UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





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





For
the quarterly period ended March 31, 2008





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


For the
transition period from __________ to __________





Commission
File Number: 0-24796





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


(Exact
name of registrant as specified in its charter)





BERMUDA
            98-0438382(State
      or other jurisdiction of incorporation and organization)
            (IRS
      Employer Identification No.)Clarendon
      House, Church Street, Hamilton
            HM
      11 Bermuda(Address
      of principal executive offices)
            (Zip
      Code)





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





Indicate
by check mark whether registrant: (1) has filed all reports required to be filed
by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for each shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes S No £





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





Large
      accelerated filer S
            Accelerated
      filer £
            Non-accelerated
      filer £
            Smaller
      reporting company £





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





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





Class
            Outstanding as of
      April 25, 2008Class
      A Common Stock, par value $0.08
            36,004,823Class
      B Common Stock, par value $0.08
            6,312,839










THIS PAGE
INTENTIONALLY LEFT BLANK





CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.





FORM
10-Q





For
the quarterly period ended March 31, 2008





INDEX





PagePart
      I. Financial informationItem 1. Financial StatementsCondensed consolidated Balance Sheets as at March
      31, 2008 and December 31, 2007
            2Condensed consolidated Statements of Operations and
      Comprehensive Income for the Three Months Ended March 31, 2008 and
      2007
            4Condensed consolidated Statements of
      Shareholders' Equity for the Three Months Ended March 31, 2008 and
      2007
            6Condensed consolidated Statements of Cash Flows for the
      Three Months Ended March 31, 2008 and 2007
            7Notes to the condensed consolidated Financial
      Statements
            8Item 2. Management's Discussion and Analysis of Financial
      Condition and Results of Operations
            38Item 3. Quantitative and Qualitative Disclosures About
      Market Risk
            69Item 4. Controls and Procedures
            70Part
      II. Other InformationItem 1. Legal Proceedings
            71Item 1A. Risk Factors
            73Item 6. Exhibits
            81Signatures
            81Exhibit Index
            82


Page
1
 Table of Contents




Part
I. Financial Information





Item 1.  FinancialStatements





CENTRAL
EUROPEAN MEDIAENTERPRISES LTD.


CONDENSED
CONSOLIDATED BALANCE SHEETS


(US$
000’s)


(Unaudited)





March
      31,
              2008
            
            
            December
      31,
              2007ASSETSCurrent
      assetsCash
      and cash equivalents
            
            $
            594,556
            
            
            $
            142,826Restricted
      cash (Note 5)
            
            
            1,396
            
            
            
            1,286Accounts
      receivable (net of allowance) (Note 6)
            
            
            226,106
            
            
            
            225,037Income
      taxes receivable
            
            
            3,832
            
            
            
            1,234Program
      rights
            
            
            93,562
            
            
            
            77,112Other
      current assets (Note 7)
            
            
            83,933
            
            
            
            82,329Total
      current assets
            
            
            1,003,385
            
            
            
            529,824Non-current
      assetsInvestments
            
            
            16,559
            
            
            
            16,559Property,
      plant and equipment (Note 8)
            
            
            209,741
            
            
            
            180,311Program
      rights
            
            
            129,209
            
            
            
            108,362Goodwill
      (Note 3)
            
            
            1,253,880
            
            
            
            1,114,347Broadcast
      licenses (Note 3)
            
            
            262,317
            
            
            
            237,926Other
      intangible assets (Note 3)
            
            
            152,603
            
            
            
            135,732Other
      non-current assets (Note 7)
            
            
            24,942
            
            
            
            15,374Total
      non-current assets
            
            
            2,049,251
            
            
            
            1,808,611Total
      assets
            
            $
            3,052,636
            
            
            $
            2,338,435








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


Page
2
 Table of Contents


CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


CONDENSED
CONSOLIDATED BALANCE SHEETS (continued)


(US$
000’s)


(Unaudited)





March
      31,
              2008
            
            
            December
      31,
              2007LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      liabilitiesAccounts
      payable and accrued liabilities (Note 9)
            
            $
            180,225
            
            
            $
            156,324Duties
      and other taxes payable
            
            
            35,663
            
            
            
            29,945Income
      taxes payable
            
            
            25,046
            
            
            
            27,705Credit
      facilities and obligations under capital leases (Note 10)
            
            
            16,381
            
            
            
            15,090Dividends
      payable to minority shareholders in subsidiaries
            
            
            -
            
            
            
            1,226Deferred
      consideration – Romania
            
            
            2,372
            
            
            
            2,208Deferred
      tax
            
            
            289
            
            
            
            272Total
      current liabilities
            
            
            259,976
            
            
            
            232,770Non-current
      liabilitiesCredit
      facilities and obligations under capital leases (Note 10)
            
            
            6,236
            
            
            
            5,862Senior
      Debt (Note 4)
            
            
            1,099,574
            
            
            
            581,479Income
      taxes payable
            
            
            2,362
            
            
            
            2,495Deferred
      tax
            
            
            82,024
            
            
            
            73,340Other
      non-current liabilities
            
            
            33,081
            
            
            
            19,527Total
      non-current liabilities
            
            
            1,223,277
            
            
            
            682,703Commitments
      and contingencies (Note 17)Minority
      interests in consolidated subsidiaries
            
            
            24,179
            
            
            
            23,155SHAREHOLDERS'
      EQUITY:Nil
      shares of Preferred Stock of $0.08 each (December 31, 2007 –
      nil)
            
            
            -
            
            
            
            -36,003,323
      shares of Class A Common Stock of $0.08 each (December 31, 2007 –
      36,003,198)
            
            
            2,880
            
            
            
            2,8806,312,839
      shares of Class B Common Stock of $0.08 each (December 31, 2007 –
      6,312,839)
            
            
            505
            
            
            
            505Additional
      paid-in capital
            
            
            989,883
            
            
            
            1,051,336Retained  earnings
            
            
            68,514
            
            
            
            53,619Accumulated
      other comprehensive income
            
            
            483,422
            
            
            
            291,467Total
      shareholders’ equity
            
            
            1,545,204
            
            
            
            1,399,807Total
      liabilities and shareholders’ equity
            
            $
            3,052,636
            
            
            $
            2,338,435








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


Page
3
 Table of Contents


CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


CONDENSED
CONSOLIDATED STATEMENTS OFOPERATIONS AND COMPREHENSIVE
INCOME


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


(Unaudited)





For
      the Three Months Ended March 31,2008
            
            
            2007Net
      revenues
            
            $
            223,470
            
            
            $
            147,912Operating
      expenses:Operating
      costs
            
            
            33,262
            
            
            
            25,657Cost
      of programming
            
            
            94,754
            
            
            
            66,353Depreciation
      of station property, plant and equipment
            
            
            12,340
            
            
            
            6,899Amortization
      of broadcast licenses and other intangibles (Note 3)
            
            
            7,666
            
            
            
            5,162Cost
      of revenues
            
            
            148,022
            
            
            
            104,071Station
      selling, general and administrative expenses
            
            
            20,755
            
            
            
            15,781Corporate
      operating costs
            
            
            10,017
            
            
            
            14,773Operating
      income
            
            
            44,676
            
            
            
            13,287Interest
      income
            
            
            2,180
            
            
            
            1,414Interest
      expense
            
            
            (14,250
            )
            
            
            (11,396
            )Foreign
      currency exchange loss, net
            
            
            (17,430
            )
            
            
            (3,136
            )Change
      in fair value of derivatives (Note 11)
            
            
            (10,258
            )
            
            
            4,524Other
      income / (expense)
            
            
            660
            
            
            
            (244
            )Income
      before provision for income taxes and minority interest
            
            
            5,578
            
            
            
            4,449Income
      tax credit / (expense)
            
            
            10,342
            
            
            
            (5,059
            )Income
      / (loss) before minority interest
            
            
            15,920
            
            
            
            (610
            )Minority
      interest in (income) / loss of consolidated subsidiaries
            
            
            (1,025
            )
            
            
            360Net
      income / (loss)
            
            $
            14,895
            
            
            $
            (250
            )Currency
      translation adjustment
            
            
            191,467
            
            
            
            (5,635
            )Obligation
      to repurchase shares
            
            
            488
            
            
            
            -Total
      comprehensive income / (loss)
            
            $
            206,850
            
            
            $
            (5,885
            )








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


Page
4
 Table of Contents


CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(continued)


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


(Unaudited)





For
      the Three Months Ended March 31,2008
            
            
            2007PER
      SHARE DATA (Note 14):Net
      income / (loss) per share:Net
      income / (loss) – Basic
            
            $
            0.35
            
            
            $
            (0.01
            )Net
      income / (loss) – Diluted
            
            
            0.35
            
            
            
            (0.01
            )Weighted
      average common shares used in computing per share amounts
      (000’s):Basic
            
            
            42,316
            
            
            
            40,793Diluted
            
            
            42,732
            
            
            
            40,793








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


Page
5
 Table of Contents


CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


CONDENSED CONSOLIDATEDSTATEMENTS OF SHAREHOLDERS'
EQUITY


(US$
000’s)


(Unaudited)





Class
      A Common Stock
            
            
            Class
      B Common Stock
            
            
            Additional
      Paid-In Capital
            
            
            Retained
      Earnings
            
            
            Accumulated
      Other Comprehensive Income
            
            
            Total
      Shareholders' EquityNumber
      of shares
            
            
            Par
      value
            
            
            Number
      of shares
            
            
            Par
      valueBALANCE,
      December 31, 2007
            
            
            36,003,198
            
            
            $
            2,880
            
            
            
            6,312,839
            
            
            $
            505
            
            
            $
            1,051,336
            
            
            $
            53,619
            
            
            $
            291,467
            
            
            $
            1,399,807Stock-based
      compensation
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,856
            
            
            
            -
            
            
            
            -
            
            
            
            1,856Stock
      options exercised
            
            
            125
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            9
            
            
            
            -
            
            
            
            -
            
            
            
            9Purchase
      of capped call options
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (63,318
            )
            
            
            -
            
            
            
            -
            
            
            
            (63,318
            )Net
      income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            14,895
            
            
            
            -
            
            
            
            14,895Currency
      translation adjustment
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            
            191,467
            
            
            
            191,467Obligation
      to repurchase shares
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            488
            
            
            
            488BALANCE,
      March 31, 2008
            
            
            36,003,323
            
            
            $
            2,880
            
            
            
            6,312,839
            
            
            $
            505
            
            
            $
            989,883
            
            
            $
            68,514
            
            
            $
            483,422
            
            
            $
            1,545,204








Class
      A Common Stock
            
            
            Class
      B Common Stock
            
            
            Additional
      Paid-In Capital
            
            
            Accumulated
      Deficit
            
            
            Accumulated
      Other Comprehensive Income
            
            
            Total
      Shareholders' EquityNumber
      of shares
            
            
            Par
      value
            
            
            Number
      of shares
            
            
            Par
      valueBALANCE,
      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
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,797
            
            
            
            -
            
            
            
            -
            
            
            
            1,797Stock
      options exercised
            
            
            210,200
            
            
            
            17
            
            
            
            -
            
            
            
            -
            
            
            
            1,999
            
            
            
            -
            
            
            
            -
            
            
            
            2,016Net
      loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (250
            )
            
            
            -
            
            
            
            (250
            )Currency
      translation adjustment
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (5,635
            )
            
            
            (5,635
            )BALANCE,
      March 31, 2007
            
            
            34,622,338
            
            
            $
            2,770
            
            
            
            6,312,839
            
            
            $
            505
            
            
            $
            934,904
            
            
            $
            (35,199
            )
            
            $
            127,495
            
            
            $
            1,030,475








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


Page
6
 Table of Contents


CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(US$
000’s)


(Unaudited)





For
      the Three Months Ended March 31,2008
            
            
            2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income / (loss)
            
            $
            14,895
            
            
            $
            (250
            )Adjustments
      to reconcile net loss to net cash generated from operating
      activities:Depreciation
      and amortization
            
            
            73,588
            
            
            
            51,762Loss
      on disposal of fixed assets
            
            
            -
            
            
            
            7Stock-based
      compensation (Note 13)
            
            
            1,813
            
            
            
            1,262Minority
      interest in income / (loss) of consolidated subsidiaries
            
            
            1,025
            
            
            
            (360
            )Change
      in fair value of derivatives (Note 11)
            
            
            10,258
            
            
            
            (4,524
            )Foreign
      currency exchange loss, net
            
            
            17,430
            
            
            
            3,136Net
      change in (net of effects of acquisitions and disposals of
      businesses):Accounts
      receivable
            
            
            16,203
            
            
            
            10,226Program
      rights
            
            
            (79,433
            )
            
            
            (48,123
            )Other
      assets
            
            
            (6,379
            )
            
            
            (3,973
            )Other
      accounts payable and accrued liabilities
            
            
            27,887
            
            
            
            14,540Income
      taxes payable
            
            
            (6,075
            )
            
            
            (2,299
            )Deferred
      taxes
            
            
            8,946
            
            
            
            766VAT
      and other taxes payable
            
            
            3,933
            
            
            
            9,743Net
      cash generated from continuing operating activities
            
            
            84,091
            
            
            
            31,913CASH
      FLOWS FROM INVESTING ACTIVITIES:Net
      change in restricted cash
            
            
            -
            
            
            
            (440
            )Purchase
      of property, plant and equipment
            
            
            (23,842
            )
            
            
            (11,995
            )Disposal
      of property, plant and equipment
            
            
            99
            
            
            
            19Investments
      in subsidiaries and unconsolidated affiliates
            
            
            -
            
            
            
            (8,585
            )Repayment
      of loans and advances to related parties
            
            
            -
            
            
            
            100Net
      cash used in continuing investing activities
            
            
            (23,743
            )
            
            
            (20,901
            )CASH
      FLOWS FROM FINANCING ACTIVITIES:Net
      proceeds from issuance of Convertible Notes
            
            
            463,812
            
            
            
            -Proceeds
      from credit facilities
            
            
            -
            
            
            
            200Payment
      of credit facilities and capital leases
            
            
            (1,046
            )
            
            
            (1,255
            )Purchase
      of capped call option
            
            
            (63,318
            )
            
            
            -Excess
      tax benefits from share-based payment arrangements
            
            
            43
            
            
            
            -Proceeds
      from exercise of stock options
            
            
            9
            
            
            
            2,016Dividends
      paid to minority shareholders
            
            
            (1,230
            )
            
            
            (152
            )Net
      cash received from continuing financing activities
            
            
            398,270
            
            
            
            809NET
      CASH USED IN DISCONTINUED OPERATING ACTIVITIES
            
            
            (1,710
            )
            
            
            (1,624
            )Impact
      of exchange rate fluctuations on cash
            
            
            (5,178
            )
            
            
            1,239Net
      increase in cash and cash equivalents
            
            
            451,730
            
            
            
            11,436CASH
      AND CASH EQUIVALENTS, beginning of period
            
            
            142,826
            
            
            
            145,904CASH
      AND CASH EQUIVALENTS, end of period
            
            $
            594,556
            
            
            $
            157,340








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


Page
7
 Table of Contents


CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS


(Tabular
amounts in US$ 000’s, except 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 March 31, 2008, we had operations in Croatia, the
Czech Republic, Romania, the Slovak Republic, Slovenia and Ukraine.





Our
principal subsidiaries, equity-accounted affiliates and cost investments as at
March 31, 2008 were:




Company
      Name
              Effective
                Voting
                Interest
              Jurisdiction
      of
                Organization
              Type
      of AffiliateNova
      TV d.d. (“Nova TV (Croatia)”)
              100.0%
              Croatia
              SubsidiaryOperativna
      Kompanija d.o.o.
              100.0%
              Croatia
              SubsidiaryMedia
      House d.o.o.
              100.0%
              Croatia
              SubsidiaryInternet
      Dnevnik d.o.o.
              76.0%
              Croatia
              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
              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
              SubsidiaryCME
      Slovak Holdings B.V.
              100.0%
              Netherlands
              SubsidiaryCME
      Romania B.V.
              100.0%
              Netherlands
              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 Management S.A.
              8.7%
              Romania
              Cost
      investmentMedia
      Pro B.V.
              10.0%
              Netherlands
              Cost
      investmentMusic
      Television System S.R.L. (“MTS”)
              95.0%
              Romania
              SubsidiaryA.R.J.,
      a.s.
              100.0%
              Slovak
      Republic
              SubsidiaryMarkiza-Slovakia
      spol. s r.o. (“Markiza”)
              100.0%
              Slovak
      Republic
              SubsidiaryGAMATEX
      spol. s.r.o.
              100.0%
              Slovak
      Republic
              Subsidiary
      (in liquidation)A.D.A.M.
      a.s.
              100.0%
              Slovak
      Republic
              Subsidiary
      (in liquidation)Media
      Invest, spol s.r.o.
              100.0%
              Slovak
      Republic
              Subsidiary
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8
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EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)






Company
      Name
              Effective
                Voting
                Interest
              Jurisdiction
      of
                Organization
              Type
      of AffiliateMMTV
      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
      AffiliateFit
      & Fun d.o.o.
              100.0%
              Slovenia
              SubsidiaryTelevideo
      d.o.o. (trading as TV Pika)
              20.0%
              Slovenia
              Equity-Accounted
      AffiliateInternational
      Media Services Ltd. (“IMS”)
              60.0%
              Bermuda
              SubsidiaryCME
      Ukraine Holding GmbH
              100.0%
              Austria
              SubsidiaryInnova
      Film GmbH (“Innova”)
              60.0%
              Germany
              SubsidiaryCME
      Cyprus Holding Ltd.
              100.0%
              Cyprus
              SubsidiaryTV
      Media Planet Ltd. (“TV Media Planet”)
              60.0%
              Cyprus
              SubsidiaryForeign
      Enterprise “Inter-Media” (“Inter-Media”)
              60.0%
              Ukraine
              SubsidiaryStudio
      1+1 LLC (“Studio 1+1”)
              60.0%
              Ukraine
              SubsidiaryUkraine
      Media Services LLC (“UMS”)
              99.9%
              Ukraine
              SubsidiaryUkrpromtorg-2003
      LLC (“Ukpromrtorg”)
              65.5%
              Ukraine
              SubsidiaryGravis
      LLC (“Gravis”)
              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
              SubsidiaryCentral
      European Media Enterprises N.V.
              100.0%
              Netherlands
      Antilles
              SubsidiaryCentral
      European Media Enterprises II B.V.
              100.0%
              Netherlands
      Antilles
              SubsidiaryCME
      Media Enterprises B.V.
              100.0%
              Netherlands
              SubsidiaryCME
      Development Corporation
              100.0%
              Delaware
      (USA)
              SubsidiaryCME
      SR d.o.o.
              100.0%
              Serbia
              SubsidiaryCME
      Czech Republic II B.V.
              100.0%
              Netherlands
              Subsidiary
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CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)











Page
10
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EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





Croatia





We own
100% of Nova TV (Croatia), which holds a national terrestrial broadcast license
for Croatia that expires in April 2010.





Czech
Republic





We own
100% of CET 21, which holds the national terrestrial broadcast license for TV
NOVA (Czech Republic) that expires in 2017 and a satellite license for NOVA
CINEMA that expires in November 2019. CET 21 owns 100% of Galaxie Sport, which
holds the broadcast license for GALAXIE SPORT.




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, SPORT.RO and MTV ROMANIA channels.
These licenses expire on various dates between November 2008 and February
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 Adrian
Sarbu, our Chief Operating Officer. 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 channel, and Kanal A, which holds the licenses
for the KANAL A channel.  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, the license holder for the STUDIO 1+1
channel. 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 covering
fifteen hours including prime time expires in December 2016. The second license
for the remaining nine hours expires in August 2014.





On
January 31, 2008, we entered into agreements with Igor Kolomoisky to assign
options over certain interests on the Studio 1+1 group held by him and with
Boris Fuchsmann and Alexander Rodnyansky to acquire their 40% interest in the
Studio 1+1 group. Upon completion of an initial sale transaction, we will own
90.0% of the Studio 1+1 group and Messrs. Fuchsmann and Rodnyansky will have the
right to put to us, and we will have the right to call from them, the remaining
10.0% interest (See Note 17 “Commitment and Contingencies: Ukraine Buyout
Agreement”).


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CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





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.  We also own a 60.4% interest in each of Zhysa and Tor, two
regional broadcasters. Licenses for KINO and CITI expire on dates ranging from
November 2008 to July 2016.








2.  SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES





Basis
of Presentation





The
interim financial statements for the three months ended March 31, 2008 should be
read in conjunction with the Notes to the Consolidated Financial Statements
contained in our Annual Report on Form 10-K for the period ended December 31,
2007.  Our significant accounting policies have not changed since
December 31, 2007, except as noted below.





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





The
preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting year.  Actual results could differ from
those estimates and assumptions.





The
condensed consolidated financial statements include the accounts of Central
European Media Enterprises Ltd. and our subsidiaries, after the elimination of
intercompany accounts and transactions.  Entities in which we hold
less than a majority voting interest but over which we have the ability to
exercise significant influence are accounted for using the equity
method.  Other investments are accounted for using the cost
method.





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 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.





Fair
Value of Financial Instruments





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 and defines fair value, establishes a
framework for measuring fair value and expands disclosure requirements. FAS 157
was to be effective in its entirety for fiscal years beginning after November
15, 2007, however in February 2008, the FASB issued FASB Staff Position No. FSP
FAS 157-2 “Effective Date of FASB Statement No. 157” (“FSP FAS 157-2”). Under
FSP FAS 157-2, application of FAS 157 may be deferred until fiscal years
beginning after November 15, 2008 for nonfinancial assets and liabilities,
except for items that are recognized or disclosed at fair value in the financial
statements on a recurring basis.


Page
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CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





We
adopted those parts of FAS 157 not deferred by FSP FAS 157-2 on January 1, 2008.
There was no impact on the carrying value of any asset or liability recognized
at adoption and additional disclosure is provided in Note 11,“Financial
instruments” to comply with the enhanced disclosure requirements of the
standard. We do not expect that the adoption of those parts of FAS 157 deferred
by FSP FAS 157-2 will result in a material impact on our financial position and
results of operations.





On
January 1, 2008 we adopted FASB Statement No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities" ("FAS 159") which 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. We did not elect to apply the fair value
option to any assets and liability upon, or since, adoption, therefore there was
no impact on our financial position and results of operations.





Recent
Accounting Pronouncements





In
December 2007, the FASB issued FASB Statement No. 141(R), “BusinessCombinations”
(“FAS 141(R)”), which establishes principles and requirements for how the
acquirer:  (a) recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree; (b) recognizes and measures the goodwill acquired
in the business combination or a gain from a bargain purchase; and
(c) determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects of the
business combination.  FAS 141(R) requires contingent consideration to be
recognized at its fair value on the acquisition date and, for certain
arrangements, changes in fair value to be recognized in earnings until
settled.  FAS 141(R) also requires acquisition-related transaction and
restructuring costs to be expensed rather than treated as part of the cost of
the acquisition.  FAS 141(R) applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15,
2008.  We are currently evaluating the impact this statement will have on
our financial position and results of operations.




