SLOVENIA





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





The
combined national all day audience share of our two channels decreased from
37.7% for the nine months ended September 30, 2006 to 37.3% for the nine months
ended September 30, 2007.  The major competitors are state-owned
channels SLO1 and SLO2, with national all day audience shares for the nine
months ended September 30, 2007 of 22.9% and 8.6%, respectively.





Our prime
time audience share decreased from 44.5% in the nine months ended September 30,
2006 to 42.9% in the nine months ended September 30, 2007, with an increased
share in KANAL A, partially offsetting a decreased share in POP
TV.  Our average prime time ratings decreased from 14.2% to 13.8% over
comparable periods, while prime time ratings for the whole market increased from
31.8% in the nine months ended September 30, 2006 to 32.1% in the nine months
ended September 30, 2007.





On
January 1, 2007 Slovenia adopted the Euro and we adopted the Euro as the
functional currency of our Slovenia operations in place of the Slovenian
Tolar.





Page
57
 Index





Three months ended September 30, 2007
compared to the three months ended September 30, 2006





SLOVENIA SEGMENT FINANCIAL
      INFORMATIONFor the Three Months Ended
      September 30, (US$ 000's)2007
            
            
            2006
            
            
            MovementSpot
      revenues
            
            $
            10,413
            
            
            $
            8,637
            
            
            $
            1,776Non-spot
      revenues
            
            
            1,132
            
            
            
            464
            
            
            
            668Segment Net
      Revenues
            
            $
            11,545
            
            
            $
            9,101
            
            
            $
            2,444Represented
      by:Broadcast
      operations
            
            $
            11,076
            
            
            $
            8,753
            
            
            $
            2,323Non-broadcast
      operations
            
            
            469
            
            
            
            348
            
            
            
            121Segment Net
      Revenues
            
            $
            11,545
            
            
            $
            9,101
            
            
            $
            2,444Segment
      EBITDA
            
            $
            854
            
            
            $
            1,225
            
            
            $
            (371
            )Represented
      by:Broadcast
      operations
            
            $
            1,869
            
            
            $
            1,256
            
            
            $
            613Non-broadcast
      operations
            
            
            (1,015
            )
            
            
            (31
            )
            
            
            (984
            )Segment
      EBITDA
            
            $
            854
            
            
            $
            1,225
            
            
            $
            (371
            )Segment EBITDA
      Margin
            
            
            7
            %
            
            
            13
            %
            
            
            (6
            )%








·
            Segment Net Revenues for
      the three months ended September 30, 2007 increased by US$ 2.4 million, or
      27%, compared to the three months ended September 30,
      2006.  Spot revenues increased by US$ 1.8 million, or 21%, as
      our operations benefited from an increase in the average revenue per GRP
      sold, which more than offset a slight decline in
      volume.  Non-spot revenues increased by US$ 0.7 million, or
      144%, due to increased short message service (“SMS”) revenues and also
      increased sponsorship.





·
            Segment EBITDA for the
      three months ended September 30, 2007 decreased by US$ 0.4 million, or
      30%, compared to the three months September 30, 2006, resulting in an
      EBITDA margin of 7% compared to 13% in the three months ended September
      30, 2006.  Costs charged in arriving at Segment EBITDA for the
      three months ended September 30, 2007 increased by US$ 2.8 million, or
      36%, compared to the three months ended September 30,
      2006.  Cost of programming grew by US$ 2.7 million, or 83%, due
      to increased investment in programming in a more competitive market
      environment. We expect to continue to increase our investment in
      programming in order to maintain our market leading
      position.  Other operating costs decreased by US$ 0.4 million,
      or 13%, primarily due to lower salary and freelance
      costs.  Selling, general and administrative expenses increased
      by US$ 0.5 million, or 34%, primarily due to higher consultancy fees, in
      addition to higher office running
costs.





Page
58
 Index





Nine months ended September 30, 2007
compared to the nine months ended September 30, 2006





SLOVENIA SEGMENT FINANCIAL
      INFORMATIONFor the Nine Months Ended
      September 30, (US$ 000's)2007
            
            
            2006
            
            
            MovementSpot
      revenues
            
            $
            39,173
            
            
            $
            33,312
            
            
            $
            5,861Non-spot
      revenues
            
            
            5,136
            
            
            
            1,571
            
            
            
            3,565Segment Net
      Revenues
            
            $
            44,309
            
            
            $
            34,883
            
            
            $
            9,426Represented
      by:Broadcast
      operations
            
            $
            42,901
            
            
            $
            33,779
            
            
            $
            9,122Non-broadcast
      operations
            
            
            1,408
            
            
            
            1,104
            
            
            
            304Segment Net
      Revenues
            
            $
            44,309
            
            
            $
            34,883
            
            
            $
            9,426Segment
      EBITDA
            
            $
            12,243
            
            
            $
            10,688
            
            
            $
            1,555Represented
      by:Broadcast
      operations
            
            $
            12,752
            
            
            $
            10,561
            
            
            $
            2,191Non-broadcast
      operations
            
            
            (509
            )
            
            
            127
            
            
            
            (636
            )Segment
      EBITDA
            
            $
            12,243
            
            
            $
            10,688
            
            
            $
            1,555Segment EBITDA
      Margin
            
            
            28
            %
            
            
            31
            %
            
            
            (3
            )%








·
            Segment Net Revenues for
      the nine months ended September 30, 2007 increased by US$ 9.4 million, or
      27%, compared to the nine months ended September 30, 2006.  Spot
      revenues increased by US$ 5.9 million, or 18%, as our operations benefited
      from an increase in the average revenue per rating point sold, which more
      than offset a slight decline in the volume of GRPs
      sold.  Non-spot revenues increased by US$ 3.6 million, or 227%,
      due to an increased level of sponsorship, and increased SMS
      revenues.





·
            Segment EBITDA for the
      nine months ended September 30, 2007 increased by US$ 1.6 million, or 15%,
      compared to the nine months ended September 30, 2006, resulting in an
      EBITDA margin of 28% compared to 31% in the nine months ended September
      30, 2006.  Costs charged in arriving at Segment EBITDA for the
      nine months ended September 30, 2007 increased by US$ 7.9 million, or 33%,
      compared to the nine months ended September 30, 2006.  Cost of
      programming grew by US$ 7.5 million, or 71%, due to increased investment
      in programming in a more competitive market environment.  Other
      operating costs decreased by US$ 1.1 million, or 12%, primarily due to
      lower salary and freelance costs, partially offset by higher music rights
      costs and higher transmitter and associated maintenance
      costs.  Selling, general and administrative expenses increased
      by US$ 1.5 million, or 38%, primarily due to higher marketing and research
      costs, higher consultancy fees and higher office running
      costs.





Page
59
 Index





(F) UKRAINE (STUDIO
1+1)





Market
Background:  We estimate that the television advertising market
in Ukraine, where sales are denominated primarily in dollars, experienced growth
of approximately 35% - 45% in 2006. We anticipate market growth in the region
of 20% - 30% in 2007.





STUDIO
1+1 had a national all day audience share of 15.7% for the nine months ended
September 30, 2007 compared to 18.5% for the nine months ended September 30,
2006.  Our competitors include Inter, with a national all day audience
share of 20.4%, Novy Kanal with 7.5%, ICTV with 6.9% and STB with
6.9%.





Our prime
time audience share decreased from 23.8% in the nine months ended September 30,
2006 to 17.7% in the nine months ended September 30, 2007.  Our
average prime time ratings decreased from 8.4% to 5.9% over comparable periods,
while prime time ratings for the whole market decreased from 35.5% in the nine
months ended September 30, 2006 to 33.5% in the nine months ended September 30,
2007.  Our share in the nine months ended September 30, 2006 reflected
the outstanding success of a show called Ugly Betty, which ran in the
first half of the year. In 2007, our competitor, Inter, has taken significant
share with another outstanding show, Tatiana’s Day, which will run
through the first quarter of 2008. In addition. many larger major channels have
lost audience share to new niche channels.





Our
independent sales house Video International (Prioritet) lost many of its
broadcasting clients to its major rival InterReklama, which now has
approximately 70% of available advertising inventory at its disposal for
advertising clients. According to Video International, in order to cover the
cash costs of financial guarantees to new and existing broadcasting clients,
InterReklama discounted prices dramatically in the early part of the year.
Subsequently, they have continued to exercise strong negotiating leverage with
their significant broadcaster base. However, we have seen a recovery in pricing
during the second and third quarters from the heavy discounting in the first
quarter.





The
television advertising market has shown strong recovery in the third quarter as
a result of the level of political advertising ahead of the parliamentary
elections that took place on September 30, 2007. However since the elections,
commercial advertisers, notably important local advertisers including mobile
telephone operators, have continued to be cautious in spending their budgets in
light of the continuing political uncertainty arising from the delay in
formation of a government.





Following
the launch of our autumn program schedule, which we delayed until October in
order to avoid the pre-election period, we have experienced some ratings
recovery. However, the caution of local advertisers has led to lower sell-out
rates across the market than is typical in this important  advertising
season. These factors can change substantially over the next few weeks and as a
result there remains a wide range of possible outcomes for trading in the fourth
quarter.





