UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 FORM
10-Q
 
 T           QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 
 For
the quarterly period ended June 30, 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: 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 TNo £
 
 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 T
              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 T
 
 Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
 
 Class
              
              Outstanding as of July
      28, 2008Class
      A Common Stock, par value $0.08
              
              36,019,073Class
      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 June 30, 2008
 
 INDEX
 
 PagePart
      I. Financial informationItem 1. Financial Statements
              
              2Condensed consolidated Balance Sheets as at June 30, 2008 and
      December 31, 2007
              
              2Condensed consolidated Statements of Operations and
      Comprehensive Income for the Three and Six Months Ended June 30, 2008 and
      2007
              
              4Condensed consolidated Statements of Shareholders' Equity
      for the Six Months Ended June 30, 2008 and 2007
              
              6Condensed consolidated Statements of Cash Flows for the Six
      Months Ended June 30, 2008 and 2007
              
              7Notes to the condensed consolidated Financial
      Statements
              
              8Item 2. Management's Discussion and Analysis of Financial
      Condition and Results of Operations
              
              44Item 3. Quantitative and Qualitative Disclosures About Market
      Risk
              
              87Item 4. Controls and Procedures
              
              89Part
      II. Other InformationItem 1. Legal Proceedings
              
              90Item 1A. Risk Factors
              
              91Item 4. Submission of Matters to a Vote of Security
      Holders
              
              99Item 5. Other information
              
              100Item 6. Exhibits
              
              100Signatures
              
              101Exhibit Index
              
              102
  Page
1
 Table of Contents
  Part
I.  Financial Information
 
 Item 1.  Financial Statements
 
 CENTRALEUROPEAN MEDIA ENTERPRISES LTD.
 CONDENSED
CONSOLIDATED BALANCE SHEETS
 (US$
000’s)
 (Unaudited)
  June
      30,
                2008
              
              
              December 31,
                2007ASSETSCurrent
      assetsCash
      and cash equivalents
              
              $
              375,752
              
              
              $
              142,826Restricted
      cash (Note 6)
              
              
              1,008
              
              
              
              1,286Accounts
      receivable (net of allowance) (Note 7)
              
              
              264,567
              
              
              
              225,037Income
      taxes receivable
              
              
              1,834
              
              
              
              1,234Program
      rights
              
              
              90,061
              
              
              
              77,112Other
      current assets (Note 8)
              
              
              85,178
              
              
              
              82,329Total
      current assets
              
              
              818,400
              
              
              
              529,824Non-current
      assetsInvestments
              
              
              16,559
              
              
              
              16,559Property,
      plant and equipment (Note 9)
              
              
              228,572
              
              
              
              180,311Program
      rights
              
              
              134,240
              
              
              
              108,362Goodwill
      (Note 4)
              
              
              1,533,020
              
              
              
              1,114,347Broadcast
      licenses (Note 4)
              
              
              323,941
              
              
              
              237,926Other
      intangible assets (Note 4)
              
              
              205,052
              
              
              
              135,732Other
      non-current assets (Note 8)
              
              
              21,692
              
              
              
              15,374Total
      non-current assets
              
              
              2,463,076
              
              
              
              1,808,611Total
      assets
              
              $
              3,281,476
              
              
              $
              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)
  June
      30,
                2008
              
              
              December 31,
                2007LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      liabilitiesAccounts
      payable and accrued liabilities (Note 10)
              
              $
              179,120
              
              
              $
              156,324Duties
      and other taxes payable
              
              
              31,802
              
              
              
              29,945Income
      taxes payable
              
              
              14,715
              
              
              
              27,705Credit
      facilities and obligations under capital leases (Note 11)
              
              
              17,274
              
              
              
              15,090Dividends
      payable to minority shareholders in subsidiaries
              
              
              2,662
              
              
              
              1,226Deferred
      consideration – Romania
              
              
              1,302
              
              
              
              2,208Deferred
      tax
              
              
              1,167
              
              
              
              272Total
      current liabilities
              
              
              248,042
              
              
              
              232,770Non-current
      liabilitiesCredit
      facilities and obligations under capital leases (Note 11)
              
              
              6,042
              
              
              
              5,862Senior
      Debt (Note 5)
              
              
              1,097,678
              
              
              
              581,479Income
      taxes payable
              
              
              2,129
              
              
              
              2,495Deferred
      tax
              
              
              104,467
              
              
              
              73,340Other
      non-current liabilities
              
              
              46,933
              
              
              
              19,527Total
      non-current liabilities
              
              
              1,257,249
              
              
              
              682,703Commitments
      and contingencies (Note 18)Minority
      interests in consolidated subsidiaries
              
              
              99,102
              
              
              
              23,155SHAREHOLDERS'
      EQUITY:Nil
      shares of Preferred Stock of $0.08 each (December 31, 2007 –
      nil)
              
              
              -
              
              
              
              -36,019,073
      shares of Class A Common Stock of $0.08 each (December 31, 2007 –
      36,003,198)
              
              
              2,882
              
              
              
              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
              
              
              993,178
              
              
              
              1,051,336Retained  earnings
              
              
              103,517
              
              
              
              53,619Accumulated
      other comprehensive income
              
              
              577,001
              
              
              
              291,467Total
      shareholders’ equity
              
              
              1,677,083
              
              
              
              1,399,807Total
      liabilities and shareholders’ equity
              
              $
              3,281,476
              
              
              $
              2,338,435
 
 
 The
accompanying notes are an integral part of these condensed consolidated
financial statements.
  Page
3
 Table of Contents
  CENTRALEUROPEAN MEDIA ENTERPRISES LTD.
 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
 (US$
000’s, except share and per share data)
 (Unaudited)
 
 For
      the Three Months Ended June 30,
              
              
              For
      the Six Months Ended June 30,2008
              
              
              2007
              
              
              2008
              
              
              2007Net
      revenues
              
              $
              305,391
              
              
              $
              216,284
              
              
              $
              528,861
              
              
              $
              364,196Operating
      costs
              
              
              37,045
              
              
              
              30,944
              
              
              
              70,307
              
              
              
              56,601Cost
      of programming
              
              
              117,609
              
              
              
              82,773
              
              
              
              212,363
              
              
              
              149,126Depreciation
      of station property, plant and equipment
              
              
              13,178
              
              
              
              7,680
              
              
              
              25,518
              
              
              
              14,579Amortization
      of broadcast licenses and other intangibles (Note 4)
              
              
              8,188
              
              
              
              5,165
              
              
              
              15,854
              
              
              
              10,327Cost
      of revenues
              
              
              176,020
              
              
              
              126,562
              
              
              
              324,042
              
              
              
              230,633Station
      selling, general and administrative expenses
              
              
              17,666
              
              
              
              15,699
              
              
              
              38,421
              
              
              
              31,480Corporate
      operating costs
              
              
              13,708
              
              
              
              7,444
              
              
              
              23,725
              
              
              
              22,217Operating
      income
              
              
              97,997
              
              
              
              66,579
              
              
              
              142,673
              
              
              
              79,866Interest
      income
              
              
              3,781
              
              
              
              1,732
              
              
              
              5,961
              
              
              
              3,146Interest
      expense
              
              
              (18,140
              )
              
              
              (19,438
              )
              
              
              (32,390
              )
              
              
              (30,834
              )Foreign
      currency exchange gain / (loss), net
              
              
              6,881
              
              
              
              (2,116
              )
              
              
              (10,549
              )
              
              
              (5,252
              )Change
      in fair value of derivatives (Note 12)
              
              
              (13,281
              )
              
              
              7,528
              
              
              
              (23,539
              )
              
              
              12,052Other
      income / (expense)
              
              
              665
              
              
              
              (546
              )
              
              
              1,325
              
              
              
              (790
              )Income
      before provision for income taxes and minority interest
              
              
              77,903
              
              
              
              53,739
              
              
              
              83,481
              
              
              
              58,188Income
      tax credit / (expense)
              
              
              (8,919
              )
              
              
              (13,419
              )
              
              
              1,423
              
              
              
              (18,478
              )Income
      before minority interest
              
              
              68,984
              
              
              
              40,320
              
              
              
              84,904
              
              
              
              39,710Minority
      interest in income of consolidated subsidiaries
              
              
              (1,380
              )
              
              
              (5,730
              )
              
              
              (2,405
              )
              
              
              (5,370
              )Net
      income
              
              $
              67,604
              
              
              $
              34,590
              
              
              $
              82,499
              
              
              $
              34,340Currency
      translation adjustment, net
              
              
              93,579
              
              
              
              (13,868
              )
              
              
              285,046
              
              
              
              (19,503
              )Obligation
      to repurchase shares
              
              
              -
              
              
              
              -
              
              
              
              488
              
              
              
              --Total
      comprehensive income
              
              $
              161,183
              
              
              $
              20,722
              
              
              $
              368,033
              
              
              $
              14,837
 
 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 June 30,
              
              
              For
      the Six Months Ended June 30,2008
              
              
              2007
              
              
              2008
              
              
              2007PER
      SHARE DATA (Note 15):Net
      income per share:Net
      income – Basic
              
              $
              1.60
              
              
              $
              0.84
              
              
              $
              1.95
              
              
              $
              0.84Net
      income – Diluted
              
              $
              1.58
              
              
              $
              0.83
              
              
              $
              1.93
              
              
              $
              0.83Weighted
      average common shares used in computing per share amounts
      (000’s):Basic
              
              
              42,322
              
              
              
              40,941
              
              
              
              42,319
              
              
              
              40,867Diluted
              
              
              42,836
              
              
              
              41,407
              
              
              
              42,784
              
              
              
              41,390
 
 
 The
accompanying notes are an integral part of these condensed consolidated
financial statements.
  Page
5
 Table of Contents
  CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
 CONDENSED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
 (US$
000’s)
 (Unaudited)
 
 Class
      A Common Stock
              
              
              Class
      B Common Stock
              
              
              
              
              
              
              
              
              Accumulated
      Other Comprehensive Income
              
              
              Total
      Shareholders' EquityNumber
      of shares
              
              
              Par
      value
              
              
              Number
      of shares
              
              
              Par
      value
              
              
              Additional
      Paid-In Capital
              
              
              Retained
      EarningsBALANCE,
      December 31, 2007
              
              
              36,003,198
              
              
              $
              2,880
              
              
              
              6,312,839
              
              
              $
              505
              
              
              $
              1,051,336
              
              
              $
              53,619
              
              
              $
              291,467
              
              
              $
              1,399,807Stock-based
      compensation
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              4,072
              
              
              
              -
              
              
              
              -
              
              
              
              4,072Stock
      options exercised
              
              
              15,875
              
              
              
              2
              
              
              
              -
              
              
              
              -
              
              
              
              1,088
              
              
              
              -
              
              
              
              -
              
              
              
              1,090Redeemable
      Minority Interest (Note 18)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (32,601
              )
              
              
              -
              
              
              
              (32,601
              )Purchase
      of capped call options (Note 5)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (63,318
              )
              
              
              -
              
              
              
              -
              
              
              
              (63,318
              )Net
      income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              82,499
              
              
              
              -
              
              
              
              82,499Currency
      translation adjustment
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              285,046
              
              
              
              285,046Obligation
      to repurchase shares
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              488
              
              
              
              488BALANCE, June
      30, 2008
              
              
              36,019,073
              
              
              $
              2,882
              
              
              
              6,312,839
              
              
              $
              505
              
              
              $
              993,178
              
              
              $
              103,517
              
              
              $
              577,001
              
              
              $
              1,677,083
 
  Class
      A Common Stock
                
                
                Class
      B Common Stock
                
                
                
                
                
                
                
                
                Accumulated
      Other Comprehensive Income / (Loss)
                
                
                Total
      Shareholders' EquityNumber
      of shares
                
                
                Par
      value
                
                
                Number
      of shares
                
                
                Par
      value
                
                
                Additional
      Paid-In Capital
                
                
                Accumulated
      DeficitBALANCE,
      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
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                2,910
                
                
                
                -
                
                
                
                -
                
                
                
                2,910Stock
      options exercised
                
                
                227,783
                
                
                
                18
                
                
                
                -
                
                
                
                -
                
                
                
                2,712
                
                
                
                -
                
                
                
                -
                
                
                
                2,730Net
      income
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                34,340
                
                
                
                -
                
                
                
                34,340Currency
      translation adjustment
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (19,503
                )
                
                
                (19,503
                )BALANCE,
      June 30, 2007
                
                
                34,639,921
                
                
                $
                2,771
                
                
                
                6,312,839
                
                
                $
                505
                
                
                $
                936,730
                
                
                $
                (609
                )
                
                $
                113,627
                
                
                $
                1,053,024
 
 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 Six Months Ended June 30,2008
              
              
              2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
              
              $
              82,499
              
              
              $
              34,340Adjustments
      to reconcile net income to net cash generated from operating
      activities:Depreciation
      and amortization
              
              
              159,092
              
              
              
              110,945Gain
      on disposal of fixed asset
              
              
              (266
              )
              
              
              -Stock-based
      compensation (Note 14)
              
              
              3,804
              
              
              
              2,605Minority
      interest in income of consolidated subsidiaries
              
              
              2,405
              
              
              
              5,370Change
      in fair value of derivative instruments
              
              
              23,539
              
              
              
              (12,052
              )Foreign
      currency exchange loss, net
              
              
              10,549
              
              
              
              5,252Net
      change in (net of effects of acquisitions and disposals of
      businesses):Accounts
      receivable
              
              
              (13,872
              )
              
              
              (25,572
              )Program
      rights
              
              
              (176,348
              )
              
              
              (100,593
              )Other
      assets
              
              
              (5,137
              )
              
              
              (8,018
              )Accounts
      payable and accrued liabilities
              
              
              43,825
              
              
              
              5,723Income
      taxes payable
              
              
              (15,092
              )
              
              
              (274
              )Deferred
      taxes
              
              
              11,446
              
              
              
              (458
              )VAT
      and other taxes payable
              
              
              1,071
              
              
              
              4,333Net
      cash generated from continuing operating activities
              
              
              127,515
              
              
              
              21,601CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of property, plant and equipment
              
              
              (42,034
              )
              
              
              (25,469
              )Proceeds
      from disposal of property, plant and equipment
              
              
              300
              
              
              
              123Investments
      in subsidiaries and unconsolidated affiliates
              
              
              (247,412
              )
              
              
              (63,017
              )Repayment
      of loans and advances to related parties
              
              
              1,990
              
              
              
              250Net
      cash used in continuing investing activities
              
              
              (287,156
              )
              
              
              (88,113
              )CASH
      FLOWS FROM FINANCING ACTIVITIES:Net
      proceeds from issuance of Convertible Notes
              
              
              463,673
              
              
              
              -Purchase
      of capped call option
              
              
              (63,318
              )
              
              
              -Proceeds
      from credit facilities
              
              
              -
              
              
              
              135,465Payment
      of credit facilities and capital leases
              
              
              (1,240
              )
              
              
              (137,289
              )Net
      proceeds from issuance of Senior Notes
              
              
              -
              
              
              
              199,400Redemption
      of Senior Notes
              
              
              -
              
              
              
              (169,010
              )Proceeds
      from exercise of stock options
              
              
              1,090
              
              
              
              2,730Excess
      tax benefits from share based payment arrangements
              
              
              268
              
              
              
              305Dividends
      paid to minority shareholders
              
              
              (1,230
              )
              
              
              (476
              )Net
      cash received from continuing financing activities
              
              
              399,243
              
              
              
              31,125NET
      CASH USED IN DISCONTINUED OPERATIONS – OPERATING
ACTIVITIES
              
              
              (1,973
              )
              
              
              (1,624
              )Impact
      of exchange rate fluctuations on cash
              
              
              (4,703
              )
              
              
              7,769Net
      increase / (decrease) in cash and cash equivalents
              
              
              232,926
              
              
              
              (29,242
              )CASH
      AND CASH EQUIVALENTS, beginning of period
              
              
              142,826
              
              
              
              145,904CASH
      AND CASH EQUIVALENTS, end of period
              
              $
              375,752
              
              
              $
              116,662
 
 
 The
accompanying notes are an integral part of these condensed consolidated
financial statements.
  Page
7
 Table of Contents
  CENTRALEUROPEAN MEDIA ENTERPRISES LTD.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Tabular
amounts in US$ 000’s, except share and per share data)
 (Unaudited)
 
 1.  ORGANIZATION
AND BUSINESS
 
 Central
European Media Enterprises Ltd., a Bermuda corporation, was formed in June
1994.  Our assets are held through a series of Dutch and Netherlands
Antilles holding companies.  We invest in, develop and operate
national and regional commercial television stations and channels in Central and
Eastern Europe.  At June 30, 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
June 30, 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
              
              SubsidiaryJyxo,
      s.r.o. (“Jyxo”)
              
              100.0%
              
              Czech
      Republic
              
              SubsidiaryBLOG
      Internet, s.r.o. (“Blog“)
              
              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
              
              SubsidiaryMusic
      Television System S.R.L. (“MTS”)
              
              95.0%
              
              Romania
              
              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
      investmentA.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)
  Page
8
 Table of Contents
  CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Tabular
amounts in US$ 000’s, except share and per share data)
 (Unaudited)
 
 Company
      Name
              
              Effective
                Voting
                Interest
              
              Jurisdiction
      of
                Organization
              
              Type
      of AffiliateMedia
      Invest, spol s.r.o.
              
              100.0%
              
              Slovak
      Republic
              
              SubsidiaryPMT,
      s.r.o.
              
              31.5%
              
              Slovak
      Republic
              
              Cost
      investmentMMTV
      1 d.o.o.
              
              100.0%
              
              Slovenia
              
              SubsidiaryProdukcija
      Plus d.o.o. (“Pro Plus”)
              
              100.0%
              
              Slovenia
              
              SubsidiaryPOP
      TV d.o.o. (“Pop TV”)
              
              100.0%
              
              Slovenia
              
              SubsidiaryKanal
      A d.o.o. (“Kanal A”)
              
              100.0%
              
              Slovenia
              
              SubsidiaryEuro
      3 TV d.o.o.
              
              42.0%
              
              Slovenia
              
              Equity-Accounted
      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”)
              
              90.0%
              
              Bermuda
              
              SubsidiaryCME
      Ukraine Holding GmbH
              
              100.0%
              
              Austria
              
              SubsidiaryInnova
      Film GmbH (“Innova”)
              
              83.4%
              
              Germany
              
              SubsidiaryCME
      Cyprus Holding Ltd.
              
              100.0%
              
              Cyprus
              
              SubsidiaryTV
      Media Planet Ltd. (“TV Media Planet”)
              
              90.0%
              
              Cyprus
              
              Subsidiary1+1
      Media
              
              83.4%
              
              Ukraine
              
              SubsidiaryStudio
      1+1 LLC (“Studio 1+1”)
              
              90.0%
              
              Ukraine
              
              SubsidiaryUkraine
      Media Services LLC (“UMS”)
              
              99.9%
              
              Ukraine
              
              SubsidiaryGrizard
      Investments Ltd. (“Grizard”)
              
              100.0%
              
              Cyprus
              
              SubsidiaryCME
      Ukraine Holding B.V.
              
              100.0%
              
              Netherlands
              
              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
              
              Subsidiary
  Page
9
 Table of Contents
  CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Tabular
amounts in US$ 000’s, except share and per share data)
 (Unaudited)
 
  Page
10
 Table of Contents
  CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Tabular
amounts in US$ 000’s, except share and per share data)
 (Unaudited)
 
 Croatia
 
 We
operate one national channel in Croatia, NOVA TV (Croatia). We own 100.0% of
Nova TV (Croatia), which holds a national terrestrial broadcast license for
Croatia that expires in April 2010.
 
 Czech
Republic
 
 We
operate one national television channel in the Czech Republic, TV NOVA (Czech
Republic) and two cable/satellite channels, GALAXIE SPORT and NOVA CINEMA. We
own 100.0% of CET 21, which holds the national terrestrial broadcast license for
TV NOVA (Czech Republic) that expires in January 2017 and a satellite license
for NOVA CINEMA that expires in November 2019. CET 21 owns 100.0% of Galaxie
Sport, which holds the broadcast license for GALAXIE SPORT that expires in March
2014.
  Romania
 
 We
operate five television channels in Romania: PRO TV, ACASA, PRO CINEMA, SPORT.RO
and MTV ROMANIA, as well as PRO TV INTERNATIONAL, a channel distributed by
satellite outside the country featuring programs re-broadcast from other
Romanian channels. Since the acquisition of the assets of Compania de Radio Pro
(“Radio Pro”) on April 14, 2008, we operate two leading radio channels in
Romania, PRO FM, a pop music channel, and INFO PRO, a national infotainment
channel.
 
 We own a
95.0% interest in each of Pro TV, MPI and Media Vision, a production, dubbing
and subtitling company.  The remaining shares of each of these
companies are owned by companies, or individuals associated with, Adrian Sarbu,
our 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 October 2008 and May
2017.
 
 We own
10.0% of Media Pro BV and 8.7% of Media Pro Management S.A., the parent
companies of the Media Pro group of companies (“Media Pro”). Substantially all
of the remaining shares of Media Pro are owned directly or indirectly by Mr.
Sarbu. Media Pro comprises a number of companies with operations in the fields
of publishing, information, printing, cinema, entertainment and radio in
Romania.
 
 Slovak
Republic
 
 In the
Slovak Republic we operate one national television channel, TV MARKIZA. We own
100.0% of Markiza, which holds a national terrestrial broadcast license for the
Slovak Republic that expires in September 2019.
 
 Slovenia
 
 We
operate two national television channels in Slovenia, POP TV and KANAL
A.  We own 100.0% of Pro Plus, the operating company for our Slovenia
operations.  Pro Plus has a 100.0% interest in each of Pop TV, which
holds the licenses for the POP TV channel, and Kanal A, which holds the licenses
for the KANAL A channel.  All such licenses expire in August
2012.
  Page
11
 Table of Contents
  CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Tabular
amounts in US$ 000’s, except share and per share data)
 (Unaudited)
 
 Ukraine
(Studio 1+1)
 
 We
operate one national television channel in Ukraine, STUDIO 1+1. We own
a 90% interest in the Studio 1+1 group, which is comprised of several
entities in which we hold direct or indirect interests. On June 30, 2008, we
acquired a 30.0% interest in the Studio 1+1 group for cash consideration of
approximately US$ 219.6 million (see Note 3 “Acquisitions and
Disposals”).  Boris Fuchsmann and Alexander Rodnyansky own the
remaining 10.0% interest and have the right to put to us, and we will have the
right to call from them, the remaining 10.0% interest (see Note 18 “Commitments
and Contingencies: Ukraine Buyout Agreements: other commitments”).
  Following
the acquisition we now hold a 90.0% voting and economic interest in each of IMS
and TV Media Planet and an 83.4% voting and economic interest in
Innova.  Innova owns 100.0% of 1+1 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, and 100.0%
of Grizard, which owns a 23.0% direct voting and economic interest in
Studio 1+1.  The fifteen 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 time expires in August 2014.
 
 Ukraine
(KINO, CITI)
 
 In
Ukraine we operate a network of regional channels, KINO and a local channel
that broadcasts in the Kiev area, 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
April 2009 to July 2016.
 
 
 2.  SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
 
 Basis
of Presentation
 
 The
interim financial statements for the three months ended June 30, 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 generally accepted accounting
principles in the United States of America (“U.S. 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 U.S.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.
  Page
12
 Table of Contents
  CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Tabular
amounts in US$ 000’s, except share and per share data)
 (Unaudited)
 
 The terms
“Company”, “we”, “us”, and “our” are used in this Form 10-Q to refer
collectively to Central European Media Enterprises Ltd. and our 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 U.S. 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.
 
 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 12,“Financial
instruments and Fair Value Measurements” 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.
  Page
13
 Table of Contents
  CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Tabular
amounts in US$ 000’s, except share and per share data)
 (Unaudited)
 
 In 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.
 
 In April
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.
 In May
2008, the FASB issued FASB Statement No. 162, “The Hierarchy of Generally
Accepted Accounting Principles” (“FAS 162”). This statement identifies the
sources of accounting principles and the framework for selecting the principles
used in the preparation of financial statements of non-governmental entities
that are presented in accordance with GAAP. With the issuance of this statement,
the FASB concluded that the GAAP hierarchy should be directed toward the entity
and not its auditor, and reside in the accounting literature established by the
FASB as opposed to the American Institute of Certified Public Accountants
(AICPA) Statement on Auditing Standards No. 69, “The Meaning of Present
Fairly in Conformity With Generally Accepted Accounting Principles.” This
statement is effective 60 days following the SEC’s approval of the Public
Company Accounting Oversight Board amendments to AU Section 411, “The
Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles.” The implementation of this standard will not have a material impact
on our consolidated financial position and results of
operations.
 