In
December 2007, the FASB issued FASB Statement No. 160, “Noncontrolling
Interests in Consolidated Financial Statements an Amendment of ARB No. 51”
(“FAS 160”), which establishes accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary.  FAS 160 clarifies that a noncontrolling interest in a
subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements.  FAS 160
also requires consolidated net income to be reported at amounts that include the
amounts attributable to both the parent and the noncontrolling interest. 
It also requires disclosure, on the face of the consolidated statement of
income, of the amounts of consolidated net income attributable to the parent and
to the noncontrolling interest.  FAS 160 also provides guidance when a
subsidiary is deconsolidated and requires expanded disclosures in the
consolidated financial statements that clearly identify and distinguish between
the interests of the parent’s owners and the interests of the noncontrolling
owners of a subsidiary.  FAS 160 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after
December 15, 2008.  We are currently evaluating the impact this
statement will have on our financial position and results of
operations.





In March
2008, the FASB issued FASB Statement No. 161 “Disclosures About Derivative
Instruments and Hedging Activities, an Amendment of FASB Statement No. 133”
(“FAS 161”) which enhances the disclosure requirements about derivatives and
hedging activities. FAS 161 requires additional narrative disclosure about how
and why an entity uses derivative instruments, how they are accounted for under
FASB Statement No. 133 “Accounting for Derivative Instruments and Hedging
Activities” (“FAS 133”), and what impact they have on financial position,
results of operations and cash flows. FAS 161 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after November 15,
2008. Although certain additional narrative disclosures may be required in our
future financial statements, our limited use of derivative instruments means we
do not expect the adoption of FAS 161 will result in a material impact on our
financial position and results of operations.




On April
25, 2008 the FASB issued FASB Staff Position No. FAS 142-3 “Determination of the
Useful Life of Intangible Assets,” which aims to improve consistency between the
useful life of a recognized intangible asset under FASB Statement No. 142
“Goodwill and Other Intangible Assets and the period of expected cash flows used
to measure the fair value of the asset under FAS 141 (R), especially where the
underlying arrangement includes renewal or extension terms. The FSP is effective
prospectively for fiscal years beginning after December 15, 2008 and early
adoption is prohibited. We are currently evaluating the impact this statement
will have on our financial position and results of
operations.


Page
13
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CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





3.  GOODWILL
AND INTANGIBLE ASSETS





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





Goodwill:





Goodwill
by operating segment as at March 31, 2008 and December 31, 2007 is summarized as
follows:




Balance
                December 31,
                2007
              
              
              Additions
      / Allocations
              
              
              Foreign
                currency
                movement
              
              
              Balance
                March 31,
                2008Croatia
              
              $
              773
              
              
              $
              -
              
              
              $
              64
              
              
              $
              837Czech
      Republic
              
              
              951,286
              
              
              
              -
              
              
              
              121,939
              
              
              
              1,073,225Romania
      (1)
              
              
              74,667
              
              
              
              (525
              )
              
              
              10,540
              
              
              
              84,682Slovak
      Republic
              
              
              57,635
              
              
              
              -
              
              
              
              6,211
              
              
              
              63,846Slovenia
              
              
              18,393
              
              
              
              -
              
              
              
              1,363
              
              
              
              19,756Ukraine
      (STUDIO 1+1)
              
              
              4,096
              
              
              
              -
              
              
              
              -
              
              
              
              4,096Ukraine
      (KINO, CITI)
              
              
              7,497
              
              
              
              (59
              )
              
              
              -
              
              
              
              7,438Total
              
              $
              1,114,347
              
              
              $
              (584
              )
              
              $
              140,117
              
              
              $
              1,253,880


(1) At
December 31, 2007, we had not completed our purchase price allocation for the
acquisition of MTS in Romania. The carrying value of goodwill was adjusted
during the first quarter of 2008 to reflect the finalization of the valuation of
certain assets and liabilities of MTS.





Broadcast
licenses:





The net
book value of our broadcast licenses as at March 31, 2008 and December 31, 2007
is summarized as follows:





Indefinite-Lived
              Broadcast
              Licenses
            
            
            Amortized
              Broadcast
              Licenses
            
            
            TotalBalance,
      December 31, 2007
            
            $
            50,748
            
            
            $
            187,178
            
            
            $
            237,926Additions
            
            
            -
            
            
            
            -
            
            
            
            -Amortization
            
            
            -
            
            
            
            (5,415
            )
            
            
            (5,415
            )Foreign
      currency movements
            
            
            6,542
            
            
            
            23,264
            
            
            
            29,806Balance,
      March 31, 2008
            
            $
            57,290
            
            
            $
            205,027
            
            
            $
            262,317





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


Page
14
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CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





The gross
value and accumulated amortization of amortized broadcast licenses was as
follows at March 31, 2008 and December 31, 2007:





March
      31,
              2008
            
            
            December
      31,
              2007Gross
      value
            
            $
            271,286
            
            
            $
            241,100Accumulated
      amortization
            
            
            (66,259
            )
            
            
            (53,922
            )Total
      net book value
            
            $
            205,027
            
            
            $
            187,178





Other
intangible assets:





The net
book value of our other intangible assets as at March 31, 2008 and December 31,
2007 is summarized as follows:





Trademarks
            
            
            Customer
      Relationships
            
            
            Other
            
            
            TotalBalance,
      December 31, 2007
            
            $
            60,084
            
            
            $
            73,267
            
            
            $
            2,381
            
            
            $
            135,732Reallocation
      (1)
            
            
            -
            
            
            
            -
            
            
            
            624
            
            
            
            624Amortization
            
            
            (84
            )
            
            
            (2,011
            )
            
            
            (156
            )
            
            
            (2,251
            )Foreign
      currency movements
            
            
            9,599
            
            
            
            8,770
            
            
            
            129
            
            
            
            18,498Balance,
      March 31, 2008
            
            $
            69,599
            
            
            $
            80,026
            
            
            $
            2,978
            
            
            $
            152,603


(1) At
December 31, 2007 we had not completed our purchase price allocation of MTS in
Romania. The carrying value of other intangible assets was adjusted during the
first quarter of 2008 to reflect the final value of our Trademark and
Programming Agreement with MTV NE which allows MTS access to MTV
programming and to use the MTV name.





Customer
relationships are deemed to have an economic useful life of, and are amortized
on a straight-line basis over, five 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
March 31, 2008 and December 31, 2007:





March
      31,
              2008
            
            
            December
      31,
              2006Gross
      value
            
            $
            168,664
            
            
            $
            147,514Accumulated
      amortization
            
            
            (16,061
            )
            
            
            (11,782
            )Total
      net book value
            
            $
            152,603
            
            
            $
            135,732


Page
15
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CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





4.  SENIOR
DEBT





Our
senior debt comprised the following as at March 31, 2008 and December 31,
2007:





Carrying
      Value
            
            
            Fair
      ValueMarch
      31,
              2008
            
            
            December
      31,
              2007
            
            
            March
      31,
              2008
            
            
            December
      31,
              2007EUR
      245.0 million 8.25% Senior Notes
            
            $
            387,394
            
            
            $
            360,664
            
            
            $
            376,741
            
            
            $
            366,976EUR
      150.0 million Floating Rate Senior Notes
            
            
            237,180
            
            
            
            220,815
            
            
            
            190,930
            
            
            
            204,806USD
      475.0 million 3.5% Senior Convertible Notes
            
            
            475,000
            
            
            
            -
            
            
            
            517,156
            
            
            
            -$
            1,099,574
            
            
            $
            581,479
            
            
            $
            1,084,827
            
            
            $
            571,782





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





On May
16, 2007 we issued EUR 150.0 million of floating rate senior notes (the
“Floating Rate Notes”, and collectively with the Fixed Rate Notes, the “Senior
Notes”) which bear interest at six-month Euro Inter Bank Offered Rate
(“EURIBOR”) plus 1.625% (6.198% was applicable at March  31, 2008).
The Floating Rate Notes mature on May 15, 2014.





On March
10, 2008 we issued US$ 475.0 million of 3.50% Senior Convertible Notes (the
“Convertible Notes”). The Convertible Notes mature on March 15,
2013.





Fixed
Rate Notes





Interest
is payable semi-annually in arrears on each May 15 and November
15.  The fair value of the Fixed Rate Notes as at March 31, 2008 and
December 31, 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 Fixed Rate Notes restrict the manner in
which our business is conducted, including the incurrence of additional
indebtedness, the making of investments, the payment of dividends or the making
of other distributions, entering into certain affiliate transactions and the
sale of assets.





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


Page
16
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CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





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.





Floating
Rate Notes





Interest
is payable semi-annually in arrears on each May 15 and November
15.  The fair value of the Floating Rate Notes as at March 31, 2008
and December 31, 2007 was calculated by multiplying the outstanding debt by the
traded market price.





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





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


Page
17
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CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





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





From:
            
            Floating
      Rate Notes
              Redemption
      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
Floating Rate Notes; but as they are considered clearly and closely related to
those notes, they are not accounted for separately.




Convertible
Notes





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





The
Convertible Notes are secured senior obligations and rank pari passu with all
existing and future senior indebtedness and are effectively subordinated to all
existing and future indebtedness of our subsidiaries.  The amounts
outstanding are guaranteed by two subsidiary holding companies and are secured
by a pledge of shares of those subsidiaries as well as an assignment of certain
contractual rights.




Prior to
December 15, 2012, the Convertible Notes are convertible following certain
events and from that date, at any time, based on an initial conversion rate of
9.5238 shares of our Class A Common Stock per US$ 1,000 principal amount of
Convertible Notes (which is equivalent to an initial conversion price of
approximately US$ 105.00 or a 25% conversion premium based on the closing sale
price of US$ 84.00 per share of our Class A Common Stock on March 4, 2008). The
conversion rate is subject to adjustment if we make certain distributions to the
holders of our Class A Common Stock, undergo certain corporate transactions or a
fundamental change, and in other circumstances specified in the Convertible
Notes.   From time to time up to and including December 15, 2012,
we will have the right to elect  to deliver (i) shares of our Class A
Common Stock or (ii) cash and, if applicable, shares of our Class A Common Stock
upon conversion of the Convertible Notes. At present, we have elected to deliver
cash and, if applicable, shares of our Class A Common Stock. As at March 31,
2008 the Convertible Notes may not be converted.  In addition, the
holders of the Convertible Notes have the right to put the Convertible Notes to
us for cash equal to the aggregate principal amount of the Convertible Notes
plus accrued but unpaid interest thereon following the occurrence of certain
specified fundamental changes (including a change of control, certain mergers,
insolvency and a delisting).





In order
to increase the effective conversion price of our Convertible Notes, on March 4,
2008 we purchased, for aggregate consideration of US$ 63.3 million, capped call
options over 4,523,809 shares of our Common Stock (This amount corresponds to
the number of shares of our Class A Common Stock that would be issuable on a
conversion of the Convertible Notes at the initial conversion price if we
elected to settle the Convertible Notes solely in shares of Class A Common
Stock). The options entitle us to receive, at our election, cash or shares of
Class A Common Stock with a value equal to the difference between the trading
price of our shares at the time the option is exercised and US$ 105.00, up to a
maximum trading price of US$ 151.20. At present, we have elected to receive
shares of our Class A Common Stock on exercise of the options. The table below
shows how many shares of our Class A Common Stock would be issued under the
Convertible Notes and received on the exercise of the capped call options for a
variety of share price scenarios assuming the currently selected settlement
methods continue to apply and no event that would result in an adjustment to the
conversion rate or the value of the option has occured:


Page
18
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CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





Stock
      Price
            
            
            Shares
      issued on conversion of Convertible Notes
            
            
            Shares
      received on exercise of capped call options
            
            
            Net
      shares issued
            
            
            Value
      of shares issued (US$ ‘000)$105.00
      and below
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            $
            -$110.00
            
            
            
            (205,628
            )
            
            
            205,628
            
            
            
            -
            
            
            
            -$120.00
            
            
            
            (565,476
            )
            
            
            565,476
            
            
            
            -
            
            
            
            -$130.00
            
            
            
            (869,963
            )
            
            
            869,963
            
            
            
            -
            
            
            
            -$140.00
            
            
            
            (1,130,951
            )
            
            
            1,130,951
            
            
            
            -
            
            
            
            -$151.20
            
            
            
            (1,382,274
            )
            
            
            1,382,274
            
            
            
            -
            
            
            
            -$200.00
            
            
            
            (2,148,807
            )
            
            
            1,044,997
            
            
            
            (1,103,810
            )
            
            $
            220,762




Under
these assumptions current shareholders do not suffer dilution to their
shareholding until the price of our Class A common shares reaches US$ 151.20 per
share. We determined that these capped call options meet the definition of an
equity instrument in EITF Issue No. 00-19 “Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” and
consequently recognize it on issuance at fair value within Shareholders’ Equity.
Subsequent changes in fair value are not recognized as long as the instrument
continues to be classified in Shareholders’ Equity. At March 31, 2008, the
options could not be exercised because no conversion of any Convertible Notes
had occurred. In the event any Convertible Notes had been converted at March 31,
2008, no shares of our Class A Common Stock would have been issuable because the
closing price of our shares was below US$ 105.00 per share. The  fair
value of the capped call options at March 31, 2008 was US$ 59.8
million.





Certain
derivative instruments, including put options and conversion options, have been
identified as being embedded in the Convertible Notes, but as they are either
considered to be clearly and closely related to those Convertible Notes, or
would be treated as equity instruments if free-standing, they are not accounted
for separately.


Page
19
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CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)








5.  RESTRICTED
CASH





Restricted
cash consists of the following at March 31, 2008 and December 31,
2007:




March
      31,
                2008
              
              
              December
      31,
                2007Croatia
              
              $
              470
              
              
              $
              424Slovenia
              
              
              870
              
              
              
              810Ukraine
              
              
              56
              
              
              
              52Total
      restricted cash
              
              $
              1,396
              
              
              $
              1,286


The
balances in Slovenia represent minimum balances required to be kept in our
accounts with ING Bank N.V (“ING”) pursuant to the terms of our revolving
facility (see Note 10,“Credit Facilities and Obligations under Capital
Leases”).








6.  ACCOUNTS
RECEIVABLE





Accounts
receivable comprised the following at March 31, 2008 and December 31,
2007:





March
      31,
              2008
            
            
            December
      31,
              2007Trading:Third-party
      customers
            
            $
            234,790
            
            
            $
            231,467Less:
      allowance for bad debts and credit notes
            
            
            (15,596
            )
            
            
            (13,908
            )Related
      parties
            
            
            7,434
            
            
            
            7,978Less:
      allowance for bad debts and credit notes
            
            
            (637
            )
            
            
            (656
            )Total
      trading
            
            $
            225,991
            
            
            $
            224,881Other:Third-party
      customers
            
            $
            116
            
            
            $
            57Less:
      allowance for bad debts and credit notes
            
            
            (27
            )
            
            
            (27
            )Related
      parties
            
            
            87
            
            
            
            187Less:
      allowance for bad debts and credit notes
            
            
            (61
            )
            
            
            (61
            )Total
      other
            
            $
            115
            
            
            $
            156Total
      accounts receivable
            
            $
            226,106
            
            
            $
            225,037





At March
31, 2008, CZK 525.9 million (approximately US$ 32.8 million) (December 31, 2007:
CZK 695.6 million, US$ 43.4 million) of receivables in the Czech Republic were
pledged as collateral subject to a factoring agreement (see Note 10, “Credit
Facilities and Obligations under Capital Leases”).


Page
20
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CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





7.  OTHER
ASSETS





Other
current and non-current assets comprised the following at March 31, 2008 and
December 31, 2007:





March
      31,
              2008
            
            
            December
      31,
              2007Current:Prepaid
      programming
            
            $
            42,106
            
            
            $
            50,914Other
      prepaid expenses
            
            
            15,553
            
            
            
            11,785Deferred
      tax
            
            
            3,873
            
            
            
            3,652VAT
      recoverable
            
            
            5,233
            
            
            
            4,520Loan
      to related party
            
            
            1,961
            
            
            
            1,924Capitalized
      debt costs
            
            
            5,194
            
            
            
            3,104Other
            
            
            10,013
            
            
            
            6,430Total
      other current assets
            
            $
            83,933
            
            
            $
            82,329Non-current:Capitalized
      debt costs
            
            $
            18,554
            
            
            $
            10,310Deferred  tax
            
            
            1,838
            
            
            
            2,147Other
            
            
            4,550
            
            
            
            2,917Total
      other non-current assets
            
            $
            24,942
            
            
            $
            15,374





Capitalized
debt costs primarily comprise the costs incurred in connection with the issuance
of our Senior Notes and Convertible Notes (see Note 4, “Senior Debt”), and are
being amortized over the term of the Senior Notes and Convertible Notes using
the effective interest method.








8.  PROPERTY,
PLANT AND EQUIPMENT





Property,
plant and equipment comprised the following at March 31, 2008 and December 31,
2007:





March
      31,
              2008
            
            
            December
      31,
              2007Land
      and buildings
            
            $
            95,078
            
            
            $
            84,515Station
      machinery, fixtures and equipment
            
            
            198,653
            
            
            
            173,123Other
      equipment
            
            
            35,605
            
            
            
            31,512Software
      licenses
            
            
            24,214
            
            
            
            21,517Construction
      in progress
            
            
            11,948
            
            
            
            11,406Total
      cost
            
            
            365,498
            
            
            
            322,073Less:  Accumulated
      depreciation
            
            
            (155,757
            )
            
            
            (141,762
            )Total
      net book value
            
            $
            209,741
            
            
            $
            180,311Assets
      held under capital leases (included above)Land
      and buildings
            
            $
            6,652
            
            
            $
            6,193Station
      machinery, fixtures and equipment
            
            
            1,458
            
            
            
            800Total
      cost
            
            
            8,110
            
            
            
            6,993Less:
      Accumulated depreciation
            
            
            (1,686
            )
            
            
            (1,368
            )Net
      book value
            
            $
            6,424
            
            
            $
            5,625


Page
21
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CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





9.  ACCOUNTS
PAYABLE AND ACCRUED LIABILITIES





Accounts
payable and accrued liabilities comprised the following at March 31, 2008 and
December 31, 2007:




March
      31,
                2008
              
              
              December
      31,
                2007Accounts
      payable
              
              $
              31,302
              
              
              $
              37,977Programming
      liabilities
              
              
              42,735
              
              
              
              49,457Deferred
      income
              
              
              29,040
              
              
              
              7,126Accrued
      staff costs
              
              
              20,636
              
              
              
              29,202Accrued
      production costs
              
              
              9,407
              
              
              
              4,982Accrued
      interest payable
              
              
              19,107
              
              
              
              5,930Accrued
      legal costs
              
              
              2,533
              
              
              
              2,475Accrued
      rent costs
              
              
              1,386
              
              
              
              999Authors’
      rights
              
              
              5,105
              
              
              
              5,522Onerous
      contracts
              
              
              2,995
              
              
              
              2,832Obligation
      to repurchase shares
              
              
              -
              
              
              
              488Other
      accrued liabilities
              
              
              15,979
              
              
              
              9,334Total
      accounts payable and accrued liabilities
              
              $
              180,225
              
              
              $
              156,324


The
accrued interest payable balance relates primarily to interest calculated on our
Senior Notes and our Convertible Notes (see Note 4, “Senior
Debt”).


Page
22
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CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





10.  CREDIT
FACILITIES AND OBLIGATIONS UNDER CAPITAL LEASES





Group
loan obligations and overdraft facilities comprised the following at March 31,
2008 and December 31, 2007:





March
      31,
              2008
            
            
            December
      31,
              2007Credit
      facilities:Corporate
            (a)
            
            $
            -
            
            
            $
            -Czech
      Republic
            (b)
      – (d)
            
            
            15,602
            
            
            
            13,829Romania
            (e)
            
            
            -
            
            
            
            683Slovenia
            (f)
            
            
            -
            
            
            
            -Ukraine
      (KINO, CITI)
            (g)
            
            
            1,700
            
            
            
            1,700Total
      credit facilities
            
            
            $
            17,302
            
            
            $
            16,212Capital
      leases:Croatia
      operations, net of interest
            
            
            $
            -
            
            
            $
            -Romania
      operations, net of interest
            
            
            
            583
            
            
            
            242Slovak
      Republic operations, net of interest
            
            
            
            79
            
            
            
            86Slovenia
      operations, net of interest
            
            
            
            4,653
            
            
            
            4,412Total
      capital leases
            
            
            $
            5,315
            
            
            $
            4,740Total
      credit facilities and capital leases
            
            
            $
            22,617
            
            
            $
            20,952Less
      current maturities
            
            
            
            (16,381
            )
            
            
            (
      15,090
            )Total
      non-current maturities
            
            
            $
            6,236
            
            
            $
            5,862





Corporate





(a) On
July 21, 2006, we entered into a five-year revolving loan agreement for EUR
100.0 million (approximately US$ 158.1 million) arranged by the European Bank
for Reconstruction and Development (“EBRD”) and on August 22, 2007, we entered
into a second revolving loan agreement for EUR 50.0 million (approximately US$
79.1 million) also arranged by EBRD (together with the EUR 100.0 million
facility, the “EBRD Loan”).  ING and Ceska Sporitelna, a.s. (“CS”) are
each participating in the EBRD Loan for EUR 37.5 million (approximately US$ 59.3
million). At March 31, 2008, the full EUR 150.0 million facility is available to
be drawn.





We also
entered into a supplemental agreement with EBRD on August 22, 2007 to amend the
interest rate payable on the initial EUR 100.0 million loan, as a result of
which the EBRD Loan bears interest at a rate of three-month EURIBOR plus 1.625%
on the drawn amount. A commitment charge of 0.8125% is payable on any undrawn
portion of the EBRD Loan.  The available amount of the EBRD Loan
amortizes by 15.0% every six months from May 2009 to November 2010 and by 40.0%
in May 2011.





Covenants
contained in the EBRD Loan are similar to those contained in our Senior Notes
(see below and Note 4, “Senior Debt”).  In addition, the EBRD Loan’s
covenants restrict us from making principal repayments on other new debt of
greater than US$ 20.0 million per year for the life of the EBRD
Loan.  This restriction is not applicable to our existing facilities
with ING or CS or to any refinancing of our Senior Notes.





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


Page
23
 Table of Contents


CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





Czech
Republic





(b) As at
March 31, 2008, there were no drawings by CET 21 under a credit facility of CZK
1.2 billion (approximately US$ 74.9 million) available until December 31, 2010
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 1.65%. A utilization interest of 0.25% is payable on
the undrawn portion of this facility.  This percentage decreases to
0.125% of the undrawn portion if more than 50% of the loan is
drawn.  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.





