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UNITEDSTATES SECURITIES AND EXCHANGE COMMISSION Washington, DC20549

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FORM10-K

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(Mark One)

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|   | ANNUAL REPORT PURSUANT TO SECTION 13 OR15(d) OF THE SECURITIESEXCHANGE ACT OF1934 |

For the fiscal year ended December31,  2006 

OR

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|   | TRANSITION REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIESEXCHANGE ACT OF1934 |

For the transition period from            to            .

Commission file number:000-52003

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CTC MEDIA,INC.

(Exact name of registrant as specifiedin its charter)

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|                                                             |  |  |                                    |
|-------------------------------------------------------------|--|--|------------------------------------|
| Delaware                                                    |  |  | 58-1869211                         |
| (Stateor Other Jurisdiction ofIncorporation orOrganization) |  |  | (I.R.S. EmployerIdentificationNo.) |
| PravdaStreet, 15A125124 Moscow,Russia                       |  |  |                               |
| (Addressof Principal Executive Offices)                     |  |  | (ZipCode)                          |
|                                                             |

Registrant’s telephonenumber, including area code:+7-495-785-6333

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Securitiesregistered pursuant to Section 12(b) of theAct:

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|---------------------------------------|--|--|-------------------------------------------|
| Titleof each class:                   |  |  | Name of each exchange on whichregistered: |
| CommonStock, $.01 par value per share |  |  | The NASDAQ GlobalMarket                   |
|                                       |

Securities registeredpursuant to Section 12(g) of the Act:None

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Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined inRule 405 of the Securities Act. Yes     No

Indicate by check mark if the registrant is notrequired to file reports pursuant to Section 13 orSection 15(d) of the Act. Yes     No

Indicate by check mark whether the 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 such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days. Yes     No 

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405of Regulation S-K is not contained herein, and will not be contained,to the best of registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of thisForm 10-K or any amendment to this Form 10-K.

Indicate by check mark whether the registrant isa large accelerated filer, an accelerated filer, or a non-acceleratedfiler. See definition of ‘‘accelerated filer and largeaccelerated filer’’ in Rule 12b-2 of the Exchange Act(Check one):

Large accelerated filer                                                        Acceleratedfiler                                                        Non-acceleratedfiler 

Indicate by check mark whether theregistrant is a shell company (as defined in Rule 12b-2 of the ExchangeAct.): Yes     No 

The aggregate marketvalue of the voting stock held by non-affiliates as of June 30, 2006(the last business day of the registrant’s most recentlycompleted second fiscal quarter), based on the closing price of thecommon stock on the NASDAQ Global Market on such date, was$697,191,049. The registrant has no non-voting stock.

There were 151,505,672 shares of common stock, $.01 par valueper share, of the registrant outstanding as of February23,  2007.

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DOCUMENTSINCORPORATED BY REFERENCE

Items 10, 11, 12, 13 and 14 of PartIII (except for information required with respect to our executiveofficers, which is set forth under ‘‘Part I —Executive Officers and Other Key Employees of theRegistrant’’) have been omitted from this report, as weexpect to file with the Securities and Exchange Commission, not laterthan 120 days after the close of our fiscal year ended December31,  2006, a definitive proxy statement for our annual meeting ofstockholders to be held on May 16, 2007. The information required byItems 10, 11, 12, 13 and 14 of Part III of this report, which willappear in our definitive proxy statement, is incorporated by referenceinto this report.