Page
60
 Index





Three months ended September 30, 2007
compared to the three months ended September 30, 2006





UKRAINE (STUDIO 1+1) SEGMENT
      FINANCIAL INFORMATIONFor the Three Months Ended
      September 30, (US$ 000's)2007
            
            
            2006
            
            
            MovementSpot
      revenues
            
            $
            34,461
            
            
            $
            14,413
            
            
            $
            20,048Non-spot
      revenues
            
            
            5,121
            
            
            
            1,165
            
            
            
            3,956Segment Net
      Revenues
            
            $
            39,582
            
            
            $
            15,578
            
            
            $
            24,004Represented
      by:Broadcast
      operations
            
            $
            39,582
            
            
            $
            15,578
            
            
            $
            24,004Non-broadcast
      operations
            
            
            -
            
            
            
            -
            
            
            
            -Segment Net
      Revenues
            
            $
            39,582
            
            
            $
            15,578
            
            
            $
            24,004Segment
      EBITDA
            
            $
            16,599
            
            
            $
            (838
            )
            
            $
            17,437Represented
      by:Broadcast
      operations
            
            $
            16,750
            
            
            $
            (838
            )
            
            $
            17,588Non-broadcast
      operations
            
            
            (151
            )
            
            
            -
            
            
            
            (151
            )Segment
      EBITDA
            
            $
            16,599
            
            
            $
            (838
            )
            
            $
            17,437Segment EBITDA
      Margin
            
            
            42
            %
            
            
            (5
            )%
            
            
            47
            %





·
            Segment Net Revenues for
      the three months ended September 30, 2007 increased by US$ 24.0 million,
      or 154%, compared to the three months ended September 30, 2006. Spot
      revenues increased by US$ 20.0 million, or 139%, primarily due to an
      estimated US$ 16.5 million of political advertising generated from the
      elections held on September 30, 2007. We achieved a very strong increase
      in the average revenue per rating point sold as well as a slight increase
      in the volume of GRPs sold  Non-spot revenues increased by US$
      4.0 million, or 340%, primarily due to increased sponsorship, including
      US$ 1.5 million in political advertising, and the sale of surplus
      programming.





·
            Segment EBITDAfor the
      three months ended September 30, 2007 increased by US$ 17.4 million,
      compared to the three months ended September 30, 2006, resulting in an
      EBITDA margin of 42% compared to a (5)% Segment EBITDA margin loss in the
      three months ended September 30, 2006.  Costs charged in
      arriving at Segment EBITDA for the three months ended September 30, 2007
      increased by US$ 6.6 million, or 40%, compared to the three months ended
      September 30, 2006.  Cost of programming grew by US$ 6.5
      million, or 67%, with the increase reflecting continued price inflation
      for Russian programming, which drives strong ratings in the market, as
      well as increased investment in such programming to improve our
      programming schedule and boost ratings following disappointing ratings
      earlier in the year.  Other operating costs increased by US$ 1.6
      million, or 45%, primarily due to increased salary costs in addition to
      increased broadcast operating expenses.  Selling, general and
      administrative expenses decreased by US$ 1.5 million, or 45%, primarily
      due to decreased taxes, partially offset by higher office running
      costs.





Page
61
 Index





Nine months ended September 30, 2007
compared to the nine months ended September 30, 2006





UKRAINE (STUDIO 1+1) SEGMENT
      FINANCIAL INFORMATIONFor the Nine Months Ended
      September 30, (US$ 000's)2007
            
            
            2006
            
            
            MovementSpot
      revenues
            
            $
            67,567
            
            
            $
            54,988
            
            
            $
            12,579Non-spot
      revenues
            
            
            12,791
            
            
            
            7,129
            
            
            
            5,662Segment Net
      Revenues
            
            $
            80,358
            
            
            $
            62,117
            
            
            $
            18,241Represented
      by:Broadcast
      operations
            
            $
            80,358
            
            
            $
            62,117
            
            
            $
            18,241Non-broadcast
      operations
            
            
            -
            
            
            
            -
            
            
            
            -Segment Net
      Revenues
            
            $
            80,358
            
            
            $
            62,117
            
            
            $
            18,241Segment
      EBITDA
            
            $
            14,794
            
            
            $
            16,183
            
            
            $
            (1,389
            )Represented
      by:Broadcast
      operations
            
            $
            15,128
            
            
            $
            16,183
            
            
            $
            (1,055
            )Non-broadcast
      operations
            
            
            (334
            )
            
            
            -
            
            
            
            (334
            )Segment
      EBITDA
            
            $
            14,794
            
            
            $
            16,183
            
            
            $
            (1,389
            )Segment EBITDA
      Margin
            
            
            18
            %
            
            
            26
            %
            
            
            (8
            )%








·
            Segment Net Revenues for
      the nine months ended September 30, 2007 increased by US$ 18.2 million, or
      29%, compared to the nine months ended September 30, 2006. Spot revenues
      increased by US$ 12.6 million, or 23%, primarily due to an estimated US$
      16.5 million of political advertising generated from the elections held on
      September 30, 2007.  This offset a decline in revenues from a
      decrease in the volume of GRPs sold in the first half as our ratings
      declined due to the poor performance of certain series on Studio 1+1 and
      increased competition from other broadcasters.  In the nine
      months ended September 30, 2006, we received US$ 8.4 million of political
      advertising revenue ahead of the parliamentary elections in March 2006 and
      benefited from the extraordinary ratings success of the Russian series
      Ugly Betty, which ran until July 2006. Non-spot revenues increased by US$
      5.7 million, or 79%, primarily due to the sale of surplus programming and
      increased sponsorship, including political
  advertising.





·
            Segment EBITDAfor the
      nine months ended September 30, 2007 decreased by US$ 1.4 million, or 9%,
      compared to the nine months ended September 30, 2006, resulting in an
      EBITDA margin of 18% compared to an EBITDA margin of 26% in the nine
      months ended September 30, 2006.  Costs charged in arriving at
      Segment EBITDA for the nine months ended September 30, 2007 increased by
      US$ 19.6 million, or 43%, compared to the nine months ended September 30,
      2006.  Cost of programming grew by US$ 19.4 million, or 72%,
      including a charge of US$ 2.7 million in the first half to write off
      poorly performing programming, principally second runs of American
      series.  The increase in cost of programming reflects continued
      price inflation for Russian programming, which drives strong ratings in
      the market, as well as increased investment in such programming to improve
      our programming schedule and boost ratings following disappointing ratings
      earlier in the year in comparison with unusually strong programming on
      Inter.  Other operating costs increased by US$ 3.1 million, or
      30%, due to increased salary costs and increased broadcast operating
      expenses.  Selling, general and administrative expenses
      decreased by US$ 2.9 million, or 34%, primarily due to decreased taxes and
      reduced bad debt expense, partially offset by higher office running
      costs.





Page
62
 Index





We plan
continued investment in programming, particularly Russian series throughout the
remainder of 2007 and 2008 as we seek to recover audience share and improve
profitability.  The performance of our Ukraine operations remains
subject both to political developments, which can have a significant impact on
market development in the fourth quarter of 2007, and to the competitive
dynamics of the market (See Part II, Item IA – “Risk Factors”).








(G) UKRAINE (KINO,
CITI)





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





KINO and
CITI, both of which target a youth market, have as their main competitors ICTV,
TONIS and NTN. As at September 30, 2007, KINO had a national technical reach of
approximately 55.3% and in the nine months ended September 30, 2007 achieved a
15-50 prime time audience share in the Kiev region of 2.3%. CITI had a technical
reach of approximately 95.0% of the population of the city of Kiev and the Kiev
region. In the nine months ended September 30, 2007 CITI achieved a 4+ prime
time audience share of 1.6% in Kiev and the Kiev region.





Three months ended September 30, 2007
compared to the three months ended September 30, 2006





UKRAINE (KINO, CITI) SEGMENT
      FINANCIAL INFORMATIONFor the Three Months Ended
      September 30, (US$ 000's)2007
            
            
            2006
            
            
            MovementSpot
      revenues
            
            $
            305
            
            
            $
            41
            
            
            $
            264Non-spot
      revenues
            
            
            511
            
            
            
            140
            
            
            
            371Segment Net
      Revenues
            
            $
            816
            
            
            $
            181
            
            
            $
            635Represented
      by:Broadcast
      operations
            
            $
            816
            
            
            $
            181
            
            
            $
            635Non-broadcast
      operations
            
            
            -
            
            
            
            -
            
            
            
            -Segment Net
      Revenues
            
            $
            816
            
            
            $
            181
            
            
            $
            635Segment
      EBITDA
            
            $
            (1,339
            )
            
            $
            (1,182
            )
            
            $
            (157
            )Represented
      by:Broadcast
      operations
            
            $
            (1,339
            )
            
            $
            (1,182
            )
            
            $
            (157
            )Non-broadcast
      operations
            
            
            -
            
            
            
            -
            
            
            
            -Segment
      EBITDA
            
            $
            (1,339
            )
            
            $
            (1,182
            )
            
            $
            (157
            )Segment EBITDA
      Margin
            
            
            (164
            )%
            
            
            (653
            )%
            
            
            489
            %








·
            Segment Net Revenues for
      the three months ended September 30, 2007 increased by US$ 0.6 million, or
      351%, compared to the three months ended September 30, 2006. Spot revenues
      increased by US$ 0.3 million, or 644%.  Non-spot revenues
      increased by US$ 0.4 million, or 265%, primarily due to increased program
      sponsorship.





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63
 Index





·
            Segment EBITDAfor the
      three months ended September 30, 2007 decreased by US$ 0.2 million, or
      13%, compared to the three months ended September 30,
      2006.  Costs charged in arriving at Segment EBITDA for the three
      months ended September 30, 2007 increased by US$ 0.8 million, or 57%,
      compared to the three months ended September 30, 2006 as we continued to
      develop the channels.  Cost of programming grew by US$ 0.2
      million, or 23%.  Other operating costs increased by US$ 0.6
      million.  Selling, general and administrative expenses were in
      line with the three months ended September 30,
  2006.