(c) As at
March 31, 2008, CZK 250 million (approximately US$ 15.6 million), the full
amount of the facility, had been drawn by CET 21 under a working capital
facility agreement with CS with a maturity date of December 31, 2010. The
facility bears interest at three-month PRIBOR plus 1.65% (three-month PRIBOR
relevant to drawings under this facility at March 31, 2008 was 3.93%). This
facility is secured by a pledge of receivables, which are also subject to a
factoring arrangement with Factoring Ceska Sporitelna, a.s.





(d) As at
March 31, 2008, there were no drawings under a CZK 300.0 million (approximately
US$ 18.7 million) factoring facility with Factoring Ceska Sporitelna, a.s.
available until June 30, 2011.  The facility bears interest at
one-month PRIBOR plus 1.40% for the period that actively assigned accounts
receivable are outstanding.





Romania





(e) Two
loans from San Paolo IMI Bank, assumed on our acquisition of MTS, were repaid in
January 2008. On August 31, 2007 we completed scheduled repayments of an
interest-free loan provided by one of the founding shareholders, assumed on our
acquisition of Sport.ro.




Slovenia





(f) On
July 29, 2005, Pro Plus entered into a revolving facility agreement for up to
EUR 37.5 million (approximately US$ 59.3 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 March 31, 2008, EUR 30.0
million (approximately US$ 47.4 million) was available for drawing under this
revolving facility and there were no drawings outstanding.





Ukraine
(KINO, CITI)





(g) 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 March 31, 2008, 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%.


Page
24
 Table of Contents


CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





Total
Group





At March
31, 2008, the maturity of our debt (including our Senior Notes and Convertible
Notes) is as follows:





2008
            
            $
            15,6022009
            
            
            1,7002010
            
            
            -2011
            
            
            -2012
            
            
            387,3942013
      and thereafter
            
            
            712,180Total
            
            $
            1,116,876




Capital
Lease Commitments





We lease
certain of our office and broadcast facilities as well as machinery and
equipment under various leasing arrangements.  The future minimum
lease payments from continuing operations, by year and in the aggregate, under
capital leases with initial or remaining non-cancelable lease terms in excess of
one year, consisted of the following at March 31, 2008:





2008
            
            $
            8702009
            
            
            1,0542010
            
            
            6022011
            
            
            5382012
            
            
            7222013
      and thereafter
            
            
            3,731$
            7,517Less:
      amount representing interest
            
            
            (2,202
            )Present
      value of net minimum lease payments
            
            $
            5,315








11.  FINANCIAL
INSTRUMENTS AND FAIR VALUE MEASUREMENTS





FAS 157
establishes a hierarchy that prioritizes the inputs to those valuation
techniques used to measure fair value. The hierarchy gives the highest priority
to unadjusted quoted prices in active markets for identical assets or
liabilities (level 1 measurements) and the lowest priority to unobservable
inputs (level 3 measurements). The three levels of the fair value hierarchy
under FAS 157 are:





Basis of
Fair value Measurement





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





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





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


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EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





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





We
evaluate the position of each financial instrument measured at fair value in the
hierarchy individually based on the valuation methodology we apply. At March 31,
2008, we have no material financial assets or liabilities carried at fair value
using significant level 1 or level 3 inputs and the only instruments we value
using level 3 inputs are currency swap agreements as follows:





Currency
Swap





On April
27, 2006, we entered into currency swap agreements with two counterparties
whereby we swapped a fixed annual coupon interest rate (of 9.0%) on notional
principal of CZK 10.7 billion (approximately US$ 667.7 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$ 594.4 million) receivable on July 15,
October 15, January 15, and April 15, to the termination date of April 15,
2012.





These
currency swap agreements reduce our exposure to movements in foreign exchange
rates on a part of the CZK-denominated cash flows generated by our Czech
Republic operations that is approximately equivalent in value to the
Euro-denominated interest payments on our Senior Notes (see Note 4, “Senior
Debt”). They are financial instruments that are used to minimize currency risk
and are considered an economic hedge of foreign exchange rates.  These
instruments have not been designated as hedging instruments as defined under FAS
133 and so changes in their fair value are recorded in the consolidated
statement of operations and in the consolidated balance sheet in other
non-current liabilities.





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





The fair
value of these instruments as at March 31, 2008, was a US$ 26.5 million
liability, which represented a US$ 10.3 million increase from the US$ 16.2
million liability as at December 31, 2007 and was recognized as a loss in the
consolidated statement of operations.








12.  SHAREHOLDERS’
EQUITY





Preferred
Stock





5,000,000
shares of preferred stock, with a US$ 0.08 par value, were authorized as at
March 31, 2008 and December 31, 2007.  None were issued and
outstanding as at March 31, 2008, and December 31, 2007.





Class
A and B Common Stock





100,000,000
shares of Class A Common Stock and 15,000,000 shares of Class B Common Stock
were authorized as at March 31, 2008 and December 31, 2007.  The
rights of the holders of Class A Common Stock and Class B Common Stock are
identical except for voting rights.  The shares of Class A Common
Stock are entitled to one vote per share and the shares of Class B Common Stock
are entitled to ten votes per share. Shares of Class B Common Stock are
convertible into shares of Class A Common Stock for no additional consideration
on a one-for-one basis.  Holders of each class of shares are entitled
to receive dividends and upon liquidation or dissolution are entitled to receive
all assets available for distribution to shareholders.  The holders of
each class have no preemptive or other subscription rights and there are no
redemption or sinking fund provisions with respect to such
shares.


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NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





13.  STOCK-BASED
COMPENSATION





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





For
      the Three Months Ended March 31,2008
            
            
            2007Stock-based
      compensation charged under SFAS 123(R)
            
            $
            1,813
            
            
            $
            1,262




Under the
provisions of SFAS 123(R), the fair value of stock options is estimated on the
grant date using the Black-Scholes option-pricing model and recognized ratably
over the requisite service period. No options were granted in the three months
ended March 31, 2008.




A summary
of option activity for the three months ended March 31, 2008 is presented
below:





Shares
            
            
            Weighted
      Average Exercise Price per Share
            
            
            Weighted
      Average Remaining Contractual Term (years)
            
            
            Aggregate
      Intrinsic ValueOutstanding
      at January 1, 2008
            
            
            1,176,117
            
            
            $
            56.72
            
            
            
            7.04
            
            
            $
            69,693Granted
            
            
            -
            
            
            
            -Exercised
            
            
            (125
            )
            
            
            72.05Forfeited
            
            
            (9,125
            )
            
            
            75.08Outstanding
      at March 31, 2008
            
            
            1,166,867
            
            
            $
            56.58
            
            
            
            6.78
            
            
            $
            39,112Vested
      or expected to vest
            
            
            1,077,859
            
            
            
            55.56
            
            
            
            6.72
            
            
            
            31,976Exercisable
      at March 31, 2008
            
            
            486,117
            
            
            $
            30.92
            
            
            
            6.43
            
            
            $
            26,403





The
exercise of stock options is expected to generate a net operating loss carry
forward in our Delaware subsidiary of US$ 11.6 million.  In the three
months ended March 31, 2008 a tax benefit of US$ 0.1 million was recognized in
respect of the utilization of part of this loss, which was recorded as
additional paid in capital.





The
aggregate intrinsic value (the difference between the stock price on the last
day of trading of the first quarter of 2008 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 March 31, 2008.  This amount changes based on the
fair value of our Common Stock.  The total intrinsic value of options
exercised during the three months ended March 31, 2008 and 2007 was US$ 1.8
thousand and US$ 14.7 million, respectively.  As of March 31, 2008,
there was US$ 15.9 million of total unrecognized compensation expense related to
options.  The expense is expected to be recognized over a weighted
average period of 1.8 years.  Proceeds received from the exercise of
stock options were US$ 9.0 thousand and US$ 2.0 million for the three months
ended March 31, 2008 and 2007, respectively.


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EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





14.  EARNINGS
PER SHARE





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





For
      the Three Months Ended March 31,2008
            
            
            2007Net
      income / (loss) available for common shareholders
            
            $
            14,895
            
            
            $
            (250
            )Weighted
      average outstanding shares of Common Stock (000’s)
            
            
            42,316
            
            
            
            40,793Dilutive
      effect of employee stock options (000’s)
            
            
            416
            
            
            
            -Common
      Stock and Common Stock equivalents (000’s)
            
            
            42,732
            
            
            
            40,793Income
      / (loss) per share:Basic
            
            $
            0.35
            
            
            $
            (0.01
            )Diluted
            
            $
            0.35
            
            
            $
            (0.01
            )





At March
31, 2008, 269,500 (December 31, 2007: 258,500) stock options were antidilutive
to income from continuing operations and excluded from the calculation of
earnings per share. These may become dilutive in the future. Common shares
potentially issuable under our Convertible Notes may also become dilutive in the
future although were antidilutive to income at March 31, 2008.





15.  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.





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 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 condensed 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 of assets or
investments).


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EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Tabular
amounts in US$ 000’s, except 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
Segment EBITDA and segment depreciation and asset information amounts to our
consolidated results for the three months ended March 31, 2008 and 2007 for
condensed consolidated statement of operations data and as at March 31, 2008 and
December 31, 2007 for condensed consolidated balance sheet data:




For
      the Three Months Ended March 31,Segment
      Net Revenues (1)
              
              
              Segment
      EBITDA2008
              
              
              2007
              
              
              2008
              
              
              2007Country:Croatia
      (NOVA TV)
              
              $
              11,534
              
              
              $
              7,232
              
              
              $
              (2,730
              )
              
              $
              (4,652
              )Czech
      Republic (TV NOVA, NOVA CINEMA and GALAXIE SPORT)
              
              
              85,558
              
              
              
              51,519
              
              
              
              43,845
              
              
              
              25,667Romania
      (2)
              
              
              57,996
              
              
              
              39,342
              
              
              
              23,376
              
              
              
              15,136Slovak
      Republic (TV MARKIZA)
              
              
              26,234
              
              
              
              18,677
              
              
              
              9,137
              
              
              
              5,756Slovenia
      (POP TV and KANAL A)
              
              
              17,951
              
              
              
              12,669
              
              
              
              4,340
              
              
              
              3,001Ukraine
      (STUDIO 1+1)
              
              
              23,219
              
              
              
              18,075
              
              
              
              (2,063
              )
              
              
              (2,370
              )Ukraine
      (KINO, CITI)
              
              
              978
              
              
              
              398
              
              
              
              (1,206
              )
              
              
              (2,417
              )Total
      segment data
              
              $
              223,470
              
              
              $
              147,912
              
              
              $
              74,699
              
              
              $
              40,121Reconciliation
      to condensed consolidated statement of operations:Consolidated
      net revenues / income  before provision for income taxes and
      minority interest
              
              $
              223,470
              
              
              $
              147,912
              
              
              $
              5,578
              
              
              $
              4,449Corporate
      operating costs
              
              
              -
              
              
              
              -
              
              
              
              10,017
              
              
              
              14,773Depreciation
      of station property, plant and equipment
              
              
              -
              
              
              
              -
              
              
              
              12,340
              
              
              
              6,899Amortization
      of broadcast licenses and other intangibles
              
              
              -
              
              
              
              -
              
              
              
              7,666
              
              
              
              5,162Interest
      income
              
              
              -
              
              
              
              -
              
              
              
              (2,180
              )
              
              
              (1,414
              )Interest
      expense
              
              
              -
              
              
              
              -
              
              
              
              14,250
              
              
              
              11,396Change
      in fair value of derivatives
              
              
              -
              
              
              
              -
              
              
              
              10,258
              
              
              
              (4,524
              )Foreign
      currency exchange loss, net
              
              
              -
              
              
              
              -
              
              
              
              17,430
              
              
              
              3,136Other
      expense / (income)
              
              
              -
              
              
              
              -
              
              
              
              (660
              )
              
              
              244Total
      segment data
              
              $
              223,470
              
              
              $
              147,912
              
              
              $
              74,699
              
              
              $
              40,121


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


(2)
Romania channels are PRO TV, PRO CINEMA, ACASA, PRO TV INTERNATIONAL, SPORT.RO
and MTV ROMANIA for the three months ended March 31, 2008. For the three months
ended March 31, 2007 the Romanian channels were PRO TV, PRO CINEMA, ACASA, PRO
TV INTERNATIONAL and SPORT.RO. We acquired SPORT.RO on February 20,
2007.


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EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





For
      the Three Months Ended March 31,Depreciation
      of station property, plant and equipment and amortization of broadcast
      licenses and other intangibles:
            
            2008
            
            
            2007Croatia
            
            $
            1,410
            
            
            $
            785Czech
      Republic
            
            
            10,146
            
            
            
            6,461Romania
            
            
            3,540
            
            
            
            1,747Slovak
      Republic
            
            
            2,576
            
            
            
            1,187Slovenia
            
            
            1,283
            
            
            
            986Ukraine
      (STUDIO 1+1)
            
            
            791
            
            
            
            745Ukraine
      (KINO, CITI)
            
            
            260
            
            
            
            150Total
            
            $
            20,006
            
            
            $
            12,061Represented
      as follows:Depreciation
      of station property, plant & equipment
            
            
            12,340
            
            
            
            6,899Amortization
      of broadcast licenses and other intangibles
            
            
            7,666
            
            
            
            5,162





Total
      assets (1):
            
            March
      31,
              2008
            
            
            December
      31,
              2007Croatia
            
            $
            56,925
            
            
            $
            44,787Czech
      Republic
            
            
            1,621,136
            
            
            
            1,429,256Romania
            
            
            395,484
            
            
            
            360,144Slovak
      Republic
            
            
            227,166
            
            
            
            203,302Slovenia
            
            
            101,738
            
            
            
            89,984Ukraine
      (STUDIO 1+1)
            
            
            93,358
            
            
            
            90,064Ukraine
      (KINO, CITI)
            
            
            18,288
            
            
            
            17,854Total
      segment assets
            
            $
            2,514,095
            
            
            $
            2,235,391Reconciliation
      to condensed consolidated balance sheets:Corporate
            
            
            538,541
            
            
            
            103,044Total
      assets
            
            $
            3,052,636
            
            
            $
            2,338,435





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


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EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





Long-lived
      assets (1):
            
            March
      31,
              2008
            
            
            December
      31,
              2007Croatia
            
            $
            18,561
            
            
            $
            12,144Czech
      Republic
            
            
            70,905
            
            
            
            58,809Romania
            
            
            51,435
            
            
            
            44,808Slovak
      Republic
            
            
            32,120
            
            
            
            29,345Slovenia
            
            
            23,495
            
            
            
            21,524Ukraine
      (STUDIO 1+1)
            
            
            7,056
            
            
            
            7,380Ukraine
      (KINO, CITI)
            
            
            4,896
            
            
            
            5,003Total
      long-lived assets
            
            $
            208,468
            
            
            $
            179,013Reconciliation
      to condensed consolidated balance sheets:Corporate
            
            
            1,273
            
            
            
            1,298Total
      long-lived assets
            
            $
            209,741
            
            
            $
            180,311





(1)
      Reflects property, plant and
equipment





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








16.  DISCONTINUED
OPERATIONS





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





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





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





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





The
settlement with the Dutch tax authorities also 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.


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NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





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.








17.  COMMITMENTS
AND CONTINGENCIES





Commitments





a)
Ukraine Buyout Agreements





On
January 31, 2008, we entered into a series of agreements to purchase a 30.0%
beneficial ownership interest in the Studio 1+1 group from our partners,
Alexander Rodnyansky and Boris Fuchsmann, and to provide Messrs. Rodnyansky and
Fuchsmann with a put option and us with a call option for the remaining 10.0%
interest in the Studio 1+1 group that will be held by Messrs. Rodnyansky and
Fuchsmann following a successful completion of the initial purchase. We
currently hold a 60.0% beneficial ownership interest in the Studio 1+1 group. In
conjunction with the initial transaction, we also entered into an assignment
agreement with Igor Kolomoisky, one of our shareholders and a member of the
Board of Directors of Central European Media Enterprises Ltd, pursuant to which
Mr. Kolomoisky has assigned option interests in the Studio 1+1 group to
us.  The consideration payable by us for the initial purchases,
exclusive of the put and call options, is approximately US$ 219.6
million.




We
entered into a framework agreement (the “Framework Agreement”) with Messrs.Rodnyansky and
Fuchsmann on January 31, 2008. Pursuant to the terms of the Framework Agreement,
we shall acquire a 30.0% interest in the Studio 1+1 group.  The
interests to be acquired consist of (i) an 8.335% direct and indirect ownership
interest in the Studio 1+1 group currently held by Messrs. Rodnyansky and
Fuchsmann (the “RF Interests”) and (ii) a 21.665% direct and indirect interest
in Studio 1+1, Innova and IMS over which Mr. Kolomoisky currently holds options
(the “Optioned Interests”).  We entered into an agreement with Mr.
Kolomoisky on October 30, 2007 (the “October Agreement”) to acquire such
Optioned Interests from Mr. Kolomoisky following a successful exercise by him of
these options over the Optioned Interests. The Assignment Agreement as defined
below between us and Mr. Kolomoisky supersedes the October
Agreement.





At
completion Messrs. Rodnyansky and Fuchsmann will receive a combined total cash
consideration of US$ 79.6 million, including a de minimus amount of
consideration upon exercise of the Optioned Interests and the remainder for the
RF Interests, in exchange for the 30.0% beneficial ownership interest in the
Studio 1+1 group.  Following the completion of this transaction, we
will hold a 90.0% interest in the Studio 1+1 group and Messrs. Rodnyansky and
Fuchsmann will each hold a 5.0% interest.





In
addition, under the Framework Agreement we have granted Messrs. Rodnyansky and
Fuchsmann the right to jointly put both of their remaining 5.0% interests in the
Studio 1+1 group to us. The consideration upon exercise of the put option is:
(i) US$ 95.4 million if exercised at any time from the closing date of the
transaction to the first anniversary of the closing date; (ii) US$ 102.3 million
if exercised after the first anniversary up to the second anniversary of the
closing date; and (iii) the greater of US$ 109.1 million and an agreed valuation
if exercised at any time after the second anniversary of the closing date. Under
the Framework Agreement Messrs. Rodnyansky and Fuchsmann granted us the right
from the closing date to call their combined 10.0% interest in the Studio 1+1
group for a consideration of US$ 109.1 million. From the first anniversary of
the closing date, Messrs. Rodnyansky and Fuchsmann have the option of electing
to have an agreed valuation conducted, in which case the call price will be the
greater of US$ 109.1 million and the agreed valuation.  In the event
we exercise the call option, Messrs. Rodnyansky and Fuchsmann have the right to
elect to receive their consideration in the form of cash or shares of our Class
A Common Stock. Both the put and call options may only be exercised for the
entire 10.0% interest held by Messrs. Rodnyansky and Fuchsmann.


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NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





Simultaneous
with entering into the Framework Agreement, the parties to the Framework
Agreement entered into a termination agreement (the “Termination Agreement”)
pursuant to which our historical partnership agreements with respect to our
Ukrainian operations have been terminated and Messrs. Rodnyansky and Fuchsmann
have resigned all positions within the Studio 1+1 group. Messrs Rodnyansky and
Fuchsmann have entered into consultancy agreements with us providing for total
annual aggregate compensation under both agreements not to exceed Euro 1 million
that terminate at the time either sells his remaining 5.0% interest in the
Studio 1+1 group. The Termination Agreement contains non-solicitation provisions
as well as limited non-compete provisions that restrict the ability of Messrs.
Rodnyansky and Fuchsmann to compete against us in the television business in
Ukraine directly or through companies controlled by
them.





Following
the completion of our purchase of the 30.0% ownership interest in the Studio 1+1
group, Messrs. Rodnyansky and Fuchsmann intend to acquire 10.0% of our interest
in the entities operating the channels KINO and CITI in Ukraine for
consideration of US$ 1.92 million. In the event Messrs. Rodnyansky and Fuchsmann
exercise the put or we exercise the call described above, this 10.0% interest
will be transferred to us together with the 10.0% interest held by Messrs.
Rodnyansky and Fuchsmann in the Studio 1+1 Group, and Messrs. Rodnyansky and
Fuchsmann shall not be entitled to any additional consideration other than as
described above in respect of the put and call options.





On
January 31, 2008, we entered into an Assignment Agreement with Mr. Kolomoisky
pursuant to which Mr. Kolomoisky has assigned his right to acquire the Optioned
Interests to us. In consideration of this assignment, we will pay Mr. Kolomoisky
an amount equal to the lesser of (i) US$ 140.0 million and (ii) 4% of the number
of outstanding shares of our Class A Common Stock at the time we acquire the
Optioned Interests (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.  We are not obligated to pay this consideration to Mr.
Kolomoisky prior to the acquisition of the RF Interests and the Optioned
Interests from Messrs. Rodnyansky and Fuchsmann. The October Agreement shall
terminate and no consideration will be payable thereunder following the
completion of this transaction.





The
Framework Agreement and the Assignment Agreement also provide that Messrs.
Rodnyansky, Fuchsmann and Kolomoisky, as well as other parties who entered into
historical arrangements with respect to the Optioned Interests, enter into
mutual release arrangements on the closing date to confirm the performance of
the transactions contemplated by those previous arrangements and to release any
claims arising out of or in connection with those arrangements or the ownership
of the Studio 1+1 group. In addition, Mr. Kolomoisky and other parties who
obtained rights in respect of the Optioned Interests are releasing us and the
Studio 1+1 group from any claims in respect of the ownership of the Studio 1+1
group on the closing date.





Completion
of the transactions described above is expected to occur by the end of the
second quarter of this years but under the terms of the Framework Agreement, the
ownership of the Studio 1+1 Group is being restructured in order to facilitate
these transactions and such restructuring will require certain regulatory
approvals. Once the completion of the conditions to closing is sufficiently
probable, we will account for the acquisition as a purchase business combination
in accordance with FASB Statement No. 141 “Business
Combinations.”