 In May
2008, the FASB issued Staff Position No. APB 14-1, “Accounting for Convertible
Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial
Cash Settlement)” (“FSP APB 14-1”), which clarifies the accounting for
convertible debt instruments that may be settled in cash (including partial cash
settlement) upon conversion. FSP APB 14-1 requires issuers to account separately
for the liability and equity components of certain convertible debt instruments
in a manner that reflects the issuer's non-convertible debt (unsecured debt)
borrowing rate when interest cost is recognized. FSP APB 14-1 requires
bifurcation of a component of the debt including allocated issuance costs,
classification of that component in equity and the accretion of the resulting
discount on the debt and the allocated acquisition costs to be recognized as
part of interest expense in the consolidated statement of operations. FSP APB
14-1 requires retrospective application to the terms of instruments as they
existed for all periods presented. FSP APB 14-1 is effective for us as of
January 1, 2009 and early adoption is prohibited. The adoption of FSP APB 14-1
will affect the accounting for our Convertible Notes and, we expect, will result
in approximately the following changes to the 2008 comparative balances in our
2009 financial statements to reflect the revised equity and liability balances
on issuance (net of allocated acquisition costs) of US$ 108.1 million and US$
364.2 million respectively:
  Page
14
 Table of Contents
  CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Tabular
amounts in US$ 000’s, except share and per share data)
 (Unaudited)
 
 Impact
for the quarterly period ended June 30, 2008:
 For
      the Three Months Ended
              
              
              For
      the Six Months EndedUS$  million
              
              As
      reported
              
              
              Impact
      of Adoption
              
              
              As
      Adjusted
              
              
              As
      reported
              
              
              Impact
      of Adoption
              
              
              As
      AdjustedConsolidated
      Statement of Operations:Interest
      expense
              
              
              (18.1
              )
              
              
              (4.3
              )
              
              
              (22.4
              )
              
              
              (32.4
              )
              
              
              (5.2
              )
              
              
              (37.6
              )As
      at June 30, 2008US$
      million
              
              
              
              
              
              
              
              
              
              
              
              
              
              As
      reported
              
              
              Impact
      of Adoption
              
              
              As
      AdjustedConsolidated
      balance sheet:Other
      current assets
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              85.2
              
              
              
              (0.7
              )
              
              
              84.5Other
      non-current assets
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              21.7
              
              
              
              (1.8
              )
              
              
              19.9Senior
      Debt
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,097.7
              )
              
              
              105.4
              
              
              
              (992.3
              )Additional
      paid-in capital
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              993.2
              
              
              
              108.1
              
              
              
              1,101.3Retained
      Earnings
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              103.5
              
              
              
              (5.2
              )
              
              
              98.3
 
 In
addition, at present, we expect that the adoption of FSP APB 14-1 will cause our
reported interest expense in  the 2008 and 2009 financial years to
increase by approximately US$ 14.0 million and US$ 18.9 million respectively to
reflect the amortization of the issuance discount.
 
 
 3.  ACQUISITIONS
AND DISPOSALS
 
 Czech
Republic
 
 Acquisition
of Jyxo and Blog
 
 In order
to enhance both our internet offering and our software delivery capabilities in
the Czech Republic, on May 27, 2008 we purchased 100.0% of Jyxo, an information
technology provider and Blog, the operator of the leading blog site in the Czech
Republic, blog.cz.
 
 Initial
cash consideration was approximately US$ 9.0 million, of which approximately US$
2.7 million had been paid by June 30, 2008 and the remainder was paid in July
2008. In addition we are committed to paying a further CZK 33.4 million
(approximately US$ 2.1 million at the date of acquisition) within one month of
the second anniversary of completion, which has been recorded as consideration
payable. An additional amount of up to CZK 37.0 million (approximately US$ 2.4
million) may also be payable if certain operational targets are met. We
concluded that if the additional consideration becomes payable, we will record
the fair value of the consideration issuable as an additional cost of acquiring
Jyxo.
 
 We
performed a fair value exercise to allocate the purchase price to the acquired
assets and liabilities and separately identifiable intangible assets as at May
27, 2008.  The following table summarizes the fair values of the
assets acquired and liabilities assumed at the date of
acquisition:
  Page
15
 Table of Contents
  CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Tabular
amounts in US$ 000’s, except share and per share data)
 (Unaudited)
 
 Fair
      Value on AcquisitionCash
      and cash equivalents
              
              $
              727Other
      net assets
              
              
              618Property,
      plant and equipment
              
              
              3,744Intangible
      assets not subject to amortization (1)
              
              
              9,124Contingent
      consideration liability (2)
              
              
              (607
              )Deferred
      tax liability
              
              
              (2,462
              )Total
      purchase price (3)
              
              $
              11,144
  (1)
Intangible assets not subject to amortization comprise trademarks.
  (2) Since
the aggregate value of the assets and liabilities acquired exceeds the purchase
price without considering any additional amounts we may have to pay that are
contingent upon meeting operational targets, we have recognized this excess,
which is lower than the maximum amount of contingent consideration that may
become payable, as if it were a liability.
  (3) The
total purchase price includes US$ 0.5 million of capitalized acquisition costs,
initial cash payments of approximately US$ 8.5 million and consideration payable
of CZK 33.4 million (approximately US$ 2.1 million at the date of
acquisition).
  Romania
 
 Acquisition
of Radio Pro
 
 In order
to further strengthen our position in the youth market in Romania and complement
our acquisition of the license for MTV Romania, on April 17, 2008 we purchased
certain assets of Radio Pro from Media Pro, a company which is controlled by Mr.
Sarbu and in which we hold 95% interest, for total consideration of RON 47.2
million (approximately US$ 20.6 million at the date of
acquisition).
 
 We
determined that the assets we acquired met the definition of a business and
therefore performed a fair value exercise to allocate the purchase price to the
acquired assets and liabilities and separately identifiable intangible
assets.  The following table summarizes the fair values of the assets
acquired and liabilities assumed at the date of acquisition:
 
 
 Fair
      Value on AcquisitionProperty,
      plant and equipment
              
              $
              2,561Intangible
      assets not subject to amortization (1)
              
              
              15,892Goodwill
      (2)
              
              
              2,394Total
      purchase price (3)
              
              $
              20,847
  (1)
Intangible assets not subject to amortization comprise trademarks of US$ 1.7
million and broadcasting licenses of US$ 14.2 million.
  (2) No
goodwill is expected to be deductible for tax purposes.
  (3) The
total purchase price includes US$ 0.2 million of capitalized acquisition
costs.
  Page
16
 Table of Contents
  CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Tabular
amounts in US$ 000’s, except share and per share data)
 (Unaudited)
 
 Ukraine
(Studio 1+1)
 
 Acquisition
of additional interest – Studio 1+1
 
 On June
30, 2008 we acquired a 30.0% interest in the Studio 1+1 group from our partners,
Alexander Rodnyansky and Boris Fuchsmann.  The interests acquired
consisted of (i) an 8.335% direct and indirect ownership interest in the Studio
1+1 group held by Messrs. Rodnyansky and Fuchsmann and (ii) a 21.665% direct and
indirect interest in Studio 1+1, Innova and IMS over which Igor Kolomoisky, one
of our shareholders and a member of our board of directors, held options (the
“Optioned Interests”). Following the completion of these transactions, we now
hold a 90.0% interest in the Studio 1+1 group and Messrs. Rodnyansky and
Fuchsmann each hold a 5.0% interest.
 
 Messrs.
Rodnyansky and Fuchsmann received a combined total cash consideration of US$
79.6 million, including a de minimus amount upon exercise of the Optioned
Interests, in exchange for the 30.0% beneficial ownership interest in the Studio
1+1 group.  Mr Kolomoisky received total cash consideration of US$
140.0 million upon the assignment of his options to us.
 
 In
addition, 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, which
became effective upon completion of our purchase of the 30% interest in the
Studio 1+1 Group. We calculated that the fair value of these options was US
$58.0 million at the purchase date using a binomial option pricing model and
included it in the purchase price in accordance with EITF Topic D-87
“Determination of the Measurement Date for Consideration Given by the Acquirer
in a Business Combination When That Consideration is Securities Other Than Those
Issued by the Acquirer.” (“EITF D-87”).
 
 We
performed a fair value exercise to allocate the purchase price to the acquired
assets and liabilities and separately identifiable intangible assets as at June
30, 2008.  The following table summarizes the fair values of the
assets acquired and liabilities assumed at the date of acquisition:
 
 Fair
      Value on AcquisitionIntangible
      assets subject to amortization (1)
              
              $
              41,480Intangible
      assets not subject to amortization (2)
              
              
              35,652Goodwill
              
              
              208,964Deferred
      tax liability
              
              
              (19,284
              )Minority
      interests (3)
              
              
              14,398Total
      purchase price (4)
              
              $
              281,210
  (1) The
intangible assets subject to amortization comprise broadcasting licenses of US$
40.9 million, which are being amortized on a straight line basis over 18 years,
and customer relationships of US$ 0.6 million, which are being amortized on a
straight line basis over nine  years.
  (2)
Intangible assets not subject to amortization comprise trademarks.
  (3) As a
result of granting Messrs. Rodyansky and Fuchsmann options to put their
remaining 10% interests to us we have accounted for this as a redeemable
minority interest. (See Note 18, “Commitments and Contingencies, Ukraine Buyout:
redeemable minority interest”).
  (4) The
total purchase price includes US$ 3.6 million of capitalized acquisition costs,
cash payments to Messrs. Rodyansky and Fuchsmann of US$ 79.6 million, cash
payments of US$ 140.0 million to Mr Kolomoisky and the fair value of options
granted to Messrs. Rodyansky and Fuchsmann of US$ 58.0 million.
  Page
17
 Table of Contents
  CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Tabular
amounts in US$ 000’s, except share and per share data)
 (Unaudited)
 
 4.  GOODWILL
AND INTANGIBLE ASSETS
 
 Our
goodwill and intangible asset additions are the result of acquisitions in
Croatia, the Czech Republic, Romania, the Slovak Republic, Slovenia and
Ukraine.  No goodwill is expected to be deductible for tax
purposes.
 
 Goodwill:
 
 Goodwill
by operating segment as at June 30, 2008 and December 31, 2007 is summarized as
follows:
  Balance
                December
      31, 2007
              
              
              Additions
      / Allocations
              
              
              Foreign
      currency movement
              
              
              Balance
                June
      30, 2008Croatia
              
              $
              773
              
              
              
              -
              
              
              $
              67
              
              
              $
              840Czech
      Republic
              
              
              951,286
              
              
              
              -
              
              
              
              183,328
              
              
              
              1,134,614Romania
              
              
              74,667
              
              
              
              1,869
              
              
              
              12,346
              
              
              
              88,882Slovak
      Republic
              
              
              57,635
              
              
              
              -
              
              
              
              10,854
              
              
              
              68,489Slovenia
              
              
              18,393
              
              
              
              -
              
              
              
              1,304
              
              
              
              19,697Ukraine
      (STUDIO 1+1)
              
              
              4,096
              
              
              
              208,964
              
              
              
              -
              
              
              
              213,060Ukraine
      (KINO, CITI)
              
              
              7,497
              
              
              
              (59
              )
              
              
              -
              
              
              
              7,438Total
              
              $
              1,114,347
              
              
              $
              210,774
              
              
              $
              207,899
              
              
              $
              1,533,020
 
 
 Broadcast
licenses:
 
 The net
book value of our broadcast licenses as at June 30, 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
              
              
              14,177
              
              
              
              40,890
              
              
              
              55,067Amortization
              
              
              -
              
              
              
              (11,184
              )
              
              
              (11,184
              )Foreign
      currency movements
              
              
              7,365
              
              
              
              34,767
              
              
              
              42,132Balance,
      June 30, 2008
              
              $
              72,290
              
              
              $
              251,651
              
              
              $
              323,941
 
 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
18
 Table of Contents
  CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Tabular
amounts in US$ 000’s, except share and per share data)
 (Unaudited)
 
 The gross
value and accumulated amortization of our broadcast licenses was as follows at
June 30, 2008 and December 31, 2007:
 
 June
      30,
                2008
              
              
              December 31,
                2007Gross
      value
              
              $
              399,940
              
              
              $
              241,100Accumulated
      amortization
              
              
              (75,999
              )
              
              
              (53,922
              )Total
      net book value
              
              $
              323,941
              
              
              $
              187,178
 
 Other
intangible assets:
 
 The net
book value of our other intangible assets as at June 30, 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
              
              
              
              624Additions
              
              
              46,491
              
              
              
              590
              
              
              
              -
              
              
              
              47,081Amortization
              
              
              (170
              )
              
              
              (4,176
              )
              
              
              (324
              )
              
              
              (4,670
              )Foreign
      currency movements
              
              
              12,587
              
              
              
              13,481
              
              
              
              217
              
              
              
              26,285Balance,
      June 30, 2008
              
              $
              118,992
              
              
              $
              83,162
              
              
              $
              2,898
              
              
              $
              205,052
 
 (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.  Trademarks
have an indefinite life, with the exception of the “TV Sport”
trademark acquired with Sport.ro, which has an economic life of, and is being
amortized on a straight line basis over, two years because it is no longer
used.
 
 
 The gross
value and accumulated amortization of other intangible assets was as follows at
June 30, 2008 and December 31, 2007:
 
 June
      30,
                2008
              
              
              December 31,
                2007Gross
      value
              
              $
              224,387
              
              
              $
              147,514Accumulated
      amortization
              
              
              (19,335
              )
              
              
              (11,782
              )Total
      net book value
              
              $
              205,052
              
              
              $
              135,732
  Page
19
 Table of Contents
  CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Tabular
amounts in US$ 000’s, except share and per share data)
 (Unaudited)
 
 5.  SENIOR
DEBT
 
 Our
senior debt comprised the following as at June 30, 2008 and December 31,
2007:
 
 Carrying
      Value
              
              
              Fair
      ValueJune
      30 , 2008
              
              
              December
      31, 2007
              
              
              June
      30 , 2008
              
              
              December
      31, 2007EUR
      245.0 million 8.25% Senior Notes
              
              $
              386,218
              
              
              $
              360,664
              
              
              $
              388,149
              
              
              $
              366,976EUR
      150.0 million Floating Rate Senior Notes
              
              
              236,460
              
              
              
              220,815
              
              
              
              217,543
              
              
              
              204,806USD
      475.0 million 3.50% Senior Convertible Notes
              
              
              475,000
              
              
              
              -
              
              
              
              495,188
              
              
              
              -$
              1,097,678
              
              
              $
              581,479
              
              
              $
              1,100,880
              
              
              $
              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% (6.504% was applicable at June 30, 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 June 30, 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
20
 Table of Contents
  CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Tabular
amounts in US$ 000’s, except share and per share data)
 (Unaudited)
 
 The Fixed
Rate Notes are redeemable at our option, in whole or in part, at the redemption
prices set forth below:
 
 From:
              
              Fixed
      Rate Notes
                Redemption
      PriceMay
      15, 2009 to May 14, 2010
              
              
              104.125
              %May
      15, 2010 to May 14, 2011
              
              
              102.063
              %May
      15, 2011 and thereafter
              
              
              100.000
              %
 
 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 June 30, 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.
 
 The
Floating Rate Notes are redeemable at our option, in whole or in part, at the
redemption prices set forth below:
 
 From:
              
              Floating
      Rate Notes
                Redemption
      PriceMay
      15, 2008 to May 14, 2009
              
              
              101.000
              %May
      15, 2009 and thereafter
              
              
              100.000
              %
  Page
21
 Table of Contents
  CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Tabular
amounts in US$ 000’s, except share and per share data)
 (Unaudited)
 
 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 June 30, 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 June 30, 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 Class A 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
occurred:
  Page
22
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  CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Tabular
amounts in US$ 000’s, except share and per share data)
 (Unaudited)
 
 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 them on issuance at fair value within Shareholders’
Equity. Subsequent changes in fair value are not recognized as long as the
instruments continue to be classified in Shareholders’ Equity. At June 30, 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
June 30, 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 June 30, 2008 was US$ 66.8
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, however this treatment will change when we adopt FSP APB 14-1 on
January 1, 2009 (see Note 2, “Summary of Significant Accounting Policies: Recent
accounting pronouncements”).
 
 
 6.  RESTRICTED
CASH
 
 Restricted
cash comprised the following at June 30, 2008 and December 31,
2007:
 
 June
      30,
                2008
              
              
              December 31,
                2007Croatia
              
              $
              -
              
              
              $
              424Romania
              
              
              85
              
              
              
              -Slovenia
              
              
              867
              
              
              
              810Ukraine
              
              
              56
              
              
              
              52Total
      restricted cash
              
              $
              1,008
              
              
              $
              1,286
  Page
23
 Table of Contents
  CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Tabular
amounts in US$ 000’s, except share and per share data)
 (Unaudited)
 
 The
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 11,“Credit Facilities and Obligations under Capital
Leases”).
  7.  ACCOUNTS
RECEIVABLE
 
 Accounts
receivable comprised the following at June 30, 2008 and December 31,
2007:
 
 June
      30,
                2008
              
              
              December 31,
                2007Trading:Third-party
      customers
              
              $
              271,475
              
              
              $
              231,467Less:
      allowance for bad debts and credit notes
              
              
              (15,319
              )
              
              
              (13,908
              )Related
      parties
              
              
              8,316
              
              
              
              7,978Less:
      allowance for bad debts and credit notes
              
              
              (242
              )
              
              
              (656
              )Total
      trading
              
              $
              264,230
              
              
              $
              224,881Other:Third-party
      customers
              
              $
              318
              
              
              $
              57Less:
      allowance for bad debts and credit notes
              
              
              (32
              )
              
              
              (27
              )Related
      parties
              
              
              51
              
              
              
              187Less:
      allowance for bad debts and credit notes
              
              
              -
              
              
              
              (61
              )Total
      other
              
              $
              337
              
              
              $
              156Total
      accounts receivable
              
              $
              264,567
              
              
              $
              225,037
 
 At June
30, 2008, CZK 775.6 million (approximately US$ 51.2 million) (December 31, 2007:
CZK 695.6 million, US$ 45.9 million) of receivables in the Czech Republic were
pledged as collateral subject to a factoring agreement (see Note 11, “Credit
Facilities and Obligations under Capital Leases”).
  Page
24
 Table of Contents
  CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Tabular
amounts in US$ 000’s, except share and per share data)
 (Unaudited)
 
 8.  OTHER
ASSETS
 
 Other
current and non-current assets comprised the following at June 30, 2008 and
December 31, 2007:
 June
      30,
                2008
              
              
              December 31,
                2007Current:Prepaid
      programming
              
              $
              46,265
              
              
              $
              50,914Other
      prepaid expenses
              
              
              13,813
              
              
              
              11,785Production
      in progress
              
              
              12,865
              
              
              
              5,724Deferred
      tax
              
              
              3,186
              
              
              
              3,652VAT
      recoverable
              
              
              3,130
              
              
              
              4,520Loan
      to related party
              
              
              -
              
              
              
              1,924Capitalized
      debt costs
              
              
              5,239
              
              
              
              3,104Other
              
              
              680
              
              
              
              706Total
      other current assets
              
              $
              85,178
              
              
              $
              82,329June
      30,
                2008
              
              
              December
      31,
                2007Non-current:Capitalized
      debt costs
              
              $
              17,372
              
              
              $
              10,310Deferred  tax
              
              
              1,735
              
              
              
              2,147Other
              
              
              2,585
              
              
              
              2,917Total
      other non-current assets
              
              $
              21,692
              
              
              $
              15,374
 
 Capitalized
debt costs primarily comprise the costs incurred in connection with the issuance
of our Senior Notes and Convertible Notes (see Note 5 “Senior Debt”), and are
being amortized over the term of the Senior Notes and Convertible Notes using
the effective interest method. The carrying value of the costs related to the
Convertible Notes will change when we adopt FSP APB 14-1 on January 1, 2009 (see
Note 2, “Summary of Significant Accounting Policies: Recent accounting
pronouncements”).
  Page
25
 Table of Contents
  CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Tabular
amounts in US$ 000’s, except share and per share data)
 (Unaudited)
 
 9.  PROPERTY,
PLANT AND EQUIPMENT
 
 Property,
plant and equipment comprised the following at June 30, 2008 and December 31,
2007:
 
 June
      30,
                2008
              
              
              December 31,
                2007Land
      and buildings
              
              $
              101,918
              
              
              $
              84,515Station
      machinery, fixtures and equipment
              
              
              216,990
              
              
              
              173,123Other
      equipment
              
              
              37,790
              
              
              
              31,512Software
      licenses
              
              
              30,195
              
              
              
              21,517Construction
      in progress
              
              
              17,134
              
              
              
              11,406Total
      cost
              
              
              404,027
              
              
              
              322,073Less:  Accumulated
      depreciation
              
              
              (175,455
              )
              
              
              (141,762
              )Total
      net book value
              
              $
              228,572
              
              
              $
              180,311Assets
      held under capital leases (included above)Land
      and buildings
              
              $
              6,632
              
              
              $
              6,193Station
      machinery, fixtures and equipment
              
              
              1,507
              
              
              
              800Total
      cost
              
              
              8,139
              
              
              
              6,993Less:
      Accumulated depreciation
              
              
              (1,942
              )
              
              
              (1,368
              )Net
      book value
              
              $
              6,197
              
              
              $
              5,625
  Page
26
 Table of Contents
  CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Tabular
amounts in US$ 000’s, except share and per share data)
 (Unaudited)
 
 10.  ACCOUNTS
PAYABLE AND ACCRUED LIABILITIES
 
 Accounts
payable and accrued liabilities comprised the following at June 30, 2008 and
December 31, 2007:
 
 June
      30,
                2008
              
              
              December
      31,
                2007Accounts
      payable
              
              $
              33,516
              
              
              $
              37,977Programming
      liabilities
              
              
              35,723
              
              
              
              49,457Deferred
      revenue
              
              
              34,510
              
              
              
              7,126Accrued
      staff costs
              
              
              23,333
              
              
              
              29,202Accrued
      production costs
              
              
              9,174
              
              
              
              4,982Accrued
      interest payable
              
              
              11,574
              
              
              
              5,930Consideration
      payable - Czech Republic
              
              
              6,598
              
              
              
              -Accrued
      legal costs
              
              
              1,790
              
              
              
              2,475Accrued
      rent costs
              
              
              1,076
              
              
              
              999Authors’
      rights
              
              
              5,843
              
              
              
              5,522Onerous
      contracts
              
              
              1,743
              
              
              
              2,832Obligation
      to repurchase shares
              
              
              -
              
              
              
              488Other
      accrued liabilities
              
              
              14,240
              
              
              
              9,334Total
      accounts payable and accrued liabilities
              
              $
              179,120
              
              
              $
              156,324
 The
accrued interest payable balance relates primarily to interest on our Senior
Notes and our Convertible Notes (see Note 5, “Senior
Debt”).
  Page
27
 Table of Contents
  CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Tabular
amounts in US$ 000’s, except share and per share data)
 (Unaudited)
 
 11.  CREDIT
FACILITIES AND OBLIGATIONS UNDER CAPITAL LEASES
 
 Group
loan obligations and overdraft facilities comprised the following at June 30,
2008 and December 31, 2007:
 
 June
      30,
                2008
              
              
              December 31,
                2007Credit
      facilities:Corporate
              (a)
              
              $
              -
              
              
              $
              -Czech
      Republic
              (b)
      – (d)
              
              
              16,494
              
              
              
              13,829Romania
              (e)
              
              
              -
              
              
              
              683Slovenia
              (f)
              
              
              -
              
              
              
              -Ukraine
      (KINO, CITI)
              (g)
              
              
              1,700
              
              
              
              1,700Total
      credit facilities
              
              
              $
              18,194
              
              
              $
              16,212Capital
      leases:Croatia
      operations, net of interest
              
              
              $
              -
              
              
              $
              -Romania
      operations, net of interest
              
              
              
              501
              
              
              
              242Slovak
      Republic operations, net of interest
              
              
              
              67
              
              
              
              86Slovenia
      operations, net of interest
              
              
              
              4,554
              
              
              
              4,412Total
      capital leases
              
              
              
              5,122
              
              
              $
              4,740Total
      credit facilities and capital leases
              
              
              $
              23,316
              
              
              $
              20,952Less
      current maturities
              
              
              
              (17,274
              )
              
              
              (
      15,090
              )Total
      non-current maturities
              
              
              $
              6,042
              
              
              $
              5,862
 
 Corporate
 
 (a) On
July 21, 2006, we entered into a five-year revolving loan agreement for EUR
100.0 million (approximately US$ 157.6 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$
78.8 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$ 59.1
million). At June 30, 2008, the full EUR 150.0 million facility was 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 5, “Senior Debt”).  In addition, the EBRD Loan’s
covenants restrict us from making principal repayments on other new debt of
greater than US$ 20.0 million per year for the life of the EBRD
Loan.  This restriction is not applicable to our existing facilities
with ING or CS or to any refinancing of our Senior Notes.
  Page
28
 Table of Contents
  CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Tabular
amounts in US$ 000’s, except share and per share data)
 (Unaudited)
 
 The 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.
 
 Czech
Republic
 
 (b) As at
June 30, 2008, there were no drawings by CET 21 under a credit facility of CZK
1.2 billion (approximately US$ 79.2 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.
(“FCS”), a subsidiary of CS.
 
 (c) As at
June 30, 2008, CZK 250 million (approximately US$ 16.5 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 June 30, 2008 was 3.74%). This facility is
secured by a pledge of receivables, which are also subject to a factoring
arrangement with FCS.
 
 (d) As at
June 30, 2008, there were no drawings under a CZK 300.0 million (approximately
US$ 19.8 million) factoring facility with FCS available until June 30,
2011.  The facility bears interest at one-month PRIBOR plus 1.40% for
the period that actively assigned accounts receivable are
outstanding.
 
 Romania
 
 (e) Two
loans from San Paolo IMI Bank, assumed on our acquisition of MTS, were repaid in
January 2008.
 
 Slovenia
 
 (f) On
July 29, 2005, Pro Plus entered into a revolving facility agreement for up to
EUR 37.5 million (approximately US$ 59.1 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 June 30, 2008, EUR 30.0
million (approximately US$ 47.3 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 December 31, 2007 and June 30, 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
29
 Table of Contents
  CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Tabular
amounts in US$ 000’s, except share and per share data)
 (Unaudited)
 
 Total
Group
 
 At June
30, 2008, the maturity of our debt (including our Senior Notes and Convertible
Notes) was as follows:
 
 2008
              
              $
              16,4942009
              
              
              1,7002010
              
              
              -2011
              
              
              -2012
              
              
              386,2182013
      and thereafter
              
              
              711,460Total
              
              $
              1,115,872
 
 
 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 June 30, 2008:
 
 2008
              
              $
              5852009
              
              
              1,1532010
              
              
              5852011
              
              
              5322012
              
              
              5292013
      and thereafter
              
              
              3,837$
              7,221Less:
      amount representing interest
              
              
              (2,099
              )Present
      value of net minimum lease payments
              
              $
              5,122
 
 
 12.  FINANCIAL
INSTRUMENTS AND FAIR VALUE MEASUREMENTS
 
 FAS 157
establishes a hierarchy that prioritizes the inputs to those valuation
techniques used to measure fair value. The hierarchy gives the highest priority
to unadjusted quoted prices in active markets for identical assets or
liabilities (level 1 measurements) and the lowest priority to unobservable
inputs (level 3 measurements). The three levels of the fair value hierarchy
under FAS 157 are:
 
 Basis of
Fair value Measurement
 
 Level
      1
              Unadjusted
      quoted prices in active markets that are accessible at the measurement
      date for identical, unrestricted
instruments.
 