Nine months ended September 30, 2007
compared to the nine months ended September 30, 2006





UKRAINE (KINO, CITI) SEGMENT
      FINANCIAL INFORMATIONFor the Nine Months Ended
      September 30, (US$ 000's)2007
            
            
            2006(1)
            
            
            MovementSpot
      revenues
            
            $
            783
            
            
            $
            362
            
            
            $
            421Non-spot
      revenues
            
            
            1,085
            
            
            
            392
            
            
            
            693Segment Net
      Revenues
            
            $
            1,868
            
            
            $
            754
            
            
            $
            1,114Represented
      by:Broadcast
      operations
            
            $
            1,868
            
            
            $
            754
            
            
            $
            1,114Non-broadcast
      operations
            
            
            -
            
            
            
            -
            
            
            
            -Segment Net
      Revenues
            
            $
            1,868
            
            
            $
            754
            
            
            $
            1,114Segment
      EBITDA
            
            $
            (5,511
            )
            
            $
            (1,736
            )
            
            $
            (3,775
            )Represented
      by:Broadcast
      operations
            
            $
            (5,511
            )
            
            $
            (1,736
            )
            
            $
            (3,775
            )Non-broadcast
      operations
            
            
            -
            
            
            
            -
            
            
            
            -Segment
      EBITDA
            
            $
            (5,511
            )
            
            $
            (1,736
            )
            
            $
            (3,775
            )Segment EBITDA
      Margin
            
            
            (295
            )%
            
            
            (230
            )%
            
            
            (65
            )%





(1) From
acquisition on January 11, 2006 only








·
            Segment Net Revenues for
      the nine months ended September 30, 2007 increased by US$ 1.1 million, or
      148%, compared to the nine months ended September 30, 2006. Spot revenues
      increased by US$ 0.4 million, or 116%.  Non-spot revenues
      increased by US$ 0.7 million, or 177%, primarily due to increased program
      sponsorship.





·
            Segment EBITDAfor the
      nine months ended September 30, 2007 decreased by US$ 3.8 million, or
      217%, compared to the nine months ended September 30,
      2006.  Costs charged in arriving at Segment EBITDA for the nine
      months ended September 30, 2007 increased by US$ 4.9 million, or 195%,
      compared to the nine months ended September 30, 2006 as we continued to
      develop the channels.  Cost of programming grew by US$ 3.2
      million, or 255%.  Other operating costs increased by US$ 1.2
      million, or 169%.  Selling, general and administrative expenses
      increased by US$ 0.5 million, or
89%.





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64
 Index





PROGRAMMING PAYMENTS AND PROGRAM
AMORTIZATION





Our cost
of programming for the three and nine months ended September 30, 2007 and 2006
was as follows:





COST OF
PROGRAMMING


For the Three Months
              Ended September
      30,
              (US$
    000’s)
            
            
            For the Nine Months
              Ended September
      30,
              (US$
    000’s)2007
            
            
            2006
            
            
            2007
            
            
            2006Production
      expenses
            
            $
            27,257
            
            
            $
            22,932
            
            
            $
            95,590
            
            
            $
            71,952Program
      amortization
            
            
            38,652
            
            
            
            24,988
            
            
            
            119,445
            
            
            
            77,236Cost of
      programming
            
            $
            65,909
            
            
            $
            47,920
            
            
            $
            215,035
            
            
            $
            149,188





Production
expenses represent the cost of in-house productions and locally commissioned
programming that will not be repeated, such as news, current affairs and game
shows.  The cost of broadcasting all other programming is recorded as
program amortization.





Total
consolidated programming costs (including amortization of programming rights and
production costs) increased by US$ 18.0 million, or 37.5%, in the three months
ended September 30, 2007 compared to the three months ended September 30, 2006
primarily due to:





·
            US$
      1.0 million reduction in programming costs from our Croatia
      operations;





·
            US$
      2.7 million of additional programming costs from our Czech Republic
      operations.





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





·
            US$
      2.4 million of additional programming costs from our Slovak Republic
      operations;





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





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





·
            US$
      0.2 million of additional programming costs from our Ukraine (KINO, CITI)
      operations;




Total
consolidated programming costs (including amortization of programming rights and
production costs) increased by US$ 65.9 million, or 44.1%, in the nine months
ended September 30, 2007 compared to the nine months ended September 30, 2006
primarily due to:





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





·
            US$
      2.8 million of additional programming costs from our Czech Republic
      operations;




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





·
            US$
      7.3 million of additional programming costs from our Slovak Republic
      operations, which have been consolidated for the entire nine-month period
      in 2007;





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





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




·
              US$
      3.2 million of additional programming costs from our Ukraine (KINO, CITI)
      operations;


Page
65
 Index




The
amortization of acquired programming for each of our consolidated operations for
the three and nine months ended September 30, 2007 and 2006, is set out in the
table below.  For comparison, the table also shows the cash paid for
programming by each of our operations in the respective periods.  The
cash paid for programming by our operations in Croatia, the Czech Republic,
Romania, Slovenia, Ukraine and the Slovak Republic (for the period from January
23, 2006) is reflected within net cash provided by continuing operating
activities in our consolidated statement of cash flows.





PROGRAM AMORTIZATION AND CASH PAID
FOR PROGRAMMING


For the Three Months
              Ended
      September 30,
              (US$
    000’s)
            
            
            For the Nine Months
              Ended
      September 30,
              (US$
    000’s)2007
            
            
            2006
            
            
            2007
            
            
            2006Program
      amortization: (1)Croatia
      (NOVA TV)
            
            $
            3,142
            
            
            $
            2,640
            
            
            $
            13,777
            
            
            $
            9,530Czech
      Republic (TV NOVA)
            
            
            6,730
            
            
            
            5,263
            
            
            
            20,581
            
            
            
            19,152Romania
      (PRO TV, ACASA, PRO CINEMA, PRO TV INTERNATIONAL and
    SPORT.RO)
            
            
            8,314
            
            
            
            5,809
            
            
            
            27,649
            
            
            
            19,599Slovak
      Republic (MARKIZA TV) (post-acquisition)
            
            
            4,391
            
            
            
            2,301
            
            
            
            10,567
            
            
            
            6,379Slovenia
      (POP TV and KANAL A)
            
            
            2,342
            
            
            
            1,418
            
            
            
            6,784
            
            
            
            4,623Ukraine
      (STUDIO 1+1)
            
            
            13,076
            
            
            
            7,139
            
            
            
            37,566
            
            
            
            19,149Ukraine
      (KINO, CITI)
            
            
            657
            
            
            
            418
            
            
            
            2,521
            
            
            
            539$
            38,652
            
            
            $
            24,988
            
            
            $
            119,445
            
            
            $
            78,971





(1)
Includes the program amortization of our operations in the Slovak Republic
(MARKIZA TV) for the period prior to January 23, 2006 when they were accounted
for as an equity affiliate








Cash
      paid for programming:Croatia
      (NOVA TV)
            
            $
            5,484
            
            
            $
            4,341
            
            
            $
            16,391
            
            
            $
            11,939Czech
      Republic (TV NOVA)
            
            
            6,814
            
            
            
            2,941
            
            
            
            17,662
            
            
            
            19,154Romania
      (PRO TV, ACASA, PRO CINEMA, PRO TV INTERNATIONAL and
    SPORT.RO)
            
            
            19,875
            
            
            
            15,786
            
            
            
            42,852
            
            
            
            33,181Slovak
      Republic (MARKIZA TV)
            
            
            3,585
            
            
            
            2,831
            
            
            
            11,750
            
            
            
            8,373Slovenia
      (POP TV and KANAL A)
            
            
            3,568
            
            
            
            2,373
            
            
            
            8,220
            
            
            
            5,872Ukraine
      (STUDIO 1+1)
            
            
            16,509
            
            
            
            13,241
            
            
            
            43,023
            
            
            
            26,923Ukraine
      (KINO, CITI)
            
            
            375
            
            
            
            273
            
            
            
            1,537
            
            
            
            388$
            56,210
            
            
            $
            41,786
            
            
            $
            141,435
            
            
            $
            105,830





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66
 Index





IV. Analysis of the Results of
Consolidated Operations





IV (a) Net Revenues for the three
months ended September 30, 2007 compared to the three months ended September 30,
2006





CONSOLIDATED NET
REVENUES





For the Three Months Ended
      September 30, (US$ 000's)2007
            
            
            2006
            
            
            MovementCroatia
            
            $
            7,055
            
            
            $
            4,288
            
            
            $
            2,767Czech
      Republic
            
            
            51,140
            
            
            
            40,141
            
            
            
            10,999Romania
            
            
            44,414
            
            
            
            29,298
            
            
            
            15,116Slovak
      Republic
            
            
            20,284
            
            
            
            13,895
            
            
            
            6,389Slovenia
            
            
            11,545
            
            
            
            9,101
            
            
            
            2,444Ukraine
      (STUDIO 1+1)
            
            
            39,582
            
            
            
            15,578
            
            
            
            24,004Ukraine
      (KINO, CITI)
            
            
            816
            
            
            
            181
            
            
            
            635Total Consolidated Net
      Revenues
            
            $
            174,836
            
            
            $
            112,482
            
            
            $
            62,354





Our
consolidated net revenues increased by US$ 62.4 million, or 55%, for the three
months ended September 30, 2007 compared to the three months ended September 30,
2006.  See discussion in Part I, Item 2, III. “Analysis of Segment
Results”.





IV (b) Net Revenues for the nine
months ended September 30, 2007 compared to the nine months ended September 30,
2006





CONSOLIDATED NET
REVENUES





For the Nine Months Ended
      September 30, (US$ 000's)2007
            
            
            2006
            
            
            MovementCroatia
            
            $
            24,701
            
            
            $
            13,745
            
            
            $
            10,956Czech
      Republic
            
            
            183,203
            
            
            
            137,002
            
            
            
            46,201Romania
            
            
            135,978
            
            
            
            96,938
            
            
            
            39,040Slovak
      Republic *
            
            
            68,615
            
            
            
            43,386
            
            
            
            25,229Slovenia
            
            
            44,309
            
            
            
            34,883
            
            
            
            9,426Ukraine
      (STUDIO 1+1)
            
            
            80,358
            
            
            
            62,117
            
            
            
            18,241Ukraine
      (KINO, CITI)
            
            
            1,868
            
            
            
            754
            
            
            
            1,114Total Consolidated Net
      Revenues
            
            $
            539,032
            
            
            $
            388,825
            
            
            $
            150,207


* From
January 23, 2006 only.