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CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





b)  Station
Programming Rights Agreements





At March
31, 2008, we had the following commitments in respect of future programming,
including contracts signed with license periods starting after the balance sheet
date:





March
      31, 2008Croatia
            
            $
            6,424Czech
      Republic
            
            
            33,130Romania
            
            
            26,478Slovak
      Republic
            
            
            13,513Slovenia
            
            
            3,681Ukraine
      (STUDIO 1+1)
            
            
            7,256Ukraine
      (KINO, CITI)
            
            
            162Total
            
            $
            90,644





Of the
amount shown in the table above, US$ 75.4 million is payable within one
year.





c)
Operating Lease Commitments





For the
three months ended March 31, 2008 and 2007 we incurred aggregate rent on all
facilities of US$ 3.6 million and US$ 2.9 million,
respectively.  Future minimum operating lease payments at March 31,
2008 for non-cancellable operating leases with remaining terms in excess of one
year (net of amounts to be recharged to third parties) are payable as
follows:





March
      31,
              20082008
            
            $
            3,3222009
            
            
            4,7412010
            
            
            2,2832011
            
            
            8672012
            
            
            3062013
      and thereafter
            
            
            10Total
            
            $
            11,529





d)
Acquisition of Minority Shareholdings in Romania





Adrian
Sarbu, our Chief Operating Officer, has the right to sell to us his remaining
shareholding in Pro TV and MPI under a put option agreement entered into in July
2004 at a price to be determined by an independent valuation, subject to a floor
price of US$ 1.45 million for each 1.0% interest sold. Mr. Sarbu’s right to put
his remaining shareholding’ is exercisable from November 12, 2009, provided that
we have not enforced a pledge over this shareholding which Mr. Sarbu granted as
security for our right to put him our shareholding in Media Pro. As at March 31,
2008, we consider the fair value of the put option of Mr. Sarbu to be
approximately US$ nil.


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CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





e)
Other





Dutch
Tax





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





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





The
settlement with the Dutch tax authorities also 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
March 31, 2008 we provided US$ 1.6 million (US$ 0.7 million in non-current
liabilities and US$ 0.9 million in current liabilities) and as at December 31,
2007 we provided US$ 3.3 million (US$ 1.0 million in non-current liabilities and
US$ 2.3 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.





Czech Republic
- Factoring of Trade Receivables





CET 21
has a working capital credit facility of CZK 250 million (approximately US$ 15.6
million) with CS.  This facility is secured by a pledge of receivables
under the factoring agreement with Factoring Ceska Sporitelna.





The
transfer of the receivables is accounted for as a secured borrowing under FASB
Statement No. 140, “Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities”, with the proceeds received
recorded in the 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





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


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CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





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





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





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 restructure to permit us to hold a 60.0% interest 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 registered 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 60.0% 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 denied any
breach of our shareholders’ agreement and requested that the tribunal hold the
cross action inadmissible in the current arbitration proceedings, whose subject
matter is the restructuring, and terminate these proceedings.





On
January 31, 2008, we entered into a Framework Agreement with Mr. Fuchsmann and
Mr. Rodnyansky.  Pursuant to the Framework Agreement, we have agreed
to (i) purchase a 30.0% interest in the Studio 1+1 group from Mr. Fuchsmann and
Mr. Rodnyansky, (ii) grant Mr. Fuchsmann and Mr. Rodnyansky a put option and CME
a call option on Mr. Fuchsmann’s and Mr. Rodnyansky’s remaining 10.0% interest
in the Studio 1+1 group and (iii) sell to Mr. Fuchsmann and Mr. Rodnyansky 10.0%
of our interest in the companies that operate KINO and CITI. Prior to the
completion of these transactions, we have agreed to suspend the arbitration
proceedings. Following completion of the transaction, we have agreed with Mr.
Fuchsmann and Mr. Rodnyansky to terminate the arbitration proceedings described
above. The transaction is expected to close by the end of the second quarter of
2008.


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CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


(Unaudited)





b)
Licenses





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








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





CzechRepublic
            The
      license of TV NOVA (Czech Republic) expires in January 2017. The NOVA
      Cinema license expires in November 2019. The GALAXIE SPORT license expires
      in March 2014.





Romania
            Licenses
      expire on dates ranging from November 2008 to February
    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 held by Ukrpromtorg
      expire on dates ranging from November 2008 to July
  2016.




Management
believes that the licenses for our television license companies will be renewed
prior to expiry or that we will receive digital licenses for our channels in
replacement of current analog licenses (see Item 2, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations – Executive
Summary”).  In Romania, the Slovak Republic, Slovenia and Ukraine
local regulations contain a qualified presumption for extensions of broadcast
licenses according to which a license may be renewed if the licensee has
operated substantially in compliance with the relevant licensing
regime.





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.








18.  SUBSEQUENT
EVENTS





Acquisition
- Romania





On April
17, 2008 we acquired the assets of Compania de Radio Pro s.r.l. (“Radio Pro”)
which owns two leading radio channels in Romania.  Total consideration was
RON 47.2 million (approximately US$ 20.6 million at the date of payment). 
Radio Pro is owned by Media Pro Management S.A., in which we hold an 8.7%
interest and the remainder is owned by Adrian Sarbu, our Chief Operating
Officer.


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Item
2.  Management's Discussion andAnalysis 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 statements regarding our
capital needs, business strategy, expectations and intentions. Statements that
use the terms “believe”, “anticipate”, “expect”, “plan”, “estimate”, “intend”
and similar expressions of a future or forward-looking nature identify
forward-looking statements for purposes of the U.S. federal securities laws or
otherwise. For these statements and all other forward-looking statements, we
claim the protection of the safe harbor for forward-looking statements contained
in the Private Securities Litigation Reform Act of 1995.





Forward-looking
statements are inherently subject to risks and uncertainties, many of which
cannot be predicted with accuracy or are otherwise beyond our control and some
of which might not even be anticipated.  Forward-looking statements
reflect our current views with respect to future events and because our business
is subject to such risks and uncertainties, actual results, our strategic plan,
our financial position, results of operations and cash flows could differ
materially from those described in or contemplated by the forward-looking
statements contained in this report.





Important
factors that contribute to such risks include, but are not limited to, those
factors set forth under “Risk Factors” as well as the following: general market
and economic conditions in our markets as well as in the United States and
Western Europe;  the results of additional investment in Croatia and
Ukraine; the expected completion dates and the impact of the buyout of our
partners in the Studio 1+1 group in Ukraine; the growth of television
advertising spending and the rate of development of advertising in our markets;
our ability to make future investments in television broadcast operations; our
ability to develop and  implement strategies regarding sales and
multi-channel distribution; the performance of obligations by third parties with
whom we have entered into agreements; the general political, economic and
regulatory environments where we operate and application of relevant laws and
regulations; the renewals of broadcasting licenses and our ability to obtain
additional frequencies and licenses; and our ability to acquire necessary
programming and attract audiences. The foregoing review of important factors
should not be construed as exhaustive and should be read in conjunction with
other cautionary statements that are included in this report. We undertake no
obligation to publically update or review any forward-looking statements,
whether as a result of new information, future developments or
otherwise.


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38
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The
following discussion should be read in conjunction with our interim financial
statements and notes included elsewhere in this report.





II.
Executive Summary





Continuing
Operations





The
following table provides a summary of our consolidated results for the three
months ended March 31, 2008 and 2007:





For
      the Three Months Ended March 31,
              (US$
      000's)2008
            
            
            2007
            
            
            MovementNet
      revenues
            
            $
            223,470
            
            
            $
            147,912
            
            
            
            51.1
            %Operating
      income
            
            
            44,676
            
            
            
            13,287
            
            
            
            236.2
            %Net
      income / (loss)
            
            $
            14,895
            
            
            $
            (250
            )
            
            
            6,058.0
            %





The
principal events for the three months ended March 31, 2008 are as
follows:





·
            Performance: In
      the three months ended March 31, 2008, we reported growth in both Segment
      Net Revenues and Segment EBITDA of 51% and 86%, respectively compared to
      the three months ended March 31, 2007, delivering a Segment EBITDA margin
      of 33% compared to the 27% margin reported in the three months ended March
      31, 2007 (Segment EBITDA is defined and reconciled to our consolidated
      results in Item 1, Note 15, “Segment
Data”).





·
            Each
      of our stations reported revenue growth in excess of 28% compared to the
      three months ended March 31, 2007, with particularly strong growth
      reported in Croatia and the Czech
Republic.





·
            Acquisition:On
      January 31, 2008, we entered into agreements with Igor Kolomoisky to
      assign options over certain interests on the Studio 1+1 group held by him
      and with Boris Fuchsmann and Alexander Rodnyansky to acquire their 40%
      interest in the Studio 1+1 group. Upon completion of the initial purchase,
      we will own 90.0% of the Studio 1+1 group and Messrs. Fuchsmann and
      Rodnyansky will have the right to put to us, and we will have the right to
      call from them, their remaining 10.0%
interest.





·
            Financing: On March 10,
      2008 we issued US$ 475.0 million of 3.50% Convertible Notes, maturing on
      March 15, 2013. In order to increase the effective conversion price of our
      Convertible Notes, on March 4, 2008 we purchased, for aggregate
      consideration of US$ 63.3 million, capped call options over 4,523,809
      shares of our Common Stock (see Item 1, Note 4, “Senior
      Debt”).





·
            Debt Ratings: On March
      19, 2008, Moody’s Investors Services upgraded our senior unsecured debt
      rating for our Senior Notes and our corporate credit rating from Ba3 to
      Ba2.





Subsequent
to the quarter-end:





·
            Acquisition:On April 17, 2008
      we acquired the assets of Compania de Radio Pro s.r.l. (“Radio Pro”) which
      owns two leading radio channels in Romania.  Total consideration
      was RON 47.2 million (approximately US$ 20.6 million at the date of
      payment).  Radio Pro is owned by Media Pro Management S.A., in
      which we hold an 8.7% interest and the remainder is owned by Adrian Sarbu,
      our Chief Operating Officer (See Item I, Note 18, “Subsequent
      Events”).





·
            Debt Rating: On April
      23, 2008, Standard & Poor’s upgraded the rating of our Senior Notes
      from BB- to BB and assigned a BB debt rating to our US$ 475.0 million of
      3.5% Convertible Notes.


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Future
Trends





CME Strategy: We believe over
the medium term that we will see higher levels of GDP growth as well as general
advertising and television advertising spending growth in our markets than in
Western European or U.S. markets. The largest portion of advertising spending in
our markets is on television advertising and it makes up a larger proportion
than in Western European or U.S. markets. We expect this trend to continue for
the foreseeable future. We believe the fastest growth in television advertising
in our markets will continue to be in Ukraine and Romania, our markets with the
largest populations and, currently, the lowest levels of television advertising
spending per capita.





The large
audience share that we enjoy in most of our markets is due both to the
commercial strength of our channels and to the constraints on bandwidth that
limit the number of free-to-air broadcasters in our markets. The only markets
where we currently face significant competition from other distribution
platforms are Romania and Slovenia, where cable penetration exceeds 50% of
television households.





As our
markets mature, we anticipate more intense competition for audience share and
advertising spending from other incumbent terrestrial broadcasters and from
cable, satellite and digital terrestrial broadcasters as the coverage of these
technologies grows. The impact on our advertising share will be less significant
due to the small audience rating each individual channel can attract. The advent
of digital terrestrial broadcasting as well as the introduction of alternative
distribution platforms for content (including additional direct-to-home (“DTH”)
services, the internet, internet protocol TV (“IPTV”), mobile television and
video-on-demand services) will cause audience fragmentation and change the
competitive dynamics in our operating countries in the medium term.





We
believe that our leading position in our operating countries and the strength of
our existing brands place us in a solid position to manage increased competition
and to launch new niche channels as these new technologies
develop.  In the near term we intend to continue to pursue further
improvements in the performance of our existing operations in order to maximize
the potential for organic growth in our existing businesses.





Our
priorities in this regard include:





·
            completing
      the buyout of our partners in the Studio 1+1 group and restructuring our
      Ukraine operations in order to secure consistent performance and a leading
      position in the Ukrainian market;





·
            ensuring
      that our leading position in our operating countries is secured during the
      transition to digital terrestrial broadcasting and the anticipated growth
      of DTH offerings;





·
            launching
      or acquiring additional channels in our markets in order to expand our
      offerings, target niche audiences and increase our advertising
      inventory;





·
            improving
      margins by leveraging expertise from our best-performing
      operations;





·
            expanding
      our capabilities in production and the development of local content;
      and





·
            achieving
      EBITDA break even in our Croatia operations during the fourth quarter of
      2008.





In
addition, we continue to review opportunities to develop our business and expand
our footprint through strategic acquisitions, the adoption and implementation of
new technologies and expansion into additional markets in Central and Eastern
Europe. Internet broadband penetration is low in all of our markets in
comparison to Western European and U.S. markets. As the GDP per capita of our
markets grows over the medium term, we anticipate broadband penetration will
increase significantly and will foster the development of significant new
opportunities for generating advertising and other revenues in new media. We
believe that the strength of our brands, our news programming and locally
produced content, our relationships with advertisers and the opportunities for
cross promotion afforded by the large audiences of our broadcast operations put
us in a strong position to achieve leading positions in these new forms of media
as they develop. We intend to continue our program of investment into our
non-broadcast activities in order to develop offerings and launch services on
the internet and mobile platforms that complement our broadcast offerings and
generate revenues.


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Digital Terrestrial
Broadcasting: The transition from analog to digital terrestrial
broadcasting is beginning to accelerate in our markets.  While the
approach being applied is not uniform, there are certain steps that each
jurisdiction appears to be following.  Typically, legislation
governing the transition to digital is adopted which addresses the licensing of
operators of the digital networks as well as the licensing of digital
broadcasters, technical parameters concerning the allocation of frequencies to
be used for digital services (including those currently being used for analog
services), broadcasting standards to be provided, the timing of the transition
and, ideally, principles to be applied in the transition, including transparency
and non-discrimination. As a rule, these are embodied in a technical transition
plan (“TTP”) that is agreed among the relevant Media Council, the national
telecommunications agency (which is generally responsible for the allocation and
use of frequencies) and the broadcasters.





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





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





In that
regard, both of our Slovenian channels, POP TV and KANAL A, were issued digital
licenses in November 2007. We anticipate that the switchover to digital in
Slovenia will be completed by 2012, when the current licenses of POP TV and
KANAL A expire.  TV NOVA (Czech Republic) is also entitled to receive
a digital license under recent amendments to the Czech Republic Media Law. The
receipt of this license is subject to CET 21 agreeing to the switchover plan
under the TTP, which is still under negotiation.  In the Slovak
Republic, TV MARKIZA is entitled to receive a digital license under recently
adopted legislation and intends to apply for one following the completion of
negotiations with respect to the TTP for the Slovak Republic.





Draft
legislation governing the transition to digital is under discussion in Romania
and Croatia.  We anticipate that legislation will be adopted during
2008 that will address digital licensing and the TTP for each market in a
comprehensive way.  We expect that all of our channels will receive
digital licenses in these markets.





The
Ukrainian governmental authorities have issued generic legislation in respect of
the transition to digital. In addition, the Ukraine Media Council has recently
issued decisions confirming that STUDIO 1+1 would be included in one of the
multiplexes to be launched in connection with the transition to digital
broadcasting. No additional decisions specifically addressing the licensing
regime have been issued. Moreover the Ukraine Media Council has also recently
suspended a tender announced in December 2007 for licenses to additional digital
frequencies that will be made available for niche channels in the switchover to
digital.  However, there have been no discussions or indication that a
TTP is being adopted or currently contemplated in Ukraine.





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


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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.





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
      statements of operations and comprehensive
  income;





·
            stock-based
      compensation charges;





·
            foreign
      currency exchange gains and losses;





·
            change
      in fair value of derivatives; and





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





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





We
believe 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 EBITDA by operation to our consolidated
results for the three months ended March 31, 2008 and 2007 see Item 1, Note
15.





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 March 31, (US$ 000's)





2008
            
            
            
            (1
            )
            
            2007
            
            
            
            (1
            )Segment
      Net RevenuesCroatia
      (NOVA TV)
            
            $
            11,534
            
            
            
            5
            %
            
            $
            7,232
            
            
            
            5
            %Czech
      Republic (TV NOVA, NOVA CINEMA and GALAXIE SPORT)
            
            
            85,558
            
            
            
            38
            %
            
            
            51,519
            
            
            
            34
            %Romania
      (2)
            
            
            57,996
            
            
            
            26
            %
            
            
            39,342
            
            
            
            27
            %Slovak
      Republic (TV MARKIZA)
            
            
            26,234
            
            
            
            12
            %
            
            
            18,677
            
            
            
            13
            %Slovenia
      (POP TV and KANAL A)
            
            
            17,951
            
            
            
            8
            %
            
            
            12,669
            
            
            
            9
            %Ukraine
      (STUDIO 1+1)
            
            
            23,219
            
            
            
            10
            %
            
            
            18,075
            
            
            
            12
            %Ukraine
      (KINO, CITI)
            
            
            978
            
            
            
            1
            %
            
            
            398
            
            
            
            -
            %Total
      Segment Net Revenues
            
            $
            223,470
            
            
            
            100
            %
            
            $
            147,912
            
            
            
            100
            %Represented
      by:Broadcast
      operations
            
            $
            221,497
            
            
            
            99
            %
            
            $
            147,422
            
            
            
            100
            %Non-broadcast
      operations
            
            
            1,973
            
            
            
            1
            %
            
            
            490
            
            
            
            -
            %Total
      Segment Net Revenues
            
            $
            223,470
            
            
            
            100
            %
            
            $
            147,912
            
            
            
            100
            %Segment
      EBITDACroatia
      (NOVA TV)
            
            $
            (2,730
            )
            
            
            (4
            )%
            
            $
            (4,652
            )
            
            
            (12
            )%Czech
      Republic (TV NOVA, NOVA CINEMA and GALAXIE SPORT)
            
            
            43,845
            
            
            
            59
            %
            
            
            25,667
            
            
            
            65
            %Romania
      (2)
            
            
            23,376
            
            
            
            32
            %
            
            
            15,136
            
            
            
            38
            %Slovak
      Republic (TV MARKIZA)
            
            
            9,137
            
            
            
            12
            %
            
            
            5,756
            
            
            
            14
            %Slovenia
      (POP TV and KANAL A)
            
            
            4,340
            
            
            
            6
            %
            
            
            3,001
            
            
            
            7
            %Ukraine
      (STUDIO 1+1)
            
            
            (2,063
            )
            
            
            (3
            )%
            
            
            (2,370
            )
            
            
            (6
            )%Ukraine
      (KINO, CITI)
            
            
            (1,206
            )
            
            
            (2
            )%
            
            
            (2,417
            )
            
            
            (6
            )%Total
      Segment EBITDA
            
            $
            74,699
            
            
            
            100
            %
            
            $
            40,121
            
            
            
            100
            %Represented
      by:Broadcast
      operations
            
            $
            76,177
            
            
            
            102
            %
            
            $
            40,714
            
            
            
            101
            %Non-broadcast
      operations
            
            
            (1,478
            )
            
            
            (2
            )%
            
            
            (593
            )
            
            
            (1
            )%Total
      Segment EBITDA
            
            $
            74,699
            
            
            
            100
            %
            
            $
            40,121
            
            
            
            100
            %Segment
      EBITDA Margin (3)
            
            
            33
            %
            
            
            
            
            
            
            27
            %





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


(2)
Romania channels are PRO TV, PRO CINEMA, ACASA, PRO TV INTERNATIONAL, SPORT.RO
and MTV ROMANIA for the three months ended March 31, 2008. For the three months
ended March 31, 2007 Romania were PRO TV, PRO CINEMA, ACASA, PRO TV
INTERNATIONAL and SPORT.RO. We acquired SPORT.RO on February 20,
2007


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


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ANALYSIS
BY GEOGRAPHIC SEGMENT





Pricing.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 pricing, 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.





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.





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





The
majority of our advertising customers commit to annual minimum spending
levels.  We usually schedule specific advertisements one month in
advance of their broadcasting.  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.





Audience Share and Ratings.When describing relative performance against other competitors in
attracting audience we refer to “ratings”, 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 as a proportion of the
total audience watching television. For 2007 and 2006, we have calculated
audience share by dividing the ratings generated by a given broadcaster during a
particular period by the ratings generated by the audience as a
whole.   In previous years we calculated audience share by
averaging the relevant underlying months’ audience shares. The effect of
changing the method of calculation was not significant in any period presented.
Audience share and ratings information is available for many differently defined
audience groups, for example target audiences, and for timeframes such as
all-day or prime-time. In this document we provide in tabular form national all
day and prime time audience share and ratings information on a 4+ (all audience)
basis. We also provide share information in respect of groups targeted by
specific channels.





Spot and Non-Spot Revenues.For the purposes of our management’s discussion and analysis of financial
condition and results of operations, 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, short message service (“SMS”) messaging, cable subscriptions and barter
transactions.  The total of spot revenues and non-spot revenues is
equal to Segment Net Revenues.





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


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(A)
CROATIA





Market
Background:We estimate that the television advertising market
in Croatia experienced local currency growth of approximately 4% to 7% in 2007
and expect it to show 6% to 8%  growth during 2008.





In the
three months ended March 31, 2008, national all day audience share for NOVA TV
(Croatia) grew to 23.1% from 18.1% in the three months ended March 31,
2007.  The major competitors are the two state-owned channels HRT1 and
HRT2, with national all day audience shares for the three months ended March 31,
2008 of 24.2% and 14.2% respectively, and privately owned broadcaster RTL with
27.8%.





Prime
time audience share for NOVA TV (Croatia), which is our principal focus, grew to
26.4% in the three months ended March 31, 2008 from 19.6% in the three months
ended March 31, 2007.  Our average prime time ratings increased from
8.4% to 10.7% over comparable periods, while prime time ratings for the whole
market decreased from 42.7% in the three months ended March 31, 2007 to 40.4% in
the three months ended March 31, 2008.





For
advertising sales purposes, the NOVA TV (Croatia) target audience is the 18-49
demographic. In the three months ended March 31, 2008 the prime time audience
share in this group was 26.4%, an increase compared to the 19.5% achieved in the
same period in 2007.





In July
2005 we initiated a multi-year investment plan to develop our transmission
infrastructure and improve the quality of our programming, particularly locally
produced content, in order to secure a larger audience share and increased
revenues.  We expect that Segment EBITDA will break even during the
fourth quarter of 2008.