 Level
      2
              Quoted
      prices in markets that are not considered to be active or financial
      instruments for which all significant inputs are observable, either
      directly or indirectly.
 
 Level
      3
              Prices
      or valuations that require inputs that are both significant to the fair
      value measurement and
unobservable.
  Page
30
 Table of Contents
  CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Tabular
amounts in US$ 000’s, except share and per share data)
 (Unaudited)
 
 A
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 June 30,
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 2 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$ 705.9 million), payable on July
15, October 15, January 15, and April 15, to the termination date of April 15,
2012, for a fixed annual coupon interest rate (of 9.0%) on notional principal of
EUR 375.9 million (approximately US$ 592.6 million) receivable on July 15,
October 15, January 15, and April 15, to the termination date of April 15,
2012.
 
 These
currency swap agreements reduce our exposure to movements in foreign exchange
rates on a part of the CZK-denominated cash flows generated by our Czech
Republic operations that is approximately equivalent in value to the
Euro-denominated interest payments on our Senior Notes (see Note 5, “Senior
Debt”). They are financial instruments that are used to minimize currency risk
and are considered an economic hedge of foreign exchange rates.  These
instruments have not been designated as hedging instruments as defined under FAS
133 and so changes in their fair value are recorded in the consolidated
statement of operations and in the consolidated balance sheet in other
non-current liabilities.
 
 We value
our currency swap agreements using an industry-standard currency swap pricing
model which calculates the fair value on the basis of the net present value of
the estimated future cash flows receivable or payable. These instruments are
allocated to level 2 of the FAS 157 fair value hierarchy because the critical
inputs to this model, including the relevant yield curves and the known
contractual terms of the instrument, are readily observable.
 
 The fair
value of these instruments as at June 30, 2008, was a US$ 39.8 million
liability, which represented a US$ 23.5 million increase from the US$ 16.2
million liability as at December 31, 2007 and was recognized as a derivative
loss in the consolidated statement of operations.
 
 
 13.  SHAREHOLDERS’
EQUITY
 
 Preferred
Stock
 
 5,000,000
shares of Preferred Stock, with a $0.08 par value, were authorized as at June
30, 2008 and December 31, 2007.  None were issued and outstanding as
at June 30, 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 June 30, 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.  Class B common stock is convertible
into Class A common stock for no additional consideration on a one-for-one
basis.  Holders of each class of shares are entitled to receive
dividends and upon liquidation or dissolution are entitled to receive all assets
available for distribution to shareholders.  The holders of each class
have no preemptive or other subscription rights and there are no redemption or
sinking fund provisions with respect to such shares.
  Page
31
 Table of Contents
  CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Tabular
amounts in US$ 000’s, except share and per share data)
 (Unaudited)
 
 14.  STOCK-BASED
COMPENSATION
 
 The
charge for stock-based compensation in our condensed consolidated statements of
operations was as follows:
 
 For
      the Three Months Ended June 30,
              
              
              For
      the Six Months Ended June 30,2008
              
              
              2007
              
              
              2008
              
              
              2007Stock-based
      compensation charged under SFAS 123(R)
              
              $
              1,991
              
              
              $
              1,343
              
              
              $
              3,804
              
              
              $
              2,605
 
 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.
 
 2008
Option Grants
 
 Pursuant
to the Amended and Restated 1995 Stock Incentive Plan, the Compensation
Committee of our Board of Directors awarded options to an executive to purchase
12,500 shares of our Class A common stock, with a vesting period of four years
and a contractual life of eight years, on April 1, 2008.
 
 Pursuant
to the Amended and Restated 1995 Stock Incentive Plan, the Compensation
Committee of our Board of Directors awarded options to non-executive directors
to purchase 40,000 shares of our Class A common stock and 5,000 shares of our
Class B common stock with a vesting period of one year and a contractual life of
five years on June 3, 2008.
 
 The
exercise price of the options granted ranges from US$ 88.51 to US$ 109.58 per
share.  The fair value of these option grants was estimated on the
date of the grant using the Black-Scholes option-pricing model, with the
following assumptions used:
 
 Date
      of Option Grant
              
              Number
      of Options Granted
              
              
              Risk-free
      interest rate (%)
              
              
              Expected
      term (years)
              
              
              Expected
      volatility (%)
              
              
              Dividend
      yield (%)
              
              
              Weighted-average
      fair value ($/share)April
      1, 2008  (Class A)
              
              
              12,500
              
              
              
              2.65
              
              
              
              5.25
              
              
              
              34.98
              
              
              
              0.00
              
              
              $
              31.85June
      3, 2008 (Class A)
              
              
              40,000
              
              
              
              2.75
              
              
              
              3.0
              
              
              
              31.70
              
              
              
              0.00
              
              
              
              26.03June
      3, 2008 (Class B)
              
              
              5,000
              
              
              
              2.75
              
              
              
              3.0
              
              
              
              31.70
              
              
              
              0.00
              
              
              $
              27.33
 
 The
expected stock price volatility was calculated based on an analysis of the
historical stock price volatility of our shares and those of our peers for the
preceding 5.25 or 3-year period.  We consider this basis to represent
the best indicator of expected volatility over the life of the option. The
weighted average fair value of all the grants made in the three months and six
months ended June 30, 2008 was US$ 27.41 per option.  In accordance
with SFAS 123(R), the fair value of the option grants made in the six months
ended June 30, 2008 (less expected forfeitures) of US$ 47 thousand is being
recognized as an expense in the consolidated statement of operations over the
requisite service period of the award.
  Page
32
 Table of Contents
  CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Tabular
amounts in US$ 000’s, except share and per share data)
 (Unaudited)
 
 A summary
of option activity for the six months ended June 30, 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
              
              
              57,500
              
              
              
              101.37
              
              
              
              -
              
              
              
              -Exercised
              
              
              (15,875
              )
              
              
              68.63
              
              
              
              -
              
              
              
              -Forfeited
              
              
              (14,375
              )
              
              
              79.75
              
              
              
              -
              
              
              
              -Outstanding
      at June 30, 2008
              
              
              1,203,367
              
              
              $
              58.42
              
              
              
              6.43
              
              
              $
              43,679Vested
      or expected to vest at June 30, 2008
              
              
              1,148,823
              
              
              
              57.23
              
              
              
              6.38
              
              
              
              42,811Exercisable
      at June 30, 2008
              
              
              618,617
              
              
              $
              35.72
              
              
              
              6.03
              
              
              $
              34,016
 
 The
exercise of stock options in 2008 is expected to generate a net operating loss
carry forward in our Delaware subsidiary of US$ 11.6 million.  In the three
months ended June 30, 2008 and March 31, 2008 tax benefits of US$ 0.2 million
and US$ 0.1 million respectively were recognized in respect of the utilization
of part of this loss, and were recorded as additional paid in
capital.
 
 The
aggregate intrinsic value (the difference between the stock price on the last
day of trading of the second 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 on June 30, 2008.  This amount changes based on the fair
value of our common stock.  The total intrinsic value of options
exercised during the six months ended June 30, 2008 and 2007, respectively, was
US$ 0.5 million and US$ 15.6 million, respectively.  As of June 30,
2008, there was US$ 15.4 million of total unrecognized compensation expense
related to options.  The expense is expected to be recognized over a
weighted average period of 1.2 years.  Proceeds received from the
exercise of stock options were US$ 1.1 million and US$ 2.7 million for the six
months ended June 30, 2008 and 2007, respectively.
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  CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Tabular
amounts in US$ 000’s, except share and per share data)
 (Unaudited)
 
 15.  EARNINGS
PER SHARE
 
 The
components of basic and diluted earnings per share are as follows:
 
 For
      the Three Months Ended June 30,
              
              
              For
      the Six Months Ended June 30,2008
              
              
              2007
              
              
              2008
              
              
              2007Net
      income available for common shareholders
              
              $
              67,604
              
              
              $
              34,590
              
              
              $
              82,499
              
              
              $
              34,340Weighted
      average outstanding shares of common stock (000’s)
              
              
              42,322
              
              
              
              40,941
              
              
              
              42,319
              
              
              
              40,867Dilutive
      effect of employee stock options (000’s)
              
              
              514
              
              
              
              466
              
              
              
              465
              
              
              
              523Common
      stock and common stock equivalents (000’s)
              
              
              42,836
              
              
              
              41,407
              
              
              
              42,784
              
              
              
              41,390Net
      income per share:Basic
              
              $
              1.60
              
              
              $
              0.84
              
              
              $
              1.95
              
              
              $
              0.84Diluted
              
              $
              1.58
              
              
              $
              0.83
              
              
              $
              1.93
              
              
              $
              0.83
 
 At June
30, 2008, 260,000 (December 31, 2007: 228,500) 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. Class A common
shares potentially issuable under our Convertible Notes may also become dilutive
in the future although they were antidilutive to income at June 30,
2008.
 
 
 16.  SEGMENT
DATA
 
 We manage
our business on a geographic basis and review the performance of each business
segment using data that reflects 100% of operating and license company
results.  Our business segments are 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
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  CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Tabular
amounts in US$ 000’s, except share and per share data)
 (Unaudited)
 
 ·
              certain
      unusual or infrequent items (e.g., extraordinary gains and losses,
      impairments of assets or
investments).
 
 Below are
tables showing our Segment Net Revenues, Segment EBITDA, segment depreciation
and segment asset information by operation, including a reconciliation of these
amounts to our consolidated results for the three and six months ended June 30,
2008 and 2007 for condensed consolidated statement of operations data and as at
June 30, 2008 and December 31, 2007 for condensed consolidated balance sheet
data:
 
 
 For
      the Three Months Ended June 30,Segment
      Net Revenues (1)
              
              
              Segment
      EBITDA2008
              
              
              2007
              
              
              2008
              
              
              2007Country:Croatia
      (NOVA TV)
              
              $
              18,094
              
              
              $
              10,414
              
              
              $
              1,683
              
              
              $
              (2,167
              )Czech
      Republic (TV NOVA, NOVA CINEMA and GALAXIE SPORT)
              
              
              112,570
              
              
              
              80,544
              
              
              
              71,204
              
              
              
              47,595Romania
      (2)
              
              
              79,842
              
              
              
              52,224
              
              
              
              38,293
              
              
              
              22,530Slovak
      Republic (TV MARKIZA)
              
              
              37,097
              
              
              
              29,652
              
              
              
              13,974
              
              
              
              11,712Slovenia
      (POP TV and KANAL A)
              
              
              26,210
              
              
              
              20,095
              
              
              
              10,866
              
              
              
              8,388Ukraine
      (STUDIO 1+1)
              
              
              30,254
              
              
              
              22,701
              
              
              
              (1,894
              )
              
              
              565Ukraine
      (KINO, CITI)
              
              
              1,324
              
              
              
              654
              
              
              
              (1,055
              )
              
              
              (1,755
              )Total
      segment data
              
              $
              305,391
              
              
              $
              216,284
              
              
              $
              133,071
              
              
              $
              86,868Reconciliation
      to condensed consolidated statement of operations:Consolidated
      net revenues / income before provision for income taxes and minority
      interest
              
              $
              305,391
              
              
              $
              216,284
              
              
              $
              77,903
              
              
              $
              53,739Corporate
      operating costs
              
              
              -
              
              
              
              -
              
              
              
              13,708
              
              
              
              7,444Depreciation
      of station property, plant and equipment
              
              
              -
              
              
              
              -
              
              
              
              13,178
              
              
              
              7,680Amortization
      of broadcast licenses and other intangibles
              
              
              -
              
              
              
              -
              
              
              
              8,188
              
              
              
              5,165Interest
      income
              
              
              -
              
              
              
              -
              
              
              
              (3,781
              )
              
              
              (1,732
              )Interest
      expense
              
              
              -
              
              
              
              -
              
              
              
              18,140
              
              
              
              19,438Foreign
      currency exchange (gain)/ loss, net
              
              
              -
              
              
              
              -
              
              
              
              (6,881
              )
              
              
              2,116Change
      in fair value of derivatives
              
              
              -
              
              
              
              -
              
              
              
              13,281
              
              
              
              (7,528
              )Other
      (income)/ expense
              
              
              -
              
              
              
              -
              
              
              
              (665
              )
              
              
              546Total
      segment data
              
              $
              305,391
              
              
              $
              216,284
              
              
              $
              133,071
              
              
              $
              86,868
  (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 June 30, 2008. For the three months
ended June 30, 2007 the Romanian channels were PRO TV, PRO CINEMA, ACASA, PRO TV
INTERNATIONAL and SPORT.RO.
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  CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Tabular
amounts in US$ 000’s, except share and per share data)
 (Unaudited)
 
 For
      the Six Months Ended June 30,Segment
      Net Revenues (1)
              
              
              Segment
      EBITDA2008
              
              
              2007
              
              
              2008
              
              
              2007Country:Croatia
      (NOVA TV)
              
              $
              29,628
              
              
              $
              17,646
              
              
              $
              (1,047
              )
              
              $
              (6,819
              )Czech
      Republic (TV NOVA, NOVA CINEMA and GALAXIE SPORT)
              
              
              198,128
              
              
              
              132,063
              
              
              
              115,049
              
              
              
              73,262Romania
      (2)
              
              
              137,838
              
              
              
              91,566
              
              
              
              61,669
              
              
              
              37,666Slovak
      Republic (TV MARKIZA)
              
              
              63,331
              
              
              
              48,329
              
              
              
              23,111
              
              
              
              17,468Slovenia
      (POP TV and KANAL A)
              
              
              44,161
              
              
              
              32,764
              
              
              
              15,206
              
              
              
              11,389Ukraine
      (STUDIO 1+1)
              
              
              53,473
              
              
              
              40,776
              
              
              
              (3,957
              )
              
              
              (1,805
              )Ukraine
      (KINO, CITI)
              
              
              2,302
              
              
              
              1,052
              
              
              
              (2,261
              )
              
              
              (4,172
              )Total
      segment data
              
              $
              528,861
              
              
              $
              364,196
              
              
              $
              207,770
              
              
              $
              126,989Reconciliation
      to condensed consolidated statement of operations:Consolidated
      net revenues / income before provision for income taxes and minority
      interest
              
              $
              528,861
              
              
              $
              364,196
              
              
              $
              83,481
              
              
              $
              58,188Corporate
      operating costs
              
              
              -
              
              
              
              -
              
              
              
              23,725
              
              
              
              22,217Depreciation
      of station property, plant and equipment
              
              
              -
              
              
              
              -
              
              
              
              25,518
              
              
              
              14,579Amortization
      of broadcast licenses and other intangibles
              
              
              -
              
              
              
              -
              
              
              
              15,854
              
              
              
              10,327Interest
      income
              
              
              -
              
              
              
              -
              
              
              
              (5,961
              )
              
              
              (3,146
              )Interest
      expense
              
              
              -
              
              
              
              -
              
              
              
              32,390
              
              
              
              30,834Foreign
      currency exchange loss, net
              
              
              -
              
              
              
              -
              
              
              
              10,549
              
              
              
              5,252Change
      in fair value of derivatives
              
              
              -
              
              
              
              -
              
              
              
              23,539
              
              
              
              (12,052
              )Other
      (income)/ expense
              
              
              -
              
              
              
              -
              
              
              
              (1,325
              )
              
              
              790Total
      segment data
              
              $
              528,861
              
              
              $
              364,196
              
              
              $
              207,770
              
              
              $
              126,989
  (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 six months ended June 30, 2008. For the six months ended
June 30, 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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  CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Tabular
amounts in US$ 000’s, except share and per share data)
 (Unaudited)
 
 For
      the Three Months Ended June 30,
              
              
              For
      the Six Months Ended June 30,2008
              
              
              2007
              
              
              2008
              
              
              2007Depreciation
      of station property, plant and equipment and amortization of broadcast
      licenses and other intangibles:Croatia
              
              $
              1,696
              
              
              $
              947
              
              
              $
              3,106
              
              
              $
              1,732Czech
      Republic
              
              
              10,417
              
              
              
              6,689
              
              
              
              20,562
              
              
              
              13,150Romania
              
              
              3,826
              
              
              
              2,180
              
              
              
              7,367
              
              
              
              3,927Slovak
      Republic
              
              
              2,879
              
              
              
              947
              
              
              
              5,455
              
              
              
              2,134Slovenia
              
              
              1,512
              
              
              
              1,110
              
              
              
              2,795
              
              
              
              2,096Ukraine
      (STUDIO 1+1)
              
              
              767
              
              
              
              799
              
              
              
              1,558
              
              
              
              1,544Ukraine
      (KINO, CITI)
              
              
              269
              
              
              
              173
              
              
              
              529
              
              
              
              323Total
              
              $
              21,366
              
              
              $
              12,845
              
              
              $
              41,372
              
              
              $
              24,906Represented
      as follows:Depreciation
      of station property, plant & equipment
              
              
              13,178
              
              
              
              7,680
              
              
              
              25,518
              
              
              
              14,579Amortization
      of broadcast licenses and other intangibles
              
              
              8,188
              
              
              
              5,165
              
              
              
              15,854
              
              
              
              10,327
 
 
 Total
      assets (1):
              
              June
      30,
                2008
              
              
              December 31,
      2007Croatia
              
              $
              58,609
              
              
              $
              44,787Czech
      Republic
              
              
              1,713,562
              
              
              
              1,429,256Romania
              
              
              448,393
              
              
              
              360,144Slovak
      Republic
              
              
              258,832
              
              
              
              203,302Slovenia
              
              
              103,039
              
              
              
              89,984Ukraine
      (STUDIO 1+1)
              
              
              372,522
              
              
              
              90,064Ukraine
      (KINO, CITI)
              
              
              17,040
              
              
              
              17,854Total
      segment assets
              
              $
              2,971,997
              
              
              $
              2,235,391Reconciliation
      to condensed consolidated balance sheets:Corporate
              
              
              309,479
              
              
              
              103,044Total
      assets
              
              $
              3,281,476
              
              
              $
              2,338,435
  (1)
Segment assets exclude any inter-company investments, loans, payables and
receivables.
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  CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Tabular
amounts in US$ 000’s, except share and per share data)
 (Unaudited)
 
 Long-lived
      assets (1):
              
              June
      30,
                2008
              
              
              December 31,
      2007Croatia
              
              $
              17,366
              
              
              $
              12,144Czech
      Republic
              
              
              78,754
              
              
              
              58,809Romania
              
              
              56,871
              
              
              
              44,808Slovak
      Republic
              
              
              39,123
              
              
              
              29,345Slovenia
              
              
              23,275
              
              
              
              21,524Ukraine
      (STUDIO 1+1)
              
              
              6,973
              
              
              
              7,380Ukraine
      (KINO, CITI)
              
              
              4,972
              
              
              
              5,003Total
      long-lived assets
              
              $
              227,334
              
              
              $
              179,013Reconciliation
      to condensed consolidated balance sheets:Corporate
              
              
              1,238
              
              
              
              1,298Total
      long-lived assets
              
              $
              228,572
              
              
              $
              180,311
  (1)
Reflects property, plant and equipment
  We do not
rely on any single major customer or group of major customers.  No
customer accounts for more than 10% of revenue.
 
 
 17.  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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  CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Tabular
amounts in US$ 000’s, except share and per share data)
 (Unaudited)
 
 The
settlement with the Dutch tax authorities has also resulted in a deductible
temporary difference in the form of a ruling deficit against which a full
valuation allowance has been recorded.
 
 
 18.  COMMITMENTS
AND CONTINGENCIES
 
 Commitments
 
 a)
Ukraine Buyout Agreements: redeemable minority interest
 
 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. This put option became
effective upon the completion of our acquisition of a 30% interest in the Studio
1+1 group on June 30, 2008 (see Note 3 “Acquisitions and Disposals: Ukraine
(Studio 1+1)”). The consideration payable by Messrs. Rodnyansky and Fuchsmann
upon exercise of these non-transferrable put options (“the exercise price”) is:
(i) US$ 95.4 million if exercised at any time from June 30, 2008 to June 29,
2009; (ii) US$ 102.3 million if exercised between June 30, 2009 and June 29,
2010; and (iii) the greater of US$ 109.1 million and an agreed valuation if
exercised at any time after June 30, 2010. As at June 30, 2008 we consider,
using a binomial option pricing model, that the fair value of the put option was
US$ 58.0 million because the exercise price is substantially higher than the
fair value of the underlying equity interests, and included this amount in the
purchase price of the Studio 1+1 group for the purposes of calculating goodwill
as required by FASB Statement No. 141 “Business Combinations” (“FAS 141”) as
interpreted by EITF D-87.
 
 We
concluded that upon the issuance of these put options, the remaining minority
interests in the Studio 1+1 group meet the definition of a Redeemable Security
as it is used in EITF Topic No. D-98 “Classification and Measurement of
Redeemable Securities” because Messrs. Rodnyansky and Fuchsmann can now cause us
to repurchase their minority shareholdings at their option. Consequently, we
adjusted the minority interest in the Studio 1+1 group at June 30, 2008 to
reflect the US$ 95.4 million that would have been paid had Messrs. Rodnyansky
and Fuchsmann chosen to exercise their options at that date. The excess of this
amount over the minority interest that would have been recognized under
Accounting Research Bulletin No. 51 “Consolidated Financial Statements” (“ARB
51”) was allocated between goodwill (US$ 58.0 million) and retained earnings
(US$ 32.6 million). The amount recognized within goodwill represents the fair
value of the put options on acquisition.
 
 In
addition, Messrs. Rodnyansky and Fuchsmann granted us the right to call their
combined 10.0% interest in the Studio 1+1 group for a consideration of US$ 109.1
million. From June 30, 2009, 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 request their consideration in the form of either cash or unregistered
shares of our Class A common stock. If they request settlement in shares we must
undertake commercially reasonable best efforts to comply with this request. Both
the put and call options may only be exercised for the entire 10.0% interest
held by Messrs. Rodnyansky and Fuchsmann. As at June 30, 2008 we consider, using
a binomial pricing model, that the  fair value of our call option is
approximately US$ nil because the exercise price is substantially higher than
the fair value of the underlying equity interests.
 
 In future
periods, if neither the put nor the call options have been exercised, we will
continue to record any minority interest income or expense that would have been
recognized under ARB 51 through a reallocation between retained earnings and
minority interest income or expense. At each balance sheet date we will also
increase the value of the redeemable minority interest to equal the exercise
price of the put options if necessary with the offsetting amount reducing
retained earnings where necessary.
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  CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Tabular
amounts in US$ 000’s, except share and per share data)
 (Unaudited)
 
 If either
the put or call options are exercised, we will reverse any amounts recognized in
retained earnings before completing a purchase price allocation under FAS
141.
  b)
Ukraine Buyout Agreements: other commitments
 
 Messrs.
Rodnyansky and Fuchsmann have entered into consultancy agreements with us
providing for total annual aggregate compensation under both agreements not to
exceed EUR 1.0 million. These agreements terminate at the earlier of the time
either sells his remaining 5.0% interest in the Studio 1+1 group or January 30,
2010. We concluded that these amounts did not form part of the purchase price of
the 30% interest in the Studio 1+1 group and will account for them as
compensation costs in future periods.
 
 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 their put or we
exercise our 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.
 
 c)
Station Programming Rights Agreements
 
 At June
30, 2008 we had the following commitments in respect of future programming,
including contracts signed with license periods starting after the balance sheet
date:
 
 June
      30,
                2008Croatia
              
              $
              3,841Czech
      Republic
              
              
              48,616Romania
              
              
              36,048Slovak
      Republic
              
              
              11,518Slovenia
              
              
              4,475Ukraine
      (STUDIO 1+1)
              
              
              9,397Ukraine
      (KINO, CITI)
              
              
              121Total
              
              $
              114,016
 
 Of the
amount shown in the table above, US$ 102.6 million is payable within one
year.
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  CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Tabular
amounts in US$ 000’s, except share and per share data)
 (Unaudited)
 
 d)
Operating Lease Commitments
 
 For the
six months ended June 30, 2008 and 2007 we incurred aggregate rent on all
facilities of US$ 7.0 million and US$ 6.0 million,
respectively.  Future minimum operating lease payments at June 30,
2008 for non-cancelable operating leases with remaining terms in excess of one
year (net of amounts to be recharged to third parties) are payable as
follows:
 
 June
      30,
                20082008
              
              $
              3,0542009
              
              
              5,1472010
              
              
              2,7072011
              
              
              9142012
              
              
              3202013
      and thereafter
              
              
              -Total
              
              $
              12,142
 
 e)
Acquisition of Minority Shareholdings in Romania
 
 Mr. Sarbu
has the right to sell to us his remaining shareholding in Pro TV and MPI under a
put option agreement entered into in July 2004 at a price to be determined by an
independent valuation, subject to a floor price of US$ 1.45 million for each
1.0% interest sold. Mr. Sarbu’s right to put his remaining shareholding’ is
exercisable from November 12, 2009, provided that we have not enforced a pledge
over this shareholding which Mr. Sarbu granted as security for our right to put
him our shareholding in Media Pro. As at June 30, 2008, we considered the fair
value of the put option of Mr. Sarbu to be approximately US$ nil.
 
 
 f)
Other
 
 Dutch
tax
 
 On
February 9, 2004 we entered into an agreement with the Dutch tax authorities to
settle all tax liabilities outstanding for the years up to and including 2003,
including receipts in respect of our 2003 award in the arbitration against the
Czech Republic, for a payment of US$ 9.0 million.  We expected to
continue to pay tax in the Netherlands of between US$ 1.0 and US$ 2.5 million
for the foreseeable future and therefore also agreed to a minimum tax payable of
US$ 2.0 million per year for the years 2004 - 2008 and US$ 1.0 million for
2009.
 