Our
consolidated net revenues for the nine months ended September 30, 2007 increased
by US$ 150.2 million, or 39%, compared to the nine months ended September 30,
2006.  See discussion in Part I, Item 2, III. “Analysis of Segment
Results”.





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67
 Index





IV (c) Cost of Revenues for the three
months ended September 30, 2007 compared to the three months ended September 30,
2006





CONSOLIDATED COST OF
REVENUES





For the Three Months Ended
      September 30, (US$ 000's)2007
            
            
            2006
            
            
            MovementOperating
      costs
            
            $
            27,166
            
            
            $
            22,073
            
            
            $
            5,093Cost
      of programming
            
            
            65,909
            
            
            
            47,920
            
            
            
            17,989Depreciation
      of station property, plant and equipment
            
            
            8,768
            
            
            
            6,080
            
            
            
            2,688Amortization
      of broadcast licenses and other intangibles
            
            
            6,595
            
            
            
            5,015
            
            
            
            1,580Total Consolidated Cost of
      Revenues
            
            $
            108,438
            
            
            $
            81,088
            
            
            $
            27,350





Total
consolidated cost of revenues increased by US$ 27.4 million, or 34%, in the
three months ended September 30, 2007 compared to the three months ended
September 30, 2006.





Operating
costs:Total consolidated operating costs (excluding
programming costs, depreciation of station property, plant and equipment,
amortization of broadcast licenses and other intangibles as well as station
selling, general and administrative expenses) for the three months ended
September 30, 2007 increased by US$ 5.1 million, or 23%, compared to the three
months ended September 30, 2006.  See discussion in Part I, Item 2,
III. “Analysis of Segment Results”.





Cost of
programming:Consolidated programming costs (including
amortization of programming rights and production costs) for the three months
ended September 30, 2007 increased by US$ 18.0 million, or 38%, compared to the
three months ended September 30, 2006.  See discussion in Part I, Item
2, III. “Analysis of Segment Results”.





Depreciation of property, plant and
equipment:  Total consolidated depreciation of property, plant
and equipment for the three months ended September 30, 2007 increased by US$ 2.7
million, or 44%, compared to the three months ended September 30, 2006 primarily
due to depreciation of newly acquired production equipment assets across each of
our operations.





Amortization of broadcast licenses
and other intangibles:  Total consolidated amortization of
broadcast licenses and other intangibles for the three months ended September
30, 2007 increased by US$ 1.6 million, or 32%, compared to the three months
ended September 30, 2006 primarily due to the amortization of the broadcast
licenses and customer relationships of our Romania and Slovak Republic
operations arising on our acquisition of increased stakes earlier in
2007.





IV (d) Cost of Revenues for the nine
months ended September 30, 2007 compared to the nine months ended September 30,
2006





CONSOLIDATED COST OF
REVENUES





For the Nine Months Ended
      September 30, (US$ 000's)2007
            
            
            2006
            
            
            MovementOperating
      costs
            
            $
            83,767
            
            
            $
            71,087
            
            
            $
            12,680Cost
      of programming
            
            
            215,035
            
            
            
            149,188
            
            
            
            65,847Depreciation
      of station property, plant and equipment
            
            
            23,347
            
            
            
            17,841
            
            
            
            5,506Amortization
      of broadcast licenses and other intangibles
            
            
            16,922
            
            
            
            13,967
            
            
            
            2,955Total Consolidated Cost of
      Revenues
            
            $
            339,071
            
            
            $
            252,083
            
            
            $
            86,988





Page
68
 Index





Total
consolidated cost of revenues increased by US$ 87.0 million, or 35%, in the nine
months ended September 30, 2007 compared to the nine months ended September 30,
2006.





Operating
costs:Total consolidated operating costs (excluding
programming costs, depreciation of station property, plant and equipment,
amortization of broadcast licenses and other intangibles as well as station
selling, general and administrative expenses) for the nine months ended
September 30, 2007 increased by US$ 12.7 million, or 18%, compared to the nine
months ended September 30, 2006.  See discussion in Part I, Item 2,
III. “Analysis of Segment Results”.





Cost of
programming:Consolidated programming costs (including
amortization of programming rights and production costs) for the nine months
ended September 30, 2007 increased by US$ 65.8 million, or 44%, compared to the
nine months ended September 30, 2006.  See discussion in Part I, Item
2, III. “Analysis of Segment Results”.





Depreciation of property, plant and
equipment:  Total consolidated depreciation of property, plant
and equipment for the nine months ended September 30, 2007 increased by US$ 5.5
million, or 31%, compared to the nine months ended September 30, 2006 primarily
due to depreciation of newly acquired production equipment assets across each of
our operations.





Amortization of broadcast licenses
and other intangibles:  Total consolidated amortization of
broadcast licenses and other intangibles for the nine months ended September 30,
2007 increased by US$ 3.0 million, or 21%, compared to the nine months ended
September 30, 2006 primarily due to the amortization of the broadcast licenses
and customer relationships of our Romania and Slovak Republic operations arising
on our acquisition of increased stakes earlier in 2007.





IV (e) Station Selling, General and
Administrative Expenses for the three months ended September 30, 2007 compared
to the three months ended September 30, 2006





CONSOLIDATED STATION SELLING, GENERAL
AND ADMINISTRATIVE EXPENSES


For the Three Months Ended
      September 30, (US$ 000's)2007
            
            
            2006
            
            
            MovementCroatia
            
            $
            2,691
            
            
            $
            2,202
            
            
            $
            489Czech
      Republic
            
            
            5,595
            
            
            
            5,317
            
            
            
            278Romania
            
            
            3,224
            
            
            
            1,806
            
            
            
            1,418Slovak
      Republic
            
            
            2,279
            
            
            
            2,303
            
            
            
            (24
            )Slovenia
            
            
            1,821
            
            
            
            1,356
            
            
            
            465Ukraine
      (STUDIO 1+1)
            
            
            1,814
            
            
            
            3,265
            
            
            
            (1,451
            )Ukraine
      (KINO, CITI)
            
            
            185
            
            
            
            232
            
            
            
            (47
            )Total Consolidated Station
      Selling, General and Administrative Expenses
            
            $
            17,609
            
            
            $
            16,481
            
            
            $
            1,128





Total
consolidated station selling, general and administrative expenses increased by
US$ 1.1 million, or 7%, in the three months ended September 30, 2007 compared to
the three months ended September 30, 2006.  See discussion in Part I,
Item 2, III. “Analysis of Segment Results”.





Page
69
 Index





IV (f) Station Selling, General and
Administrative Expenses for the nine months ended September 30, 2007 compared to
the nine months ended September 30, 2006





CONSOLIDATED STATION SELLING, GENERAL
AND ADMINISTRATIVE EXPENSES


For the Nine Months Ended
      September 30, (US$ 000's)2007
            
            
            2006
            
            
            MovementCroatia
            
            $
            6,430
            
            
            $
            4,991
            
            
            $
            1,439Czech
      Republic
            
            
            15,596
            
            
            
            15,383
            
            
            
            213Romania
            
            
            8,568
            
            
            
            6,616
            
            
            
            1,952Slovak
      Republic
            
            
            6,539
            
            
            
            5,216
            
            
            
            1,323Slovenia
            
            
            5,293
            
            
            
            3,840
            
            
            
            1,453Ukraine
      (STUDIO 1+1)
            
            
            5,698
            
            
            
            8,619
            
            
            
            (2,921
            )Ukraine
      (KINO, CITI)
            
            
            965
            
            
            
            523
            
            
            
            442Total Consolidated Station
      Selling, General and Administrative Expenses
            
            $
            49,089
            
            
            $
            45,188
            
            
            $
            3,901





Total
consolidated station selling, general and administrative expenses increased by
US$ 3.9 million, or 9%, in the nine months ended September 30, 2007 compared to
the nine months ended September 30, 2006. See discussion in Part I, Item 2, III.
“Analysis of Segment Results”.








IV (g) Corporate Operating Costs for
the three months ended September 30, 2007 compared to the three months ended
September 30, 2006





CORPORATE OPERATING
COSTS




For
      the Three Months Ended September 30, (US$ 000's)2007
              
              
              2006
              
              
              MovementCorporate
      operating costs (excluding stock-based compensation)
              
              $
              18,902
              
              
              $
              7,375
              
              
              $
              11,527Stock-based
      compensation
              
              
              1,494
              
              
              
              967
              
              
              
              527Total
      Corporate Operating Costs
              
              $
              20,396
              
              
              $
              8,342
              
              
              $
              12,054




Corporate
operating costs (excluding non-cash stock-based compensation) for the three
months ended September 30, 2007 increased by US$ 11.5 million, or
156 %, compared to the three months ended September 30, 2006, primarily
due to a charge of US$ 6.6 million in respect of the estimated cost of
settlement of our Croatia litigation (see Item 1, Note 18) and increased
accruals for performance-related bonus payments.
 
 The
increase in the charge for non-cash stock-based compensation for the three
months ended September 30, 2007 compared to the three months ended September 30,
2006 reflects an increase in the number of stock options granted in 2006
compared to prior years as well as an increase in the fair value of stock
options as our stock price increased in recent years.  For more
details, see Part I Item 1, Note 14.