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Three
months ended March 31, 2008 compared to three months ended March 31,
2007





CROATIA
      SEGMENT FINANCIAL INFORMATIONFor
      the Three Months Ended March 31, (US$ 000's)2008
            
            
            2007
            
            
            MovementSpot
      revenues
            
            $
            9,662
            
            
            $
            5,020
            
            
            
            92.5
            %Non-spot
      revenues
            
            
            1,872
            
            
            
            2,212
            
            
            
            (15.4
            )%Segment
      Net Revenues
            
            $
            11,534
            
            
            $
            7,232
            
            
            
            59.5
            %Represented
      by:Broadcast
      operations
            
            $
            11,405
            
            
            $
            7,227
            
            
            
            57.8
            %Non-broadcast
      operations
            
            
            129
            
            
            
            5
            
            
            
            2,480.0
            %Segment
      Net Revenues
            
            $
            11,534
            
            
            $
            7,232
            
            
            
            59.5
            %Segment
      EBITDA
            
            $
            (2,730
            )
            
            $
            (4,652
            )
            
            
            41.3
            %Represented
      by:Broadcast
      operations
            
            $
            (2,587
            )
            
            $
            (4,623
            )
            
            
            44.0
            %Non-broadcast
      operations
            
            
            (143
            )
            
            
            (29
            )
            
            
            (393.1
            )%Segment
      EBITDA
            
            $
            (2,730
            )
            
            $
            (4,652
            )
            
            
            41.3
            %Segment
      EBITDA Margin
            
            
            (24
            )%
            
            
            (64
            )%
            
            
            40
            %





·
            Segment Net Revenues for
      the three months ended March 31, 2008 increased by 60% compared to the
      three months ended March 31, 2007.  In local currency, Segment
      Net Revenues grew by 37%.  Spot revenues for the three months
      ended March 31, 2008 increased by 93% compared to the same period in 2007
      because our ratings improvement in 2007 has improved our position in the
      market and this supported the sale of significantly higher volumes of GRPs
      at increased prices. Non-spot revenues for the three months ended March
      31, 2008 decreased by 15% compared to the same period in 2007, primarily
      due to lower sponsorship revenue as a result of broadcasting fewer
      programs suited to sponsorship and also lower revenue arising from ‘Nova
      Lova’ (‘Call TV’).





·
            Segment EBITDAlosses
      for the three months ended March 31, 2008 fell by 41% compared to the
      three months ended March 31, 2007.  In local currency, Segment
      EBITDA losses fell by 50%.





Costs
charged in arriving at Segment EBITDA for the three months ended March 31, 2008
increased by 20% compared to the same period in 2007.  Cost of
programming grew by 23% as a result of continued investment in high-quality
programming to improve performance, driven by a 54% increase in production
expenses due to the broadcast of popular locally-produced content such as ‘The
Farm’ and ‘Don’t Forget The Lyrics’. Program syndication increased by 8% during
the same period. Other operating costs increased by 33%, primarily due increased
expenditure in developing our non-broadcast operations.  Selling,
general and administrative expenses decreased by 10% primarily due to a
reduction in our provision for doubtful debts.


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(B)
CZECH REPUBLIC





Market
Background:We estimate that the television advertising market
in the Czech Republic grew by approximately 6% to 10% in local currency during
2007 and expect 4% to 8% growth in 2008.





The
national all day audience share of our main channel, TV NOVA (Czech Republic),
for the three months ended March 31, 2008 was 38.3% compared to 40.8% for the
three months ended March 31, 2007.  The major competitors are the two
state-owned channels CT1 and CT2, with national all day audience shares for the
three months ended March 31, 2008 of 21.9% and 7.7% respectively, and privately
owned broadcaster TV Prima with a national all day audience share of
17.5%.





Prime
time audience share was 41.9% in the three months ended March 31, 2008 compared
to 45.2% in the three months ended March 31, 2007.  Our average prime
time ratings decreased from 18.3% to 16.7% over comparable periods, while prime
time ratings for the whole market decreased from 40.5% in the three months ended
March 31, 2007 to 39.7% in the three months ended March 31, 2008.





For
advertising sales purposes, the TV NOVA (Czech Republic) target audience is the
15-54 demographic. In the three months ended March 31, 2008 the prime time
audience share in this group was 45.9% compared to the 49.1% achieved in the
same period in 2007.





Three
months ended March 31, 2008 compared to three months ended March 31,
2007





CZECH REPUBLIC SEGMENT FINANCIAL INFORMATIONFor
      the Three Months Ended March 31, (US$ 000's)2008
            
            
            2007
            
            
            MovementSpot
      revenues
            
            $
            77,603
            
            
            $
            46,664
            
            
            
            66.3
            %Non-spot
      revenues
            
            
            7,955
            
            
            
            4,855
            
            
            
            63.9
            %Segment
      Net Revenues
            
            $
            85,558
            
            
            $
            51,519
            
            
            
            66.1
            %Represented
      by:Broadcast
      operations
            
            $
            85,383
            
            
            $
            51,480
            
            
            
            65.9
            %Non-broadcast
      operations
            
            
            175
            
            
            
            39
            
            
            
            348.7
            %Segment
      Net Revenues
            
            $
            85,558
            
            
            $
            51,519
            
            
            
            66.1
            %Segment
      EBITDA
            
            $
            43,845
            
            
            $
            25,667
            
            
            
            70.8
            %Represented
      by:Broadcast
      operations
            
            $
            44,236
            
            
            $
            25,937
            
            
            
            70.6
            %Non-broadcast
      operations
            
            
            (391
            )
            
            
            (270
            )
            
            
            44.8
            %Segment
      EBITDA
            
            $
            43,845
            
            
            $
            25,667
            
            
            
            70.8
            %Segment
      EBITDA Margin
            
            
            51
            %
            
            
            50
            %
            
            
            1
            %




·
            Segment Net Revenues for
      the three months ended March 31, 2008 increased by 66% compared to the
      three months ended March 31, 2007.  In local currency, Segment
      Net Revenues increased by 32%.  Spot revenues increased by 66%,
      primarily due to an increase in the volume of GRPs sold, as well as
      increased average revenue per GRP sold.  This increase in volume
      was partially due to a change in sales policy, which incentivized both
      clients and agencies to spend more of their budgets during the low season.
      We expect this change to have pulled spending forward from the high season
      months of the second quarter.  Non-spot revenue for the three
      months ended March 31, 2008 increased by 64% compared to the same period
      in 2007, primarily due to increased
sponsorship.


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·
            Segment EBITDA for the
      three months ended March 31, 2008 increased by 71% compared to the three
      months ended March 31, 2007, resulting in an EBITDA margin of 51% compared
      to 50% for the same period in 2007. In local currency, Segment EBITDA
      increased by 36%.





Costs
charged in arriving at Segment EBITDA for the three months ended March 31, 2008
increased by 61% compared to the three months ended March 31,
2007.  Cost of programming grew by 73%. Production costs showed an
increase of 50% due to the broadcast of the show ‘X Factor’, with no comparable
entertainment show having been broadcast during the three months ended March 31,
2007 as well as due to an increase in the number of hours of news
programming.  Program syndication increased by 99% over comparable
periods due to an increase in the number of hours of syndicated programming
being broadcast as well as an increase in the cost of such
programming.  Other operating costs increased by 44%, primarily due to
higher salary costs and accruals for performance-related
bonuses.  Selling, general and administrative expenses increased by
53% primarily due to increased office running costs, increased provisions for
doubtful debts and increased marketing and research costs.








(C)
ROMANIA





Market
Background:We estimate that the television advertising market
grew by approximately 50% to 60% in dollars during 2007 and expect continued
growth in the range of 20% to 30% in local currency in 2008.





The
combined national all day audience share of our PRO TV, ACASA and PRO CINEMA was
21.6% for the three months ended March 31, 2008 compared to 22.4% for the three
months ended March 31, 2007.  SPORT.RO had a national all day audience
share of 1.4% for the three months ended March 31, 2008 compared to 1.8% for the
three months ended March 31, 2007.  MTV ROMANIA, which we acquired on
December 12, 2007, had a national all day audience share of 0.3% for the three
months ended March 31, 2008.   Our main competitors are the two
channels operated by the public broadcaster, TVR1 and TVR2, with national all
day audience shares for the three months ended March 31, 2008 of 4.9% and 1.9%,
respectively, and privately owned broadcaster Antena 1, with a national all day
audience share of 8.6%.





The
combined average prime time ratings of PRO TV, ACASA and PRO CINEMA for the
three months ended March 31, 2008 was 11.4%, compared to 10.6% for the three
months ended March 31, 2007. SPORT.RO had a prime time rating of 0.5% for the
three months ended March 31, 2008 compared to 0.6% for the three months ended
March 31, 2007.  MTV ROMANIA had a prime time rating of 0.1% for the
three months ended March 31, 2008. Total prime time ratings in the market
increased from 43.8% for the three months ended March 31, 2007 to 45.1% for the
three months ended March 31, 2008.





During
the three months ended March 31, 2008, the combined prime time audience share of
PRO TV, ACASA and PRO CINEMA grew to 25.3% from 24.2% in the same period in
2007. SPORT.RO had a prime time audience share of 1.0% for the three months
ended March 31, 2008 compared to 1.3% for the three months ended March 31, 2007.
MTV ROMANIA had a prime time audience share of 0.2% for the three months ended
March 31, 2008. The prime time audience share of TVR 1 fell from 16.3% to 5.5%
in the same period and the share of Antena 1 fell from 17.0% to
11.5%.





For
advertising sales purposes, PRO TV’s target audience is the 18-49 urban
demographic. In the three months ended March 31, 2008 the prime time audience
share in this group was 20.6% compared to 23.7% achieved in the same period in
2007.  For advertising sales purposes, ACASA’s target audience is the
female 15-49 urban demographic. In the three months ended March 31, 2008 the
prime time audience share in this group was 12.8% compared to 9.0% achieved in
the same period in 2007.


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The
functional currency of our Romania operations changed from the U.S. dollar to
the Romanian Lei with effect from January 1, 2008.





Three
months ended March 31, 2008 compared to three months ended March 31,
2007





ROMANIA
      SEGMENT FINANCIAL INFORMATIONFor
      the Three Months Ended March 31, (US$ 000's)2008
            
            
            2007
            
            
            MovementSpot
      revenues
            
            $
            53,032
            
            
            $
            36,535
            
            
            
            45.2
            %Non-spot
      revenues
            
            
            4,964
            
            
            
            2,807
            
            
            
            76.8
            %Segment
      Net Revenues
            
            $
            57,996
            
            
            $
            39,342
            
            
            
            47.4
            %Represented
      by:Broadcast
      operations
            
            $
            57,799
            
            
            $
            39,342
            
            
            
            46.9
            %Non-broadcast
      operations
            
            
            197
            
            
            
            -
            
            
            
            -
            %Segment
      Net Revenues
            
            $
            57,996
            
            
            $
            39,342
            
            
            
            47.4
            %Segment
      EBITDA
            
            $
            23,376
            
            
            $
            15,136
            
            
            
            54.4
            %Represented
      by:Broadcast
      operations
            
            $
            23,566
            
            
            $
            15,274
            
            
            
            54.3
            %Non-broadcast
      operations
            
            
            (190
            )
            
            
            (138
            )
            
            
            (37.7
            %)Segment
      EBITDA
            
            $
            23,376
            
            
            $
            15,136
            
            
            
            54.4
            %Segment
      EBITDA Margin
            
            
            40
            %
            
            
            38
            %
            
            
            2
            %





·
            Segment Net Revenues for
      the three months ended March 31, 2008 increased by 47% compared to the
      three months March 31, 2007.  Spot revenues increased by 45% and
      non-spot revenues increased by 77% over comparable periods.  The
      increase in spot revenues was driven by increases in the average revenue
      per GRP sold on our Romanian channels. The increase in non-spot revenue
      was primarily due to increased cable tariff revenue, as SPORT.RO and MTV
      ROMANIA benefited from an increased channel offering to generate income
      from this revenue stream.





The
inclusion of SPORT.RO for a full three months (as opposed to a single month in
2007) contributed approximately US $ 1.8 million to Segment Net Revenues for the
three months ended March 31, 2008. MTV ROMANIA contributed approximately US $
1.5 million to Segment Net Revenues for the three months ended March 31,
2008.





·
            Segment EBITDA for the
      three months ended March 31, 2008 increased by 54% compared to the three
      months ended March 31, 2007, resulting in an EBITDA margin of 40%,
      compared to 38% for the same period in
2007.





Costs
charged in arriving at Segment EBITDA for the year three months ended March 31,
2008 increased by 43% compared to the three months ended March 31,
2007.  Cost of programming grew 38%, reflecting increased investment
to enable us to maintain our ratings in the face of increased competition.
Production expenses increased by 50% due to an increase in production hours
broadcast, primarily due to the SPORT.RO acquisition, and also increased
investment to expand the news and news-related content on PRO TV and
ACASA.  Programming syndication increased by 27%, primarily driven by
investment in the programming schedule as well as an increase in syndicated
hours broadcast, that was mainly due to the impact of the SPORT.RO
acquisition.  Other operating costs increased by 56%, reflecting
increased salary costs following the SPORT.RO acquisition as well as the impact
of the weakening of the dollar against the Romanian lei, the currency in which
salaries are paid. In addition there was an increase in the cost of music rights
and repeats following the acquisition of MTV ROMANIA.  Selling,
general and administrative expenses increased by 57%, primarily due to increases
in office running costs, consultancy fees and marketing and research
costs.


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D)
SLOVAK REPUBLIC





Market
Background:  We estimate that the television advertising market
in the Slovak Republic grew by approximately 25% to 30% in local currency in
2007 and anticipate growth of 10% to 15% in 2008.





The
national all day audience share for TV MARKIZA for the three months ended March
31, 2008 was 37.0% compared to 34.1% for the same period in 2007.  Our
principal competitor is the main channel operated by the public broadcaster,
STV1, with a national all day audience share of 17.8% for the three months ended
March 31, 2008. The national all day audience share of TV JOJ, the only other
significant privately owned channel, was 15.7% during the same
period.





The
average prime time rating for TV MARKIZA for the three months ended March 31,
2008 was 15.8% compared to 15.9% for the same period in 2007.  Total
prime time ratings in the market fell from 41.6% for the three months ended
March 31, 2007 to 39.4% for the three months ended March 31, 2008.





During
the three month period ended March 31, 2008, the prime time audience share of TV
MARKIZA increased to 40.1%, from 38.2% in the same period in 2007. The prime
time audience share of STV 1 fell from 19.2% to 18.5%, while TV JOJ’s audience
share increased from 18.1% to 18.4% in the same period.





For
advertising sales purposes, TV MARKIZA’s target audience is the 12+ demographic.
In the three months ended March 31, 2008 the prime time audience share in this
group was 40.0%, an increase compared to the 38.1% achieved in the same period
in 2007.


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Three
months ended March 31, 2008 compared to three months ended March 31,
2007





SLOVAK REPUBLIC SEGMENT FINANCIAL INFORMATIONFor
      the Three Months Ended March 31, (US$ 000's)2008
            
            
            2007
            
            
            MovementSpot
      revenues
            
            $
            24,479
            
            
            $
            18,075
            
            
            
            35.4
            %Non-spot
      revenues
            
            
            1,755
            
            
            
            602
            
            
            
            191.5
            %Segment
      Net Revenues
            
            $
            26,234
            
            
            $
            18,677
            
            
            
            40.5
            %Represented
      by:Broadcast
      operations
            
            $
            26,213
            
            
            $
            18,662
            
            
            
            40.5
            %Non-broadcast
      operations
            
            
            21
            
            
            
            15
            
            
            
            40.0
            %Segment
      Net Revenues
            
            $
            26,234
            
            
            $
            18,677
            
            
            
            40.5
            %Segment
      EBITDA
            
            $
            9,137
            
            
            $
            5,756
            
            
            
            58.7
            %Represented
      by:Broadcast
      operations
            
            $
            9,380
            
            
            $
            5,859
            
            
            
            60.1
            %Non-broadcast
      operations
            
            
            (243
            )
            
            
            (103
            )
            
            
            (135.9
            )%Segment
      EBITDA
            
            $
            9,137
            
            
            $
            5,756
            
            
            
            58.7
            %Segment
      EBITDA Margin
            
            
            35
            %
            
            
            31
            %
            
            
            4
            %




·
            Segment Net Revenues for
      the three months ended March 31, 2008 increased by 41% compared to the
      three months ended March 31, 2007.  In local currency, Segment
      Net Revenues increased by 20%.  The increase in Segment Net
      Revenues was due to increases of 35% in spot revenues and 192% in non-spot
      revenues.  The increase in spot revenues is mainly due to
      increases in the average revenue per GRP sold, as well as an increase in
      the volume of GRPs sold, partially as a result of some advertisers pulling
      spending forward from the high season months of the second
      quarter.  The increase in non-spot revenues was due to
      sponsorship revenue generated from the music show ‘Elan Je Elan’, whereas
      no programs suitable for sponsorship were broadcast during the comparable
      period in 2007.





·
            Segment EBITDA for the
      three months ended March 31, 2008 increased by 59% compared to the three
      months ended March 31, 2007, and the EBITDA margin increased to 35% from
      31% over comparable periods.  In local currency, Segment EBITDA
      increased by 36%.





Costs
charged in arriving at Segment EBITDA for the three months ended March 31, 2008
increased by 32% compared to the three months ended March 31, 2007. The cost of
programming increased by 60%, reflecting the level of competition for acquired
programming and increased investment in local production and also the
reclassification of production staff salaries to production costs from other
operating costs; without this reclassification, cost of programming increased by
33%. Other operating costs decreased by 4%, primarily due to the
reclassification described above, partially offset by increased broadcast
operating costs. Selling, general and administrative costs increased by 24%
primarily as a result of increased office running costs and marketing and
research costs.


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(E)
SLOVENIA





Market
Background:  We estimate the television advertising market in
Slovenia grew by approximately 8% to 10% in local currency during
2007.  We expect the television advertising market to show lower
growth in 2008, in the range of 4% to 6%.





The
combined national all day audience share of our two channels, POP TV and KANAL
A, decreased from 37.0% for the three months ended March 31, 2007 to 35.6% for
the three months ended March 31, 2008.  Our major competitors are the
two channels operated by the public broadcaster, SL01 and SL02, with national
all day audience shares for the three months ended March 31, 2008 of 23.9% and
10.2%, respectively, and privately owned broadcaster TV3 (which was acquired by
the Modern Times Group in 2006) with a national all day audience share of
4.2%.





The
combined average prime time ratings for our Slovenian channels for the three
months ended March 31, 2008 were 15.4% compared to 15.7% for the same period in
2007.  Overall total prime time ratings in the market increased from
36.3% for the three months ended March 31, 2007 to 37.5% for the same period in
2008.





During
the three months ended March 31, 2008, our combined prime time audience share
decreased from 43.3% for the three months ended March 31, 2007 to 41.1% for the
same period in 2008. The prime time audience share of SLO 1 grew to 28.2% from
26.8% in the same period; SLO 2 increased from 6.3% to 6.9%; and the prime time
audience share of TV3 increased from 2.7% to 3.5%.





For
advertising sales purposes, POP TV and KANAL A’s target audience is the 18-49
demographic. In the three months ended March 31, 2008 the prime time audience
shares were 30.4% and 15.1% respectively in this group, compared to 31.1% and
17.2% achieved in the same period in 2007.





Three
months ended March 31, 2008 compared to three months ended March 31,
2007





SLOVENIA
      SEGMENT FINANCIAL INFORMATIONFor
      the Three Months Ended March 31, (US$ 000's)2008
            
            
            2007
            
            
            MovementSpot
      revenues
            
            $
            15,307
            
            
            $
            11,325
            
            
            
            35.2
            %Non-spot
      revenues
            
            
            2,644
            
            
            
            1,344
            
            
            
            96.7
            %Segment
      Net Revenues
            
            $
            17,951
            
            
            $
            12,669
            
            
            
            41.7
            %Represented
      by:Broadcast
      operations
            
            $
            16,500
            
            
            $
            12,238
            
            
            
            34.8
            %Non-broadcast
      operations
            
            
            1,451
            
            
            
            431
            
            
            
            236.7
            %Segment
      Net Revenues
            
            $
            17,951
            
            
            $
            12,669
            
            
            
            41.7
            %Segment
      EBITDA
            
            $
            4,340
            
            
            $
            3,001
            
            
            
            44.6
            %Represented
      by:Broadcast
      operations
            
            $
            4,652
            
            
            $
            3,022
            
            
            
            53.9
            %Non-broadcast
      operations
            
            
            (312
            )
            
            
            (21
            )
            
            
            1385.7
            %Segment
      EBITDA
            
            $
            4,340
            
            
            $
            3,001
            
            
            
            44.6
            %Segment
      EBITDA Margin
            
            
            24
            %
            
            
            24
            %
            
            
            -
            %


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●
            Segment
      Net Revenues for the three months ended
      March 31, 2008 increased by 42% compared to the three months ended March
      31, 2007.  In local currency Segment Net Revenues increased by
      24%.





Spot
revenues in the three months ended March 31, 2008 increased by 35% compared to
the three months ended March 31, 2007, driven by double-digit price increases.
Non-spot revenues increased by 97% over comparable periods primarily due to
increased non-broadcast advertising revenue.





●
            Segment
      EBITDA for the three months ended March
      31, 2008 increased by 45% compared to the three months ended March 31,
      2007. In local currency, Segment EBITDA increased by
      26%.





Costs
charged in arriving at Segment EBITDA for the three months ended March 31, 2008
increased by 41% compared to the three months ended March 31,
2007.  Cost of programming increased by 51% due to investments in
programming to maintain our leading position in the market in the face of
increased competition. Other operating costs increased by 28% primarily due to
higher staff costs as a result of the development of non-broadcast operations.
Selling, general and administrative expenses increased by 29% primarily due to
increased office running costs and increased provisions for doubtful
debts.








(F)
UKRAINE (STUDIO 1+1)





Market
Background:  We estimate that the television advertising market
in Ukraine, where sales are denominated primarily in dollars, grew by
approximately 25% to 35% in 2007 excluding political advertising and we expect
similar growth in 2008.





STUDIO
1+1 had a national all day audience share of 13.2% for the three months
ended March 31, 2008 compared to 16.1% for the three months ended March 31,
2007.  Our main competitors include Inter, with a national all
day audience share for the three months ended March 31, 2008 of 22.7%, Novy
Kanal with 8.5%, ICTV with 7.2% and STB with 7.2%.





The
average prime time ratings for STUDIO 1+1 for the three months ended March
31, 2008 were 5.2% compared to 7.2% for the same period in 2007.
Total prime time ratings in the market decreased from 38.6% for the three
months ended March 31, 2007 to 38.1% for the same period in 2008.





During
the three months ended March 31, 2008, the prime time audience share of
STUDIO 1+1 declined to 13.7%, from 18.7% for the same period in 2007. Inter
increased its prime time audience share to 30.2% from 22.2% in the same
periods, Novy Kanal grew to 8.1% from 7.3%, ICTV’s prime time share grew to
6.9% from 6.3% and STB fell to 6.7% from 8.3%.





For
advertising sales purposes, STUDIO 1+1’s target audience is the 18+ demographic.
In the three months ended March 31, 2008 the prime time audience share in this
group was 14.8% compared to 18.9% for the same period in 2007.





The
audience shares quoted above reflect the shares sampled in cities with a
population of 50,000 inhabitants or more and is the audience measurement on
which sales are currently based. From January 1, 2008 a new additional panel has
been introduced which includes audiences in smaller centers of population. In
this panel the all audience prime time  share of Studio 1+1 in the
three months ended March 31, 2008 was 18.1% and the target audience prime time
share was 19.1% for the same period.




The
functional currency for our Ukraine operations is the dollar.