 We have
since re-evaluated our forecasts of the amount of taxable income we expect to
earn in the Netherlands in the period to 2009.  As the expected tax
payable on this income is lower than the minimum amounts agreed with the Dutch
tax authorities, we have provided for the shortfall.
 
 The
settlement with the Dutch tax authorities also 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
June 30, 2008 we provided US$ 1.3 million (US$ 0.5 million in non-current
liabilities and US$ 0.8 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.
  Page
41
 Table of Contents
  CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Tabular
amounts in US$ 000’s, except share and per share data)
 (Unaudited)
 
 Czech
Republic - Factoring of Trade Receivables
 
 CET 21
has a working capital credit facility of CZK 250 million (approximately US$ 16.5
million) with CS. This facility is secured by a pledge of receivables under the
factoring agreement with FCS.
 
 The
transfer of the receivables is accounted for as a secured borrowing under FASB
Statement No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities”, with the proceeds received recorded in the
Condensed Consolidated Balance Sheet as a liability and included in current
credit facilities and obligations under capital leases.  The
corresponding receivables remain a part of accounts receivable because 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. However, 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.
 
 Ukraine
Settlement:
 
 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 succeeded in registering our Ukrainian subsidiary UMS as the
owner of 42.0% of Studio 1+1. Together with our 18.0% indirect interest in
Studio 1+1 held through Inter-Media, we then had a 60.0% interest in Studio
1+1.
  On
September 4, 2007, Messrs. Fuchsmann and Rodnyansky sought to file a cross
action in these international arbitration proceedings to compel the transfer by
us of an interest in Ukrpromtorg to Messrs. Fuchsmann and Rodnyansky. They
alleged that they were entitled to participate on a pro rata basis in our
investment in Ukrpromtorg. This claim was 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 June
30, 2008 we acquired a 30.0% interest in the Studio 1+1 group from Messrs.
Fuchsmann and Rodnyansky (see Note 3, “Acquisitions and Disposals:
Ukraine”).  Pursuant to the terms of the acquisition, we and Messrs.
Fuchsmann and Rodnyansky agreed to terminate the arbitration proceedings
described above. On July 3, 2008, we jointly informed the arbitral tribunal that
the parties had reached a comprehensive settlement, with each party to pay its
own legal costs. Following such notification, the arbitral tribunal terminated
the arbitration proceedings.
  Page
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  CENTRAL
EUROPEAN MEDIA ENTERPRISES LTD.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Tabular
amounts in US$ 000’s, except share and per share data)
 (Unaudited)
 
 b)
Licenses
 
 Regulatory
bodies in each country in which we operate control access to available
frequencies through licensing regimes. We believe that the licenses for our
license companies will be renewed prior to expiry. In Romania, the Slovak
Republic, Slovenia and Ukraine local regulations contain a qualified presumption
for extensions of broadcast licenses, according to which a broadcast license may
be renewed if the licensee has operated substantially in compliance with the
relevant licensing regime. To date, all expiring licenses have been renewed;
however, there can be no assurance that any of the licenses will be renewed upon
expiration of their current terms. The failure of any such license to be renewed
could adversely affect the results of our operations.
 
 The
following summarizes the expiry dates of our television broadcasting
licenses:
 
 Croatia
              
              The
      license of NOVA TV (Croatia) expires in April 2010.Czech
      Republic
              
              The
      license of TV NOVA (Czech Republic) expires in January 2017. The GALAXIE
      SPORT license expires in March 2014.Romania
              
              Licenses
      expire on dates ranging from October 2008 to May 2017.Slovak
      Republic
              
              The
      license of MARKIZA TV in the Slovak Republic expires in September
      2019.Slovenia
              
              The
      licenses of POP TV and KANAL A expire in August 2012.Ukraine
              
              The
      15-hour prime time and off prime time license of STUDIO 1+1 expires in
      December 2016. The license to broadcast for the remaining nine hours in
      off prime expires in August 2014.  Licenses used for the KINO
      and CITI channels expire on dates ranging April 2009  to July
      2016.
 
 
 c) Restrictions on dividends from
Consolidated Subsidiaries and Unconsolidated Affiliates
 
 Corporate
law in the Central and Eastern European countries in which we have operations
stipulates generally that dividends may be declared by shareholders, out of
yearly profits, subject to the maintenance of registered capital and required
reserves after the recovery of accumulated losses. The reserve requirement
restriction generally provides that before dividends may be distributed, a
portion of annual net profits (typically 5%) be allocated to a reserve, which
reserve is capped at a proportion of the registered capital of a company
(ranging from 5% to 25%).  The restricted net assets of our
consolidated subsidiaries and equity in earnings of investments accounted for
under the equity method together are less than 25% of consolidated net
assets.
 
 
 19.  SUBSEQUENT
EVENTS
 
 On July
28, 2008, we entered into a Master Share Purchase Agreement with Top Tone
Holdings Limited to acquire an 80% indirect interest in TV2, which operates a
national terrestrial network in Bulgaria, and Ring TV, which operates a sports
cable channel, for cash consideration of approximately $172 million. See Part
II, Item 5, “Other Information” for further information.
  Page
43
 Table of Contents
 
 Item 2.  Management's Discussion and Analysis of Financial
Condition and Results of Operations
 
 Contents
 
 I.
              
              Forward-looking
      StatementsII.
              
              Executive
      SummaryIII.
              
              Analysis
      of Segment ResultsIV.
              
              Analysis
      of the Results of Consolidated OperationsV.
              
              Liquidity
      and Capital ResourcesVI.
              
              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 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.
 
 The
following discussion should be read in conjunction with our interim financial
statements and notes included elsewhere in this report.
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44
 Table of Contents
 
 II.
Executive Summary
 
 Continuing
Operations
 
 The
following table provides a summary of our consolidated results for the three and
six months ended June 30, 2008 and 2007:
 
 For
      the Three Months Ended June 30, (US$ 000's)2008
              
              
              2007
              
              
              MovementNet
      revenues
              
              $
              305,391
              
              
              $
              216,284
              
              
              
              41.2
              %Operating
      income
              
              
              97,997
              
              
              
              66,579
              
              
              
              47.2
              %Net
      income
              
              $
              67,604
              
              
              $
              34,590
              
              
              
              95.4
              %For
      the Six Months Ended June 30, (US$ 000's)2008
              
              
              2007
              
              
              MovementNet
      revenues
              
              $
              528,861
              
              
              $
              364,196
              
              
              
              45.2
              %Operating
      income
              
              
              142,673
              
              
              
              79,866
              
              
              
              78.6
              %Net
      income
              
              $
              82,499
              
              
              $
              34,340
              
              
              
              140.2
              %
 
 The
principal events for the three months ended June 30, 2008 are as
follows:
 
 Performance:
 
 ·
              In
      the three months ended June 30, 2008, we reported growth in Segment Net
      Revenues and Segment EBITDA of 41% and 53%, respectively compared to the
      three months ended June 30, 2007, delivering a Segment EBITDA margin of
      44% compared to the 40% margin reported in the three months ended June 30,
      2007 (Segment EBITDA is defined and reconciled to our consolidated results
      in Item 1, Note 16, “Segment
Data”).
  ·
              Each
      of our stations reported revenue growth in excess of 25% compared to the
      three months ended June 30, 2007, with particularly strong growth reported
      in Croatia and Romania.
  
 Acquisitions:
  ·
              On
      April 17, 2008 we acquired the assets of 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).  These assets were 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 1, Note 3
      “Acquisitions and Disposals” for further
  information.
  ·
              On
      May 27, 2008 we acquired Jyxo, the information technology provider and
      operator of the leading blog site in the Czech Republic, blog.cz, and
      Jyxo's affiliate Blog.  See Item 1, Note 3 “Acquisitions and
      Disposals” for further information.
 
 ·
              On
      June 30, 2008 we completed the acquisition of an additional 30.0% interest
      in the Studio 1+1 group in Ukraine.  Total cash consideration
      was approximately US$ 219.6 million.  See Item 1, Note 3
      “Acquisitions and Disposals” for further
  information.
  Page
45
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 Subsequent
to the quarter-end:
 
 On July
28, 2008, we entered into a Master Share Purchase Agreement with Top Tone
Holdings Limited to acquire an 80% indirect interest in TV2, which operates a
national terrestrial network in Bulgaria, and Ring TV, which operates a sports
cable channel, for cash consideration of approximately $172 million. See Part
II, Item 5, “Other Information” for further information.
 
 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 have not seen any negative impact of the current
challenging economic conditions widely reported in western markets on the demand
for television advertising in our markets, although there can be no assurance
that a continuation of the current difficulties will not adversely affect our
markets in the future. We believe the fastest growth in television advertising
in our markets may 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:
  ·
              developing
      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;
      and
 
 ·
              expanding
      our capabilities in production and the development of local
      content.
 
 In
addition, we continue to review opportunities to develop our business and expand
our footprint through strategic acquisitions such as our recent acquisition of
TV2 in Bulgaria, 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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46
 Table of Contents
  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, in most jurisdictions, is agreed among the relevant Media
Council, the national telecommunications agency (which is generally responsible
for the allocation and use of frequencies) and the broadcasters.
 
 The TTP
will typically include the following: the timeline and final switchover date,
time allowances for the phases of the transition, allocation of frequencies for
digital broadcasting and other digital services, methods for calculating digital
terrestrial signal coverage and penetration of set top boxes, parameters for
determining whether the conditions for switchover have been satisfied for any
phase, the technical specifications for broadcasting standards to be utilized
and technical restrictions on parallel broadcasting in analog and terrestrial
during the transition phase.
 
 Of our
markets, 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 or that current licenses entitle the holders to digital
terrestrial broadcasting, although broadcasters in a specific jurisdiction may
be required to formally file an application in order for a digital license to be
issued.
 
 In that
regard, both of our Slovenian channels, POP TV and KANAL A, were issued digital
licenses in November 2007. We anticipate that the switchover to digital in
Slovenia will be completed by 2012, when the current licenses of POP TV and
KANAL A expire.  Under the TTP for the Czech Republic, the license
currently held by CET 21 allows for digital terrestrial broadcasting by TV Nova
(Czech Republic).  In the Slovak Republic, TV MARKIZA is entitled to
receive a digital license under recently adopted legislation and intends to
apply for one following the completion of the tender offer for the multiplex
operator under the TTP for the Slovak Republic.
 
 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 issued
decisions confirming that STUDIO 1+1 would be included in one of the multiplexes
to be launched in connection with the transition to digital
broadcasting.  The Media Council recently held a tender for licenses
for additional digital frequencies that will be made available for niche
channels in the switchover to digital, and is currently soliciting proposals for
technical development of certain digital multiplexes. However, there has been no
indication as to when a TTP will be adopted in Ukraine.
  Page
47
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  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.
 
  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 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 and six months ended June 30, 2008 and 2007 see Item 1,
Note 16 “Segment Data”.
 
 A summary
of our total Segment Net Revenues, Segment EBITDA and Segment EBITDA margin
showing the relative contribution of each Segment, is as
follows:
  Page
48
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 SEGMENT
      FINANCIAL INFORMATIONFor
      the Three Months Ended June 30, (US$ 000's)2008
              
              
              
              (1
              )
              
              2007
              
              
              
              (1
              )Segment
      Net RevenueCroatia
      (NOVA TV)
              
              $
              18,094
              
              
              
              6
              %
              
              $
              10,414
              
              
              
              5
              %Czech
      Republic (TV NOVA, NOVA CINEMA and GALAXIE SPORT)
              
              
              112,570
              
              
              
              37
              %
              
              
              80,544
              
              
              
              37
              %Romania
      (2)
              
              
              79,842
              
              
              
              26
              %
              
              
              52,224
              
              
              
              24
              %Slovak
      Republic (TV MARKIZA)
              
              
              37,097
              
              
              
              12
              %
              
              
              29,652
              
              
              
              14
              %Slovenia
      (POP TV and KANAL A)
              
              
              26,210
              
              
              
              9
              %
              
              
              20,095
              
              
              
              9
              %Ukraine
      (STUDIO 1+1)
              
              
              30,254
              
              
              
              10
              %
              
              
              22,701
              
              
              
              11
              %Ukraine
      (KINO, CITI)
              
              
              1,324
              
              
              
              -
              
              
              
              654
              
              
              
              -Total
      Segment Net Revenues
              
              $
              305,391
              
              
              
              100
              %
              
              $
              216,284
              
              
              
              100
              %Represented
      by:Broadcast
      operations
              
              $
              302,611
              
              
              
              99
              %
              
              $
              214,987
              
              
              
              99
              %Non-broadcast
      operations
              
              
              2,780
              
              
              
              1
              %
              
              
              1,297
              
              
              
              1
              %Total
      Segment Revenues
              
              $
              305,391
              
              
              
              100
              %
              
              $
              216,284
              
              
              
              100
              %Segment
      EBITDACroatia
      (NOVA TV)
              
              $
              1,683
              
              
              
              1
              %
              
              $
              (2,167
              )
              
              
              (2
              )%Czech
      Republic (TV NOVA, NOVA CINEMA and GALAXIE SPORT)
              
              
              71,204
              
              
              
              54
              %
              
              
              47,595
              
              
              
              55
              %Romania
      (2)
              
              
              38,293
              
              
              
              29
              %
              
              
              22,530
              
              
              
              26
              %Slovak
      Republic (TV MARKIZA)
              
              
              13,974
              
              
              
              11
              %
              
              
              11,712
              
              
              
              13
              %Slovenia
      (POP TV and KANAL A)
              
              
              10,866
              
              
              
              8
              %
              
              
              8,388
              
              
              
              9
              %Ukraine
      (STUDIO 1+1)
              
              
              (1,894
              )
              
              
              (1
              )%
              
              
              565
              
              
              
              1
              %Ukraine
      (KINO, CITI)
              
              
              (1,055
              )
              
              
              (1
              )%
              
              
              (1,755
              )
              
              
              (2
              )%Total
      Segment EBITDA
              
              $
              133,071
              
              
              
              100
              %
              
              $
              86,868
              
              
              
              100
              %Represented
      by:Broadcast
      operations
              
              $
              134,964
              
              
              
              101
              %
              
              $
              87,175
              
              
              
              100
              %Non-broadcast
      operations
              
              
              (1,893
              )
              
              
              (1
              )%
              
              
              (307
              )
              
              
              -Total
      Segment EBITDA
              
              $
              133,071
              
              
              
              100
              %
              
              $
              86,868
              
              
              
              100
              %Segment
      EBITDA Margin (3)
              
              
              44
              %
              
              
              
              
              
              
              40
              %
  (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 June 30, 2008. For the three months
ended June 30, 2007 Romanian channels were PRO TV, PRO CINEMA, ACASA, PRO TV
INTERNATIONAL and SPORT.RO.
  (3) We
define Segment EBITDA margin as the ratio of Segment EBITDA to Segment Net
Revenue.
  Page
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 SEGMENT
      FINANCIAL INFORMATIONFor
      the Six Months Ended June 30, (US$ 000's)2008
              
              
              
              (1
              )
              
              2007
              
              
              
              (1
              )Segment
      Net RevenueCroatia
      (NOVA TV)
              
              $
              29,628
              
              
              
              6
              %
              
              $
              17,646
              
              
              
              5
              %Czech
      Republic (TV NOVA, NOVA CINEMA and GALAXIE SPORT)
              
              
              198,128
              
              
              
              38
              %
              
              
              132,063
              
              
              
              37
              %Romania
      (2)
              
              
              137,838
              
              
              
              26
              %
              
              
              91,566
              
              
              
              25
              %Slovak
      Republic (TV MARKIZA)
              
              
              63,331
              
              
              
              12
              %
              
              
              48,329
              
              
              
              13
              %Slovenia
      (POP TV and KANAL A)
              
              
              44,161
              
              
              
              8
              %
              
              
              32,764
              
              
              
              9
              %Ukraine
      (STUDIO 1+1)
              
              
              53,473
              
              
              
              10
              %
              
              
              40,776
              
              
              
              11
              %Ukraine
      (KINO, CITI) (4)
              
              
              2,302
              
              
              
              -
              
              
              
              1,052
              
              
              
              -Total
      Segment Net Revenues
              
              $
              528,861
              
              
              
              100
              %
              
              $
              364,196
              
              
              
              100
              %Represented
      by:Broadcast
      operations
              
              $
              524,108
              
              
              
              99
              %
              
              $
              362,409
              
              
              
              100
              %Non-broadcast
      operations
              
              
              4,753
              
              
              
              1
              %
              
              
              1,787
              
              
              
              -Total
      Segment Revenues
              
              $
              528,861
              
              
              
              100
              %
              
              $
              364,196
              
              
              
              100
              %Segment
      EBITDACroatia
      (NOVA TV)
              
              $
              (1,047
              )
              
              
              (1
              )%
              
              $
              (6,819
              )
              
              
              (5
              )%Czech
      Republic (TV NOVA, NOVA CINEMA and GALAXIE SPORT)
              
              
              115,049
              
              
              
              56
              %
              
              
              73,262
              
              
              
              58
              %Romania
      (2)
              
              
              61,669
              
              
              
              30
              %
              
              
              37,666
              
              
              
              29
              %Slovak
      Republic (TV MARKIZA)
              
              
              23,111
              
              
              
              11
              %
              
              
              17,468
              
              
              
              13
              %Slovenia
      (POP TV and KANAL A)
              
              
              15,206
              
              
              
              7
              %
              
              
              11,389
              
              
              
              9
              %Ukraine
      (STUDIO 1+1)
              
              
              (3,957
              )
              
              
              (2
              )%
              
              
              (1,805
              )
              
              
              (1
              )%Ukraine
      (KINO, CITI)
              
              
              (2,261
              )
              
              
              (1
              )%
              
              
              (4,172
              )
              
              
              (3
              )%Total
      Segment EBITDA
              
              $
              207,770
              
              
              
              100
              %
              
              $
              126,989
              
              
              
              100
              %Represented
      by:Broadcast
      operations
              
              $
              211,141
              
              
              
              102
              %
              
              $
              127,889
              
              
              
              101
              %Non-broadcast
      operations
              
              
              (3,371
              )
              
              
              (2
              )%
              
              
              (900
              )
              
              
              (1
              )%Total
      Segment EBITDA
              
              $
              207,770
              
              
              
              100
              %
              
              $
              126,989
              
              
              
              100
              %Segment
      EBITDA Margin (3)
              
              
              39
              %
              
              
              
              
              
              
              35
              %
  (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 six months ended June 30, 2008. For the six months ended June
30, 2007 Romanian channels 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
Revenue.
  Page
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  ANALYSIS
BY GEOGRAPHIC SEGMENT
 
 Spot and Non-Spot Revenues.For the purposes of our management’s discussion and analysis of financial
condition and results of operations, total television and radio advertising
revenue net of rebates is referred to as “spot revenues”.  “Non-spot
revenues” refers to all other revenues, including those from sponsorship, game
shows, program sales, short message service (“SMS”) messaging, cable
subscriptions and barter transactions.  The total of spot revenues and
non-spot revenues is equal to 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.
  Audience Ratings and Share.When
describing our performance we refer to “audience share”, which represents the
share attracted by a channel as a proportion of the total audience watching
television, and “ratings”, which represents the number of people watching a
channel (expressed as a proportion of the total population measured). Audience
share and ratings information is measured in each market by international
measurement agencies, using peoplemeters, which quantify audiences for different
demographics and sub geographies of the population measured throughout the day.
Our channels schedule programming intended to attract audiences within specific
“target” demographics that we believe will be attractive to advertisers. For
each of our segments we show all day and prime time audience share and program
ratings information for our channels and our major competitors, based on our
channels’ target demographics,
 
 Spot Sales.Our
main unit of sale is the commercial gross rating point (“GRP”).  This
is a measure of the number of people watching when the advertisement is aired.
Generally we will contract with a client to provide an agreed number of GRPs for
an agreed price (“cost per point”). Much more rarely, and usually only for small
niche channels, we may sell on a fixed spot basis where an advertisement is
placed at an agreed time for a negotiated price that is independent of the
number of viewers.  The price per GRP package varies depending on the
season and time of day the advertisement is aired, the volume of GRPs purchased,
requirements for special positioning of the advertisement, the demographic group
that the advertisement is targeting (in a multi-channel environment), and other
factors. Our larger advertising customers generally enter into annual contracts
which usually run from April to March and set the pricing for a committed volume
of GRPs.
 Generally,
demand for broadcast advertising is highest in the fourth and second quarters of
the year and lowest in the third quarter.
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 Table of Contents
  (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. The Croatian kuna appreciated
by 16% against the U.S. dollar between June 30, 2007 and June 30,
2008.
 
 NOVA
TV (Croatia) Audience  Share and Ratings Performance
 
 For
advertising sales purposes, the NOVA TV (Croatia) target audience is the 18-49
demographic and all audience data is shown on this basis.
 
 
 For
      the Six Months Ended June 30,2008
              
              
              2007
              
              
              MovementAll
      day audience share
              
              
              22.9
              %
              
              
              18.3
              %
              
              
              4.6
              %All
      day ratings
              
              
              3.6
              %
              
              
              3.0
              %
              
              
              0.6
              %Prime
      time audience share
              
              
              26.4
              %
              
              
              19.2
              %
              
              
              7.2
              %Prime
      time ratings
              
              
              9.7
              %
              
              
              7.3
              %
              
              
              2.4
              %
 
 Our major
competitors are the two state-owned channels, HRT1 and HRT2, with national all
day audience shares for the six months ended June 30, 2008 of 23.3% and 15.9%,
respectively, and privately owned broadcaster RTL with a national all day
audience share of 26.9%.
 
 The
improved prime time audience share performance for NOVA TV (Croatia) in the six
months ended June 30, 2008 compared to the same period in 2007, made NOVA TV
(Croatia) the leading channel in the market for the period, reflecting the
success of our strategy of investing in local productions, with shows such as
‘The Farm’ and ‘Don’t Forget The Lyrics’ delivering particularly strong ratings.
Prime time audience share for HRT1 decreased from 26.1% to 21.6% for comparable
periods, HRT2 decreased from 18.4% to 18.1% and RTL decreased from 29.1% to
26.0%.
 
 Prime
time ratings for the Croatia market decreased from 37.8% to 36.4% for comparable
periods.
  Page
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  Three
months ended June 30, 2008 compared to the three months ended June 30,
2007
 
 CROATIA
      SEGMENT FINANCIAL INFORMATIONFor
      the Three Months Ended June 30, (US$ 000's)2008
              
              
              2007
              
              
              MovementSpot
      revenues
              
              $
              15,050
              
              
              $
              8,482
              
              
              
              77.4
              %Non-spot
      revenues
              
              
              3,044
              
              
              
              1,932
              
              
              
              57.6
              %Segment
      Net Revenues
              
              $
              18,094
              
              
              $
              10,414
              
              
              
              73.7
              %Represented
      by:Broadcast
      operations
              
              $
              17,909
              
              
              $
              10,389
              
              
              
              72.4
              %Non-broadcast
      operations
              
              
              185
              
              
              
              25
              
              
              
              640.0
              %Segment
      Net Revenues
              
              $
              18,094
              
              
              $
              10,414
              
              
              
              73.7
              %Segment
      EBITDA
              
              $
              1,683
              
              
              $
              (2,167
              )
              
              
              177.7
              %Represented
      by:Broadcast
      operations
              
              $
              2,157
              
              
              $
              (2,144
              )
              
              
              200.6
              %Non-broadcast
      operations
              
              
              (474
              )
              
              
              (23
              )
              
              
              (1,960.9
              )%Segment
      EBITDA
              
              $
              1,683
              
              
              $
              (2,167
              )
              
              
              177.7
              %Segment
      EBITDA Margin
              
              
              9
              %
              
              
              (21
              )%
              
              
              30
              %
 
 
 ·
              Segment Net Revenues for
      the three months ended June 30, 2008 increased by 74% compared to the
      three months ended June 30, 2007.  In local currency, Segment
      Net Revenues grew by 48%.  Spot revenues for the three months
      ended June 30, 2008 increased by 77% compared to the same period in
      2007.  This increase resulted from our ratings improvement in
      2007 and 2008, which has improved our position in the market and
      consequently supported the sale of significantly higher volumes of GRPs at
      increased prices. Non-spot revenues for the three months ended June 30,
      2008 increased by 58% compared to the same period in 2007, primarily due
      to increased sponsorship revenue generated from our locally produced
      program ‘The Farm’.
 
 ·
              Segment EBITDAfor the
      three months ended June 30, 2008 was US$ 1.7 million compared to a loss of
      US$ 2.2 million for the three months ended June 30, 2007. This has been
      the first quarter in which our Croatia operations have generated positive
      EBITDA.
 