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IV (h) Corporate Operating Costs for
the nine months ended September 30, 2007 compared to the nine months ended
September 30, 2006





CORPORATE OPERATING
COSTS




For
      the Nine Months Ended September 30, (US$ 000's)2007
              
              
              2006
              
              
              MovementCorporate
      operating costs (excluding stock-based compensation)
              
              $
              38,515
              
              
              $
              21,634
              
              
              $
              16,881Stock-based
      compensation
              
              
              4,098
              
              
              
              2,385
              
              
              
              1,713Total
      Corporate Operating Costs
              
              $
              42,613
              
              
              $
              24,019
              
              
              $
              18,594





Corporate
operating costs (excluding non-cash stock-based compensation) for the nine
months ended September 30, 2007 increased by US$  16.9 million, or
78%, compared to the nine months ended September 30, 2006, primarily due
to:




·
              a
      charge of US$ 12.5 million in respect of the estimated cost of settlement
      of our Croatia litigation (see Item 1, Note
  18);


·
            increased
      accruals for performance-related bonus
payments;





·
            increased
      business development expenses incurred in researching potential
      acquisition targets, partly offset
by;





·
            decreased
      property-related costs, as the expense incurred in the nine months ended
      September 30, 2006 included a lease exit charge of approximately US$ 1.6
      million (including additional depreciation of US$ 0.3 million) incurred
      following the relocation of our London office during the first quarter of
      2006; and





·
            decreased
      legal costs incurred in connection with legal proceedings in respect of
      our Ukraine operations.




IV (i) Impairment charge for the
three and nine months ended September 30, 2007 compared to the three and nine
months ended September 30, 2006





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








IV (j) Operating Income for the three
months ended September 30, 2007 compared to the three months ended September 30,
2006





OPERATING INCOME





For
      the Three Months Ended September 30, (US$ 000's)2007
              
              
              2006
              
              
              MovementOperating
      Income
              
              $
              28,393
              
              
              $
              6,571
              
              
              $
              21,822




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Operating
income for the three months ended September 30, 2007 increased by US$ 21.8
million, or 332%, compared to the three months ended September 30,
2006.  Operating margin was 16%, compared with 6% for the three months
ended September 30, 2006.





IV (k) Operating Income for the nine
months ended September 30, 2007 compared to the nine months ended September 30,
2006





OPERATING INCOME





For
      the Nine Months Ended September 30, (US$ 000's)2007
                
                
                2006
                
                
                MovementOperating
      Income
                
                $
                108,259
                
                
                $
                66,787
                
                
                $
                41,472
 
 Operating
income for the nine months ended September 30, 2007 increased by US$ 41.5
million, or 62%, compared to the nine months ended September 30,
2006.  Operating margin was 20%, compared with 17% for the nine months
ended September 30, 2006.


IV (l) Other income / (expense) items
for the three months ended September 30, 2007 compared to the three months ended
September 30, 2006





OTHER INCOME / (EXPENSE)
ITEMS





For
      the Three Months Ended September 30, (US$ 000's)2007
              
              
              2006
              
              
              MovementInterest
      income
              
              $
              1,180
              
              
              $
              1,554
              
              
              $
              (374
              )Interest
      expense
              
              
              (11,883
              )
              
              
              (11,066
              )
              
              
              (817
              )Foreign
      currency exchange (loss) / gain, net
              
              
              (23,300
              )
              
              
              6,018
              
              
              
              (29,318
              )Change
      in fair value of derivatives
              
              
              (8,555
              )
              
              
              (881
              )
              
              
              (7,674
              )Other
      income / (expense)
              
              
              44
              
              
              
              (412
              )
              
              
              456Provision
      for income taxes
              
              
              (131
              )
              
              
              (1,235
              )
              
              
              1,104Minority
      interest in income of consolidated subsidiaries
              
              
              (4,511
              )
              
              
              (461
              )
              
              
              (4,050
              )Gain
      on sale of unconsolidated affiliate
              
              
              -
              
              
              
              6,179
              
              
              
              (6,179
              )Discontinued
      operations
              
              $
              -
              
              
              $
              (2,333
              )
              
              $
              2,333





Interest income for the three
months ended September 30, 2007 was broadly in line with that recognized in the
three months ended September 30, 2006.





Interest expense for the three
months ended September 30, 2007 increased by US$ 0.8 million compared to the
three months ended September 30, 2006, primarily as a result of our increased
borrowings.





Foreign currency exchange loss,
net:  For the three months ended September 30, 2007 we
recognized a US$ 23.3 million loss primarily as a result of the strengthening of
the Euro against the dollar during the three-month period.  Our Senior
Notes are denominated in Euros, and we incurred a transaction loss of
approximately US$ 26.6 million due to movements in the spot rate between June
30, 2007 and September 30, 2007.  For the three months ended September
30, 2006, we recognized a transaction gain of US$ 6.0 million.




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Change in fair value of
derivatives: For the three months ended September 30, 2007 we recognized
a loss of US$ 8.6 million as a result of the change in the fair value of the
currency swaps entered into on April 27, 2006 compared to a loss of US$ 0.9
million for the three months ended September 30, 2006.  For further
information, see Part I Item 1, Note 12.




Other
income / (expense):  For the three months ended
September 30, 2007 we recognized other income of US$ 0.1 million
compared to expenses of US$ 0.4 million for the three months ended September 30,
2006.




Provision for income
taxes:  The provision for income taxes for the three months
ended September 30, 2007 was US$ 0.1 million compared to US$ 1.2 million for the
three months ended September 30, 2006.  We incur a tax charge despite
reporting a taxable loss primarily due to the fact that there is no tax benefit
attributable to the foreign currency exchange transaction loss arising on the
Senior Notes.





Minority interest in income of
consolidated subsidiaries:  For the three months ended
September 30, 2007, we recognized a charge of US$ 4.5 million in respect of the
minority interest in the income of consolidated subsidiaries, compared to a
charge of US$ 0.5 million for the three months ended September 30, 2006. This
reflected the strong increase in profitability of our Ukraine (Studio 1+1)
operations.





Discontinued
operations:  For the three months ended September 30, 2007 we
recognized a charge of US$ nil in respect of discontinued operations compared to
US$ 2.3 million for the three months ended September 30, 2006.





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





The
revenues and expenses of our former Czech Republic operations and the award
income and related legal expenses have therefore all been treated as
discontinued operations.  For the three months ended September 30,
2006, the amounts charged to discontinued operations largely represented revised
estimates of additional payments we expect to make to the Dutch tax authorities
pursuant to the agreement we entered into on February 9, 2004 (see also Part I,
Item 1, Note 17).








IV (m) Other income / (expense) items
for the nine months ended September 30, 2007 compared to the nine months ended
September 30, 2006





OTHER INCOME / (EXPENSE)
ITEMS





For
      the Nine Months Ended September 30, (US$ 000's)2007
              
              
              2006
              
              
              MovementInterest
      income
              
              $
              4,326
              
              
              $
              4,748
              
              
              $
              (422
              )Interest
      expense
              
              
              (42,717
              )
              
              
              (32,921
              )
              
              
              (9,796
              )Foreign
      currency exchange gain loss, net
              
              
              (28,552
              )
              
              
              (25,469
              )
              
              
              (3,083
              )Change
      in fair value of derivatives
              
              
              3,497
              
              
              
              (2,757
              )
              
              
              6,254Other
      expense
              
              
              (746
              )
              
              
              (793
              )
              
              
              47Provision
      for income taxes
              
              
              (18,609
              )
              
              
              (8,811
              )
              
              
              (9,798
              )Minority
      interest in income of consolidated subsidiaries
              
              
              (9,881
              )
              
              
              (7,178
              )
              
              
              (2,703
              )Equity
      in income / (loss) of unconsolidated affiliates
              
              
              -
              
              
              
              (730
              )
              
              
              730Gain
      on sale of unconsolidated affiliate
              
              
              -
              
              
              
              6,179
              
              
              
              (6,179
              )Discontinued
      operations
              
              $
              -
              
              
              $
              (4,863
              )
              
              $
              4,863




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Interest income for the nine
months ended September 30, 2007 was broadly in line with that recognized in the
nine months ended September 30, 2006.


Interest expense for the nine
months ended September 30, 2007 increased by US$ 9.8 million compared to the
nine months ended September 30, 2006, primarily as a result of US$ 6.9 million
of costs associated the redemption of our 2012 Floating Rate Notes as well as an
increase in our average borrowings.




Foreign currency exchange loss,
net:  For the nine months ended September 30, 2007 we
recognized a US$ 28.6 million loss primarily as a result of the strengthening of
the Euro against the dollar during the nine-month period. Our Senior Notes are
denominated in Euros, and we incurred a transaction loss of approximately US$
38.1 million due to movements in the spot rate between December 31, 2006 and
September 30, 2007.  For the nine months ended September 30, 2006, we
recognized a transaction loss of US$ 25.5 million.





Change in fair value of
derivatives: For the nine months ended September 30, 2007 we recognized a
US$ 3.5 million gain as a result of the change in the fair value of the currency
swaps entered into on April 27, 2006 compared to a loss of US$ 2.8 million for
the nine months ended September 30, 2006.  For further information,
see Part I Item 1, Note 12.




Other expense:  For
the nine months ended September 30, 2007 we incurred other expenses of US$
0.7 million compared to US$ 0.8 million for the nine months ended
September 30, 2006.




Provision for income
taxes:  The provision for income taxes for the nine months
ended September 30, 2007 was US$ 18.6 million compared to US$ 8.8 million for
the nine months ended September 30, 2006 as a result of our increased
profitability.  Our stations pay income taxes at rates ranging from
16.0% in Romania to 25.0% in Ukraine.





Minority interest in income of
consolidated subsidiaries:  For the nine months ended September
30, 2007, we recognized a charge of US$ 9.9 million in respect of the
minority interest in the income of consolidated subsidiaries, compared to a
charge of US$ 7.2 million for the nine months ended September 30,
2006.  This movement primarily reflects the increased profitability of
our Slovak Republic and Romania operations.