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Three
months ended March 31, 2008 compared to three months ended March 31,
2007





UKRAINE (STUDIO 1+1)
      SEGMENT FINANCIAL INFORMATIONFor
      the Three Months Ended March 31, (US$ 000's)2008
            
            
            2007
            
            
            MovementSpot
      revenues
            
            $
            18,376
            
            
            $
            14,821
            
            
            
            24.0
            %Non-spot
      revenues
            
            
            4,843
            
            
            
            3,254
            
            
            
            48.8
            %Segment
      Net Revenues
            
            $
            23,219
            
            
            $
            18,075
            
            
            
            28.5
            %Represented
      by:Broadcast
      operations
            
            $
            23,219
            
            
            $
            18,075
            
            
            
            28.5
            %Non-broadcast
      operations
            
            
            -
            
            
            
            -
            
            
            
            -Segment
      Net Revenues
            
            $
            23,219
            
            
            $
            18,075
            
            
            
            28.5
            %Segment
      EBITDA
            
            $
            (2,063
            )
            
            $
            (2,370
            )
            
            
            13.0
            %Represented
      by:Broadcast
      operations
            
            $
            (1,864
            )
            
            $
            (2,338
            )
            
            
            20.3
            %Non-broadcast
      operations
            
            
            (199
            )
            
            
            (32
            )
            
            
            (521.9
            )%Segment
      EBITDA
            
            $
            (2,063
            )
            
            $
            (2,370
            )
            
            
            13.0
            %Segment
      EBITDA Margin
            
            
            (9
            )%
            
            
            (13
            )%
            
            
            4
            %





·
            Segment Net Revenues for
      the three months ended March 31, 2008 increased by 29% compared to the
      three months ended March 31, 2007. Spot revenues increased by 24%, driven
      by an increase in the average revenue per GRP sold, as well as an increase
      in the volume of GRPs sold, partially as a result of some advertisers
      pulling spending forward from the high season months of the second
      quarter.  Non-spot revenues increased by 49% over comparable
      periods primarily due to the sale of surplus
  programming.





·
            Segment EBITDA losses
      for the three months ended March 31, 2008 decreased by 13% compared to the
      three months ended March 31, 2007, resulting in an EBITDA margin of (9)%
      compared to an EBITDA margin of (13)% in the three months ended 31,
      2007.





Costs
charged in arriving at Segment EBITDA for the three months ended March 31, 2008
increased by 24% compared to the three months ended March 31,
2007.  Cost of programming grew by 28%, reflecting the continued price
inflation for Russian programming, which drives strong ratings in the Ukrainian
market, as well as increased investment in such programming to improve our
programming schedule and boost ratings following strong programming on
Inter.  Other operating costs increased by 16% due to increased salary
costs and increased broadcast operating expenses.  Selling, general
and administrative expenses increased by 12%, primarily due to increased office
running costs and increased marketing and research costs.








(G)
UKRAINE (KINO, CITI)





For
advertising sales purposes, KINO’s target audience is the 15-50 demographic
nationally. In the three months ended March 31, 2008 the prime time
audience share of this group was 0.5%, unchanged from the same period in
2007.


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For
advertising sales purposes, CITI’s target audience is the 15-50 demographic in
Kiev. In the three months ended March 31, 2008 the prime time audience
share of this group was 1.7% compared to 1.8% for the same period in
2007.





Three
months ended March 31, 2008 compared to three months ended March 31,
2007





UKRAINE (KINO, CITI)
      SEGMENT FINANCIAL INFORMATIONFor
      the Three Months Ended March 31, (US$ 000's)2008
            
            
            2007
            
            
            MovementSpot
      revenues
            
            $
            377
            
            
            $
            143
            
            
            
            163.6
            %Non-spot
      revenues
            
            
            601
            
            
            
            255
            
            
            
            135.7
            %Segment
      Net Revenues
            
            $
            978
            
            
            $
            398
            
            
            
            145.7
            %Represented
      by:Broadcast
      operations
            
            $
            978
            
            
            $
            398
            
            
            
            145.7
            %Non-broadcast
      operations
            
            
            -
            
            
            
            -
            
            
            
            -Segment
      Net Revenues
            
            $
            978
            
            
            $
            398
            
            
            
            145.7
            %Segment
      EBITDA
            
            $
            (1,206
            )
            
            $
            (2,417
            )
            
            
            50.1
            %Represented
      by:Broadcast
      operations
            
            $
            (1,206
            )
            
            $
            (2,417
            )
            
            
            50.1
            %Non-broadcast
      operations
            
            
            -
            
            
            
            -
            
            
            
            -Segment
      EBITDA
            
            $
            (1,206
            )
            
            $
            (2,417
            )
            
            
            50.1
            %Segment
      EBITDA Margin
            
            
            (123
            )%
            
            
            (607
            )%
            
            
            484
            %





●
            Segment Net Revenues for
      the three months ended March 31, 2008 increased by 146% compared to the
      three months ended March 31, 2007. Spot revenues increased by 164% as a
      result of an increase in the volume of GRPs sold. Non-spot revenues
      increased by 136%, primarily due to increased
  sponsorship.





●
            Segment EBITDAlosses
      for the three months ended March 31, 2008 decreased by 50% compared to the
      three months ended March 31, 2007.





Costs
charged in arriving at Segment EBITDA for the three months ended March 31, 2008
decreased by 22% compared to the three months ended March 31, 2007. Cost of
programming fell by 31% over comparable periods, as we sought to minimize
programming costs during the low season.  Other operating costs
increased by 13% while selling, general and administrative expenses decreased by
40% due to decreases in office running costs and marketing and research
costs.




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PROGRAMMING
PAYMENTS AND PROGRAM AMORTIZATION
 
 Our
consolidated cost of programming for the three months ended March 31, 2008 and
2007 was as follows:
 
 For
      the Three Months Ended March 31, (US$ 000's)2008
              
              
              2007Production
      expenses
              
              $
              42,169
              
              
              $
              27,558Program
      amortization
              
              
              52,585
              
              
              
              38,795Cost
      of programming
              
              $
              94,754
              
              
              $
              66,353
 
 Production
expenses represent the cost of in-house productions as well as locally
commissioned programming, such as news, current affairs and game
shows.  The cost of broadcasting all other purchased programming is
recorded as program amortization.
 
 Total
consolidated programming costs (including amortization of programming rights and
production costs) increased by US$ 28.4 million, or 43%, in the three months
ended March 31, 2008 compared to the three months ended March 31, 2007 primarily
due to:
 
 ·
              US$
      10.1 million of additional programming costs from our Czech Republic
      operations;
 
 ·
              US$
      6.5 million of additional programming costs from our Romania
      operations;
 
 ·
              US$
      3.9 million of additional programming costs from our Slovak Republic
      operations;
 
 ·
              US$
      3.9 million of additional programming costs from our Ukraine (STUDIO 1+1)
      operations;
 
 ·
              US$
      2.7 million of additional programming costs from our Slovenia
      operations;
 
 ·
              US$
      1.8 million of additional programming costs from our Croatia operations;
      and
 
 ·
              US$
      0.5 million of reduced programming costs from our Ukraine (KINO, CITI)
      operations.
 
 The
amortization of acquired programming for each of our consolidated operations for
the three months ended March 31, 2008 and 2007 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, the Slovak Republic, Slovenia and Ukraine is reflected within net cash
provided by continuing operating activities in our consolidated statement of
cash flows.
  Page
56
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  For
      the Three Months Ended March 31, (US$ 000's)2008
                
                
                2007Program
      amortization:Croatia
      (NOVA TV)
                
                $
                5,855
                
                
                $
                5,399Czech
      Republic (TV NOVA, NOVA CINEMA and GALAXIE SPORT)
                
                
                13,055
                
                
                
                6,556Romania
      (1)
                
                
                11,988
                
                
                
                9,429Slovak
      Republic (TV MARKIZA)
                
                
                3,963
                
                
                
                3,207Slovenia
      (POP TV and KANAL A)
                
                
                2,956
                
                
                
                2,196Ukraine
      (STUDIO 1+1)
                
                
                14,171
                
                
                
                10,927Ukraine
      (KINO, CITI)
                
                
                597
                
                
                
                1,081$
                52,585
                
                
                $
                38,795Cash
      paid for programming:Croatia
      (NOVA TV)
                
                $
                7,423
                
                
                $
                905Czech
      Republic (TV NOVA, NOVA CINEMA and GALAXIE SPORT)
                
                
                11,869
                
                
                
                6,579Romania
      (1)
                
                
                13,866
                
                
                
                10,046Slovak
      Republic (TV MARKIZA)
                
                
                5,568
                
                
                
                3,699Slovenia
      (POP TV and KANAL A)
                
                
                2,242
                
                
                
                2,172Ukraine
      (STUDIO 1+1)
                
                
                7,052
                
                
                
                10,484Ukraine
      (KINO, CITI)
                
                
                279
                
                
                
                742$
                48,299
                
                
                $
                34,627
 (1)
Romania channels are PRO TV, PRO CINEMA, ACASA, PRO TV INTERNATIONAL, SPORT.RO
and MTV ROMANIA for the three months ended March 31, 2008. For the three months
ended March 31, 2007 Romania were PRO TV, PRO CINEMA, ACASA, PRO TV
INTERNATIONAL and SPORT.RO. We acquired SPORT.RO on February 20,
2007




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IV.
Analysis of the Results of Consolidated Operations





IV
(a) Net Revenues for the three months ended March 31, 2008 compared to the three
months ended March 31, 2007





Consolidated
      Net RevenuesFor
      the Three Months Ended March 31, (US$ 000's)2008
            
            
            2007
            
            
            MovementCroatia
            
            $
            11,534
            
            
            $
            7,232
            
            
            
            59,5
            %Czech
      Republic
            
            
            85,558
            
            
            
            51,519
            
            
            
            66.1
            %Romania
            
            
            57,996
            
            
            
            39,342
            
            
            
            47.4
            %Slovak
      Republic
            
            
            26,234
            
            
            
            18,677
            
            
            
            40.5
            %Slovenia
            
            
            17,951
            
            
            
            12,669
            
            
            
            41.7
            %Ukraine
      (Studio 1+1)
            
            
            23,219
            
            
            
            18,075
            
            
            
            28.5
            %Ukraine
      (KINO, CITI)
            
            
            978
            
            
            
            398
            
            
            
            145.7
            %Total
      Consolidated Net Revenues
            
            $
            223,470
            
            
            $
            147,912
            
            
            
            51.1
            %





Our
consolidated net revenues for the three months ended March 31, 2008 increased by
US$ 75.6 million, or 51%, compared to the three months ended March 31,
2007.  See III. “Analysis of Segment Results”.




IV
(b) Cost of Revenues for the three months ended March 31, 2008 compared to the
three months ended March 31, 2007





Consolidated
      Cost of RevenuesFor
      the Three Months Ended March 31, (US$ 000's)2008
            
            
            2007
            
            
            MovementOperating
      costs
            
            $
            33,262
            
            
            $
            25,657
            
            
            
            29.6
            %Cost
      of programming
            
            
            94,754
            
            
            
            66,353
            
            
            
            42.8
            %Depreciation
      of station property, plant and equipment
            
            
            12,340
            
            
            
            6,899
            
            
            
            78.9
            %Amortization
      of broadcast licenses and other intangibles
            
            
            7,666
            
            
            
            5,162
            
            
            
            48.5
            %Total
      Consolidated Cost of Revenues
            
            $
            148,022
            
            
            $
            104,071
            
            
            
            42.2
            %





Total
cost of revenues for the three months ended March 31, 2008 increased by US$ 44.0
million, or 42%, compared to the three months ended March 31, 2007.





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 March
31, 2008 increased by US$ 7.6 million, or 30%, compared to the three months
ended March 31, 2007.  See III. “Analysis of Segment
Results”.





Cost of
programming:Consolidated programming costs (including
amortization of programming rights and production costs) for the three months
ended March 31, 2008 increased by US$ 28.4 million, or 43%, compared to the
three months ended March 31, 2007.  See III. “Analysis of Segment
Results”.


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Depreciation of property, plant and
equipment:  Total consolidated depreciation of property, plant
and equipment for the three months ended March 31, 2008 increased by US$ 5.4
million, or 79%, compared to the three months ended March 31, 2007, primarily
due to depreciation of newly acquired production equipment assets in our Czech
Republic and Romania operations.





Amortization of broadcast licenses
and other intangibles:  Total consolidated amortization of
broadcast licenses and other intangibles for the three months ended March 31,
2008 increased by US$ 2.5 million, or 49%, compared to the three months ended
March 31, 2007, primarily as a result of the amortization of the broadcast
license and customer relationships of our Romania and Slovak Republic operations
arising from our acquisition of increased stakes in the second and third
quarters of 2007.





IV
(c) Station Selling, General and Administrative Expenses for the three months
ended March 31, 2008 compared to the three months ended March 31,
2007





Consolidated
      Station Selling, General and Administrative ExpensesFor
      the Three Months Ended March 31, (US$ 000's)2008
            
            
            2007
            
            
            MovementCroatia
            
            $
            1,559
            
            
            $
            1,726
            
            
            
            (9.7
            )%Czech
      Republic
            
            
            7,775
            
            
            
            5,093
            
            
            
            52.7
            %Romania
            
            
            3,813
            
            
            
            2,425
            
            
            
            57.2
            %Slovak
      Republic
            
            
            2,398
            
            
            
            1,939
            
            
            
            23.7
            %Slovenia
            
            
            2,193
            
            
            
            1,704
            
            
            
            28.7
            %Ukraine
      (Studio 1+1)
            
            
            2,757
            
            
            
            2,467
            
            
            
            11.8
            %Ukraine
      (KINO, CITI)
            
            
            260
            
            
            
            427
            
            
            
            (39.1
            )%Total
      Consolidated Station Selling, General and Administrative
      Expenses
            
            $
            20,755
            
            
            $
            15,781
            
            
            
            31.5
            %





Consolidated
station selling, general and administrative expenses for the three months ended
March 31, 2008 increased by US$ 4.9 million, or 32%, compared to the three
months ended March 31, 2007  (see III. “Analysis of Segment
Results”).








IV
(d) Corporate Operating Costs for the three months ended March 31, 2008 compared
to the three months ended March 31, 2007





For
      the Three Months Ended March 31, (US$ 000's)2008
            
            
            2007
            
            
            MovementCorporate
      operating costs (excluding stock-based compensation)
            
            $
            8,204
            
            
            $
            13,511
            
            
            
            (39.3
            )%Stock-based
      compensation
            
            
            1,813
            
            
            
            1,262
            
            
            
            43.7
            %Corporate
      Operating Costs (including  stock-based
      compensation)
            
            $
            10,017
            
            
            $
            14,773
            
            
            
            (32.2
            )%





Corporate
operating costs (excluding non-cash stock-based compensation) for the three
months ended March 31, 2008 decreased by US$ 5.3 million, or 39%, compared to
the three months ended March 31, 2007, primarily due to a charge of US$ 6.0
million in respect of the expected cost of settling our Croatian litigation
during the three months ended March 31, 2007.





The
increase in the charge for non-cash stock-based compensation for the three
months ended March 31, 2008 compared to the three months ended March 31, 2007
reflects an increase in the number of stock options granted, as well as an
increase in the fair value of those options largely as a function of significant
increase in our stock price in recent years (see Item 1, Note 13, “Stock-Based
Compensation”).
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IV
(e) Operating Income for the three months ended March 31, 2008 compared to the
three months ended March 31, 2007





For
      the Three Months Ended March 31, (US$ 000's)2008
            
            
            2007
            
            
            MovementOperating
      Income
            
            $
            44,676
            
            
            $
            13,287
            
            
            
            236.2
            %





Due to
the foregoing, operating income for the three months ended March 31, 2008
increased by US$ 31.4 million, or 236%, compared to the three months ended March
31, 2007.  Operating margin was 20%, compared to 9% for the three
months ended March 31, 2007.








IV
(f) Other income / (expense) items for the three months ended March 31, 2008
compared to the three months ended March 31, 2007





For
      the Three Months Ended March 31, (US$ 000's)2008
            
            
            2007
            
            
            MovementInterest
      income
            
            $
            2,180
            
            
            $
            1,414
            
            
            
            54.2
            %Interest
      expense
            
            
            (14,250
            )
            
            
            (11,396
            )
            
            
            25.0
            %Foreign
      currency exchange loss, net
            
            
            (17,430
            )
            
            
            (3,136
            )
            
            
            455.8
            %Change
      in fair value of derivatives
            
            
            (10,258
            )
            
            
            4,524
            
            
            
            (326.7
            )%Other
      income / (expense)
            
            
            660
            
            
            
            (244
            )
            
            
            (370.5
            )%Provision
      for income taxes
            
            
            10,342
            
            
            
            (5,059
            )
            
            
            (304.4
            )%Minority
      interest in (income) / loss of consolidated subsidiaries
            
            
            (1,025
            )
            
            
            360
            
            
            
            (384.7
            )%





Interest income for the three
months ended March 31, 2008 increased by US$ 0.8 million compared to the three
months ended March 31, 2007, primarily as a result of our maintaining higher
average cash balances.





Interest
expensefor the three
months ended March 31, 2008 increased by US$ 2.9 million compared to the three
months ended March 31, 2007, and included approximately US$ 1.0 million of
interest on the Convertible Notes issued in March 2008. The annual interest
expense of the Convertible Notes, excluding the amortization of capitalized debt
costs is approximately US$ 16.6 million.





Foreign currency exchange loss,
net:  For the three months ended March 31, 2008 we recognized a
US$ 17.4 million loss primarily as a result of the strengthening of the Euro
against the dollar during the three-month period.  Our fixed and
floating rate Senior Notes are denominated in Euros, and we incurred a
transaction loss of approximately US$ 43.1 million due to movements in the spot
rate between December 31, 2007 and March 31, 2008. The transaction loss was
partially offset by gains of US$ 9.5 million relating to the revaluation of
monetary assets and liabilities denominated in currencies other than the US
dollar and US$ 16.2 million relating to the revaluation of intercompany
loans.





Change in fair value of
derivatives: For the three months ended March 31, 2008 we recognized a
US$ 10.3 million loss as a result of the change in the fair value of the
currency swaps entered into on April 27, 2006 compared to US$ 4.5 million gain
for the three months ended March 31, 2007.


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Other income/
(expense):  For the three months ended March 31, 2008 we
incurred other income of US$ 0.7 million compared to US$ 0.2 million of expenses
for the three months ended March 31, 2007.





Provision for income
taxes:  The provision for income taxes for the three months
ended March 31, 2008 was a credit of US$ 10.3 million compared to charge of US$
5.1 million for the three months ended March 31, 2007. The provision for income
taxes for the three months ended March 31, 2008 includes a credit of US$ 19.3
million relating to movements in foreign exchange rates on intercompany loans,
with a corresponding charge recognized in other comprehensive income. 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 three months ended March
31, 2008, we recognized a loss of US$ 1.0 million in respect of the minority
interest in the income of consolidated subsidiaries, compared to a gain of US$
0.4 million for the three months ended March 31, 2007 reflecting the increased
profitability of our Romania operations.








IV
(g) Condensed consolidated balance sheet as at March 31, 2008 compared to
December 31, 2007





Summarized
Condensed Consolidated Balance Sheet (US$ 000’s)


March
      31,
              2008
            
            
            December 31,
              2007
            
            
            MovementCurrent
      assets
            
            $
            1,003,385
            
            
            $
            529,824
            
            
            
            89.4
            %Non-current
      assets
            
            
            2,049,251
            
            
            
            1,808,611
            
            
            
            13.3
            %Current
      liabilities
            
            
            259,976
            
            
            
            232,770
            
            
            
            11.7
            %Non-current
      liabilities
            
            
            1,223,277
            
            
            
            682,703
            
            
            
            79.2
            %Minority
      interests in consolidated subsidiaries
            
            
            24,179
            
            
            
            23,155
            
            
            
            4.4
            %Shareholders’
      equity
            
            $
            1,545,204
            
            
            $
            1,399,807
            
            
            
            10.4
            %




Current
assets:  Current assets at March 31, 2008 increased US$ 473.6
million compared to December 31, 2007, primarily as a result of an increase in
cash and cash equivalents following the receipt of the unutilized proceeds of
our issuance of Convertible Notes and an increase in program
rights.





Non-current
assets:  Non-current assets at March 31, 2008 increased US$
240.6 million compared to December 31, 2007, primarily as a result of the impact
of the weakening dollar on the value of our non-current assets denominated in
foreign currencies.  The increase also reflects continued investment
in our broadcasting facilities and in program rights.





Current
liabilities:  Current liabilities at March 31, 2008 increased
US$ 27.2 million compared to December 31, 2007, reflecting increases in deferred
income and accrued interest.





Non-current
liabilities:  Non-current liabilities at March 31, 2008
increased US$ 540.6 million compared to December 31, 2007.  The
movement reflects a US$ 43.1 million increase in the carrying value of our
Senior Notes as a result of the movement in the spot rate between December 31,
2007 and March 31, 2008; issuance of US$ 475.0 million of Convertible Notes and
US$ 10.3 million increase in the value of our liabilities under currency
swaps.





Minority interests in consolidated
subsidiaries:  Minority interests in consolidated subsidiaries
at March 31, 2008 increased to US$ 24.2 million compared to December 31, 2007
due to the increased profitability of our Romania operations..


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Shareholders’
equity:  Total shareholders’ equity at March 31, 2008 increased
US$ 145.4 million compared to December 31, 2007, primarily as a result of
recognizing US$ 63.3 million of the cost of the capped call options we entered
into in conjunction with our Convertible Notes in Shareholders’ Equity,
partially offset by the increase in Other Comprehensive Income (US$ 192.0
million) and net income of US$ 14.9 million for the three months ended March 31,
2008. Included in the total shareholders’ equity was a stock-based compensation
charge of US$ 1.8 million.








V.
Liquidity and Capital Resources





V
(a) Summary of cash flows





Cash and
cash equivalents increased by US$ 451.7 million during the three months ended
March 31, 2008.  The change in cash and cash equivalents is summarized
as follows:





For
      the Three Months Ended March 31, (US$ 000's)2008
            
            
            2007Net
      cash generated from continuing operating activities
            
            $
            84,091
            
            
            $
            31,913Net
      cash used in continuing investing activities
            
            
            (23,743
            )
            
            
            (20,901
            )Net
      cash received from financing activities
            
            
            398,270
            
            
            
            809Net
      cash used in discontinued operations – operating
activities
            
            
            (1,710
            )
            
            
            (1,624
            )Net
      increase in cash and cash equivalents
            
            $
            451,730
            
            
            $
            11,436





Operating
Activities





Cash
generated from continuing operations in the three months ended March 31, 2008
increased from US$ 31.9 million to US$ 84.1 million, reflecting the level of
cash generated by our Czech Republic, Romania, Slovak Republic and Slovenia
operations, partially offset by negative cash flows of our Croatia and Ukraine
operations.