 Costs
charged in arriving at Segment EBITDA for the three months ended June 30, 2008
increased by 31% compared to the same period in 2007.  Cost of
programming grew by 36% as a result of continued investment in high-quality
programming to improve performance, driven by a 109% increase in production
expenses due to the broadcast of popular locally-produced content such as ‘The
Farm’ and ‘Don’t Forget The Lyrics’. The programming strategy to increase
locally produced content is reflected by program syndication decreasing by 5%
during the same period. Other operating costs increased by 49%, primarily due to
increased broadcast operating expenses related to increasing locally produced
programming and also increased accruals for staff bonuses as a result of the
significant improvement in performance. Selling, general and administrative
expenses decreased by 13% primarily due to a reduction in our provision for
doubtful debts as we collected our receivables more quickly and a reduction in
legal accruals following the successful resolution of  a legal
proceeding.
  Page
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 Table of Contents
  Six
months ended June 30, 2008 compared to the six months ended June 30,
2007
 
 CROATIA
      SEGMENT FINANCIAL INFORMATIONFor
      the Six Months Ended June 30, (US$ 000's)2008
              
              
              2007
              
              
              MovementSpot
      revenues
              
              $
              24,712
              
              
              $
              13,503
              
              
              
              83.0
              %Non-spot
      revenues
              
              
              4,916
              
              
              
              4,143
              
              
              
              18.7
              %Segment
      Net Revenues
              
              $
              29,628
              
              
              $
              17,646
              
              
              
              67.9
              %Represented
      by:Broadcast
      operations
              
              $
              29,314
              
              
              $
              17,616
              
              
              
              66.4
              %Non-broadcast
      operations
              
              
              314
              
              
              
              30
              
              
              
              946.7
              %Segment
      Net Revenues
              
              $
              29,628
              
              
              $
              17,646
              
              
              
              67.9
              %Segment
      EBITDA
              
              $
              (1,047
              )
              
              $
              (6,819
              )
              
              
              84.6
              %Represented
      by:Broadcast
      operations
              
              $
              (430
              )
              
              $
              (6,767
              )
              
              
              93.6
              %Non-broadcast
      operations
              
              
              (617
              )
              
              
              (52
              )
              
              
              1086.5
              %Segment
      EBITDA
              
              $
              (1,047
              )
              
              $
              (6,819
              )
              
              
              84.6
              %Segment
      EBITDA Margin
              
              
              (4
              )%
              
              
              (39
              )%
              
              
              35
              %
 
 
 ·
              Segment Net Revenues for
      the six months ended June 30, 2008 increased by 68% compared to the six
      months ended June 30, 2007.  In local currency, Segment Net
      Revenues grew by 43%.  Spot revenues for the six months ended
      June 30, 2008 increased by 83% compared to the same period in 2007 because
      our ratings improvement in 2007 and 2008 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 six months ended June 30,
      2008 increased by 19% compared to the same period in 2007, primarily due
      to increased sponsorship revenue generated from our locally produced
      program ‘The Farm’.
 
 ·
              Segment EBITDAlosses
      for the six months ended June 30, 2008 fell by 85% compared to the six
      months ended June 30, 2007.  In local currency, Segment EBITDA
      losses fell by 87%.
 
 Costs
charged in arriving at Segment EBITDA for the six months ended June 30, 2008
increased by 25% compared to the same period in 2007.  Cost of
programming grew by 29% as a result of continued investment in high-quality
programming to improve performance, driven by a 83% 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 remained in line with
the same period in 2007. Other operating costs increased by 42%, primarily due
to increased broadcast operating expenses and also increased accruals for staff
bonuses as a result of the improvement in performance .  Selling,
general and administrative expenses decreased by 12% primarily due to a
reduction in our provision for doubtful debts as we collected our receivables
more quickly and a reduction in legal accruals following the successful
resolution of a legal proceeding.
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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 8% in local currency during
2007 and expect 8% to 10% growth in 2008.  The Czech koruna
appreciated by 29% against the US dollar between June 30, 2007 and June 30,
2008.
 
 TV
NOVA (Czech Republic) Audience Share and Ratings Performance
 
 For
advertising sales purposes, the TV NOVA (Czech Republic) target audience is the
15-54 demographic and all audience data is shown on this basis.
 
 For
      the Six Months Ended June 30,2008
              
              
              2007
              
              
              MovementAll
      day audience share
              
              
              41.9
              %
              
              
              43.6
              %
              
              
              (1.7
              )%All
      day ratings
              
              
              4.8
              %
              
              
              4.9
              %
              
              
              (0.1
              )%Prime
      time audience share
              
              
              45.8
              %
              
              
              48.1
              %
              
              
              (2.3
              )%Prime
      time ratings
              
              
              13.8
              %
              
              
              14.8
              %
              
              
              (1.0
              )%
 
 Our major
competitors are the two state-owned channels CT1 and CT2, with all day audience
shares for the six months ended June 30, 2008 of 17.6%, 7.1% respectively, and
privately owned broadcaster TV Prima with a national all day audience share of
16.6%.
 
 Prime
time audience share for CT1 decreased from 20.3% to 18.3% for comparable
periods, CT2 decreased from 6.4% to 6.3% and TV Prima decreased from 17.9% to
16.9%.
 
 Prime
time ratings for the Czech Republic market decreased from 30.7% to 30.2% for
comparable periods
 
 Three
months ended June 30, 2008 compared to the three months ended June 30,
2007
 
 CZECH
      REPUBLIC SEGMENT FINANCIAL INFORMATIONFor
      the Three Months Ended June 30, (US$ 000's)2008
              
              
              2007
              
              
              MovementSpot
      revenues
              
              $
              104,070
              
              
              $
              74,048
              
              
              
              40.5
              %Non-spot
      revenues
              
              
              8,500
              
              
              
              6,496
              
              
              
              30.8
              %Segment
      Net Revenues
              
              $
              112,570
              
              
              $
              80,544
              
              
              
              39.8
              %Represented
      by:Broadcast
      operations
              
              $
              112,040
              
              
              $
              80,489
              
              
              
              39.2
              %Non-broadcast
      operations
              
              
              530
              
              
              
              55
              
              
              
              863.6
              %Segment
      Net Revenues
              
              $
              112,570
              
              
              $
              80,544
              
              
              
              39.8
              %Segment
      EBITDA
              
              $
              71,204
              
              
              $
              47,595
              
              
              
              49.6
              %Represented
      by:Broadcast
      operations
              
              $
              72,057
              
              
              $
              47,822
              
              
              
              50.7
              %Non-broadcast
      operations
              
              
              (853
              )
              
              
              (227
              )
              
              
              275.8
              %Segment
      EBITDA
              
              $
              71,204
              
              
              $
              47,595
              
              
              
              49.6
              %Segment
      EBITDA Margin
              
              
              63
              %
              
              
              59
              %
              
              
              4
              %
  Page
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  ·
              Segment Net Revenues for
      the three months ended June 30, 2008 increased by 40% compared to the
      three months ended June 30, 2007.  In local currency, Segment
      Net Revenues increased by 7%.  Spot revenues increased by 41%,
      with an increase in the average revenue per GRP sold.  There was
      a decrease in the volume of GRPs sold due to a change in sales policy,
      which encouraged clients to spend more of their budgets during the low
      season of the first quarter. Non-spot revenue for the three months ended
      June 30, 2008 increased by 31% compared to the same period in 2007,
      primarily due to increased
sponsorship.
 
 ·
              Segment EBITDA for the
      three months ended June 30, 2008 increased by 50% compared to the three
      months ended June 30, 2007, resulting in an EBITDA margin of 63% compared
      to 59% for the same period in 2007. In local currency, Segment EBITDA
      increased by 14%.
 
 Costs
charged in arriving at Segment EBITDA for the three months ended June 30, 2008
increased by 26% compared to the three months ended June 30,
2007.  Cost of programming grew by 49%.  Production costs
showed an increase of 20% due to an increase in the number of hours of news
programming.  Program syndication increased by 92% over comparable
periods due to an increase in the number of hours syndicated programming being
broadcast as well as an increase in the cost of such
programming.   Other operating costs were in line with the same
period in 2007.  Selling, general and administrative expenses
decreased by 14% primarily due to lower provisions for doubtful debts and lower
equipment and consultancy fees, partly offset by increased office running
costs.
 Six
months ended June 30, 2008 compared to the six months ended June 30,
2007
 
 CZECH
      REPUBLIC SEGMENT FINANCIAL INFORMATIONFor
      the Six Months Ended June 30, (US$ 000's)2008
              
              
              2007
              
              
              MovementSpot
      revenues
              
              $
              181,673
              
              
              $
              120,712
              
              
              
              50.5
              %Non-spot
      revenues
              
              
              16,455
              
              
              
              11,351
              
              
              
              45.0
              %Segment
      Net Revenues
              
              $
              198,128
              
              
              $
              132,063
              
              
              
              50.0
              %Represented
      by:Broadcast
      operations
              
              $
              197,423
              
              
              $
              131,969
              
              
              
              49.6
              %Non-broadcast
      operations
              
              
              705
              
              
              
              94
              
              
              
              650.0
              %Segment
      Net Revenues
              
              $
              198,128
              
              
              $
              132,063
              
              
              
              50.0
              %Segment
      EBITDA
              
              $
              115,049
              
              
              $
              73,262
              
              
              
              57.0
              %Represented
      by:Broadcast
      operations
              
              $
              116,293
              
              
              $
              73,759
              
              
              
              57.7
              %Non-broadcast
      operations
              
              
              (1,244
              )
              
              
              (497
              )
              
              
              (150.3
              )%Segment
      EBITDA
              
              $
              115,049
              
              
              $
              73,262
              
              
              
              57.0
              %Segment
      EBITDA Margin
              
              
              58
              %
              
              
              55
              %
              
              
              3
              %
 
 
 ·
              Segment Net Revenues for
      the six months ended June 30, 2008 increased by 50% compared to the six
      months ended June 30, 2007.  In local currency, Segment Net
      Revenues increased by 17%.  Spot revenues increased by 51%,
      primarily due to an increase in the average revenue per GRP sold, as well
      as a slight increase in the volume of GRPs sold.  Non-spot
      revenue for the six months ended June 30, 2008 increased by 45% compared
      to the same period in 2007, primarily due to increased
      sponsorship.
  Page
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  ·
              Segment EBITDA for the
      six months ended June 30, 2008 increased by 57% compared to the six months
      ended June 30, 2007, resulting in an EBITDA margin of 58% compared to 55%
      for the same period in 2007. In local currency, Segment EBITDA increased
      by 10%.
 
 Costs
charged in arriving at Segment EBITDA for the six months ended June 30, 2008
increased by 41% compared to the six months ended June 30, 2007.  Cost
of programming grew by 60%. Production costs showed an increase of 33%, with an
increase in the number of hours of news programming.  Program
syndication increased by 96% 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
19%, due to higher salary costs and broadcast operating
expenses.  Selling, general and administrative expenses increased by
20% primarily due to increased office running costs and increased marketing and
research costs.
 
 
 (C)
ROMANIA
 Market
Background:We estimate that the television advertising market
grew by approximately 50% to 60% in US dollars during 2007 and expect the
continued growth in the range of 25% to 35% in 2008. The New Romanian lei
appreciated by 1% against the US dollar between June 30, 2007 and June 30,
2008.
 
 Romania
Audience Share and Ratings Performance (All CME stations)
 
 For
advertising sales purposes, our Romanian channels have different target audience
demographics; PRO TV 18 - 49 urban, ACASA 15 - 49 female urban, PRO CINEMA 18 -
49 urban, SPORT.RO male all urban and MTV ROMANIA 15 - 34 urban. All audience
data shown below is based on the target demographic of PRO
TV.
 
 
 For
      the Six Months Ended June 30,2008
              
              
              2007
              
              
              MovementAll
      day audience share
              
              
              29.1
              %
              
              
              29.5
              %
              
              
              (0.4
              )%All
      day ratings
              
              
              4.6
              %
              
              
              4.2
              %
              
              
              0.4
              %Prime
      time audience share
              
              
              32.8
              %
              
              
              31.7
              %
              
              
              1.1
              %Prime
      time ratings
              
              
              11.3
              %
              
              
              9.8
              %
              
              
              1.5
              %
 
 Our main
competitors are privately owned broadcaster Antena 1, which based on PRO TV’s
target demographic, had an all day audience share of 9.0% and the two channels
operated by the public broadcaster, TVR1 and TVR2, which had an all day audience
share for the six months ended June 30, 2008 of 4.5% and 1.6%,
respectively.
  Prime
time audience share for TVR1 decreased from 8.0% to 5.8% for comparable periods,
TVR2 decreased from 2.7% to 1.4% and Antena 1 decreased from 13.6% to
10.9%.
 
 Prime
time ratings for the Romania market increased from 30.8% to 34.4% for comparable
periods.
  Additional
information
  The
functional currency of our Romania operations changed from the U.S. dollar to
the New Romanian lei with effect from January 1, 2008.
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57
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  Three
months ended June 30, 2008 compared to the three months ended June 30,
2007
 
 ROMANIA
      SEGMENT FINANCIAL INFORMATIONFor
      the Three Months Ended June 30, (US$ 000's)2008
              
              
              2007
              
              
              MovementSpot
      revenues
              
              $
              73,864
              
              
              $
              49,069
              
              
              
              50.5
              %Non-spot
      revenues
              
              
              5,978
              
              
              
              3,155
              
              
              
              89.5
              %Segment
      Net Revenues
              
              $
              79,842
              
              
              $
              52,224
              
              
              
              52.9
              %Represented
      by:Broadcast
      operations
              
              $
              79,229
              
              
              $
              52,168
              
              
              
              51.9
              %Non-broadcast
      operations
              
              
              613
              
              
              
              56
              
              
              
              994.6
              %Segment
      Net Revenues
              
              $
              79,842
              
              
              $
              52,224
              
              
              
              52.9
              %Segment
      EBITDA
              
              $
              38,293
              
              
              $
              22,530
              
              
              
              70.0
              %Represented
      by:Broadcast
      operations
              
              $
              38,184
              
              
              $
              22,625
              
              
              
              68.8
              %Non-broadcast
      operations
              
              
              109
              
              
              
              (95
              )
              
              
              214.7
              %Segment
      EBITDA
              
              $
              38,293
              
              
              $
              22,530
              
              
              
              70.0
              %Segment
      EBITDA Margin
              
              
              48
              %
              
              
              43
              %
              
              
              5
              %
 
 
 ·
                Segment Net Revenues for
      the three months ended June 30, 2008 increased by 53% compared to the
      three months June 30, 2007.  The functional currency of our
      Romanian operations changed from the US dollar to the New Romanian lei
      with effect from January 1, 2008; for comparative purposes Segment Net
      Revenues increased by 47% in New Romanian lei for the three months ended
      June 30, 2008 compared to the six months June 30, 2007.  Spot
      revenues increased by 51% and non-spot revenues increased by 90% over
      comparable periods.  The increase in spot revenues was driven by
      increases in the average revenue per GRP sold. In addition US$ 1.5 million
      of spot revenue was generated from RADIO PRO, acquired on April 17, 2008
      and US$ 1.1 million was generated from MTV ROMANIA, for which we acquired
      a license to operate on December 20, 2007.  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.
 
 MTV
ROMANIA and RADIO PRO contributed approximately US$ 4.0 million in total to
Segment Net Revenues for the three months ended June 30, 2008.
 
 
 ·
              Segment EBITDA for the
      three months ended June 30, 2008 increased by 70% compared to the three
      months ended June 30, 2007, resulting in an EBITDA margin of 48%, compared
      to 43% for the same period in 2007.
  Costs
charged in arriving at Segment EBITDA for the three months ended June 30, 2008
increased by 40% compared to the three months ended June 30,
2007.  Cost of programming grew 40%, reflecting increased investment
to enable us to maintain our ratings in the face of increased
competition.  Production expenses increased by 38% due to increased
investment to expand the news and news-related content on PRO TV and ACASA, the
increase in production costs related to the MTV ROMANIA license and an increase
in the number of production hours broadcasted on
SPORT.RO.  Programming syndication increased by 42%, primarily driven
by investment in the programming schedule as well as an increase in syndicated
hours broadcast, primarily due to MTV ROMANIA.  Other operating costs
increased by 53%, reflecting increased salary costs due to increased headcount,
particularly following the acquisition of the license for MTV ROMANIA. In
addition there has been an increased bonus accrual reflecting the improved
performance, as well as the impact of the weakening of the dollar against the
New Romanian lei, the currency in which salaries are paid. Broadcast operating
expenses have also increased.  Selling, general and administrative
expenses increased by 19%, primarily due to increases in office running costs
and marketing and research costs.
  Page
58
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  Six
months ended June 30, 2008 compared to the six months ended June 30,
2007
 
 ROMANIA
      SEGMENT FINANCIAL INFORMATIONFor
      the Six Months Ended June 30, (US$ 000's)2008
              
              
              2007
              
              
              MovementSpot
      revenues
              
              $
              126,896
              
              
              $
              85,604
              
              
              
              48.2
              %Non-spot
      revenues
              
              
              10,942
              
              
              
              5,962
              
              
              
              83.5
              %Segment
      Net Revenues
              
              $
              137,838
              
              
              $
              91,566
              
              
              
              50.5
              %Represented
      by:Broadcast
      operations
              
              $
              137,028
              
              
              $
              91,510
              
              
              
              49.7
              %Non-broadcast
      operations
              
              
              810
              
              
              
              56
              
              
              
              1346.4
              %Segment
      Net Revenues
              
              $
              137,838
              
              
              $
              91,566
              
              
              
              50.5
              %Segment
      EBITDA
              
              $
              61,669
              
              
              $
              37,666
              
              
              
              63.7
              %Represented
      by:Broadcast
      operations
              
              $
              61,750
              
              
              $
              37,899
              
              
              
              62.9
              %Non-broadcast
      operations
              
              
              (81
              )
              
              
              (233
              )
              
              
              65.2
              %Segment
      EBITDA
              
              $
              61,669
              
              
              $
              37,666
              
              
              
              63.7
              %Segment
      EBITDA Margin
              
              
              45
              %
              
              
              41
              %
              
              
              4
              %
 
 ·
                Segment Net Revenues for
      the six months ended June 30, 2008 increased by 51% compared to the six
      months June 30, 2007.  The functional currency of our Romanian
      operations changed from the US dollar to the New Romanian lei with effect
      from January 1, 2008; for comparative purposes Segment Net Revenues
      increased by 44% in New Romanian lei for the six months ended June 30,
      2008 compared to the six months ended June 30,
      2007.    Spot revenues increased by 48% and non-spot
      revenues increased by 84% over comparable periods.  The increase
      in spot revenues was driven by increases in the average revenue per GRP
      sold. In addition US$ 1.7 million of spot revenue was generated from MTV
      ROMANIA, for which we acquired a license to operate on December 20, 2007
      and US$ 1.5 million generated from RADIO PRO which we acquired on April
      17, 2008.  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 six months (as opposed to five months in 2007)
contributed approximately US$ 5.5 million to Segment Net Revenues for the six
months ended June 30 2008. MTV ROMANIA and RADIO PRO contributed approximately
US$ 5.5 million in total to Segment Net Revenues for the six months ended June
30, 2008.
  Page
59
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  ·
              Segment EBITDA for the
      six months ended June 30, 2008 increased by 64% compared to the six months
      ended June 30, 2007, resulting in an EBITDA margin of 45%, compared to 41%
      for the same period in 2007.
 
 Costs
charged in arriving at Segment EBITDA for the six months ended June 30, 2008
increased by 41% compared to the six months ended June 30, 2007.  Cost
of programming grew 39%, reflecting increased investment to enable us to
maintain our ratings in the face of increased competition. Production expenses
increased by 43% due to an increase in production hours broadcast, primarily due
to SPORT.RO as well as MTV ROMANIA. In addition there has been increased
investment to expand the news and news-related content on PRO TV and
ACASA.  Programming syndication increased by 35%, primarily driven by
investment in the programming schedule as well as an increase in syndicated
hours broadcast, that was mainly due to MTV ROMANIA.  Other operating
costs increased by 54%, reflecting increased salary costs due to increased
headcount, particularly following the acquisition of the license for MTV
ROMANIA. In addition there has been an increased bonus accrual reflecting the
improved performance, as well as the impact of the weakening of the dollar
against the New Romanian lei, the currency in which salaries are paid. Broadcast
operating expenses have also increased.  Selling, general and
administrative expenses increased by 36%, primarily due to increased office
running costs and marketing and research costs.
 
 (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 Slovak
koruna appreciated by 23% against the US dollar between June 30, 2007 and June
30, 2008.
 
 
 TV
MARKIZA Audience Share and Ratings Performance
 
 For
advertising sales purposes, TV MARKIZA’s target audience is the 12+ demographic
and all our audience data shown is on this basis.
 
  For
      the Six Months Ended June 30,2008
              
              
              2007
              
              
              MovementAll
      day audience share
              
              
              35.8
              %
              
              
              34.4.
              %
              
              
              1.4
              %All
      day ratings
              
              
              4.7
              %
              
              
              4.7
              %
              
              
              -Prime
      time audience share
              
              
              38.2
              %
              
              
              38.3
              %
              
              
              (0.1
              )%Prime
      time ratings
              
              
              14.0
              %
              
              
              14.6
              %
              
              
              (0.6
              )%
 
  Our
principal competitors are the main channels operated by the public broadcaster,
STV1 and STV2, with an all day audience share of 17.5% and 6.5% respectively,
for the six months ended June 30, 2008. The national all day audience share of
TV JOJ, the only other significant privately owned channel, was 16.2% during the
same period.
  Prime
time audience share for STV1 decreased from 19.4% to 18.5% for comparable
periods, while prime time audience share for TV JOJ increased from 16.9% to
18.8% and prime time audience share for STV2 increased from 5.0% to
5.8%.
  Prime
time ratings for the Slovak Republic fell from 38.2% to 36.3% for comparable
periods.
  Page
60
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  Three
months ended June 30, 2008 compared to the three months ended June 30,
2007
 
 SLOVAK
      REPUBLIC SEGMENT FINANCIAL INFORMATIONFor
      the Three Months Ended June 30, (US$ 000's)2008
              
              
              2007
              
              
              MovementSpot
      revenues
              
              $
              33,723
              
              
              $
              28,494
              
              
              
              18.4
              %Non-spot
      revenues
              
              
              3,374
              
              
              
              1,158
              
              
              
              191.4
              %Segment
      Net Revenues
              
              $
              37,097
              
              
              $
              29,652
              
              
              
              25.1
              %Represented
      by:Broadcast
      operations
              
              $
              36,993
              
              
              $
              29,563
              
              
              
              25.1
              %Non-broadcast
      operations
              
              
              104
              
              
              
              89
              
              
              
              16.9
              %Segment
      Net Revenues
              
              $
              37,097
              
              
              $
              29,652
              
              
              
              25.1
              %Segment
      EBITDA
              
              $
              13,974
              
              
              $
              11,712
              
              
              
              19.3
              %Represented
      by:Broadcast
      operations
              
              $
              14,201
              
              
              $
              11,894
              
              
              
              19.4
              %Non-broadcast
      operations
              
              
              (227
              )
              
              
              (182
              )
              
              
              24.7
              %Segment
      EBITDA
              
              $
              13,974
              
              
              $
              11,712
              
              
              
              19.3
              %Segment
      EBITDA Margin
              
              
              38
              %
              
              
              39
              %
              
              
              (1
              )%
 
  ·
              Segment Net Revenues for
      the three months ended June 30, 2008 increased by 25% compared to the
      three months ended June 30, 2007.  In local currency, Segment
      Net Revenues decreased by 1%.  The increase in Segment Net
      Revenues was due to increases of 18% in spot revenues and 191% in non-spot
      revenues.  The increase in spot revenues is mainly due to
      increases in the average revenue per GRP sold, offsetting a fall in the
      volume of GRPs sold, reflecting a change in sales policy which encouraged
      clients to spend more of their budgets during the low season of the first
      quarter.  The increase in non-spot revenues was due to
      sponsorship revenue generated from the shows ‘Elan Je Elan’ and ‘Lets
      Dance’.
 
 ·
              Segment EBITDA for the
      three months ended June 30, 2008 increased by 19% compared to the three
      months ended June 30, 2007, and the EBITDA margin decreased to 38% from
      39% over comparable periods.  In local currency, Segment EBITDA
      decreased by 6%.
 
 Costs
charged in arriving at Segment EBITDA for the three months ended June 30, 2008
increased by 29% compared to the three months ended June 30, 2007. The cost of
programming increased by 54%, 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
35%. Other operating costs decreased by 9%, primarily due to the
reclassification described above, partially offset by increased broadcast
operating costs. Selling, general and administrative costs increased by 10%
primarily as a result of increased office running costs.
  Page
61
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  Six
months ended June 30, 2008 compared to the six months ended June 30,
2007
 
 SLOVAK
      REPUBLIC SEGMENT FINANCIAL INFORMATIONFor
      the Six Months Ended June 30, (US$ 000's)2008
              
              
              2007
              
              
              MovementSpot
      revenues
              
              $
              58,202
              
              
              $
              46,569
              
              
              
              25
              %Non-spot
      revenues
              
              
              5,129
              
              
              
              1,760
              
              
              
              191.4
              %Segment
      Net Revenues
              
              $
              63,331
              
              
              $
              48,329
              
              
              
              31.0
              %Represented
      by:Broadcast
      operations
              
              $
              63,206
              
              
              $
              48,225
              
              
              
              31.1
              %Non-broadcast
      operations
              
              
              125
              
              
              
              104
              
              
              
              20.2
              %Segment
      Net Revenues
              
              $
              63,331
              
              
              $
              48,329
              
              
              
              31.0
              %Segment
      EBITDA
              
              $
              23,111
              
              
              $
              17,468
              
              
              
              32.3
              %Represented
      by:Broadcast
      operations
              
              $
              23,581
              
              
              $
              17,753
              
              
              
              32.8
              %Non-broadcast
      operations
              
              
              (470
              )
              
              
              (285
              )
              
              
              64.9
              %Segment
      EBITDA
              
              $
              23,111
              
              
              $
              17,468
              
              
              
              32.3
              %Segment
      EBITDA Margin
              
              
              36
              %
              
              
              36
              %
              
              
              -
 
 
 ·
              Segment Net Revenues for
      the six months ended June 30, 2008 increased by 31% compared to the six
      months ended June 30, 2007.  In local currency, Segment Net
      Revenues increased by 7%.  The increase in Segment Net Revenues
      was due to increases of 25% in spot revenues and 191% in non-spot
      revenues.  The increase in spot revenues is mainly due to
      increases in the average revenue per GRP sold, offsetting a slight
      decrease in the volume of GRPs sold.  The increase in non-spot
      revenues was due to sponsorship revenue generated from the shows ‘Elan Je
      Elan’ and ‘Lets Dance’.
 