Equity in income / (loss) of
unconsolidated affiliates:  Some of our broadcasting licenses
were held by unconsolidated affiliates over which we had minority blocking
rights but not majority control.  These affiliates were accounted for
using the equity method.





Equity in
income / (loss) of unconsolidated affiliates for the nine months ended September
30, 2007 decreased by US$ 0.7 million compared to the nine months ended
September 30, 2006 as detailed below:





EQUITY IN INCOME / (LOSS) OF
UNCONSOLIDATED AFFILIATES





For the Nine Months Ended
      September 30, (US$ 000's)2007
            
            
            2006
            
            
            MovementRomania
      operations
            
            $
            -
            
            
            $
            7
            
            
            $
            (7
            )Slovak
      Republic operations
            
            
            -
            
            
            
            (737
            )
            
            
            737Total Equity in Income / (Loss)
      of Unconsolidated Affiliates
            
            $
            -
            
            
            $
            (730
            )
            
            $
            730





Discontinued operations: For
the nine months ended September 30, 2007 we recognized a charge of US$ nil in
respect of discontinued operations compared to US$ 4.9 million for the nine
months ended September 30. 2006.




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74
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On June
19, 2003, our Board of Directors decided to withdraw from our former operations
in the Czech Republic.  On October 23, 2003, we sold our 93.2%
interest in CNTS to our former Czech Republic operating company for US$ 53.2
million.
 
 The
revenues and expenses of our former Czech Republic operations and the award
income and related legal expenses have therefore all been treated as
discontinued operations.  For the nine months ended September 30,
2006, the amounts charged to discontinued operations represent additional
payments we expect to make to the Dutch tax authorities pursuant to the
agreement we entered into on February 9, 2004 (see also Part I, Item 1, Note
17).


IV (n) Condensed consolidated balance
sheet as at September 30, 2007 compared to December 31, 2006





SUMMARIZED CONDENSED CONSOLIDATED
BALANCE SHEET (US$ 000’s)





September 30,
              2007
            
            
            December 31,
              2006
            
            
            MovementCurrent
      assets
            
            $
            489,398
            
            
            $
            413,616
            
            
            $
            75,782Non-current
      assets
            
            
            1,678,139
            
            
            
            1,405,384
            
            
            
            272,755Current
      liabilities
            
            
            245,643
            
            
            
            182,961
            
            
            
            62,682Non-current
      liabilities
            
            
            659,083
            
            
            
            574,084
            
            
            
            84,999Minority
      interests in consolidated subsidiaries
            
            
            15,780
            
            
            
            26,189
            
            
            
            (10,409
            )Shareholders’
      equity
            
            $
            1,247,031
            
            
            $
            1,035,766
            
            
            
            211,265





Current
assets:  Current assets at September 30, 2007 increased US$
75.8 million compared to December 31, 2006, primarily as a result of increases
in cash and program rights, including prepaid programming.





Non-current
assets:  Non-current assets at September 30, 2007 increased US$
272.8 million compared to December 31, 2006, primarily as a result of the
recognition of goodwill and other intangible assets following our acquisition of
Sport.ro and additional stakes in our Romania and Slovak Republic operations, as
well as increased investment in station property, plant and equipment in the
Czech Republic and Romania.





Current
liabilities:  Current liabilities at September 30, 2007
increased US$ 62.7 million compared to December 31, 2006, primarily reflecting
increases in deferred income and interest payable, partially offset by a
decrease in accounts payable.





Non-current
liabilities:  Non-current liabilities at September 30, 2007
increased US$ 85.0 million compared to December 31, 2006, primarily as a result
of our issuance of EUR 150.0 million of 2014 Floating Rate Notes, partially
offset by the redemption of EUR 125.0 million of 2012 Floating Rate Notes issued
in May 2005.





Minority interests in consolidated
subsidiaries:  Minority interests in consolidated subsidiaries
at September 30, 2007 decreased US$ 10.4 million compared to December 31, 2006,
primarily as a result of our acquisition of additional stakes in our Romania and
Slovak Republic operations during 2007.





Shareholders’
equity:  Total shareholders’ equity at September 30, 2007
increased US$ 211.2 million compared to December 31, 2006.  This
increase reflects net proceeds of US$ 109.9 million from the issuance of shares
of our Class A Common Stock to Igor Kolomoisky in August 2007, an increase in
Other Comprehensive Income of US$ 81.0 million and net income of US$ 15.6
million for the nine months ended September 30, 2007, partially offset by the
impact of the adoption of FIN 48 (US$ 3.2 million). Included in the total
shareholders’ equity were proceeds from the exercise of stock options (US$ 3.5
million) and amounts of US$  4.6 million related to stock-based
compensation.





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V. Liquidity and Capital
Resources





V (a) Summary of cash
flows





Cash and
cash equivalents increased by US$ 46.7 million during the nine months ended
September 30, 2007.  The change in cash and cash equivalents is
summarized as follows:





SUMMARY OF CASH
FLOWS





For the Nine Months Ended
      September 30, (US$ 000's)2007
            
            
            2006Net
      cash generated from continuing operating activities
            
            $
            95,889
            
            
            $
            67,907Net
      cash used in continuing investing activities
            
            
            (188,463
            )
            
            
            (100,818
            )Net
      cash received from financing activities
            
            
            136,446
            
            
            
            132,227Net
      cash used in discontinued operations – operating
activities
            
            
            (2,164
            )
            
            
            (1,690
            )Net increase in cash and cash
      equivalents
            
            $
            46,665
            
            
            $
            92,844





Operating
Activities





Cash
generated from continuing operations increased from US$ 67.9 million in the nine
months ended September 30, 2006 to US$ 95.9 million in the nine months ended
September 30, 2007. The amount of cash generated by each of our stations other
than Croatia and Ukraine (KINO, CITI) increased as a result of improved
operational performance with particularly strong increases in the Czech
Republic, Romania and the Slovak Republic. These increases more than offset our
increased investment in programming, particularly in Ukraine, which is
experiencing significant price inflation for popular Russian series and is
making additional investments in such programming to boost ratings, and in
Croatia, where we are improving the quality of our programming to drive ratings
growth.  It is likely that the cost of acquired programming across all
our markets will continue to grow in the future.





Investing
Activities





Cash used
in investing activities increased from US$ 100.8 million in the nine months
ended September 30, 2006 to US$ 188.5 million in the nine months ended September
30, 2007.  Our investing cash flows in the nine months ended September
30, 2007 were primarily comprised of:





·
            Payment
      of SKK 1.9 billion (approximately US$ 78.5 million) in connection with our
      acquisition of the final 20% stake in our Slovak Republic operations (for
      further information, see Part I, Item 1, Note
  3);


·
            Payment
      of US$ 51.6 million in connection with our acquisition of an additional 5%
      stake in our Romania broadcasting operations and a 20% stake in our
      Romanian production company (for further information, see Part I, Item 1,
      Note 3);


·
            Payments
      of EUR 6.7 million (approximately US$ 8.4 million) in connection with our
      acquisition of Sport.ro (for further information, see Part I, Item 1, Note
      3);


·
            Payments
      of US$ 3.1 million in connection with our acquisition of a 60.4% stake in
      each of Tor and Zhysa (for further information, see Part I, Item 1, Note
      3); and


·
            Capital
      expenditure of US$ 46.3 million.





Financing
Activities





Net cash
received from financing activities in the nine months ended September 30, 2007
was US$ 136.4 million compared to US$ 132.2 million in the nine months ended
September 30, 2006.  Our financing cash flows in the nine months ended
September 30, 2007 primarily comprised net proceeds of US$ 199.4 million from
the issuance of EUR 150.0 million of 2014 Floating Rate Notes and US$ 110
million from the issuance of approximately 1.275 million shares of Class
A Common Stock to Igor Kolomoisky, partially offset by payment of EUR 127.5
million (approximately US$ 169.0 million at the date of payment) to redeem our
2012 Floating Rate Notes issued in May 2005.





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The
amount of cash received in the nine months ended September 30, 2006 reflects
proceeds of US$ 168.6 million from the issuance of Class A Common Stock and
a net payment of US$ 36.4 million to repay credit
facilities.





Discontinued
Operations





In the
nine months ended September 30, 2007, we paid taxes of US$ 2.2 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 nine months ended September
30, 2006.








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 for our existing operations, subject to the
matters disclosed in “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 ongoing station operations, may be remitted to us, or to other
shareholders where appropriate.  Surplus cash is remitted to us in the
form of debt interest payments and capital repayments, dividends, and other
distributions and loans from our subsidiaries.





Corporate
law in the Central and Eastern European countries in which we operate stipulates
generally that dividends may be declared by the partners or shareholders out of
yearly profits subject to the maintenance of registered capital, required
reserves and after the recovery of accumulated losses. Except as set forth
below, our voting power is sufficient to compel the making of
distributions.





In the
case of Nova TV (Croatia), distributions may be paid from net profits subject to
a reserve of 5% of annual profits until the aggregate reserves equal 5% of the
registered capital of Nova TV (Croatia). In the case of CET 21, distributions
may be paid from net profits subject to a reserve of 5% of net profits until the
aggregate reserves equal 10% of the registered capital of CET 21. In the case of
Pro TV, distributions may be paid from the profits of Pro TV subject to a
reserve of 5% of annual profits until the aggregate reserves equal 20% of Pro
TV's registered capital. A majority vote is required in order for Pro TV to make
distributions and we have sufficient voting power to compel distributions of
dividends.  In the case of Markiza, distributions may be paid from net
profits subject to an initial reserve requirement of 10% of net profits until
the reserve fund equals 5% of registered capital. Subsequently, the reserve
requirement is equal to 5% of net profits until the reserve fund equals 10% of
registered capital. In the case of Pro Plus, distributions may be paid from the
profits of Pro Plus, subject to a reserve equal to 10% of registered capital
being established from accumulated profits. In the case of Studio 1+1,
distributions may be paid from net profits subject to a reserve of 5% of net
profits until the aggregate reserves equal 25% of the registered capital of
Studio 1+1. In the case of Inter-Media, Innova and IMS, distributions may be
paid from their profits and there is no reserve requirement for these companies.
Our voting power in Innova and IMS is sufficient to compel the distribution of
dividends.