Investing
Activities





Cash used
in investing activities in the three months ended March 31, 2008 increased from
US$ 20.9 million to US$ 23.7 million.  Our investing cash flows in the
three months ended March 31, 2008 were primarily comprised of capital
expenditures of US$ 23.8 million.





Financing
Activities





Net cash
received from financing activities in the three months ended March 31, 2008 was
US$ 398.3 million compared to US$ 0.8 million in the three months ended March
31, 2007.  The amount of cash received in the three months ended March
31, 2008 reflects the net proceeds of US$ 400.5 million from the issuance of
Convertible Notes.





Discontinued
Operations





In the
three months ended March 31, 2008, we paid taxes of US$ 1.7 million to the Dutch
tax authorities pursuant to the agreement we entered into with them on February
9, 2004, compared to US$ 1.6 million in the three months ended March 31,
2007.








V
(b) Sources and Uses of Cash





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


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





Corporate
law in the Central and Eastern European countries in which we operate stipulates
generally that dividends may be declared by the partners or shareholders out of
yearly profits subject to the maintenance of registered capital, required
reserves and after the recovery of accumulated losses.





The
reserve requirement restriction generally provides that before dividends may be
distributed, a portion of annual net profits (typically 5%) be allocated to a
reserve, which reserve is capped at a proportion of the registered capital of a
company (ranging from 5% to 25%).  The restricted net assets of our
consolidated subsidiaries and equity in earnings of investments accounted for
under the equity method together are less than 25% of consolidated net
assets.





As at
March 31, 2008 and December 31, 2007 the operations had the following unsecured
balances owing to their respective holding companies:





Operating
      segment (US$ 000’s)
            
            March
      31,
              2008
            
            
            December 31,
              2007Croatia
            
            $
            143,167
            
            
            $
            119,910Czech
      Republic
            
            
            666,950
            
            
            
            604,474Romania
            
            
            92,763
            
            
            
            105,540Slovak
      Republic
            
            
            15
            
            
            
            5,164Slovenia
            
            
            42,895
            
            
            
            39,162Ukraine
      (STUDIO 1+1)
            
            
            -
            
            
            
            -Ukraine
      (KINO, CITI)
            
            
            18,055
            
            
            
            16,040Total
            
            $
            963,845
            
            
            $
            890,290








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





Our
future contractual obligations as of March 31, 2008 are as follows:





Contractual
      Obligations
            
            Payments
      due by period (US$ 000’s)Total
            
            
            Less
      than 1 year
            
            
            1-3
      years
            
            
            3-5
      years
            
            
            More
      than 5 yearsLong-Term
      Debt– principal
            
            $
            1,116,876
            
            
            $
            15,602
            
            
            $
            1,700
            
            
            $
            862,394
            
            
            $
            237,180Long-Term
      Debt – interest (1)
            
            
            321,938
            
            
            
            64,545
            
            
            
            126,696
            
            
            
            109,259
            
            
            
            21,438Capital
      Lease Obligations
            
            
            7,517
            
            
            
            1,143
            
            
            
            1,523
            
            
            
            1,280
            
            
            
            3,571Operating
      Leases
            
            
            11,529
            
            
            
            4,416
            
            
            
            6,488
            
            
            
            625
            
            
            
            -Unconditional
      Purchase Obligations
            
            
            101,723
            
            
            
            84,938
            
            
            
            10,822
            
            
            
            4,591
            
            
            
            1,372Other
      Long-Term Obligations
            
            
            2,502
            
            
            
            1,752
            
            
            
            750
            
            
            
            -
            
            
            
            -FIN
      48 Obligations
            
            
            2,330
            
            
            
            435
            
            
            
            1,895
            
            
            
            -
            
            
            
            -Total
      Contractual Obligations
            
            $
            1,564,415
            
            
            $
            172,831
            
            
            $
            149,874
            
            
            $
            978,149
            
            
            $
            263,561


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


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Long-Term
Debt





As at
March 31, 2008 we had the following debt outstanding:





March
      31, 2008
              (US$
      000’s)Corporate
            
            
            (1
            ) –
      (3)
            
            $
            1,099,574Czech
      Republic operations
            
            
            (4
            ) –
      (6)
            
            
            15,602Slovenia
      operations
            
            
            
            (7)
            
            
            -Ukraine
      (KINO, CITI) operations
            
            
            
            (8)
            
            
            1,700Total
            
            
            
            
            
            $
            1,116,876




(1)
            As at March 31, 2008 we had EUR 395.0 million
      (approximately US$ 624.6 million) of Senior Notes outstanding, comprising
      EUR 245.0 million (approximately US$ 387.4 million) of 8.25% senior notes
      due May 2012 (the “Fixed Rate Notes”) and EUR 150.0 million (approximately
      US$ 237.2 million) of floating rate Senior Notes due May 2014, (the
      “Floating Rate Notes”, collectively the “Senior Notes”) which bear
      interest at six-month Euro Inter-Bank Offered Rate (“EURIBOR”) plus
      1.625% (6.198% was applicable at March 31,
      2008).  .





The
Senior Notes are secured senior obligations and rank pari passu with all
existing and future senior indebtedness and are effectively subordinated to all
existing and future indebtedness of our subsidiaries.  The amounts
outstanding are guaranteed by certain of our subsidiaries and are secured by a
pledge of shares of these subsidiaries and an assignment of certain contractual
rights.  The terms of the Senior Notes restrict the manner in which
our business is conducted, including the incurrence of additional indebtedness,
the making of investments, the payment of dividends or the making of other
distributions, entering into certain affiliate transactions and the sale of
assets.





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





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, if any, to the redemption date.





As of
March 31, 2008, Standard & Poor’s senior unsecured debt rating for our
Senior Notes was BB- and our corporate credit rating was BB. On April 23, 2008
the rating of our Senior Notes was upgraded to BB. At March 31, 2008 Moody’s
Investors Services senior unsecured debt rating for our Senior Notes and our
corporate credit rating was Ba2. These were both upgraded from Ba3 on March 19,
2008. Our corporate rating of BB remains unchanged.





(2)
            As
      at March 31, 2008 we had US$ 475.0 million of 3.50% Convertible Notes
      outstanding that mature on March 15, 2013 (the “Convertible
      Notes”).  Interest is payable semi-annually in arrears on each
      March 15 and September 15.





The
Convertible Notes are secured senior obligations and rank pari passu with all
existing and future senior indebtedness and are effectively subordinated to all
existing and future indebtedness of our subsidiaries. The amounts outstanding
are guaranteed by two subsidiary holding companies and are secured by a pledge
of shares of those subsidiaries as well as an assignment of certain contractual
rights.


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(3)
            On
      July 21, 2006, we entered into a five-year revolving loan agreement for
      EUR 100.0 million (approximately US$ 158.1 million) arranged by EBRD and
      on August 22, 2007, we entered into a second revolving loan agreement for
      EUR 50.0 million (approximately US$ 79.1 million) also arranged by EBRD
      (collectively the “EBRD Loan”). ING Bank N.V. (“ING”) and Ceska
      Sporitelna, a.s. (“CS”) are each participating in the EBRD Loan for EUR
      37.5 million.





We also
entered into a supplemental agreement on August 22, 2007 to amend the interest
rate payable on the initial EUR 100.0 million loan, as a result of which the
EBRD Loan bears interest at a rate of three-month EURIBOR plus 1.625% on the
drawn amount. A commitment charge of 0.8125% is payable on any undrawn portion
of the EBRD Loan. The available amount of the EBRD Loan amortizes by 15% every
six months from May 2009 to November 2010 and by 40% in May 2011. There were no
drawings under this facility as at March 31, 2008.





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





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





(4)
            CET
      21 has a credit facility of CZK 1.2 billion (approximately US$ 74.9
      million) with Ceska Sporitelna, a.s. (CS).  The final repayment
      date is December 31, 2010.  This facility may, at the option of
      CET 21, be drawn in CZK, US$ or EUR and bears interest at the three-month,
      six-month or twelve-month London Inter-Bank Offered Rate (“LIBOR”),
      EURIBOR or Prague Inter-Bank Offered Rate (“PRIBOR”) plus
      1.65%.  A utilization interest of 0.25% is payable on the
      undrawn portion of this facility.  This percentage decreases to
      0.125% of the undrawn portion if more than 50% of the loan is drawn. 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 March 31, 2008, there were no drawings
      under this facility.





(5)
            CET
      21 has a working capital credit facility of CZK 250.0 million
      (approximately US$ 15.6 million) with CS, which matures on December 31,
      2010.  This working capital facility bears interest at the
      three-month PRIBOR rate plus 1.65%. This facility is secured by a pledge
      of receivables, which are also subject to a factoring arrangement with
      Factoring Ceska Sporitelna, a.s.  As at March 31, 2008, the full
      CZK 250.0 million (approximately US$ 15.6 million) was drawn under this
      facility bearing interest at an aggregate 5.58% (the applicable
      three-month PRIBOR rate at March 31, 2008 was
  3.93%).





(6)
            As
      at March 31, 2008, there were no drawings under a CZK 300.0 million
      (approximately US$ 18.7 million) factoring facility with Factoring Ceska
      Sporitelna, a.s., a subsidiary of CS.  This facility is
      available until June 30, 2011 2010 and bears interest at the rate of
      one-month PRIBOR plus 1.40% for the period that actively assigned accounts
      receivable are outstanding.




(7)
            A
      revolving five-year facility agreement was entered into by Pro Plus for up
      to EUR 37.5 million (approximately US$ 59.3 million) in aggregate
      principal amount with ING Bank N.V., Nova Ljubljanska Banka d.d.,
      Ljubljana and Bank Austria Creditanstalt d.d., Ljubljana.  The
      facility availability amortizes by 10.0% each year for four years
      commencing one year after signing, with 60.0% repayable after five
      years.  This facility is secured by a pledge of the bank
      accounts of Pro Plus, the assignment of certain receivables, a pledge of
      our interest in Pro Plus and a guarantee of our wholly-owned subsidiary
      CME Media Enterprises B.V.  Loans drawn under this facility will
      bear interest at a rate of EURIBOR for the period of drawing plus a margin
      of between 2.10% and 3.60% that varies according to the ratio of
      consolidated net debt to consolidated broadcasting cash flow for Pro
      Plus.  As at March 31, 2008, EUR 30.0 million (approximately US$
      47.4 million)  was available for drawing under this revolving
      facility; there were no drawings
outstanding.


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(8)
            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 March 31, 2008, 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$ 2.2 million (see Item
1, Note 10,.”Credit Facilities and Obligations Under Capital
Leases”)





Operating
Leases





For more
information on our operating lease commitments see Item 1, Note 17, “Commitments
and Contingencies”.





Unconditional
Purchase Obligations





Unconditional
purchase obligations largely comprise future programming
commitments.  At March 31, 2008, we had commitments in respect of
future programming US$ 90.6 million (December 31, 2007: US$ 107.6
million).  This includes contracts signed with license periods
starting after March 31, 2008.  For more information on our
programming commitments see Item 1, Note 17, “Commitments and
Contingencies”.





Other
Long-Term Obligations





Included
in Other Long-Term Obligations are our commitments to the Dutch tax authorities
of US$ 1.6 million (see Item 1, Note 17, “Commitments and
Contingencies”).





In
addition to the amounts disclosed above, Adrian Sarbu, our Chief Operating
Officer, has the right to sell his 5.0% shareholdings in each of Pro TV and MPI
to us under a put option agreement entered into in July 2004 at a price to be
determined by an independent valuation, subject to a floor price of US$ 1.45
million for each 1.0% interest sold.  A put option of 5.21% of this
10.0% shareholding is exercisable from November 12, 2009 for a twenty-year
period thereafter.  Mr. Sarbu’s right to put the remaining 4.79% is
also exercisable from November 12, 2009, provided that we have not enforced a
pledge over this 4.79% shareholding which Mr. Sarbu granted as security for our
right to put to him our 8.7% shareholding in Media Pro. As at March 31, 2008, we
consider the fair value of the put option of Mr. Sarbu to be approximately US$
nil.








V
(d) Cash Outlook





We have
significant debt service obligations in respect of our Senior Notes and
Convertible Notes. We also have several undrawn credit facilities, including the
EBRD Loan which is currently undrawn. EUR 100.0 million of the EBRD Loan is
available for general corporate purposes and the remaining EUR 50.0 million,
once fully drawn for permitted projects, can be used for general corporate
purposes, which further increases our financing flexibility and will reduce our
average cost of debt.  As at March 31, 2008, there were no drawings
under these facilities or our available facilities in the Czech Republic and
Slovenia.





Our
future cash needs will depend on our overall financial performance, debt service
requirements under the Senior Notes, the Convertible 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, subject to
compliance with the covenants of our other indebtedness, we are able to fund our
operations and committed investments from cash generated from operations, our
current cash and cash equivalents (approximately US$ 594.6 million, at March 31,
2008) and available undrawn credit facilities (US$ 378.2 million, at March 31,
2008), plus an unutilized, uncommitted EUR 10.0 million (approximately US$ 15.8
million) overdraft facility from ING. In order to use cash held in our operating
companies more effectively, we have also entered into a cash pooling arrangement
with Bank Mendes Gans (“BMG”), a subsidiary of ING. This arrangement
enables us to receive credit at the corporate level in respect of cash balances
which our subsidiaries in the Czech Republic, Romania, the
Slovak Republic and Slovenia deposit with BMG.


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We expect
to invest up to US$ 140.0 million on capital expenditure in 2008 across our
broadcast and non-broadcast operations and approximately US$ 10.0-15.0 million
in operating expenditure in our non-broadcast operations.





Our
Croatia operations continue to require funding to improve their
performance.  We expect the funding required to support Nova TV
(Croatia) to be in excess of US$ 28.0 million during 2008. 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 approximately US$ 10.0 million during 2008.





On
January 31, 2008 we entered into agreements to acquire the 40% interest in the
Studio 1+1 group held by our partners. The total consideration payable on
completion of the purchase of the initial 30.0% interest will be approximately
US$ 219.6 million. Up to US$ 140.0 million of this consideration may, in certain
circumstances, be satisfied in shares of our Class A Common Stock at the option
of the transferor. On completion our partners will also have put options to sell
their remaining 10% interest to us. The options have an initial minimum price of
US$ 95.4 million in the first year, US$ 102.3 during the second year and
thereafter US$ 109.1 million or an independent valuation, whichever is the
greater. The call price for the remaining 10% interest is set at US$ 109.1
million from completion.  After a year, the call price will be based
on an independent valuation with a minimum price of US$ 109.1 million. If we
exercise our call rights, our partners have the right to receive consideration
in cash or shares of our Class A Common Stock (see Item 1, Note 17, “Commitments
and Contingencies: Ukraine Buyout Agreements”).
 
 The
initial purchase of a 30% interest in the Studio 1+1 group is expected to close
by the end of the second quarter of 2008 but is contingent on the receipt of
certain regulatory approvals.
 
 Our
credit facilities, following the acquisition, taken together with internally
generated cash flow, provides us with adequate financial resources to meet our
debt service and other existing financial obligations for the next twelve
months.




V
(e) Off-Balance Sheet Arrangements





None.





VI.  Critical
Accounting Policies and Estimates





Our
accounting policies affecting our financial condition and results of operations
are more fully described in Part II, Item 8 of our Annual Report on Form 10-K
for the year ended December 31, 2007.  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.


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We
believe our critical accounting policies are as follows: program rights,
goodwill and intangible assets, impairment or disposal of long-lived assets,
revenue recognition, income taxes, foreign exchange and
contingencies.  These critical accounting policies affect our more
significant judgments and estimates used in the preparation of our condensed
consolidated financial statements.  There have been no significant
changes in our critical accounting policies since December 31,
2007.





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, establishing a
framework for measuring fair value and expanding disclosure requirements. FAS
157 was to be effective in its entirety for fiscal years beginning after
November 15, 2007, however in February 2008, the FASB issued FASB Staff Position
No. FSP FAS 157-2 “Effective Date of FASB Statement No. 157” (“FSP FAS 157-2”)
which allows application of FAS 157 to be deferred until fiscal years beginning
after November 15, 2008 for nonfinancial assets and liabilities, except for
items that are recognized or disclosed at fair value in the financial statements
on a recurring basis.  We adopted those parts of FAS 157 not deferred
by FSP FAS 157-2 on January 1, 2008 and we do not expect that the adoption of
the remaining requirements will result in a material impact on our financial
position and results of operations.





In
December 2007, the FASB issued FASB Statement No. 141(R), “BusinessCombinations”
(“FAS 141(R)”), which establishes principles and requirements for how the
acquirer:  (a) recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree; (b) recognizes and measures the goodwill acquired
in the business combination or a gain from a bargain purchase; and
(c) determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects of the
business combination.  FAS 141(R) requires contingent consideration to be
recognized at its fair value on the acquisition date and, for certain
arrangements, changes in fair value to be recognized in earnings until
settled.  FAS 141(R) also requires acquisition-related transaction and
restructuring costs to be expensed rather than treated as part of the cost of
the acquisition.  FAS 141(R) applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15,
2008.  We are currently evaluating the impact this statement will have on
our financial position and results of operations.





In
December 2007, the FASB issued FASB Statement No. 160, “Noncontrolling
Interests in Consolidated Financial Statements an Amendment of ARB No. 51”
(“FAS 160”), which establishes accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary.  FAS 160 clarifies that a noncontrolling interest in a
subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements.  FAS 160
also requires consolidated net income to be reported at amounts that include the
amounts attributable to both the parent and the noncontrolling interest. 
It also requires disclosure, on the face of the consolidated statement of
income, of the amounts of consolidated net income attributable to the parent and
to the noncontrolling interest.  FAS 160 also provides guidance when a
subsidiary is deconsolidated and requires expanded disclosures in the
consolidated financial statements that clearly identify and distinguish between
the interests of the parent’s owners and the interests of the noncontrolling
owners of a subsidiary.  FAS 160 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after
December 15, 2008.  We are currently evaluating the impact this
statement will have on our financial position and results of
operations.





In March
2008, the FASB issued FASB Statement No. 161 “Disclosures About Derivative
Instruments and Hedging Activities an Amendment of FASB Statement No. 133” (“FAS
161”) which enhances the disclosure requirements about derivatives and hedging
activities. FAS 161 requires enhanced narrative disclosure about how and why an
entity uses derivative instruments, how they are accounted for under FASB
Statement No. 133 “Accounting for Derivative Instruments and Hedging Activities”
(“FAS 133”), and what impact they have on financial position, results of
operations and cash flows. FAS 161 is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after November 15, 2008.
Although certain additional narrative disclosures may be required in our
financial statements, our limited use of derivative instruments means that we do
not expect the adoption of FAS 161 will result in a material impact on our
financial position and results of operations.




On April
25, 2008 the FASB issued FASB Staff Position No. FAS 142-3 “Determination of the
Useful Life of Intangible Assets,” which aims to improve consistency between the
useful life of a recognized intangible asset under FASB Statement No. 142
“Goodwill and Other Intangible Assets and the period of expected cash flows used
to measure the fair value of the asset under FAS 141 (R), especially where the
underlying arrangement includes renewal or extension terms. The FSP is effective
prospectively for fiscal years beginning after December 15, 2008 and early
adoption is prohibited. We are currently evaluating the impact this statement
will have on our financial position and results of operations.


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Item
3.  Quantitative andQualitative Disclosures about
Market Risk





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





Foreign
Currency Exchange Risk Management





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





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





On April
27, 2006, we entered into currency swap agreements with two counterparties
whereby we swapped a fixed annual coupon interest rate (of 9.0%) on notional
principal of CZK 10.7 billion (approximately US$ 667.7 million), payable on July
15, October 15, January 15, and April 15, to the termination date of April 15,
2012, for a fixed annual coupon interest rate (of 9.0%) on EUR 375.9 million
(approximately US$ 594.4 million) receivable on July 15, October 15, January 15,
and April 15, to the termination date of April 15, 2012.





The fair
value of these financial instruments as at March 31, 2008 was a liability of US$
26.5 million.





These
currency swap agreements reduce our exposure to movements in foreign exchange
rates on a part of the CZK-denominated cash flows generated by our Czech
Republic operations that is approximately equivalent in value to the
Euro-denominated interest payments on our Senior Notes (see Item 1, Note 4,
“Senior Debt”).  They are financial instruments that are used to
minimize currency risk and are considered an economic hedge of foreign exchange
rates.  These instruments have not been designated as hedging
instruments as defined under SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities”, and so changes in their fair value are
recorded in the consolidated statement of operations and in the consolidated
balance sheet in other non-current liabilities.


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Interest
Rate Risk Management





As at
March 31, 2008, we have two tranches of debt that provide for interest at a
spread above a base rate EURIBOR or PRIBOR, and five tranches of debt, which
were maintained with a fixed interest rate.  A significant rise in the
EURIBOR or PRIBOR base rate would have an adverse effect on our business and
results of operations.





Interest
Rate Table as at March 31, 2008





Expected
      Maturity Dates
            
            2008
            
            
            2009
            
            
            2010
            
            
            2011
            
            
            2012
            
            
            ThereafterTotal
      debt in Euro (000's)Fixed
      rate
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            245,000
            
            
            
            -Average
      interest rate (%)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            8.25
            %
            
            
            -Variable
      rate
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            150,000Average
      interest rate (%)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            6.20
            %Total
      debt in US$ (000's)Fixed
      rate
            
            
            -
            
            
            
            1,700
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            475,000Average
      interest rate (%)
            
            
            -
            
            
            
            9.00
            %
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            3.5
            %Total
      debt in CZK (000's)Fixed
      rate
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Average
      interest rate (%)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Variable
      rate
            
            
            250,000
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Average
      interest rate (%)
            
            
            5.58
            %
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -





Variable
Interest Rate Sensitivity as at March 31, 2008





Yearly
      interest charge if interest rates increase by (US$
    000s):Value
      of Debt as at March 31, 2008
              (US$ 000's)
            
            Interest
      Rate as at March 31, 2008
            
            Yearly
      Interest Charge
              (US$ 000’s)
            
            
            
            1%
            
            
            
            2%
            
            
            
            3%
            
            
            
            4%
            
            
            
            5%237,180
              (EUR
      150.0 million)
            
            6.20%
            
            
            14,700
            
            
            
            17,072
            
            
            
            19,444
            
            
            
            21,816
            
            
            
            24,188
            
            
            
            26,55915,602
              (CZK
      250.0 million)
            
            5.58%
            
            
            871
            
            
            
            1,027
            
            
            
            1,183
            
            
            
            1,339
            
            
            
            1,495
            
            
            
            1,651Total
            
            
            
            
            15,571
            
            
            
            18,099
            
            
            
            20,627
            
            
            
            23,155
            
            
            
            25,683
            
            
            
            28,210





Item
4.  Controls and Procedures





Our Chief
Executive Officer and Chief Financial Officer evaluated the effectiveness of the
design and operation of our disclosure controls and procedures as of the end of
the period covered by this report. Based upon this evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the disclosure
controls and procedures are effective.  There has been no change in
our internal control over financial reporting during the quarter ended March 31,
2008 that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.