 ·
              Segment EBITDA for the
      six months ended June 30, 2008 increased by 32% compared to the six months
      ended June 30, 2007, with the EBITDA margin remaining stable at
      36%.  In local currency, Segment EBITDA increased by
      8%.
 
 Costs
charged in arriving at Segment EBITDA for the six months ended June 30, 2008
increased by 30% compared to the six months ended June 30, 2007. The cost of
programming increased by 56%, 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
34%. Other operating costs decreased by 7%, primarily due to the
reclassification described above, partially offset by increased broadcast
operating costs. Selling, general and administrative costs increased by 16%
primarily as a result of increased office running costs and marketing and
research costs.
 
 (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
Euro appreciated by 14% against the US dollar between June 30, 2007 and June 30,
2008.
  Page
62
 Table of Contents
  POP
TV and KANAL A Combined Audience Share and Ratings Performance
 
 For
advertising sales purposes, each of POP TV’s and KANAL A’s target audience is
the 18-49 demographic and all audience data shown is on this basis.
 
  For
      the Six Months Ended June 30,2008
              
              
              2007
              
              
              MovementAll
      day audience share
              
              
              40.0
              %
              
              
              40.3
              %
              
              
              (0.3
              )%All
      day ratings
              
              
              4.6
              %
              
              
              4.7
              %
              
              
              (0.1
              )%Prime
      time audience share
              
              
              46.2
              %
              
              
              47.8
              %
              
              
              (1.6
              )%Prime
      time ratings
              
              
              11.9
              %
              
              
              12.2
              %
              
              
              (0.3
              )%
 
  Our major
competitors are the two channels operated by the public broadcaster, SL01 and
SL02, with all day audience shares for the six months ended June 30, 2008 of
16.6% and 7.7%, respectively, and privately owned broadcaster TV3 with an all
day audience share of 7.0%.
  Prime
time audience share for SLO 1 decreased from 19.9% to 19.0% for comparable
periods, SLO 2 decreased from 6.6% to 6.5% and TV3 increased from 4.1% to
6.9%.
  Prime
time ratings for the Slovenia market increased from 25.5% to 25.6% for
comparable periods.
  Three
months ended June 30, 2008 compared to the three months ended June 30,
2007
 
 SLOVENIA
      SEGMENT FINANCIAL INFORMATIONFor
      the Three Months Ended June 30, (US$ 000's)2008
              
              
              2007
              
              
              MovementSpot
      revenues
              
              $
              22,511
              
              
              $
              17,435
              
              
              
              29.1
              %Non-spot
      revenues
              
              
              3,699
              
              
              
              2,660
              
              
              
              39.1
              %Segment
      Net Revenues
              
              $
              26,210
              
              
              $
              20,095
              
              
              
              30.4
              %Represented
      by:Broadcast
      operations
              
              $
              24,911
              
              
              $
              19,023
              
              
              
              31.0
              %Non-broadcast
      operations
              
              
              1,299
              
              
              
              1,072
              
              
              
              21.2
              %Segment
      Net Revenues
              
              $
              26,210
              
              
              $
              20,095
              
              
              
              30.4
              %Segment
      EBITDA
              
              $
              10,866
              
              
              $
              8,388
              
              
              
              29.5
              %Represented
      by:Broadcast
      operations
              
              $
              11,123
              
              
              $
              8,017
              
              
              
              38.7
              %Non-broadcast
      operations
              
              
              (257
              )
              
              
              371
              
              
              
              (169.3
              )%Segment
      EBITDA
              
              $
              10,866
              
              
              $
              8,388
              
              
              
              29.5
              %Segment
      EBITDA Margin
              
              
              41
              %
              
              
              42
              %
              
              
              (1
              )%
  Page
63
 Table of Contents
  ·
                Segment Net Revenues for
      the three months ended June 30, 2008 increased by 30% compared to the
      three months ended June 30, 2007.  In local currency Segment Net
      Revenues increased by 12%.
 
 Spot
revenues in the three months ended June 30, 2008 increased by 29% compared to
the three months ended June 30, 2007, driven by double-digit price increases.
Non-spot revenues increased by 39% over comparable periods due to increased
sponsorship, increased revenues generated by audience voting on television shows
and also increased non-broadcast advertising revenue.
 
 ·
              Segment EBITDA for the
      three months ended June 30, 2008 increased by 30% compared to the three
      months ended June 30, 2007. In local currency, Segment EBITDA increased by
      12%.
 
 Costs
charged in arriving at Segment EBITDA for the three months ended June 30, 2008
increased by 31% compared to the three months ended June 30,
2007.  Cost of programming increased by 45% due to investments in
programming to maintain our leading position in the market in the face of
increased competition. Other operating costs increased by 20% primarily due to
higher staff costs as a result of the development of non-broadcast operations.
Selling, general and administrative expenses were in line with the same period
in 2007.
 
 Six
months ended June 30, 2008 compared to the six months ended June 30,
2007
 
 SLOVENIA
      SEGMENT FINANCIAL INFORMATIONFor
      the Six Months Ended June 30, (US$ 000's)2008
              
              
              2007
              
              
              MovementSpot
      revenues
              
              $
              37,818
              
              
              $
              28,760
              
              
              
              31.5
              %Non-spot
      revenues
              
              
              6,343
              
              
              
              4,004
              
              
              
              58.4
              %Segment
      Net Revenues
              
              $
              44,161
              
              
              $
              32,764
              
              
              
              34.8
              %Represented
      by:Broadcast
      operations
              
              $
              41,411
              
              
              $
              31,261
              
              
              
              32.5
              %Non-broadcast
      operations
              
              
              2,750
              
              
              
              1,503
              
              
              
              83.0
              %Segment
      Net Revenues
              
              $
              44,161
              
              
              $
              32,764
              
              
              
              34.8
              %Segment
      EBITDA
              
              $
              15,206
              
              
              $
              11,389
              
              
              
              33.5
              %Represented
      by:Broadcast
      operations
              
              $
              15,775
              
              
              $
              11,039
              
              
              
              42.9
              %Non-broadcast
      operations
              
              
              (569
              )
              
              
              350
              
              
              
              (262.2
              )%Segment
      EBITDA
              
              $
              15,206
              
              
              $
              11,389
              
              
              
              33.5
              %Segment
      EBITDA Margin
              
              
              34
              %
              
              
              35
              %
              
              
              (1
              )%
 
 
 ·
              Segment Net Revenues for
      the six months ended June 30, 2008 increased by 35% compared to the six
      months ended June 30, 2007.  In local currency Segment Net
      Revenues increased by 17%.
 
 Spot
revenues in the six months ended June 30, 2008 increased by 32% compared to the
six months ended June 30, 2007, driven by double-digit price increases. Non-spot
revenues increased by 58% over comparable periods primarily due to increased
non-broadcast advertising revenue. In addition there have been increased
revenues generated by audience voting on television shows and also increased
sponsorship.
  Page
64
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  ·
              Segment EBITDA for the
      six months ended June 30, 2008 increased by 34% compared to the six months
      ended June 30, 2007. In local currency, Segment EBITDA increased by
      16%.
 
 Costs
charged in arriving at Segment EBITDA for the six months ended June 30, 2008
increased by 36% compared to the six months ended June 30, 2007.  Cost
of programming increased by 48% due to investments in programming to maintain
our leading position in the market in the face of increased competition. Other
operating costs increased by 23% primarily due to higher staff costs as a result
of the development of non-broadcast operations. Selling, general and
administrative expenses increased by 13% primarily due to increased office
running costs.
 
 (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 Audience Share and Ratings Performance
 
 For
advertising sales purposes, STUDIO 1+1’s target audience is the 18+ demographic
and all audience data is shown on this basis.
 
  For
      the Six Months Ended June 30,2008
              
              
              2007
              
              
              MovementAll
      day audience share
              
              
              12.8
              %
              
              
              15.8
              %
              
              
              (3.0
              )%All
      day ratings
              
              
              1.9
              %
              
              
              2.3
              %
              
              
              (0.4
              )%Prime
      time audience share
              
              
              14.1
              %
              
              
              18.3
              %
              
              
              (4.2
              )%Prime
      time ratings
              
              
              5.1
              %
              
              
              6.6
              %
              
              
              (1.5
              )%
   Our main
competitors include Inter, with an all day audience share for the six months
ended June 30, 2008 of 22.3%, Novy Kanal with 6.9%, ICTV with 7.6% and STB with
7.7%.
 
 Prime
time audience share for Inter increased from 24.2% to 27.9% for comparable
periods, Novy Kanal increased from 6.3% to 6.7%, ICTV increased from 6.4% to
7.6% and STB decreased from 7.7% to 6.8%.
 
 Prime
time ratings in the Ukraine market decreased from 35.9% to 35.7% for comparable
periods.
 
 Additional
information
 
 The
functional currency for our Ukraine operations is the dollar.
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  Three
months ended June 30, 2008 compared to the three months ended June 30,
2007
 
 UKRAINE
      (STUDIO 1+1) SEGMENT FINANCIAL INFORMATIONFor
      the Three Months Ended June 30, (US$ 000's)2008
              
              
              2007
              
              
              MovementSpot
      revenues
              
              $
              23,485
              
              
              $
              18,285
              
              
              
              28.4
              %Non-spot
      revenues
              
              
              6,769
              
              
              
              4,416
              
              
              
              53.3
              %Segment
      Net Revenues
              
              $
              30,254
              
              
              $
              22,701
              
              
              
              33.3
              %Represented
      by:Broadcast
      operations
              
              $
              30,205
              
              
              $
              22,701
              
              
              
              33.1
              %Non-broadcast
      operations
              
              
              49
              
              
              
              -
              
              
              
              -Segment
      Net Revenues
              
              $
              30,254
              
              
              $
              22,701
              
              
              
              33.3
              %Segment
      EBITDA
              
              $
              (1,894
              )
              
              $
              565
              
              
              
              (435.2
              )%Represented
      by:Broadcast
      operations
              
              $
              (1,703
              )
              
              $
              716
              
              
              
              (337.8
              )%Non-broadcast
      operations
              
              
              (191
              )
              
              
              (151
              )
              
              
              26.5
              %Segment
      EBITDA
              
              $
              (1,894
              )
              
              $
              565
              
              
              
              (435.2
              )%Segment
      EBITDA Margin
              
              
              (6
              )%
              
              
              2
              %
              
              
              (8
              )%
 
 
 ·
              Segment Net Revenues for
      the three months ended June 30, 2008 increased by 33% compared to the
      three months ended June 30, 2007. Spot revenues increased by 28%, driven
      by an increase in the average revenue per GRP sold, offsetting a decrease
      in the volume of GRPs sold as a result of our decline in
      ratings.  Non-spot revenues increased by 53% over comparable
      periods primarily due to the sale of surplus programming. Political
      advertising in connection with the election for the Mayor of Kiev on May
      25, 2008 contributed US$ 2.2 million to Segment Net
    Revenues.
 
 ·
              Segment EBITDA for the
      three months ended June 30, 2008 decreased by 435% compared to the three
      months ended June 30, 2007, resulting in an EBITDA margin of negative 6%
      compared to a positive 2% in the three months ended June 30,
      2007.
 
 Costs
charged in arriving at Segment EBITDA for the three months ended June 30, 2008
increased by 45% compared to the three months ended June 30, 2007. Cost of
programming grew by 37%, including a charge of US$ 4.0 million to write off
poorly performing programming.  The increase in cost of programming
reflects continued price inflation for Russian programming, which is popular in
the market, as well as increased investment in such programming to improve our
programming schedule and boost ratings.  Other operating costs
increased by 43% primarily due to increased salary costs.  Selling,
general and administrative expenses increased by 153%, due to increased
provision for doubtful debts, increased consultancy fees, increased office
running costs and increased marketing and research costs.
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  Six
months ended June 30, 2008 compared to the six months ended June 30,
2007
 
 
 UKRAINE
      (STUDIO 1+1) SEGMENT FINANCIAL INFORMATIONFor
      the Six Months Ended June 30, (US$ 000's)2008
              
              
              2007
              
              
              MovementSpot
      revenues
              
              $
              41,861
              
              
              $
              33,106
              
              
              
              26.4
              %Non-spot
      revenues
              
              
              11,612
              
              
              
              7,670
              
              
              
              51.4
              %Segment
      Net Revenues
              
              $
              53,473
              
              
              $
              40,776
              
              
              
              31.1
              %Represented
      by:Broadcast
      operations
              
              $
              53,424
              
              
              $
              40,776
              
              
              
              31.0
              %Non-broadcast
      operations
              
              
              49
              
              
              
              -
              
              
              
              -Segment
      Net Revenues
              
              $
              53,473
              
              
              $
              40,776
              
              
              
              31.1
              %Segment
      EBITDA
              
              $
              (3,957
              )
              
              $
              (1,805
              )
              
              
              (119.2
              )%Represented
      by:Broadcast
      operations
              
              $
              (3,567
              )
              
              $
              (1,622
              )
              
              
              (119.9
              )%Non-broadcast
      operations
              
              
              (390
              )
              
              
              (183
              )
              
              
              (113.1
              )%Segment
      EBITDA
              
              $
              (3,957
              )
              
              $
              (1,805
              )
              
              
              (119.2
              )%Segment
      EBITDA Margin
              
              
              (7
              )%
              
              
              (4
              )%
              
              
              (3
              )%
 
 
 ·
              Segment Net Revenues for
      the six months ended June 30, 2008 increased by 31% compared to the six
      months ended June 30, 2007. Spot revenues increased by 26%, driven by an
      increase in the average revenue per GRP sold, offsetting a decrease in the
      volume of GRPs sold as a result of our decline in
      ratings.  Non-spot revenues increased by 51% over comparable
      periods primarily due to the sale of surplus programming. Political
      advertising in connection with the election for the Mayor of Kiev on May
      25, 2008 contributed US$ 2.2 million to Segment Net
    Revenues.
 
 
 ·
              Segment EBITDA losses
      for the six months ended June 30, 2008 increased by 3% compared to the six
      months ended June 30, 2007, resulting in an EBITDA margin of (7)% compared
      to an EBITDA margin of (4)% in the six months ended June 30,
      2007.
 
 Costs
charged in arriving at Segment EBITDA for the six months ended June 30, 2008
increased by 35% compared to the six months ended June 30, 2007. Cost of
programming grew by 33%, including a charge of US$ 4.0 million to write off
poorly performing programming.  The increase in cost of programming
reflects continued price inflation for Russian programming, which is popular in
the market, as well as increased investment in such programming to improve our
programming schedule and boost ratings following disappointing ratings in the
first half of 2008.  Other operating costs increased by 29% primarily
due to increased salary costs and also increased broadcast operating
expenses.  Selling, general and administrative expenses increased by
64%, due to increased provision for doubtful debts, increased consultancy fees,
increased office running costs and increased marketing and research
costs.
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  (G)
UKRAINE (KINO, CITI)
 
 KINO
and CITI Audience  Share and Ratings Performance
 
 For
advertising sales purposes, KINO’s target audience is the 15-50 demographic
nationally while CITI’s target audience is the 15-50 demographic in
Kiev.
 
 
 For
      the Six Months Ended June 30,2008
              
              
              2007
              
              
              MovementKINO:
      Target (15-50 national) prime time audience share
              
              
              0.5
              %
              
              
              0.6
              %
              
              
              (0.1
              )%CITI:
      Target (15-50 Kiev) prime time audience share
              
              
              1.7
              %
              
              
              2.0
              %
              
              
              (0.3
              )%
 
 
 Three
months ended June 30, 2008 compared to the three months ended June 30,
2007
 
 UKRAINE
      (KINO, CITI) SEGMENT FINANCIAL INFORMATIONFor
      the Three Months Ended June 30, (US$ 000's)2008
              
              
              2007
              
              
              MovementSpot
      revenues
              
              $
              635
              
              
              $
              334
              
              
              
              90.1
              %Non-spot
      revenues
              
              
              689
              
              
              
              320
              
              
              
              115.3
              %Segment
      Net Revenues
              
              $
              1,324
              
              
              $
              654
              
              
              
              102.4
              %Represented
      by:Broadcast
      operations
              
              $
              1,324
              
              
              $
              654
              
              
              
              102.4
              %Non-broadcast
      operations
              
              
              -
              
              
              
              -
              
              
              
              0
              %Segment
      Net Revenues
              
              $
              1,324
              
              
              $
              654
              
              
              
              102.4
              %Segment
      EBITDA
              
              $
              (1,055
              )
              
              $
              (1,755
              )
              
              
              39.9
              %Represented
      by:Broadcast
      operations
              
              $
              (1,055
              )
              
              $
              (1,755
              )
              
              
              39.9
              %Non-broadcast
      operations
              
              
              -
              
              
              
              -
              
              
              
              -Segment
      EBITDA
              
              $
              (1,055
              )
              
              $
              (1,755
              )
              
              
              39.9
              %Segment
      EBITDA Margin
              
              
              (80
              )%
              
              
              (268
              )%
              
              
              188
              %
 
 
 ·
              Segment Net Revenues for
      the three months ended June 30, 2008 increased by 102% compared to the
      three months ended June 30, 2007. Spot revenues increased by 90%. Non-spot
      revenues increased by 115%, primarily due to increased
      sponsorship.
 
 ·
              Segment EBITDAlosses
      for the three months ended June 30, 2008 decreased by 40% compared to the
      three months ended June 30, 2007.
 
 Costs
charged in arriving at Segment EBITDA for the three months ended June 30, 2008
were in line with the three months ended June 30, 2007. Cost of programming fell
by 14% over comparable periods, as we sought to minimize programming
costs.  Other operating costs increased by 29% while selling, general
and administrative expenses remained in line with the three months ended June
30, 2007.
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  Six
months ended June 30, 2008 compared to the six months ended June 30,
2007
 
 
 UKRAINE
      (KINO, CITI) SEGMENT FINANCIAL INFORMATIONFor
      the Six Months Ended June 30, (US$ 000's)2008
              
              
              2007
              
              
              MovementSpot
      revenues
              
              $
              1,012
              
              
              $
              477
              
              
              
              112.2
              %Non-spot
      revenues
              
              
              1,290
              
              
              
              575
              
              
              
              124.3
              %Segment
      Net Revenues
              
              $
              2,302
              
              
              $
              1,052
              
              
              
              118.8
              %Represented
      by:Broadcast
      operations
              
              $
              2,302
              
              
              $
              1,052
              
              
              
              118.8
              %Non-broadcast
      operations
              
              
              -
              
              
              
              -
              
              
              
              -Segment
      Net Revenues
              
              $
              2,302
              
              
              $
              1,052
              
              
              
              118.8
              %Segment
      EBITDA
              
              $
              (2,261
              )
              
              $
              (4,172
              )
              
              
              45.8
              %Represented
      by:Broadcast
      operations
              
              $
              (2,261
              )
              
              $
              (4,172
              )
              
              
              45.8
              %Non-broadcast
      operations
              
              
              -
              
              
              
              -
              
              
              
              -Segment
      EBITDA
              
              $
              (2,261
              )
              
              $
              (4,172
              )
              
              
              45.8
              %Segment
      EBITDA Margin
              
              
              (98
              )%
              
              
              (397
              )%
              
              
              299
              %
 
 
 ·
              Segment Net Revenues for
      the six months ended June 30, 2008 increased by 119% compared to the six
      months ended June 30, 2007. Spot revenues increased by 112%. Non-spot
      revenues increased by 124%, primarily due to increased
      sponsorship.
 
 ·
              Segment EBITDAlosses
      for the six months ended June 30, 2008 decreased by 46% compared to the
      six months ended June 30, 2007.
 
 Costs
charged in arriving at Segment EBITDA for the six months ended June 30, 2008
decreased by 13% compared to the six months ended June 30, 2007. Cost of
programming fell by 24% over comparable periods, as we sought to minimize
programming costs.  Other operating costs increased by 21% while
selling, general and administrative expenses decreased by 23% due to decreases
in office running costs and marketing and research costs.
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  PROGRAMMING
PAYMENTS AND PROGRAM AMORTIZATION
 
 Our cost
of programming for the three and six months ended June 30, 2008 and 2007 was as
follows:
 
 COST
      OF PROGRAMMINGFor
      the Three Months Ended June 30,
                (US$
      000’s)
              
              
              For
      the Six Months Ended June 30,
                (US$
      000’s)2008
              
              
              2007
              
              
              2008
              
              
              2007Production
      expenses
              
              $
              55,073
              
              
              $
              40,778
              
              
              $
              97,240
              
              
              $
              68,334Program
      amortization
              
              
              62,536
              
              
              
              41,995
              
              
              
              115,123
              
              
              
              80,792Cost
      of programming
              
              $
              117,609
              
              
              $
              82,773
              
              
              $
              212,363
              
              
              $
              149,126
 
 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$ 34.8 million , or 42.1 %, in the three months
ended June 30, 2008 compared to the three months ended June 30, 2007 primarily
due to:
 
 ·
              US$
      2.9 million of additional programming costs from our Croatia
      operations;
 
 ·
              US$
      8.9 million of additional programming costs from our Czech Republic
      operations;
 
 ·
              US$
      8.7 million of additional programming costs from our Romania
      operations;
 
 ·
              US$
      5.5 million of additional programming costs from our Slovak Republic
      operations;
 
 ·
              US$
      3.0 million of additional programming costs from our Slovenia
      operations;
 
 ·
              US$
      6.0 million of additional programming costs from our Ukraine (STUDIO 1+1)
      operations; partially offset by
 
 ·
              US$
      (0.2) million of reduced programming costs from our Ukraine (KINO, CITI)
      operations.
 
 
 Total
consolidated programming costs (including amortization of programming rights and
production costs) increased by US$ 63.2 million, or 42.4 %, in the six months
ended June 30, 2008 compared to the six months ended June 30, 2007 primarily due
to:
 
 ·
              US$
      4.7 million of additional programming costs from our Croatia
      operations;
 
 ·
              US$
      18.9 million of additional programming costs from our Czech Republic
      operations;
 
 ·
              US$
      15.2 million of additional programming costs from our Romania
      operations;
 
 ·
              US$
      9.3 million of additional programming costs from our Slovak Republic
      operations;
 
 ·
              US$
      5.9 million of additional programming costs from our Slovenia
      operations;
 
 ·
              US$
      10.0 million of additional programming costs from our Ukraine (STUDIO 1+1)
      operations; partially offset by
 
 ·
              US$
      (0.8) million of reduced programming costs from our Ukraine (KINO, CITI)
      operations.
  Page
70
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  The
amortization of acquired programming for each of our consolidated operations for
the three and six months ended June 30, 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, which is
reflected within net cash generated from continuing operating activities in our
consolidated statement of cash flows.
 
 PROGRAM
      AMORTIZATION AND CASH PAID FOR PROGRAMMINGFor
      the Three Months Ended June 30, (US$ 000’s)
              
              
              For
      the Six Months Ended June 30, (US$ 000’s)2008
              
              
              2007
              
              
              2008
              
              
              2007Program
      amortization:Croatia
      (NOVA TV)
              
              $
              4,949
              
              
              $
              5,234
              
              
              $
              10,804
              
              
              $
              10,634Czech
      Republic (TV NOVA, NOVA CINEMA and GALAXIE SPORT)
              
              
              14,023
              
              
              
              7,295
              
              
              
              27,080
              
              
              
              13,851Romania
      (1)
              
              
              14,029
              
              
              
              9,906
              
              
              
              26,017
              
              
              
              19,335Slovak
      Republic (TV MARKIZA)
              
              
              6,818
              
              
              
              2,969
              
              
              
              10,781
              
              
              
              6,176Slovenia
      (POP TV and KANAL A)
              
              
              3,002
              
              
              
              2,246
              
              
              
              5,958
              
              
              
              4,442Ukraine
      (STUDIO 1+1)
              
              
              19,140
              
              
              
              13,561
              
              
              
              33,312
              
              
              
              24,489Ukraine
      (KINO, CITI)
              
              
              575
              
              
              
              784
              
              
              
              1,171
              
              
              
              1,865$
              62,536
              
              
              $
              41,995
              
              
              $
              115,123
              
              
              $
              80,792Cash
      paid for programming:Croatia
      (NOVA TV)
              
              $
              7,638
              
              
              $
              10,002
              
              
              $
              15,061
              
              
              $
              10,907Czech
      Republic (TV NOVA, NOVA CINEMA and GALAXIE SPORT)
              
              
              7,370
              
              
              
              4,269
              
              
              
              19,239
              
              
              
              10,846Romania
      (1)
              
              
              17,529
              
              
              
              12,931
              
              
              
              31,395
              
              
              
              22,977Slovak
      Republic (TV MARKIZA)
              
              
              4,672
              
              
              
              4,466
              
              
              
              10,240
              
              
              
              8,165Slovenia
      (POP TV and KANAL A)
              
              
              3,714
              
              
              
              2,480
              
              
              
              5,956
              
              
              
              4,652Ukraine
      (STUDIO 1+1)
              
              
              15,101
              
              
              
              16,075
              
              
              
              22,153
              
              
              
              26,559Ukraine
      (KINO, CITI)
              
              
              250
              
              
              
              375
              
              
              
              529
              
              
              
              1,117$
              56,274
              
              
              $
              50,598
              
              
              $
              104,573
              
              
              $
              85,223
  (1)
Romania channels are PRO TV, PRO CINEMA, ACASA, PRO TV INTERNATIONAL, SPORT.RO
and MTV ROMANIA for the three and six  months ended
June  30, 2008. For the three and six months ended June 30, 2007
Romanian Channels were PRO TV, PRO CINEMA, ACASA, PRO TV INTERNATIONAL and
SPORT.RO. We acquired SPORT.RO on February 20, 2007.
  Page
71
 Table of Contents
  IV.
Analysis of the Results of Consolidated Operations
  IV
(a) Net Revenues for the three months ended June 30, 2008 compared to the three
months ended June 30, 2007
 
 CONSOLIDATED
      NET REVENUESFor
      the Three Months Ended June 30, (US$ 000's)2008
              
              
              2007
              
              
              MovementCroatia
              
              $
              18,094
              
              
              $
              10,414
              
              
              
              73.7
              %Czech
      Republic
              
              
              112,570
              
              
              
              80,544
              
              
              
              39.8
              %Romania
              
              
              79,842
              
              
              
              52,224
              
              
              
              52.9
              %Slovak
      Republic
              
              
              37,097
              
              
              
              29,652
              
              
              
              25.1
              %Slovenia
              
              
              26,210
              
              
              
              20,095
              
              
              
              30.4
              %Ukraine
      (STUDIO 1+1)
              
              
              30,254
              
              
              
              22,701
              
              
              
              33.3
              %Ukraine
      (KINO, CITI)
              
              
              1,324
              
              
              
              654
              
              
              
              102.4
              %Total
      Consolidated Net Revenues
              
              $
              305,391
              
              
              $
              216,284
              
              
              
              41.2
              %
 
 Our
consolidated net revenues for the three months ended June 30, 2008 increased by
US$ 89.1 million, or 41%, compared to the three months ended June 30,
2007.  See discussion in Item 2, III. “Analysis of Segment
Results”.
 