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77
 Index





As at
September 30, 2007 and December 31, 2006 the operations had the following
unsecured balances owing to their respective holding companies:





Operating segment (US$
      000’s)
            
            September 30,
      2007
            
            
            December 31,
      2006Croatia
            
            $
            95,373
            
            
            $
            67,623Czech
      Republic
            
            
            420,814
            
            
            
            434,897Romania
            
            
            52,613
            
            
            
            25,620Slovak
      Republic
            
            
            10,186
            
            
            
            23,670Slovenia
            
            
            -
            
            
            
            -Ukraine
      (STUDIO 1+1)
            
            
            930
            
            
            
            -Ukraine
      (KINO, CITI)
            
            
            14,505
            
            
            
            4,621Total
            
            $
            594,421
            
            
            $
            556,431





V (c) Contractual Obligations and
Commitments





Our
future contractual obligations as of September 30, 2007 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
            
            $
            574,584
            
            
            $
            12,839
            
            
            $
            1,700
            
            
            $
            -
            
            
            $
            560,045Long-Term
      Debt – interest
            
            
            229,995
            
            
            
            41,080
            
            
            
            82,280
            
            
            
            81,974
            
            
            
            24,661Capital
      Lease Obligations
            
            
            6,838
            
            
            
            860
            
            
            
            1,591
            
            
            
            1,420
            
            
            
            2,967Operating
      Leases
            
            
            5,160
            
            
            
            1,876
            
            
            
            2,368
            
            
            
            916
            
            
            
            -Unconditional
      Purchase Obligations
            
            
            132,794
            
            
            
            115,735
            
            
            
            9,254
            
            
            
            5,632
            
            
            
            2,173Other
      Long-Term Obligations
            
            
            6,867
            
            
            
            5,367
            
            
            
            1,500
            
            
            
            -
            
            
            
            -Total Contractual
      Obligations
            
            $
            956,238
            
            
            $
            177,757
            
            
            $
            98,693
            
            
            $
            89,942
            
            
            $
            589,846








Long-Term Debt





At
September 30, 2007, we had the following debt outstanding:





September 30,
      2007
              (US$
      000’s)Corporate
            
            (1)–(2)
            
            $
            560,045Croatia
      operations
            
            (3)
            
            
            -Czech
      Republic operations
            
            (4)–(6)
            
            
            12,839Romania
      operations
            
            (7)
            
            
            -Slovenia
      operations
            
            (8)
            
            
            -Ukraine
      (KINO, CITI) operations
            
            (9)
            
            
            1,700Total
            
            
            
            $
            574,584





(1)
            In
      May 2005, we issued senior notes in the aggregate principal amount of EUR
      370.0 million (approximately US$ 524.6 million) consisting of
      EUR 245.0 million (approximately US$ 347.4 million) of Fixed
      Rate Notes, which bears interest at 8.25% and EUR 125.0 million
      (approximately US$ 177.2 million) of 2012 Floating Rate Notes,
      which bore interest at six-month Euro Inter-Bank Offered Rate (“EURIBOR”)
      plus 5.50%.  On May 15, 2007, we redeemed the 2012 Floating Rate
      Notes.





On May
16, 2007 we issued our 2014 Floating Rate Notes in the aggregate principal
amount of EUR 150.0 million (approximately US$ 212.7 million), which bears
interest at EURIBOR plus 1.625% (5.80% was applicable at September 30,
2007).   Interest is payable on the Senior Notes semi-annually in
arrears on each May 15 and November 15.





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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 two subsidiary holding companies and are secured
by a pledge of shares of these subsidiaries as well as an assignment of certain
contractual rights.  The terms of our indebtedness restrict the manner
in which our business is conducted, including the incurrence of additional
indebtedness, the making of investments, the payment of dividends or the making
of other distributions, entering into certain affiliate transactions and the
sale of assets.





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





At any
time prior to May 15, 2008, we may redeem up to 35.0% of the Fixed Rate Notes
with the proceeds of any public equity offering at a price of 108.25% of the
principal amount of such notes, plus accrued and unpaid interest, if any, to the
redemption date.  In addition, prior to May 15, 2009, we may redeem
all or a part of the Fixed Rate Notes at a redemption price equal to 100.0% of
the principal amount of such notes, plus a “make-whole” premium and accrued and
unpaid interest, if any, to the redemption date.





On
September 10, 2007, Standard & Poor’s senior unsecured debt rating for our
Senior Notes was upgraded to BB- from B+, with a corporate credit rating of BB/
(stable), up from BB- / (positive).  At September 30, 2007, Moody’s
Investors Service’s rating of both our corporate credit rating and our Senior
Notes was Ba3 stable.





(2)
            On
      July 21, 2006, we entered into a five-year revolving loan agreement for
      EUR 100.0 million (approximately US$ 141.8 million) arranged by EBRD and
      on August 22, 2007, we entered into a second revolving loan agreement for
      EUR 50.0 million (approximately US$ 70.9 million) also arranged by EBRD.
      ING and CS are participating in the facility for EUR 75.0 million in
      aggregate.





We also
entered into a supplemental agreement on August 22, 2007 to amend the interest
rate payable on the EUR 100.0 million facility, as a result of which the EBRD
Loan bears interest at a rate of three-month EURIBOR plus 1.625% on the drawn
amount.  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. There were no
drawings under this facility as at September 30, 2007.





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.





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(3)
            On
      March 28, 2007, we repaid EUR 0.6 million (approximately US$ 0.9 million),
      which was the total amount outstanding to our Croatia operations under two
      loan agreements with Hypo Alpe-Adria Bank d.d. Following this repayment,
      the security held by the bank was
released.





(4)
            CET
      21 has a four-year credit facility of CZK 1.2 billion (approximately US$
      61.6 million) with CS.  The final repayment date is October 31,
      2009.  This facility may, at the option of CET 21, be drawn in
      CZK, US$ or EUR and bears interest at the three-month, six-month or
      twelve-month LIBOR, EURIBOR or PRIBOR rate plus 1.95%.  This
      facility is secured by a pledge of receivables, which are also subject to
      a factoring arrangement with Factoring Ceska Sporitelna, a.s., a
      subsidiary of CS.  As at September 30, 2007, there were no
      drawings under this facility; however on July 10, 2007, CZK 860.0 million
      (approximately US$ 44.2 million) was drawn down under this facility, of
      which CZK 260.0 million (approximately US$ 13.4 million) was repaid on
      July 31, 2007, and CZK 600.0 million (approximately US$ 30.8 million) was
      repaid on September 14, 2007.





(5)
            CET
      21 has a working capital credit facility of CZK 250.0 million
      (approximately US$ 12.8 million) with CS.  This working capital
      facility bears interest at the three-month PRIBOR rate plus 1.65% and is
      secured by a pledge of receivables, which are also subject to a factoring
      arrangement with Factoring Ceska Sporitelna, a.s. On September 30, 2007,
      the full CZK 250.0 million (approximately US$ 12.8 million) was drawn
      under this facility bearing interest at an aggregate 4.65% (three-month
      PRIBOR effective for this loan was
3.5%).





(6)
            As
      at September 30, 2007, there were no drawings under a CZK 300.0 million
      (approximately US$ 15.4 million) factoring facility with Factoring Ceska
      Sporitelna, a.s.  This facility is available until September 30,
      2010 and bears interest at the rate of one-month PRIBOR plus 1.40% for the
      period that actively assigned accounts receivable are
      outstanding.





(7)
            The
      interest-free loan provided by one of the founding shareholders of
      Sport.ro was repaid on August 31,
2007.





(8)
            On
      July 29, 2005, Pro Plus entered into a revolving five-year facility
      agreement for up to EUR 37.5 million (approximately US$ 53.2 million) in
      aggregate principal amount with ING, Nova Ljubljanska Banka d.d.,
      Ljubljana and Bank Austria Creditanstalt d.d., Ljubljana.  The
      facility availability declines by 10.0% each year for four years
      commencing one year after signing, with 60.0% repayable after five
      years.  This facility is secured by a pledge of the bank
      accounts of Pro Plus, the assignment of certain receivables, a pledge of
      our interest in Pro Plus and a guarantee of our wholly-owned subsidiary
      CME Media Enterprises B.V.  Loans drawn under this facility will
      bear interest at a rate of EURIBOR for the period of drawing plus a margin
      of between 2.1% and 3.6% that varies according to the ratio of
      consolidated net debt to consolidated broadcasting cash flow for Pro
      Plus.  As at September 30, 2007, EUR 30.0 million (approximately
      US$ 42.5 million)  was available for drawing under this
      revolving facility; there were no drawings
  outstanding.





(9)
            Our
      Ukraine (KINO, CITI) operations have entered into a number of three-year
      unsecured loans with Glavred-Media, LLC, the minority shareholder in
      Ukrpromtorg.  As at September 30, 2007, the total value of loans
      drawn was US$ 1.7 million.  The loans are repayable between
      August 2009 and December 2009 and bear interest at
  9.0%.





Capital Lease
Obligations





Capital
lease obligations include future interest payments of US$ 2.1
million.  For more information on our capital lease obligations see
Part I, Item 1, Note 11.





Operating Leases





For more
information on our operating lease commitments see Part 1, Item 1, Note
18.