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PART
II





OTHER
INFORMATION





Item
1.  LegalProceedings





General





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





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





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





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





Slovak Republic





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




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Ukraine
 
 On
January 31, 2008, we entered into a Framework Agreement with Mr. Fuchsmann and
Mr. Rodnyansky (see Part I, Item 1, Note 17, “Commitments and Contingencies:
Ukraine Buyout Agreements).  Pursuant to the Framework Agreement, we
have agreed to (i) purchase a 30.0% interest in the Studio 1+1 group from Mr.
Fuchsmann and Mr. Rodnyansky, (ii) grant Mr. Fuchsmann and Mr. Rodnyansky a put
option and CME a call option on Mr. Fuchsmann’s and Mr. Rodnyansky’s remaining
10.0% interest in the Studio 1+1 group and (iii) sell to Mr. Fuchsmann and Mr.
Rodnyansky 10.0% of our interest in the companies that operate KINO and CITI.
Prior to the completion of these transactions, we have agreed to suspend the
arbitration proceedings. Following completion of the transaction, we have agreed
with Mr. Fuchsmann and Mr. Rodnyansky to terminate the arbitration proceedings
described above. The transaction is expected to close by the end of the second
quarter of 2008.




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72




Item
1A.  Risk Factors





This
report and the following discussion of risk factors contain forward-looking
statements as discussed in Part 1, Item 2 “Management’s Discussion and Analysis
of Financial Information”. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including the risks and uncertainties described below and elsewhere in this
report. These risks and uncertainties are not the only ones we may face.
Additional risks and uncertainties of which we are not aware, or that we
currently deem immaterial, may also become important factors that affect our
financial condition, results of operations and cash flows.





Risks
Relating to our Operations





Our
operating results are dependent on favorable economic and political conditions
in countries in which we operate.





The
results of our operations rely heavily on advertising revenue and demand for
advertising is affected by prevailing general and regional economic
conditions.  Although recently there has been growth in the economies
of our operating countries, there can be no assurance that these trends will
continue or that any such improvement in economic conditions will generate
increased advertising revenue.  Adverse economic conditions generally
and downturns in the economies of our operating countries specifically are
likely to negatively impact the advertising industries in those countries by
reducing the amounts our customers spend on advertising, which could result in a
decrease in demand for our advertising airtime. In addition, disasters, acts of
terrorism, civil or military conflicts or general political uncertainty may
create economic uncertainty that reduces advertising spending.  The
occurrence of any of these events may have a material adverse affect on our
financial position, results of operations and cash flows.





Our
operating results depend on our ability to generate advertising
sales.





We
generate almost all of our revenues from the sale of advertising airtime on our
television channels. Our advertising revenues generally depend on the pricing of
our advertising time as well as other factors, including television viewing
levels, changes in audience preferences, our stations’ technical reach,
technological developments relating to media and broadcasting, competition from
other broadcasters and operators of other media platforms, seasonal trends in
the advertising market in the countries in which we operate, and shifts in
population and other demographics. Therefore, in order to maintain and increase
our advertising sales, we must be able to offer programming which appeals to our
target audiences in order to generate GRPs, respond to technological
developments in media, compete effectively with other broadcasters seeking to
attract similar audiences and manage the impact of any seasonal trends as well
as respond successfully to changes in other factors affecting advertising sales
generally, particularly in Ukraine. Any decline in advertising sales due to a
failure to respond to such changes or to successfully implement our advertising
sales strategies could have a material adverse effect on our financial position,
results of operations and cash flows.





We
will not have management control of our affiliate in Ukraine until we complete
the Ukraine Buyout.





Prior to
the completion of the initial sale transactions to acquire an additional 30%
interest in the Studio 1+1 Group from our partners (the “Ukraine Buyout”) (see
Part I, Item 1, Note 17, “Commitments and Contingencies, Ukraine Buyout
Agreements”), we continue to own our operations in Ukraine jointly with our
partners through subsidiaries and affiliates.  We currently hold a
direct 42% ownership interest and an indirect 18% ownership interest in Studio
1+1.





Although
our partners have resigned their management and board positions in the Studio
1+1 Group in connection with entering into transaction documents in respect of
the Ukraine Buyout, we believe that to unilaterally assert management control or
unilaterally direct the strategies, operations and financial decisions prior to
the completion of the Ukraine Buyout may impede the successful completion of the
transaction. Therefore, prior to the closing of the Ukraine Buyout, we do not
intend to institute material operational changes, which may delay the
implementation of all of the financial reporting and management processes that
exist in our other operations, including ensuring compliance with relevant tax
and other obligations of Studio 1+1.  Until the Ukraine Buyout is
completed, decisions may be taken that do not fully reflect our strategic
objectives or may result in Studio 1+1 being in breach of such tax or other
obligations.  In addition, Studio 1+1 may not adopt decisions in
respect of advertising and sponsorship, programming, production, scheduling,
personnel or otherwise that we believe are necessary in order to respond to
competitive market dynamics in Ukraine for audience share and
advertising.  The occurrence of any or all of these events may have an
adverse impact on our financial position, results of operations and cash
flows.


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We
may not be aware of all related party transactions, which may involve risks of
conflicts of interest that result in concluding transactions on less favorable
terms than could be obtained in arms-length transactions.





In
Romania and Ukraine, the local shareholders, general directors or other members
of the management of our operating companies have other business interests in
their respective countries, including interests in television and other
media-related companies. We may not be aware of all such business interests or
relationships that exist with respect to entities with which our operating
companies enter into transactions. Transactions with companies, whether or not
we are aware of any business relationship between our employees and third
parties, may present conflicts of interests which may in turn result in the
conclusion of transactions on terms that are not arms-length. It is likely that
our subsidiaries will continue to enter into related party transactions in the
future. In the event there are transactions with persons who subsequently are
determined to be related parties, we may be required to make additional
disclosure and, if such contracts are material, may not be in compliance with
certain covenants under the Senior Notes, the Convertible Notes and the EBRD
Loan. In addition, there have been instances in the past where certain related
party receivables have been collected more slowly than unrelated third party
receivables, which have resulted in slower cash flow to our operating companies.
Any related party transaction that is entered into on terms that are not
arms-length may result in a negative impact on our financial position, results
of operations and cash flows.





We
may not be able to prevent the management of our operating companies from
entering into transactions that are outside their authority and not in the best
interests of shareholders.





The
general directors of our operating companies have significant management
authority on a local level, subject to the overall supervision by the
corresponding company board of directors.  In addition, we typically
grant authority to other members of management through delegated authorities.
Our internal controls have detected transactions that have been entered into by
managers acting outside of their authority.  Internal controls may not
be able to prevent an employee from acting outside his
authority.  There is therefore a risk that employees with delegated
authorities may act outside their authority and that our operating companies
will enter into transactions that are not duly
authorized.  Unauthorized transactions may not be in the best
interests of our shareholders, may create the risk of fraud or the breach of
applicable law, which may result in transactions or sanctions that may have an
adverse impact on our financial position, results of operations and cash
flows.





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





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


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





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





Our
current broadcasting licenses expire at various times between November 2008 and
2019.  Any non-renewal or termination of any other broadcasting or
operating licenses or other authorizations or material modification of the terms
of any renewed licenses may have a material adverse effect on our financial
position, results of operations and cash flows.





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





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





The
relative level of development of our markets and the influence of local
political parties also present a potential for biased treatment of us before
regulators or courts in the event of disputes involving our investments. If such
a dispute occurs, those regulators or courts might favor local interests over
our interests. Ultimately, this could lead to loss of our business operations,
as occurred in the Czech Republic in 1999. The loss of a material business would
have an adverse impact on our financial position, results of operations and cash
flows.





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





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





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





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


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





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





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





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





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





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





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





The
transition to digital broadcasting may require substantial additional
investments and the timing of such investments is uncertain.





Countries
in which we have operations are initiating the migration from analog terrestrial
broadcasting to digital terrestrial broadcasting.  Each country has
independent plans with its own timeframe and regulatory and investment
regime.  The specific timing and approach to implementing such plans
is subject to change. We cannot predict the effect of the migration on our
existing operations or predict our ability to receive any additional rights or
licenses to broadcast for our existing channels or any additional channels if
such additional rights or licenses should be required under any relevant
regulatory regime.  Furthermore, we may be required to make
substantial additional capital investment and commit substantial other resources
to implement digital terrestrial broadcasting and the availability of competing
alternative distribution systems, such as direct-to-home platforms, may require
us to acquire additional distribution and content rights. We may not have access
to resources sufficient to make such investments when required.





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





The
television broadcasting industry may be affected by rapid innovations in
technology.  The implementation of new technologies and the
introduction of broadcasting distribution systems other than analog terrestrial
broadcasting, such as digital broadcasting, direct-to-home cable and satellite
distribution systems, the internet, video-on-demand and the availability of
television programming on portable digital devices, have fragmented television
audiences in more developed markets and could adversely affect our ability to
attract advertisers as such technologies penetrate our markets. New technologies
that enable viewers to choose when and what content to watch, as well as to
fast-forward or skip advertisements, may cause changes in consumer behavior that
could impact our business. In addition, compression techniques and other
technological developments allow for expanded programming offerings to be
offered to highly targeted audiences.  Reductions in the cost of
creating additional channel capacity could lower entry barriers for new channels
and encourage the development of increasingly targeted niche programming on
various distribution platforms.  Our television broadcasting
operations may be required to expend substantial financial and managerial
resources on the implementation of new broadcasting technologies or distribution
systems.  In addition, an expansion in competition due to
technological innovation may increase competition for audiences and advertising
revenue as well as the competitive demand for programming.  Any
requirement for substantial further investment to address competition that
arises on account of technological innovations in broadcasting may have an
adverse effect on our financial position, results of operations and cash
flows.


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Our
success depends on attracting and retaining key personnel.





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








Risks
Relating to our Financial Position





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





The
acquisition, ownership and operation of television broadcasting operations
require substantial investment.  Our ability to meet our total capital
requirements is based on our expected cash resources, including our debt
facilities, as well as estimates of future operating results, which are derived
from a variety of assumptions that may prove to be inaccurate.  If our
assumptions prove to be inaccurate, if our assumptions or our investment plans
change in light of additional acquisitions or other investments, or if our costs
increase due to competitive pressures or other unanticipated developments, we
may need to obtain additional financing.  Such financings, if
available at all, may not be available on acceptable terms. Sources of financing
may include public or private debt or equity financings, proceeds from the sale
of assets or other financing arrangements. Any additional debt or equity
securities issued to raise funds may have rights, preferences and privileges
that are senior to shares of our common stock, and the issuance of additional
equity may dilute the economic interest of the holders of shares of our common
stock. It is also not possible to ensure that such debt financings will be
available within the limitations on the incurrence of additional indebtedness
contained in the Indentures pursuant to which our Senior Notes were issued in
2005 (the “2005 Indenture”) and in 2007 (the “2007 Indenture”) and collectively
with the 2005 Indenture, the “Indentures”) or pursuant to the terms of the EBRD
Loan or as a result of general economic conditions. If we cannot obtain adequate
capital or on obtain it on acceptable terms, this could have an adverse effect
on our financial positions, results of operations and cash flows.





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





Our
ability to make debt service payments under our Senior Notes, Convertible Notes,
the EBRD Loan and other indebtedness depends on our future operating performance
and our ability to generate sufficient cash, which in turn depends in part on
factors that are not within our control, including general economic, financial,
competitive, market, legislative, regulatory and other factors.  If
our cash flow and capital resources are insufficient to fund our debt service
obligations, we would face substantial liquidity problems. We may not be able to
maintain the ratings of our Senior Notes or Convertible Notes without adequate
liquidity, which would have an adverse impact on our ability to raise additional
debt financing.  We may be obliged to reduce or delay capital or other
material expenditures at our stations, restructure our debt, obtain additional
debt or equity capital (if available on acceptable terms), or dispose of
material assets or businesses to meet our debt service and other obligations. It
may not be possible to accomplish any of these alternatives on a timely basis or
on satisfactory terms, if at all, which may have an adverse effect on our
financial positions, results of operations and cash flows.


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





We have
significant debt service obligations under our Senior Notes and Convertible
Notes and we are restricted in the manner in which our business is conducted
(see Part I, Item 1, Note 4 “Senior Debt”).  Our high leverage could
have important consequences to our business and results of operations, including
but not limited to increasing our vulnerability to a downturn in our business or
economic and industry conditions, as well as limiting our ability to obtain
additional financing to fund future working capital, capital expenditures,
business opportunities and other corporate requirements.  We may have
a higher level of debt than certain of our competitors, which may put us at a
competitive disadvantage. A substantial portion of our cash flow from operations
is required to be dedicated to the payment of principal of, and interest on, our
indebtedness, which means that this cash flow is not available to fund our
operations, capital expenditures or other corporate purposes. Therefore, our
flexibility in planning for, or reacting to, changes in our business, the
competitive environment and the industry in which we operate is somewhat
limited. Any of these or other consequences or events could have a material
adverse effect on our ability to satisfy our debt obligations and would
therefore have potentially harmful consequences for the development of our
business and strategic plan.





Under
the Senior Notes, Convertible Notes and the EBRD Loan, we have pledged shares in
our two principal subsidiary holding companies that hold substantially all of
our assets and a default on our obligations could result in our inability to
continue to conduct our business.





Pursuant
to the terms of the Indentures, the Indenture pursuant to which our Convertible
Notes were issued (the “2008 Indenture”) and the EBRD Loan, we have pledged
shares in our two principal subsidiary holding companies, which own
substantially all of our interests in our operating companies, including the TV
Nova (Czech Republic) group, Pro TV, Markiza, Pro Plus and Studio
1+1.  If we were to default on any of the Indentures, the 2008
Indenture or the EBRD Loan, the trustees under our Indentures, the 2008
Indenture or the EBRD Loan would have the ability to sell all or a portion of
all of these assets in order to pay amounts outstanding under our Indentures,
the 2008 Indenture or the EBRD Loan.





We
may be adversely affected by fluctuations in exchange rates.





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





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





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


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Our
holding company structure may limit our access to cash.





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





Risks
Relating to Enforcement Rights





We
are a Bermuda company and enforcement of civil liabilities and judgments may be
difficult.





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





Our
bye-laws restrict shareholders from bringing legal action against our officers
and directors.





Our
bye-laws contain a broad waiver by our shareholders of any claim or right of
action in Bermuda, both individually and on our behalf, against any of our
officers or directors. The waiver applies to any action taken by an officer or
director, or the failure of an officer or director to take any action, in the
performance of his or her duties, except with respect to any matter involving
any fraud or dishonesty on the part of the officer or director. This waiver
limits the right of shareholders to assert claims against our officers and
directors unless the act or failure to act involves fraud or dishonesty.





Risks
Relating to Our common stock





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





CME
Holdco L.P. owns all our outstanding shares of Class B common stock, each of
which carries 10 votes per share.  Ronald Lauder, the chairman of our
Board of Directors, is the majority owner of CME Holdco L.P. and, subject to
certain limitations described below, is entitled to vote those shares on behalf
of CME Holdco L.P.  The shares over which Ronald Lauder has voting
power represent 63.7% of the aggregate voting power of our outstanding common
stock.  On September 1, 2006, Adele (Guernsey) L.P., a fund affiliated
with Apax Partners, acquired 49.7% of CME Holdco L.P.  Under the terms
of the limited partnership agreement of CME Holdco L.P., Adele (Guernsey) L.P.
has certain consent rights in respect of the voting and disposition of the
shares of Class B common stock.  CME Holdco L.P. is in a position to
control the outcome of corporate actions requiring shareholder approval, such as
the election of directors (including two directors Adele (Guernsey) L.P. is
entitled to recommend for appointment) and transactions involving a change of
control.  The interests of CME Holdco L.P. may not be the same as
those of other shareholders, and such shareholders will be unable to affect the
outcome of such corporate actions for so long as CME Holdco L.P. retains voting
control.


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





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





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





As at
April 25, 2008, we have a total of 1.1 million options to purchase Class A
common stock outstanding and 0.1 million options to purchase shares of Class B
common stock outstanding.  An affiliate of PPF a.s., from whom we
acquired the TV Nova (Czech) group,holds 3,500,000 unregistered
shares of Class A common stock and Igor Kolomoisky, a member of our Board of
Directors and a party to the Ukraine Buyout, holds 1,275,227 unregistered shares
of Class A common stock.  In addition, the Convertible Notes are
convertible into shares of our Class A common stock and mature on March 15,
2013. Holders of the Convertible Notes have registration rights with respect to
the shares underlying the Notes. Prior to December 15, 2012, the Convertible
Notes will be convertible following certain events and from that date, at any
time. From time to time up to and including December 15, 2012, we will have
the right to elect  to deliver (i) shares of our Class A common stock
or (ii) cash and, if applicable, shares of our Class A common stock upon
conversion of the Convertible Notes. At present, we have elected to deliver cash
and, if applicable, shares of our Class A common stock. (see Part I, Item 1,
Note 4 “Senior Debt”). To mitigate the dilutive effect of a conversion of
the Convertible Notes on our Class A common stock, we have entered into several
capped call transactions, and in connection therewith we have purchased call
options with respect to shares of our Class A common stock that are exercisable
in the event of a conversion of the Convertible Notes or at maturity on March
15, 2013.   We may receive cash or shares of our Class A common
stock upon the exercise of an option (see Part I, Item 1, Note 4 “Senior Debt”).
Furthermore, a portion of the consideration for the Ukraine Buyout may be paid
in shares of Class A common stock (see Part I, Item 1, Note 1, “Organization and
Business”). We cannot predict what effect, if any, the issuance of shares
underlying options or the Convertible Notes or in connection with the Ukraine
Buyout, or the entry into trading of such registered or unregistered shares or
any future issuances of our shares will have on the market price of our
shares.  If more shares are issued, the economic interest of current
shareholders may be diluted and the price of our shares may be adversely
affected.


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Item 6.  Exhibits





a) The
following exhibits are attached:





4.1
            Registration
      Rights Agreement among the Company, Lehman Brothers Inc., J.P. Morgan
      Securities Inc., Deutsche Bank Securities Inc., BNP Paribas and ING Bank
      N.V., London Branch, dated March 10, 2008.4.2
            Indenture
      among the Company, Central European Media Enterprises N.V., CME Media
      Enterprises B.V. and The Bank of New York, dated March 10,
      2008.10.1
            Purchase
      Agreement among the Company, Lehman Brothers Inc., J.P. Morgan Securities
      Inc., Deutsche Bank Securities Inc., BNP Paribas and ING Bank N.V., London
      Branch, dated March 4, 2008.10.2
            Deed
      of Amendment to the Intercreditor Agreement dated July 21, 2006, as
      amended, among the Company, Central European Media Enterprises N.V., CME
      Media Enterprises B.V., The Bank of New York, BNY Corporate Trustee
      Services Limited and European Bank for Reconstruction and Development,
      dated March 10, 2008.10.3
            Security
      Assignment between the Company, CME Media Enterprises B.V. and The Bank of
      New York, dated March 10, 2008.10.4
            Pledge
      Agreement among the Company, Central European Media Enterprises N.V. and
      The Bank of New York, dated March 10, 2008.10.5
            Deed
      of Pledge of Shares among Central European Media Enterprises N.V., CME
      Media Enterprises B.V. and the Bank of New York, dated March 10,
      2008.10.6
            Capped
      Call Transaction between the Company and Lehman Brothers OTC Derivatives
      Inc., dated March 4, 2008.10.7
            Capped
      Call Transaction between the Company, Deutsche Bank AG, London Branch and
      Deutsche Bank Securities Inc., dated March 4, 2008.10.8
            Capped
      Call Transaction between the Company and BNP Paribas, dated March 4,
      2008.31.01
            Sarbanes-Oxley
      Certification s. 302 CEO, dated April 30, 2008.31.02
            Sarbanes-Oxley
      Certification s. 302 CFO, dated April 30, 2008.32.01
            Sarbanes-Oxley
      Certification – CEO and CFO, dated April 30, 2008 (furnished
      only).





SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.





Date:
      April 30, 2008
            /s/ Michael GarinMichael
      GarinChief
      Executive Officer(Duly
      Authorized Officer)Date:
      April 30, 2008
            /s/ Wallace MacmillanWallace
      MacmillanChief
      Financial Officer(Principal
      Financial Officer and Accounting
Officer)


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EXHIBITINDEX





4.1
            Registration
      Rights Agreement among the Company, Lehman Brothers Inc., J.P. Morgan
      Securities Inc., Deutsche Bank Securities Inc., BNP Paribas and ING Bank
      N.V., London Branch, dated March 10, 2008.4.2
            Indenture
      among the Company, Central European Media Enterprises N.V., CME Media
      Enterprises B.V. and The Bank of New York, dated March 10,
      2008.10.1
            Purchase
      Agreement among the Company, Lehman Brothers Inc., J.P. Morgan Securities
      Inc., Deutsche Bank Securities Inc., BNP Paribas and ING Bank N.V., London
      Branch, dated March 4, 2008.10.2
            Deed
      of Amendment to the Intercreditor Agreement dated July 21, 2006, as
      amended, among the Company, Central European Media Enterprises N.V., CME
      Media Enterprises B.V., The Bank of New York, BNY Corporate Trustee
      Services Limited and European Bank for Reconstruction and Development,
      dated March 10, 2008.10.3
            Security
      Assignment between the Company, CME Media Enterprises B.V. and The Bank of
      New York, dated March 10, 2008.10.4
            Pledge
      Agreement among the Company, Central European Media Enterprises N.V. and
      The Bank of New York, dated March 10, 2008.10.5
            Deed
      of Pledge of Shares among Central European Media Enterprises N.V., CME
      Media Enterprises B.V. and the Bank of New York, dated March 10,
      2008.10.6
            Capped
      Call Transaction between the Company and Lehman Brothers OTC Derivatives
      Inc., dated March 4, 2008.10.7
            Capped
      Call Transaction between the Company, Deutsche Bank AG, London Branch and
      Deutsche Bank Securities Inc., dated March 4, 2008.10.8
            Capped
      Call Transaction between the Company and BNP Paribas, dated March 4,
      2008.31.01
            s.
      302 Sarbanes-Oxley Certification - CEO, dated April 30,
    2008.31.02
            s.
      302 Sarbanes-Oxley Certification - CFO, dated April 30,
    2008.32.01
            s.
      906 Sarbanes-Oxley Certification - CEO and CFO, dated April 30, 2008
      (furnished only).






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