 IV
(b) Net Revenues for the six months ended June 30, 2008 compared to the six
months ended June 30, 2007
 
 CONSOLIDATED
      NET REVENUESFor
      the Six Months Ended June 30, (US$ 000's)2008
              
              
              2007
              
              
              MovementCroatia
              
              $
              29,628
              
              
              $
              17,646
              
              
              
              67.9
              %Czech
      Republic
              
              
              198,128
              
              
              
              132,063
              
              
              
              50.0
              %Romania
              
              
              137,838
              
              
              
              91,566
              
              
              
              50.5
              %Slovak
      Republic
              
              
              63,331
              
              
              
              48,329
              
              
              
              31.0
              %Slovenia
              
              
              44,161
              
              
              
              32,764
              
              
              
              34.8
              %Ukraine
      (STUDIO 1+1)
              
              
              53,473
              
              
              
              40,776
              
              
              
              31.1
              %Ukraine
      (KINO, CITI)
              
              
              2,302
              
              
              
              1,052
              
              
              
              118.9
              %Total
      Consolidated Net Revenues
              
              $
              528,861
              
              
              $
              364,196
              
              
              
              45.2
              %
 
 Our
consolidated net revenues for the six months ended June 30, 2008 increased by
US$ 164.7 million, or 45%, compared to the six months ended June 30,
2007.  See discussion in Item 2, III. “Analysis of Segment
Results”.
  Page
72
 Table of Contents
  IV
(c) Cost of Revenues for the three months ended June 30, 2008 compared to the
three months ended June 30, 2007
 
 CONSOLIDATED
      COST OF REVENUESFor
      the Three Months Ended June 30, (US$ 000's)2008
              
              
              2007
              
              
              MovementOperating
      costs
              
              $
              37,045
              
              
              $
              30,944
              
              
              
              19.7
              %Cost
      of programming
              
              
              117,609
              
              
              
              82,773
              
              
              
              42.1
              %Depreciation
      of station property, plant and equipment
              
              
              13,178
              
              
              
              7,680
              
              
              
              71.6
              %Amortization
      of broadcast licenses and other intangibles
              
              
              8,188
              
              
              
              5,165
              
              
              
              58.5
              %Total
      Consolidated Cost of Revenues
              
              $
              176,020
              
              
              $
              126,562
              
              
              
              39.1
              %
 
 Total
consolidated cost of revenues for the three months ended June 30, 2008 increased
by US$ 49.5 million, or 39%, compared to the three months ended June 30,
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 June
30, 2008 increased by US$ 6.1 million, or 20%, compared to the three months
ended June 30, 2007.  See discussion in Item 2, III. “Analysis of
Segment Results”.
 
 Cost of
programming:Consolidated programming costs (including
amortization of programming rights and production costs) for the three months
ended June 30, 2008 increased by US$ 34.8 million, or 42%, compared to the three
months ended June 30, 2007.  See discussion in Item 2, III. “Analysis
of Segment Results”.
 
 Depreciation of property, plant and
equipment:  Total consolidated depreciation of property, plant
and equipment for the three months ended June 30, 2008 increased by US$ 5.5
million, or 72%, compared to the three months ended June 30, 2007 primarily due
to depreciation of newly acquired production equipment assets across each of our
operations.
 
 Amortization of broadcast licenses
and other intangibles:  Total consolidated amortization of
broadcast licenses and other intangibles for the three months ended June 30,
2008 increased by US$ 3.0 million, or 59%, compared to the three months ended
June 30, 2007 primarily due to the amortization of the broadcast licenses and
customer relationships of our Romania and Slovak Republic operations arising on
our acquisition of increased stakes in the second and third quarters of
2007.
 
 IV
(d) Cost of Revenues for the six months ended June 30, 2008 compared to the six
months ended June 30, 2007
 
 CONSOLIDATED
      COST OF REVENUESFor
      the Six Months Ended June 30, (US$ 000's)2008
              
              
              2007
              
              
              MovementOperating
      costs
              
              $
              70,307
              
              
              $
              56,601
              
              
              
              24.2
              %Cost
      of programming
              
              
              212,363
              
              
              
              149,126
              
              
              
              42.4
              %Depreciation
      of station property, plant and equipment
              
              
              25,518
              
              
              
              14,579
              
              
              
              75.0
              %Amortization
      of broadcast licenses and other intangibles
              
              
              15,854
              
              
              
              10,327
              
              
              
              53.5
              %Total
      Consolidated Cost of Revenues
              
              $
              324,042
              
              
              $
              230,633
              
              
              
              40.5
              %
  Page
73
 Table of Contents
  Total
consolidated cost of revenues for the six months ended June 30, 2008 increased
by US$ 93.4 million, or 41%, compared to the six months ended June 30,
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 six months ended June 30,
2008 increased by US$ 13.7 million, or 24%, compared to the six months ended
June 30, 2007.  See discussion in Item 2, III. “Analysis of Segment
Results”.
 
 Cost of
programming:Consolidated programming costs (including
amortization of programming rights and production costs) for the six months
ended June 30, 2008 increased by US$ 63.2 million, or 42%, compared to the six
months ended June 30, 2007.  See discussion in Item 2, III. “Analysis
of Segment Results”.
 
 Depreciation of property, plant and
equipment:  Total consolidated depreciation of property, plant
and equipment for the six months ended June 30, 2008 increased by US$ 10.9
million, or 75%, compared to the six months ended June 30, 2007 primarily due to
depreciation of newly acquired production equipment assets across each of our
operations.
 
 Amortization of broadcast licenses
and other intangibles:  Total consolidated amortization of
broadcast licenses and other intangibles for the six months ended June 30, 2008
increased by US$ 5.5 million, or 53.5%, compared to the six months ended June
30, 2007 primarily due to the amortization of the broadcast licenses and
customer relationships of our Romania and Slovak Republic operations arising on
our acquisition of increased stakes in the second and third quarters of
2007.
 
 IV
(e) Station Selling, General and Administrative Expenses for the three months
ended June 30, 2008 compared to the three months ended June 30,
2007
 
 CONSOLIDATED
      STATION SELLING, GENERAL AND ADMINISTRATIVE EXPENSESFor
      the Three Months Ended June 30, (US$ 000's)2008
              
              
              2007
              
              
              MovementCroatia
              
              $
              1,745
              
              
              $
              2,013
              
              
              
              (13.3
              )%Czech
      Republic
              
              
              4,225
              
              
              
              4,908
              
              
              
              (13.9
              )%Romania
              
              
              3,470
              
              
              
              2,918
              
              
              
              18.9
              %Slovak
      Republic
              
              
              2,554
              
              
              
              2,321
              
              
              
              10.0
              %Slovenia
              
              
              1,738
              
              
              
              1,770
              
              
              
              2.0
              %Ukraine
      (STUDIO 1+1)
              
              
              3,593
              
              
              
              1,417
              
              
              
              153.6
              %Ukraine
      (KINO, CITI)
              
              
              341
              
              
              
              352
              
              
              
              (3.1
              )%Total
      Consolidated Station Selling, General and Administrative
      Expenses
              
              $
              17,666
              
              
              $
              15,699
              
              
              
              12.5
              %
 
 Total
consolidated station selling, general and administrative expenses for the three
months ended June 30, 2008 increased by US$ 2.0 million, or 13%, compared to the
three months ended June 30, 2007.  See discussion in Item 2, III.
“Analysis of Segment Results”.
  Page
74
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  IV
(f) Station Selling, General and Administrative Expenses for the six months
ended June 30, 2008 compared to the six months ended June 30, 2007
 
 CONSOLIDATED
      STATION SELLING, GENERAL AND ADMINISTRATIVE EXPENSESFor
      the Six Months Ended June 30, (US$ 000's)2008
              
              
              2007
              
              
              MovementCroatia
              
              $
              3,304
              
              
              $
              3,739
              
              
              
              (11.6
              )%Czech
      Republic
              
              
              12,001
              
              
              
              10,000
              
              
              
              20.0
              %Romania
              
              
              7,284
              
              
              
              5,342
              
              
              
              36.4
              %Slovak
      Republic
              
              
              4,951
              
              
              
              4,259
              
              
              
              16.2
              %Slovenia
              
              
              3,931
              
              
              
              3,477
              
              
              
              13.1
              %Ukraine
      (STUDIO 1+1)
              
              
              6,348
              
              
              
              3,883
              
              
              
              63.5
              %Ukraine
      (KINO, CITI)
              
              
              602
              
              
              
              780
              
              
              
              (22.8
              )%Total
      Consolidated Station Selling, General and Administrative
      Expenses
              
              $
              38,421
              
              
              $
              31,480
              
              
              
              22.0
              %
 
 Total
consolidated station selling, general and administrative expenses increased by
US$ 6.9 million, or 22%, in the six months ended June 30, 2008 compared to the
six months ended June 30, 2007. See discussion in Item 2, III. “Analysis of
Segment Results”.
 
 
 IV
(g) Corporate Operating Costs for the three months ended June 30, 2008 compared
to the three months ended June 30, 2007
 
 CORPORATE
      OPERATING COSTSFor
      the Three Months Ended June 30, (US$ 000's)2008
              
              
              2007
              
              
              MovementCorporate
      operating costs (excluding stock-based compensation)
              
              $
              11,717
              
              
              $
              6,101
              
              
              
              92.1
              %Stock-based
      compensation
              
              
              1,991
              
              
              
              1,343
              
              
              
              48.3
              %Corporate
      Operating Costs
              
              $
              13,708
              
              
              $
              7,444
              
              
              
              84.1
              %
 
 Corporate
operating costs (excluding non-cash stock-based compensation) for the three
months ended June 30, 2008 increased by US$ 5.6 million, or 92%, compared to the
three months ended June 30, 2007.  This reflects:
 
 ·
              the
      effect of our appointment of Adrian Sarbu as our Chief Operating Officer
      in October 2007 and the resulting increase in salary and travel
      costs;
 ·
              increased
      corporate headcount following our establishment of a centralized planning
      and development function to manage our initiatives to improve operational
      efficiencies and expand our
footprint;
 ·
              increased
      accruals for staff bonuses as a result of our improvement in performance;
      partially offset by
 ·
              decreased
      legal and professional fees as a result of the conclusion of legal
      proceedings in respect of our Ukraine and Croatia operations;
      and
 ·
              decreased
      business development expenses
incurred.
 
 The
increase in the charge for non-cash stock-based compensation for the three
months ended June 30, 2008 compared to the three months ended June 30, 2007
reflects an increase in the fair value of stock options as our stock price
increased in recent years.  For more details, see Part I Item 1, Note
14, “Stock-Based Compensation”.
  Page
75
 Table of Contents
  IV
(h) Corporate Operating Costs for the six months ended June 30, 2008 compared to
the six months ended June 30, 2007
 
 CORPORATE
      OPERATING COSTSFor
      the Six Months Ended June 30, (US$ 000's)2008
              
              
              2007
              
              
              MovementCorporate
      operating costs (excluding stock-based compensation)
              
              $
              19,921
              
              
              $
              19,612
              
              
              
              1.6
              %Stock-based
      compensation
              
              
              3,804
              
              
              
              2,605
              
              
              
              46.0
              %Corporate
      Operating Costs
              
              $
              23,725
              
              
              $
              22,217
              
              
              
              6.8
              %
 
 Corporate
operating costs (excluding non-cash stock-based compensation) for the six months
ended June 30, 2008 increased by US$ 0.3 million, or 2%, compared to the six
months ended June 30, 2007, as a charge of US$ 6.0 million having been recorded
in 2007 in respect of the estimated cost of settling our Croatia litigation was
approximately equal to the increase in costs, described above, for the three
months ended June 30, 2008.
 
 The
increase in the charge for non-cash stock-based compensation for the six months
ended June 30, 2008 compared to the six months ended June 30, 2007 reflects an
increase in the fair value of stock options as our stock price increased in
recent years.  For more details, see Part I Item 1, Note 14,
“Stock-Based Compensation”.
 
 
 IV
(j) Operating Income for the three months ended June 30, 2008 compared to the
three months ended June 30, 2007
 
 OPERATING
      INCOMEFor
      the Three Months Ended June 30, (US$ 000's)2008
              
              
              2007
              
              
              MovementOperating
      Income
              
              $
              97,997
              
              
              $
              66,579
              
              
              
              47.2
              %
  Operating
income for the three months ended June 30, 2008 increased by US$ 31.4 million,
or 47%, compared to the three months ended June 30, 2007. Operating margin was
32%, compared with 31%  for the three months ended June 30,
2007.
 
 IV
(k) Operating Income for the six months ended June 30, 2008 compared to the six
months ended June 30, 2007
 
 OPERATING
      INCOMEFor
      the Six Months Ended June 30, (US$ 000's)2008
              
              
              2007
              
              
              MovementOperating
      Income
              
              $
              142,673
              
              
              $
              79,866
              
              
              
              78.6
              %
 
  Operating
income for the six months ended June 30, 2008 increased by US$ 62.8 million, or
79%, compared to the six months ended June 30, 2007. Operating margin was 27%,
compared with 22% for the six months ended June 30, 2007.
  Page
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  IV
(l) Other income / (expense) items for the three months ended June 30, 2008
compared to the three months ended June 30, 2007
 
 OTHER
      INCOME / (EXPENSE) ITEMSFor
      the Three Months Ended June 30, (US$ 000's)2008
              
              
              2007
              
              
              MovementInterest
      income
              
              $
              3,781
              
              
              $
              1,732
              
              
              
              118.3
              %Interest
      expense
              
              
              (18,140
              )
              
              
              (19,438
              )
              
              
              (6.7
              )%Foreign
      currency exchange gain / (loss), net
              
              
              6,881
              
              
              
              (2,116
              )
              
              
              425.2
              %Change
      in fair value of derivatives
              
              
              (13,281
              )
              
              
              7,528
              
              
              
              (276.4
              )%Other
      income / (expense)
              
              
              665
              
              
              
              (546
              )
              
              
              221.8
              %Income
      tax credit/ (expense)
              
              
              (8,919
              )
              
              
              (13,419
              )
              
              
              (33.5
              )%Minority
      interest in income of consolidated subsidiaries
              
              
              (1,380
              )
              
              
              (5,730
              )
              
              
              (75.9
              )%
 
 Interest income for the three
months ended June 30, 2008 increased by US$ 2.0 million compared to the three
months ended June 30, 2007, primarily as a result of our maintaining higher
average cash balances.
 
 Interest expense for the three
months ended June 30, 2008 decreased by US$ 1.3 million compared to the three
months ended June 30, 2007.  This reflects the impact of the US$ 6.9
million cost associated with the redemption of our 2012 Floating Rate Notes in
May 2007, partly offset by approximately US$ 4.2 million of
interest on the Convertible Notes issued in March 2008.
 
 Foreign currency exchange gain
/(loss), net:  For the three months ended June 30, 2008 we
recognized a US$ 6.9 million gain primarily as a result of the weakening of the
Euro against the dollar during the three-month period.  Our Senior
Notes are denominated in Euros, and we recognized a transaction gain of
approximately US$ 1.9 million due to movements in the spot rate between March
31, 2008 and June 30, 2008.  We also recognized a transaction gain of
US$ 2.6 million relating to the revaluation of monetary assets and liabilities
denominated in currencies other than the US dollar and US$ 2.4 million relating
to the revaluation of intercompany loans.
 
 For the
three months ended June 30, 2007 we recognized a transaction loss of US$ 2.1
million.
 
 Change in fair value of
derivatives: For the three months ended June 30, 2008 we recognized a US$
13.3 million loss as a result of the change in the fair value of the currency
swaps entered into on April 27, 2006.  For further information, see
Part I Item 1, Note 12, “Financial Instruments and Fair Value
Measurements”.
 
 Other income /
(expense):  For the three months ended June 30, 2008 we
recognized other income of US$ 0.7 million compared to a US$ 0.5 million expense
for the three months ended June 30, 2007.
 
 Provision for income
taxes:  The provision for income taxes for the three months
ended June 30, 2008 was US$ 8.9 million compared to US$ 13.4 million for the
three months ended June 30, 2007. The provision for income taxes for the three
months ended June 30, 2008 includes a credit of US$ 9.7 million relating to
movements in foreign exchange rates on intercompany loans with a corresponding
charge recognized in other comprehensive income. The underlying increase in our
provision for income taxes reflects our increased profitability.
 
 Minority interest in income of
consolidated subsidiaries:  For the three months ended June 30,
2008, we recognized a charge of US$ 1.4 million in respect of the minority
interest in the income of consolidated subsidiaries, compared to a charge of US$
5.7 million for the three months ended June 30, 2007. This reflected the decline
in profitability of our Ukraine (Studio 1+1) operations, as well as the fact
that there was a 20% minority interest in our Slovak Republic operations in the
three months ended June 30, 2007.
  Page
77
 Table of Contents
  IV
(m) Other income / (expense) items for the six months ended June 30, 2008
compared to the six months ended June 30, 2007
 
 OTHER
      INCOME / (EXPENSE) ITEMSFor
      the Six Months Ended June 30, (US$ 000's)2008
              
              
              2007
              
              
              MovementInterest
      income
              
              $
              5,961
              
              
              $
              3,146
              
              
              
              89.5
              %Interest
      expense
              
              
              (32,390
              )
              
              
              (30,834
              )
              
              
              5.0
              %Foreign
      currency exchange loss, net
              
              
              (10,549
              )
              
              
              (5,252
              )
              
              
              100.9
              %Change
      in fair value of derivatives
              
              
              (23,539
              )
              
              
              12,052
              
              
              
              (295.3
              )%Other
      income / (expense)
              
              
              1,325
              
              
              
              (790
              )
              
              
              267.7
              %Income
      tax credit/ (expense)
              
              
              1,423
              
              
              
              (18,478
              )
              
              
              107.7
              %Minority
      interest in income of consolidated subsidiaries
              
              
              (2,405
              )
              
              
              (5,370
              )
              
              
              (55.2
              )%
 
 Interest income for the six
months ended June 30, 2008 increased by US$ 2.8 million compared to the six
months ended June 30, 2007, primarily as a result of our maintaining higher
average cash balances.
 
 Interest expense for the six
months ended June 30, 2008 increased by US$ 1.6 million compared to the six
months ended June 30, 2007.  This reflects the impact of the US$ 6.9
million cost associated with the redemption of our 2012 Floating Rate Notes in
May 2007, partly offset by approximately US$ 5.1 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 six months ended June 30, 2008 we recognized a
US$ 10.5 million loss primarily as a result of the strengthening of the Euro
against the dollar during the six-month period.  Our Senior Notes are
denominated in Euros, and we incurred a transaction loss of approximately US$
41.2 million due to movements in the spot rate between December 31, 2007 and
June 30, 2008.  The transaction loss was partially offset by gains of
US$ 12.1 million relating to the revaluation of monetary assets and liabilities
denominated in currencies other than the US dollar and US$ 18.6 million relating
to the revaluation of intercompany loans.
 
 For the
six months ended June 30, 2007, we recognized a foreign currency exchange loss
of US$ 5.3 million.
 
 Change in fair value of
derivatives: For the six months ended June 30, 2008 we recognized a US$
23.5 million loss as a result of the change in the fair value of the currency
swaps entered into on April 27, 2006.  For further information, see
Part I Item 1, Note 12, “Financial Instruments and Fair Value
Measurements”.
 
 Other income /
(expense):  For the six months ended June 30, 2008 we
recognized other income of US$ 1.3 million compared to a US$ 0.8 million expense
for the six months ended June 30, 2007.
 
 Provision for income
taxes:  The provision for income taxes for the six months ended
June 30, 2008 was US$ 1.4 million credit compared to US$ 18.5 million charge for
the six months ended June 30, 2007.  The provision for income taxes
for the six months ended June 30, 2008 includes a credit of US$ 29.0 million
relating to movements in foreign exchange rates on intercompany loans, with a
corresponding charge recognized in other comprehensive income.  The
underlying increase in our provision for income taxes reflects our increased
profitability.  Our stations pay income taxes at rates ranging from
16.0% in Romania to 25.0% in Ukraine.
 
 Minority interest in income of
consolidated subsidiaries:  For the six months ended June 30,
2008, we recognized a charge of US$ 2.4 million in respect of the minority
interest in the income of consolidated subsidiaries, compared to a charge of US$
5.4 million for the six months ended June 30, 2007.  This reflects the
decline in profitability of our Ukraine (Studio 1+1) operations, as well as the
fact that there was a 20% minority interest in our Slovak Republic operations in
the six months ended June 30, 2007.
  Page
78
 Table of Contents
  IV
(n) Condensed consolidated balance sheet as at June 30, 2008 compared to
December 31, 2007
 
 SUMMARIZED
      CONDENSED CONSOLIDATED BALANCE SHEET (US$ 000’s)June
      30, 2008
              
              
              December
      31, 2007
              
              
              MovementCurrent
      assets
              
              $
              818,400
              
              
              $
              529,824
              
              
              
              54.5
              %Non-current
      assets
              
              
              2,463,076
              
              
              
              1,808,611
              
              
              
              36.2
              %Current
      liabilities
              
              
              248,042
              
              
              
              232,770
              
              
              
              6.6
              %Non-current
      liabilities
              
              
              1,257,249
              
              
              
              682,703
              
              
              
              84.2
              %Minority
      interests in consolidated subsidiaries
              
              
              99,102
              
              
              
              23,155
              
              
              
              328.0
              %Shareholders’
      equity
              
              $
              1,677,083
              
              
              $
              1,399,807
              
              
              
              19.8
              %
 
 Current
assets:  Current assets at June 30, 2008 increased US$ 288.6
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, net of the
cash used to acquire an additional 30.0% interest in Studio 1+1.
 
 Non-current
assets:  Non-current assets at June 30, 2008 increased US$
654.5 million compared to December 31, 2007, primarily as a result of the
recognition of goodwill and other intangible assets following our acquisition of
an additional 30.0% stake in Studio 1+1. The increase also reflects the impact
of the weakening dollar on the value of our non-current assets denominated in
foreign currencies and continued investment in our broadcasting facilities and
in program rights.
 
 Current
liabilities:  Current liabilities at June 30, 2008 increased
US$ 15.3 million compared to December 31, 2007, reflecting increases in deferred
income and interest payable partially offset by a decrease in programming
liabilities and accrued staff costs.
 
 Non-current
liabilities:  Non-current liabilities at June 30, 2008
increased US$ 574.5 million compared to December 31, 2007.  The
movement reflects our issuance of US$ 475.0 million of Convertible Notes; a US$
41.2 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 June 30, 2008; and a
US$ 23.5 million increase in the value of our liabilities under currency
swaps.
 
 Minority interests in consolidated
subsidiaries:  Minority interests in consolidated subsidiaries
at June 30, 2008 increased US$ 75.9 million compared to December 31, 2007,
primarily as a result of our granting a put option to our partners in Studio 1+1
in connection with our acquisition of an additional 30.0% stake in Studio
1+1.  For more information, see Item 1, Note 18, “Commitments and
Contingencies: Ukraine Buyout Agreements”.
 
 Shareholders’
equity:  Total shareholders’ equity at June 30, 2008 increased
US$ 277.3 million compared to December 31, 2007, primarily as a result of the
increase in Other Comprehensive Income (US$ 285.5 million) and our net income
for the six months ended June 30, 2008 of US$ 82.5 million.  These
items were partially offset by our recognizing US$ 63.3 million of the cost of
the capped call options we entered into in conjunction with our Convertible
Notes and US$ 32.6 million in respect of the excess of the value of the
redeemable minority interest in Studio 1+1 over the fair value of the underlying
put option in shareholders’ equity. Included in the total shareholders’ equity
were proceeds from the exercise of stock options (US$ 1.1 million) and a
stock-based compensation charge of US$ 3.8 million.
  Page
79
 Table of Contents
  V.
Liquidity and Capital Resources
 
 V
(a) Summary of cash flows
 
 Cash and
cash equivalents increased by US$ 232.9 million during the six months ended June
30, 2008.  The change in cash and cash equivalents is summarized as
follows:
 
 SUMMARY
      OF CASH FLOWSFor
      the Six Months Ended June 30, (US$ 000's)2008
              
              
              2007Net
      cash generated from continuing operating activities
              
              $
              127,515
              
              
              $
              21,601Net
      cash used in continuing investing activities
              
              
              (287,156
              )
              
              
              (88,113
              )Net
      cash received from financing activities
              
              
              399,243
              
              
              
              31,125Net
      cash used in discontinued operations – operating
activities
              
              
              (1,973
              )
              
              
              (1,624
              )Net
      increase / (decrease) in cash and cash equivalents
              
              $
              232,926
              
              
              $
              (29,242
              )
 
 Operating
Activities
 
 Cash
generated from continuing operations increased from US$ 21.6 million in the six
months ended June 30, 2007 to US$ 127.5 million in the six months ended June 30,
2008, 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 operations.
 