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Unconditional Purchase
Obligations





Unconditional
purchase obligations largely comprise future programming
commitments.  At September 30, 2007, we had commitments in respect of
future programming of US$ 123.4 million (December 31, 2006: US$ 98.0
million).  This includes contracts signed with license periods
starting after September 30, 2007.  For more information on our
programming commitments see Part I, Item 1, Note 18.




Other Long-Term
Obligations





Included
in Other Long-Term Obligations are our commitments to the Dutch tax authorities
of US$ 3.3 million (see Part I, Item 1, Note 18).





In
addition to the amounts disclosed above, Mr. Sarbu has the right to sell his
remaining shareholding in Pro TV and MPI to us under a put option agreement
entered into in July 2004 at a price to be determined by an independent
valuation, subject to a floor price of US$ 1.45 million for each 1.0% interest
sold.  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
our interest in Media Pro. As at September 30, 2007, we consider the fair value
of Mr. Sarbu’s put option to be approximately US$ nil (2006: US$
nil).








V (d) Cash
Outlook





We issued
EUR 370.0 million (approximately US$ 480.0 million at the time of issuance)
Senior Notes in May 2005, consisting of EUR 245.0 million of Fixed Rate Notes
and EUR 125.0 million of 2012 Floating Rate Notes. Our EUR 125 million 2012
Floating Rate Notes were redeemed on May 15, 2007. On May 16, 2007 we issued our
2014 Floating Rate Notes in the aggregate principal amount of EUR 150.0 million.
We have significant debt service obligations in respect of the Senior Notes. The
terms of our indebtedness restrict the manner in which our business is
conducted, including the incurrence of additional indebtedness, the making of
investments, the payment of dividends or the making of other distributions,
entering into certain affiliate transactions and the sale of
assets.  In addition, we have a  EUR 150.0 million revolving
loan facility with EBRD. EUR 100.0 million of this facility is available for
general corporate purposes; and the remaining EUR 50.0 million, once fully drawn
for permitted projects, can thereafter be used for general corporate purposes,
which further increases our financing flexibility and will reduce our average
cost of debt.  As at September 30, 2007, there were no
drawings.  We have also raised US$ 110.0 million from the issuance of
approximately 1.275 million shares of Class A Common Stock to Igor Kolomoisky in
August 2007, which will allow further flexibility in our investing and financing
requirements.





Our
future cash needs will depend on our overall financial performance, debt service
requirements under the Senior Notes and the EBRD Loan as well as under other
indebtedness incurred by us as well as any future acquisition, investment and
development decisions.  Our ability to raise further funds through
external debt facilities depends on our satisfaction of leverage ratios under
the Senior Notes, which are also incorporated into the drawing conditions of the
EBRD Loan.  In the short-term we are able to fund our operations from
cash generated from operations, our current cash resources (US$ 192.6 million,
at September 30, 2007) and available undrawn credit facilities (US$ 332.2
million, at September 30, 2007), plus an unutilized, uncommitted EUR 10.0
million (US$ 14.2 million) overdraft facility from ING.





We expect
to invest US$ 75-80 million on capital expenditure in 2007 and approximately US$
10 million in furthering the development of our non-broadcast operations. Any
further significant acquisitions could be financed through the issues of
additional external debt or equity depending on prevailing market conditions at
the time.





Our
Croatia operations continue to require funding to improve our ratings
performance and increase our market share.  We expect the funding
required to support Nova TV (Croatia) to be in excess of US$ 37.0 million during
2007, and have provided US$ 4.3 million in cash funding to Nova TV (Croatia) in
the three months ended September 30, 2007. Our Ukraine (KINO, CITI) operations
continue to require funding in order to achieve improved ratings and market
share.  We expect the funding required to support KINO and CITI to be
in excess of US$ 11.0 million during 2007 and have provided US$ 2.2 million in
cash funding to KINO and CITI in the three months ended September 30,
2007.





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We expect
that, taken together, our current cash balances, internally generated cash flow,
committed bank facilities, and local financing of broadcast operations should
result in us having adequate cash resources to meet our debt service and other
existing financial obligations for the next 12 months.  The
acquisition of additional shareholdings in our current operations, further
investment in the expansion of existing operations, acquisitions, or other
investments in the development of new revenue opportunities may require further
financing.  To the extent we will need additional financing, we would
expect to raise such financing through issuing additional debt or
equity.






V (e) Tax
Inspections





Pro Plus
has been the subject of an income tax inspection by the Republic of Slovenia tax
authorities for the years 1995 to 1998.  As a result of these
inspections the Slovenian tax authorities had levied an assessment seeking
unpaid income taxes, customs duties and interest charges of an amount equivalent
to EUR 4.5 million  (approximately US$ 6.4 million). The Slovenian tax
authorities have asserted that capital contributions and loans made by us to Pro
Plus in 1995 and 1996 should be extraordinary revenue to Pro Plus.  On
this basis, the Slovenian tax authorities claim that Pro Plus made a profit in
1995 and 1996 for which it owes income taxes and
interest.  Additionally, the Slovenian tax authorities claim that the
fixed assets imported as capital contributions were subject to customs duties,
which were not paid.  On February 9, 2001, the Slovenian tax
authorities concluded that the cash capital contributions for 1995 and 1996 were
not extraordinary income. This has reduced the assessment to an amount
equivalent to EUR 2.7 million (approximately US$ 3.8 million) in aggregate
principal amount.  Pro Plus appealed this decision to the
Administrative Court in Ljubljana and requested the tax authorities to defer the
demand for payment until a final judgment has been issued, and the Slovenian tax
authorities have so agreed.  On April 18, 2005, the Administrative
Court issued a decision in favor of Pro Plus and dismissed the claims of the tax
authorities.  The Slovenian tax authorities filed an appeal with the
Slovenian Supreme Court in May 2005. The Slovenian Supreme Court denied the
appeal in June 2007 and remanded the case back to the Slovenian tax authorities.
We do not have a provision in our financial statements in relation to this legal
action.








V (f) Off-Balance Sheet
Arrangements





None.








VI.  Critical Accounting
Policies and Estimates





Our
accounting policies affecting our financial condition and results of operations
are more fully described in Part II, Item 8 of our Annual Report on Form 10-K
for the year ended December 31, 2006.  The preparation of these
financial statements requires us to make judgments in selecting appropriate
assumptions for calculating financial estimates, which inherently contain some
degree of uncertainty.  We base our estimates on historical experience
and on various other assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis of making judgments about the
carrying values of assets and liabilities and the reported amounts of revenues
and expenses that are not readily apparent from other sources.  Actual
results may differ from these estimates under different assumptions or
conditions.





We
believe our critical accounting policies relate to 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, 2006.





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Recently adopted accounting
principles





On
January 1, 2007, we adopted FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109” (“FIN
48”), which clarifies the accounting for uncertainty in tax
positions.  The evaluation of a tax position under FIN 48 is a
two-step process.  The first step is recognition: tax positions taken
or expected to be taken in a tax return should be recognized only if those
positions are more likely than not to be sustained upon examination, based on
the technical merits of the position.  In evaluating whether a tax
position has met the more likely than not recognition threshold, it should be
presumed that the position will be examined by the relevant taxing authority and
that they would have full knowledge of all relevant information.  The
second step is measurement: tax positions that meet the recognition criteria are
measured at the largest amount of benefit that is greater than 50 percent likely
of being recognized upon ultimate settlement.





As a
result of the implementation of FIN 48, we recognized a liability of
approximately US$ 2.0 million for unrecognized tax benefits, of which US$ 1.7
million was accounted for as a reduction to retained deficit as at January 1,
2007.  The total amount of unrecognized benefits that, if recognized,
would affect the effective tax rate amounts to US$ 2.0 million, all of which
would reduce the effective tax rate accordingly.





We
recognize interest accrued and penalties related to unrecognized tax benefits
within the provision for income taxes. As at January 1, 2007, we accrued US$ 1.8
million in respect of interest and penalties, of which US$ 1.5 million was
accounted for as a reduction to retained deficit.





Our
subsidiaries file income tax returns in the Netherlands and various other tax
jurisdictions including the United States.  As at January 1, 2007,
analyzed by major tax jurisdictions, the Company’s subsidiaries are no longer
subject to income tax examinations for years before:





Jurisdiction
            YearCroatia
            2003Czech
      Republic
            2002Germany
            2000Netherlands
            2004Romania
            2002Slovak
      Republic
            2001Slovenia
            2001Ukraine
            2003United
      States
            2001





Since January
1, 2007, the German tax authorities concluded an income tax audit of our
German subsidiary covering the years up to and including 2004 and authorities
determined that no material additional amounts of income tax were
payable for such periods.  Therefore, years before 2005 are no longer
subject to income tax examination in Germany.




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PART
II  OTHER INFORMATION


Item
6.  Exhibits





a) The
following exhibits are attached:




31.01
              Sarbanes-Oxley
      Certification s. 302 CEO, dated February 22,
200831.02
              Sarbanes-Oxley
      Certification s. 302 CFO, dated February 22,
200832.01
              Sarbanes-Oxley
      Certification – CEO and CFO, dated February 22, 2008 (furnished
      only)


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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:  February 22,
      2008
            /s/ Michael
      GarinMichael
      GarinChief
      Executive Officer(Duly
      Authorized Officer)Date:
      February 22,2008
            /s/ Wallace
      MacmillanWallace
      MacmillanChief
      Financial Officer(Principal
      Financial Officer and Accounting
Officer)





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EXHIBIT
INDEX





31.01
              Sarbanes-Oxley
      Certification s. 302 CEO, dated February 22,
  2008.31.02
              Sarbanes-Oxley
      Certification s. 302 CFO, dated February 22,
  2008.32.01
              Sarbanes-Oxley
      Certification – CEO and CFO, dated February 22, 2008 (furnished
      only).







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