 Investing
Activities
 
 Cash used
in investing activities increased from US$ 88.1 million in the six months ended
June 30, 2007 to US$ 287.2 million in the six months ended June 30,
2008.  Our investing cash flows in the six months ended June 30, 2008
were primarily comprised of:
 ·
                payment
      of US$ 222.8 million in connection with our acquisition of an additional
      30.0% stake in Studio 1+1 (for further information, see Part I, Item 1,
      Note 3, “Acquisitions and
Disposals”);
  ·
              payments
      of RON 47.2 million (approximately US$ 20.6 million at the date of
      payment) in connection with our acquisition of the assets of Radio Pro
      (for further information, see Part I, Item 1, Note 3, “Acquisitions and
      Disposals”);
 ·
              payments
      of US$ 2.7 million in connection with our acquisition of Jyxo and Blog
      (for further information, see Part I, Item 1, Note 3, “Acquisitions and
      Disposals”) and
 ·
              capital
      expenditures of US$ 42.0 million.
 
 Financing
Activities
 
 Net cash
received from financing activities in the six months ended June 30, 2008 was US$
399.2 million compared to US$ 31.1 million in the six months ended June 30,
2007.  The amount of cash received in the six months ended June 30,
2008 reflects the net proceeds of US$ 400.5 million from the issuance of
Convertible Notes.
 
 Discontinued
Operations
 
 In the
six months ended June 30, 2008, we paid taxes of US$ 2.0 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 six months ended June 30,
2007.
  Page
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  V
(b) Sources and Uses of Cash
 
 We
believe that our current cash resources are sufficient to allow us to continue
operating for at least the next 12 months and we do not anticipate additional
cash requirements in the near future, subject to the matters disclosed under
“Contractual Obligations, Commitments and Off-Balance Sheet Arrangements” and
“Cash Outlook” below.
 
 Our
ongoing source of cash at the operating stations is primarily the receipt of
payments from advertisers and advertising agencies. This may be supplemented
from time to time by local borrowing. Surplus cash generated in this manner,
after funding the ongoing station operations, may be remitted to us, or to other
shareholders where appropriate.  Surplus cash is remitted to us in the
form of debt interest payments and capital repayments, dividends, and other
distributions and loans from our subsidiaries.
 
 Corporate
law in the Central and Eastern European countries in which we operate stipulates
generally that dividends may be declared by the partners or shareholders out of
yearly profits subject to the maintenance of registered capital, required
reserves and after the recovery of accumulated losses.
 
 The
reserve requirement restriction generally provides that before dividends may be
distributed, a portion of annual net profits (typically 5%) be allocated to a
reserve, which reserve is capped at a proportion of the registered capital of a
company (ranging from 5% to 25%).  The restricted net assets of our
consolidated subsidiaries and equity in earnings of investments accounted for
under the equity method together are less than 25% of consolidated net
assets.
 
 
 V
(c) Contractual Obligations, Commitments and Off-Balance Sheet
Arrangements
 
 Our
future contractual obligations as of June 30, 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
              
              $
              1,115,872
              
              
              $
              16,494
              
              
              $
              1,700
              
              
              $
              861,218
              
              
              $
              236,460Long-Term
      Debt – interest (1)
              
              
              305,606
              
              
              
              72,004
              
              
              
              127,783
              
              
              
              91,081
              
              
              
              14,738Capital
      Lease Obligations
              
              
              7,221
              
              
              
              1,124
              
              
              
              1,323
              
              
              
              1,171
              
              
              
              3,603Operating
      Leases
              
              
              12,142
              
              
              
              5,246
              
              
              
              6,183
              
              
              
              713
              
              
              
              -Unconditional
      Purchase Obligations
              
              
              125,579
              
              
              
              111,402
              
              
              
              9,146
              
              
              
              4,418
              
              
              
              613Other
      Long-Term Obligations
              
              
              2,211
              
              
              
              1,711
              
              
              
              500
              
              
              
              -
              
              
              
              -FIN
      48 obligations
              
              
              2,377
              
              
              
              464
              
              
              
              1,913
              
              
              
              -
              
              
              
              -Deferred
      consideration
              
              
              10,105
              
              
              
              7,900
              
              
              
              2,205
              
              
              
              -
              
              
              
              -Total
      Contractual Obligations
              
              $
              1,581,113
              
              
              $
              216,345
              
              
              $
              150,753
              
              
              $
              958,601
              
              
              $
              255,414
 
  (1)
Interest obligations on variable rate debt are calculated using the rate
applicable at the balance sheet date.
  
 Long-Term
Debt
 
 At June
30, 2008, we had the following debt outstanding:
 June
      30, 2008
                (US$
      000’s)Corporate
              
              
              (1) –
      (3)
              
              $
              1,097,678Czech
      Republic operations
              
              
              (4) –
      (6)
              
              
              16,494Slovenia
      operations
              
              
              (7)
              
              
              -Ukraine
      (KINO, CITI) operations
              
              
              (8)
              
              
              1,700Total
              
              
              
              
              
              $
              1,115,872
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 (1)
              As
      at June 30, 2008 we had EUR 395.0 million (approximately US$ 622.7
      million) of Senior Notes outstanding, comprising EUR 245.0 million
      (approximately US$ 386.2 million) of 8.25% senior notes due May 2012 (the
      “Fixed Rate Notes”) and EUR 150.0 million (approximately US$ 236.5
      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% (6.504% was
      applicable at June 30, 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, 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
June 30, 2008, Standard & Poor’s senior unsecured debt rating for our Senior
Notes was BB and our corporate credit rating was BB, having been upgraded on
April 23, 2008. At June 30, 2008 Moody’s Investors Services senior unsecured
debt rating for our Senior Notes and our corporate credit rating was
Ba2.
 
 (2)
              As
      at June 30, 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.
 
 As of
June 30, 2008, Standard & Poor’s senior unsecured debt rating for our Senior
Notes was BB and our corporate credit rating was BB, having been upgraded on
April 23, 2008. At June 30, 2008 Moody’s Investors Services senior unsecured
debt rating for our Senior Notes and our corporate credit rating was
Ba2.
 
 (3)
              On
      July 21, 2006, we entered into a five-year revolving loan agreement for
      EUR 100.0 million (approximately US$ 157.6 million) arranged by EBRD and
      on August 22, 2007, we entered into a second revolving loan agreement for
      EUR 50.0 million (approximately US$ 78.8 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 June 30, 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.
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  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$ 79.2
      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.(“FCS”), a
      subsidiary of CS.  As at June 30, 2008, there were no drawings
      under this facility.
 
 (5)
              CET
      21 has a working capital credit facility of CZK 250.0 million
      (approximately US$ 16.5 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
      FCS.  As at June 30, 2008, the full CZK 250.0 million
      (approximately US$ 16.5 million) was drawn under this facility bearing
      interest at an aggregate 5.39% (the applicable three-month PRIBOR rate at
      June 30, 2008 was 3.74%).
 
 (6)
              As
      at June 30, 2008, there were no drawings under a CZK 300.0 million
      (approximately US$ 19.8 million) factoring facility with
      FCS.  This facility is available until June 30, 2011 and bears
      interest at the rate of one-month PRIBOR plus 1.40% for the period that
      actively assigned accounts receivable are
  outstanding.
  (7)
              A
      revolving five-year facility agreement was entered into by Pro Plus for up
      to EUR 37.5 million (approximately US$ 59.1 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 June 30, 2008, EUR 30.0 million (approximately US$
      47.3 million)  was available for drawing under this revolving
      facility; there were no drawings
outstanding.
 
 (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 June 30, 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$ 2.1
million.  For more information on our capital lease obligations see
Part I, Item 1, Note 11, “Credit Facilities and Obligations under Capital
Lease”.
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  Operating
Leases
 
 For more
information on our operating lease commitments see Part 1, Item 1, Note 18,
“Commitments and Contingencies”.
 
 Unconditional
Purchase Obligations
 
 Unconditional
purchase obligations largely comprise future programming
commitments.  At June 30, 2008, we had commitments in respect of
future programming of US$ 114.0 million (December 31, 2007: US$ 107.6
million).  This includes contracts signed with license periods
starting after June 30, 2008.  For more information on our programming
commitments see Part I, Item 1, Note 18.
 
 
 Other
Long-Term Obligations
 
 Included
in Other Long-Term Obligations are our commitments to the Dutch tax authorities
of US$ 1.3 million (see Part I, Item 1, Note 18, “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 June 30, 2008, we
considered 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 June 30, 2008, there were no drawings
under these facilities or our available facilities in 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.  The majority of
our indebtedness does not mature until 2012 or later, and we have no significant
principal repayments within the next three years.  Our capacity to
raise further funds through external debt facilities depends on our satisfaction
of leverage and interest cover 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$ 375.8
million, at June 30, 2008) and available undrawn credit facilities (US$ 382.7
million, at June 30, 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.
 
 We expect
to invest up to US$ 140 million on capital expenditure in 2008 across our
broadcast and non-broadcast operations and approximately US$ 10 - 15 million in
operating expenditure in our non-broadcast operations.
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  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 million during 2008.
 
 Over the
next three years, we expect to invest approximately US$ 215 million to transform
the performance of our Ukraine operations.
 
 In
addition, our partners in Studio 1+1 have put options to sell their remaining
10% interest to us from July 1, 2008. 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 July 1, 2008.  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 18, “Commitments
and Contingencies: Ukraine Buyout Agreements”). The planned investment of US$
215 million does not include any amount potentially payable under these
options.
 Our
credit facilities, taken together with internally generated cash flow and our
current cash and cash equivalents, provide us with adequate financial resources
to meet our debt service and other existing financial obligations for the next
twelve months.  Availability of additional liquidity is dependent upon
the overall status of the debt and equity capital markets as well as on our
continued financial and operating performance.
 
 
 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.
 
 We
believe our critical accounting policies relate to the following: program
rights, goodwill and intangible assets, impairment or disposal of long-lived
assets, revenue recognition, income taxes, foreign exchange and
contingencies.  These critical accounting policies affect our more
significant judgments and estimates used in the preparation of our condensed
consolidated financial statements.  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.
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  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.
 
 In April
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.
 
 In May
2008, the FASB issued FASB Statement No. 162, “The Hierarchy of Generally
Accepted Accounting Principles” (“FAS 162”). This statement identifies the
sources of accounting principles and the framework for selecting the principles
used in the preparation of financial statements of nongovernmental entities that
are presented in accordance with GAAP. With the issuance of this statement, the
FASB concluded that the GAAP hierarchy should be directed toward the entity and
not its auditor, and reside in the accounting literature established by the FASB
as opposed to the American Institute of Certified Public Accountants (AICPA)
Statement on Auditing Standards No. 69, “The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.” This statement is
effective 60 days following the SEC’s approval of the Public Company Accounting
Oversight Board amendments to AU Section 411, “The Meaning of Present
Fairly in Conformity With Generally Accepted Accounting Principles.” The
implementation of this standard will not have a material impact on our
consolidated financial position and results of operations.
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  In May
2008, the FASB issued Staff Position No. APB 14-1, “Accounting for Convertible
Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial
Cash Settlement)” (“FSP APB 14-1”), which clarifies the accounting for
convertible debt instruments that may be settled in cash (including partial cash
settlement) upon conversion. FSP APB 14-1 requires issuers to account separately
for the liability and equity components of certain convertible debt instruments
in a manner that reflects the issuer's nonconvertible debt (unsecured debt)
borrowing rate when interest cost is recognized. FSP APB 14-1 requires
bifurcation of a component of the debt including allocated issuance costs,
classification of that component in equity and the accretion of the resulting
discount on the debt and the allocated acquisition costs to be recognized as
part of interest expense in the consolidated statement of operations. FSP APB
14-1 requires retrospective application to the terms of instruments as they
existed for all periods presented. FSP APB 14-1 is effective for us as of
January 1, 2009 and early adoption is prohibited. The adoption of FSP APB 14-1
will affect the accounting for our Convertible Notes and, we expect, will result
in approximately the following changes to the 2008 comparative balances in our
2009 financial statements to reflect the revised equity and liability balances
on issuance (net of allocated acquisition costs) of US$ 108.1 million and US$
364.2 million respectively:
 Impact
for the quarterly period ended June 30, 2008:
 For
      the Three Months Ended
              
              
              For
      the Six Months EndedUS$  million
              
              As
      reported
              
              
              Impact
      of Adoption
              
              
              As
      Adjusted
              
              
              As
      reported
              
              
              Impact
      of Adoption
              
              
              As
      AdjustedConsolidated
      Statement of Operations:Interest
      expense
              
              
              (18.1
              )
              
              
              (4.3
              )
              
              
              (22.4
              )
              
              
              (32.4
              )
              
              
              (5.2
              )
              
              
              (37.6
              )As
      at June 30, 2008US$
      million
              
              
              
              
              
              
              
              
              
              
              
              
              
              As
      reported
              
              
              Impact
      of Adoption
              
              
              As
      AdjustedConsolidated
      balance sheet:Other
      current assets
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              85.2
              
              
              
              (0.7
              )
              
              
              84.5Other
      non-current assets
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              21.7
              
              
              
              (1.8
              )
              
              
              19.9Senior
      Debt
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,097.7
              )
              
              
              105.4
              
              
              
              (992.3
              )Additional
      paid-in capital
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              993.2
              
              
              
              108.1
              
              
              
              1,101.3Retained
      Earnings
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              103.5
              
              
              
              (5.2
              )
              
              
              98.3
 
 In
addition, at present, we expect that the adoption of FSP APB 14-1 will cause our
interest expense in  the 2008 and 2009 financial years to increase by
approximately US$ 14.0 million and US$ 18.9 million respectively.
 
 Item 3.  Quantitative and Qualitative Disclosures about
Market Risk
 
 We engage
in activities that expose us to various market risks, including the effects of
changes in foreign currency exchange rates and interest rates.  We do
not regularly engage in speculative transactions, nor do we regularly hold or
issue financial instruments for trading purposes.
 
 Foreign
Currency Exchange Risk Management
 
 We
conduct business in a number of foreign currencies, although our functional
currency is the US Dollar, and our Senior Notes are denominated in
Euros.  As a result, we are subject to foreign currency exchange rate
risk due to the effects that foreign exchange rate movements of these currencies
have on our costs and on the cash flows we receive from certain
subsidiaries.  In limited instances, we enter into forward foreign
exchange contracts to minimize foreign currency exchange rate
risk.
  Page
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  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$ 705.9 million), payable on July
15, October 15, January 15, and April 15, to the termination date of April 15,
2012, for a fixed annual coupon interest rate (of 9.0%) on EUR 375.9 million
(approximately US$ 592.6 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 June 30, 2008 was a US$ 39.8 million
liability.
 
 These
currency swap agreements reduce our exposure to movements in foreign exchange
rates on a part of the CZK-denominated cash flows generated by our Czech
Republic operations that is approximately equivalent in value to the
EUR-denominated interest payments on our Senior Notes (see Part I, Item 1, Note
5, “Senior Debt”).  They are financial instruments that are used to
minimize currency risk and are considered an economic hedge of foreign exchange
rates.  These instruments have not been designated as hedging
instruments as defined under FASB Statement No. 133, “Accounting for Derivative
Instruments and Hedging Activities”, and so changes in their fair value are
recorded in the consolidated statement of operations and in the consolidated
balance sheet in other non-current liabilities.
 
 Interest
Rate Risk Management
 
 As at
June 30, 2008, we have six tranches of debt that provide for interest at a
spread above a base rate EURIBOR or PRIBOR, and four 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 June 30, 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 (%)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              6.50
              %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 (%)
              
              
              5.39
              %
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
  Page
88
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  Variable
Interest Rate Sensitivity as at June 30, 2008
 
 Yearly
      interest charge if interest rates increase by (US$
    000s):Value
      of Debt as at June 30, 2008 (US$ 000's)
              
              Interest
      Rate as at June 30, 2008
              
              
              Yearly
      Interest Charge
                (US$
      000’s)
              
              
              
              1
              %
              
              
              2
              %
              
              
              3
              %
              
              
              4
              %
              
              
              5
              %236,460
                (EUR
      150.0 million)
              
              
              6.5
              %
              
              
              15,379
              
              
              
              17,744
              
              
              
              20,109
              
              
              
              22,474
              
              
              
              24,839
              
              
              
              27,20416,494
                (CZK
      250.0 million)
              
              
              5.39
              %
              
              
              889
              
              
              
              1,054
              
              
              
              1,219
              
              
              
              1,384
              
              
              
              1,549
              
              
              
              1,714Total
              
              
              
              
              
              
              16,268
              
              
              
              18,798
              
              
              
              21,328
              
              
              
              23,858
              
              
              
              26,388
              
              
              
              28,918
 
 
 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 June 30,
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.Legal Proceedings
 
 General
 
 
 We are,
from time to time, a party to litigation that arises in the normal course of our
business operations. However, 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.
 
 Ukraine
Settlement:
 
 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 succeeded in registering our Ukrainian subsidiary UMS as the
owner of 42.0% of Studio 1+1. Together with our 18.0% indirect interest in
Studio 1+1 held through Inter-Media, we then had a 60.0% interest in Studio
1+1.
  On
September 4, 2007, Messrs. Fuchsmann and Rodnyansky sought to file a cross
action in these international arbitration proceedings to compel the transfer by
us of an interest in Ukrpromtorg to Messrs. Fuchsmann and Rodnyansky. They
alleged that they were entitled to participate on a pro rata basis in our
investment in Ukrpromtorg. This claim was 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 June
30, 2008 we acquired a 30.0% interest in the Studio 1+1 group from Messrs.
Fuchsmann and Rodnyansky (see Note 3, “Acquisitions and Disposals:
Ukraine”).  Pursuant to the terms of the acquisition, we and Messrs.
Fuchsmann and Rodnyansky agreed to terminate the arbitration proceedings
described above. On July 3, 2008, we jointly informed the arbitral tribunal that
the parties had reached a comprehensive settlement, with each party to pay its
own legal costs. Following such notification, the arbitral tribunal terminated
the arbitration proceedings.
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 Item 1A.  Risk Factors
 
 This
report and the following discussion of risk factors contain forward-looking
statements as discussed in Part 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.
 
 Our
operating results depend in part on our ability to successfully implement our
strategic plan for Ukraine following the completion of the buyout of our
minority partners.
  In June
2008 we completed the acquisition of an additional 30% interest in the Studio
1+1 group from our partners (the “Ukraine Buyout”) increasing our
beneficial  ownership interest to 90% (see Part 1, Item 1, Note 3,
“Acquisitions and Disposals”).  As we have done in other markets, we
have undertaken a review of the Studio 1+1 group operations in order to develop
a business plan to improve the overall standing and performance of the STUDIO
1+1 channel together with our other channels in Ukraine. Successful
implementation of this business plan will depend on several factors, including
but not limited to our ability to consolidate the operations of our Ukraine
channels, our achieving cost savings by consolidating these
operations,  the cost and popularity of local productions and
Russian-language programming and our ability to achieve higher ratings and
audience share, the implementation of new management processes, the strength of
the local management team,  relationships with external advertising
agencies, the ability of our internet properties in Ukraine to generate revenues
as well as general economic conditions in Ukraine and the ability of the
Ukrainian government to maintain political stability and introduce economic
reforms. In addition, there may be substantial costs relating to material
operational changes that will be incurred in connection with the implementation
of the business plan. There can be no assurance that we will be able to
implement successfully a new strategy in Ukraine, and any such failure could
have a material adverse effect on our financial position, results of operations
and cash flows.
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  We
may not be aware of all related party transactions, which may involve risks of
conflicts of interest that result in concluding transactions on less favorable
terms than could be obtained in arms-length transactions.
 
 In
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.
  Page
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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 October 2008 and
September 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 5 “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 such debt
instruments.
 
 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
July 28, 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, 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 Convertible 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 5 “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 5 “Senior
Debt”). Furthermore, if we exercise our right to call our partners’ interests in
Studio 1+1 we may be required to issue shares of Class A common stock in
consideration thereof (see Part I, Item 1, Note 18, “Commitments and
Contingencies”). We cannot predict what effect, if any, the issuance of shares
underlying options or the Convertible Notes or in connection with the Ukraine
call option, 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 4. Submission of Matters to a Vote of Security
Holders
 
 The
following are the results of voting by shareholders present or represented at
our Annual General Meeting of Shareholders held on June 3, 2008.
 
 1. Each
of the nominees considered at the Annual General Meeting of Shareholders was
elected to serve as a Director of the Company until the next Annual General
Meeting of Shareholders or until their respective successors have been elected
and qualified.  The persons named below were elected to serve as
Directors and received the number of votes set forth opposite their respective
names:
  For
              
              
              WithheldRonald
      S. Lauder
              
              
              82,347,671
              
              
              
              4,343,505Michael
      Garin
              
              
              82,381,928
              
              
              
              4,309,248Charles
      R. Frank, Jr.
              
              
              86,603,582
              
              
              
              87,594Herbert
      A. Granath
              
              
              86,603,482
              
              
              
              87,694Dr.
      Herbert Kloiber
              
              
              82,776,268
              
              
              
              3,914,908Igor
      Kolomoisky
              
              
              79,815,555
              
              
              
              6,875,621Alfred
      W. Langer
              
              
              86,603,882
              
              
              
              87,294Bruce
      Maggin
              
              
              86,603,682
              
              
              
              87,294Ann
      Mather
              
              
              86,603,782
              
              
              
              87,294Christian
      Stahl
              
              
              82,270,592
              
              
              
              4,420,584Eric
      Zinterhofer
              
              
              82,270,592
              
              
              
              4,420,584
 
 2. The
resolution amending Bye-law 12(3) to allow the Company to hold treasury shares
was approved, with 86,666,489 votes cast for approval, 20,039 votes cast against
approval and 4,648 votes abstaining.
 
 3. The
resolution amending Bye-laws 16, 18, 19 and 20 to clarify that shareholders may
hold uncertificated shares and that the Company is not obliged to issue physical
share certificates to shareholders was approved, with 86,583,857 votes cast for
approval, 29,074 votes cast against approval and 78,245 votes
abstaining.
 
 4. The
resolution amending Bye-laws 58(2) and 88 to conform them to the rules and
regulations promulgated by the SEC with respect to shareholder proposals for
general meetings and director nominations was approved, with 79,401,640 votes
cast for approval, 7,213,567 votes cast against approval and 75,969 votes
abstaining.
 
 5. The
resolution amending Bye-laws 160, 161 and 162 to allow for electronic delivery
of notices, including proxy materials, to shareholders and the receipt of
notices by the Company by electronic delivery and other means was approved, with
86,585,380 votes cast for approval, 30,417 votes cast against approval and
75,376 votes abstaining.
 
 6. The
resolution amending Bye-laws 79, 80 and 81 to permit the Board of Directors to
determine the form of proxy that may be used to attend general meetings was
approved, with 86,581,693 votes cast for approval, 31,072 votes cast against
approval and 78,411 votes abstaining.
 
 7. The
resolution amending Bye-law 166 to remove the provision with respect to the
indemnification of the independent auditor and to add a provision to permit the
Company to advance defense costs to officers and directors defending claims was
approved, with 86,560,680 votes cast for approval, 48,979 votes cast against
approval and 81,517 votes abstaining.
 
 8. The
resolution to receive the financial statements of the Company for the fiscal
year ended December 31, 2007 together with the auditor’s report thereon, was
approved, with 86,451,264 votes cast for approval, 55,521 votes cast against
approval and 184,391 votes abstaining.
 
 9. The
resolution appointing Deloitte & Touche LLP as independent registered public
accounting firm for the Company in respect of the fiscal year ended December 31,
2008 and to authorize the directors, acting through the Audit Committee, to
approve their fees was approved, with 86,683,558 votes cast for approval, 1,592
votes cast against approval and 6,026 votes abstaining.
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  Item5.  Other information
 
 On July
28, 2008, CME Media Enterprises B.V. entered into a Master Share Purchase
Agreement with Top Tone Holdings Limited to acquire an 80% indirect interest in
TV2, which operates a national terrestrial network in Bulgaria, and Ring TV,
which operates a sports cable channel, for cash consideration of approximately
$172 million. For additional information please see our Current Report on Form
8-K filed on July 28, 2008.
  
 Item 6.  Exhibits
 
 a) The
following exhibits are attached:
 
 31.01
              Sarbanes-Oxley
      Certification s. 302 CEO, dated July 30, 2008.31.02
              Sarbanes-Oxley
      Certification s. 302 CFO, dated July 30, 2008.32.01
              Sarbanes-Oxley
      Certification – CEO and CFO, dated July 30, 2008 (furnished
      only).
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  SIGNATURES
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
 
 Date:
      July 30, 2008
              
              /s/ Michael
      Garin
                Michael
      Garin
                Chief
      Executive Officer
                (Duly
      Authorized Officer)Date:
      July 30, 2008
              
              /s/ Wallace
      Macmillan
                Wallace
      Macmillan
                Chief
      Financial Officer
                (Principal
      Financial Officer and Accounting
Officer)
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  EXHIBIT INDEX
 
 31.01
              Sarbanes-Oxley
      Certification s. 302 CEO, dated July 30, 2008.31.02
              Sarbanes-Oxley
      Certification s. 302 CFO, dated July 30, 2008.32.01
              Sarbanes-Oxley
      Certification – CEO and CFO, dated July 30, 2008 (furnished
      only).
  102