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TABLEOF CONTENTS

|            |  |  |                                                                                                                 |  |  |        |
|------------|--|--|-----------------------------------------------------------------------------------------------------------------|--|--|--------|
| Item       |  |  |                                                                                                            |  |  | Page   |
|       |  |  | PARTI                                                                                                           |  |  |   |
| 1.         |  |  | Business                                                                                                        |  |  | 1      |
| 1A.        |  |  | RiskFactors                                                                                                     |  |  | 14     |
| 1B.        |  |  | UnresolvedStaffComments                                                                                         |  |  | 31     |
| 2.         |  |  | Properties                                                                                                      |  |  | 31     |
| 3.         |  |  | LegalProceedings                                                                                                |  |  | 31     |
| 4.         |  |  | Submissionof Matters to a Vote of SecurityHolders                                                               |  |  | 31     |
|       |  |  | PARTII                                                                                                          |  |  |   |
| 5.         |  |  | Market forRegistrant’s Common Equity, Related Stockholder Matters andIssuer Purchases of EquitySecurities |  |  | 32     |
| 6.         |  |  | SelectedFinancialData                                                                                           |  |  | 33     |
| 7.         |  |  | Management’sDiscussion and Analysis of Financial Condition and Results ofOperations                       |  |  | 36     |
| 7A.        |  |  | Quantitativeand Qualitative Disclosures About MarketRisk                                                        |  |  | 58     |
| 8.         |  |  | FinancialStatements and SupplementaryData                                                                       |  |  | 59     |
| 9.         |  |  | Changes in andDisagreements with Accountants on Accounting and FinancialDisclosure                              |  |  | 59     |
| 9A.        |  |  | ControlsandProcedures                                                                                           |  |  | 59     |
| 9B.        |  |  | OtherInformation                                                                                                |  |  | 59     |
|       |  |  | PARTIII                                                                                                         |  |  |   |
| 10.        |  |  | Directors,Executive Officers and CorporateGovernance                                                            |  |  | 60     |
| 11.        |  |  | ExecutiveCompensation                                                                                           |  |  | 60     |
| 12.        |  |  | SecurityOwnership of Certain Beneficial Owners and Management and RelatedStockholderMatters                     |  |  | 60     |
| 13.        |  |  | CertainRelationships and Related Transactions, and DirectorIndependence                                         |  |  | 60     |
| 14.        |  |  | PrincipalAccounting Fees andServices                                                                            |  |  | 60     |
|       |  |  | PARTIV                                                                                                          |  |  |   |
| 15.        |  |  | Exhibits,Financial StatementSchedules                                                                           |  |  | 61     |
| Signatures |  |  | S-1                                                                                                             |
|            |

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SpecialNote About Forward-Looking Statements

Certain statements in thisAnnual Report on Form 10-K that are not based on historical informationare ‘‘forward-looking statements’’. Anystatements (including statements to the effect that we‘‘believe,’’‘‘expect,’’‘‘anticipate,’’‘‘plan’’ and similar expressions) that arenot statements relating to historical matters should be consideredforward-looking statements. Such forward-looking statements, whichinclude, among other things, statements regarding growth of the Russiantelevision advertising market and of our audience and market shares andour ability to execute on our growth strategy, reflect our currentexpectations concerning future results and events. Theseforward-looking statements involve known and unknown risks,uncertainties and other factors which may cause the actual results,performance or achievements of CTC Media to be materially differentfrom any future results, performance or achievements expressed orimplied by such forward-looking statements. The potential risks anduncertainties that could cause actual future results to differ fromthose expressed by forward-looking statements include, among others,risks related to recently adopted changes in Russian advertising laws;changes in the size of the Russian television advertising market; ourability to deliver audience share, particularly in primetime, to ouradvertisers; free-to-air television remaining a significant advertisingforum in Russia; our reliance on a single television advertising saleshouse for substantially all of our revenues; and restrictions onforeign involvement in the Russian television business. These and otherrisks are described in ‘‘Item 1A. RiskFactors’’. For these statements and all otherforward-looking statements, we claim the protection of the safe harborfor forward-looking statements contained in the Private SecuritiesLitigation Reform Act of 1995. Other unknown or unpredictable factorscould have material adverse effects on CTC Media’s futureresults, performance or achievements. In light of these risks,uncertainties, assumptions and factors, the forward-looking eventsdiscussed herein may not occur. You are cautioned not to place unduereliance on these forward-looking statements. CTC Media does notundertake any obligation to publicly update or revise anyforward-looking statements because of new information, future events orotherwise.

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PARTI

Item 1.    Business.

Overview

We operatethe CTC Network, a Russian television network offering entertainmentprogramming targeted at 6-54 year-old viewers, and the Domashny(‘‘Home’’) Network, a Russian televisionnetwork principally targeted at 25-60 year-old female viewers. As ofthe date of this Annual Report on Form 10-K, the CTC Network’ssignal is carried by more than 330 television stations and local cableoperators, which include 17 of our owned-and-operated stations and 19unmanned repeater transmitters. Approximately 100  million peopleare within the coverage of CTC’s signal. Domashny’ssignal is carried by over 210 television stations and local cableoperators, including eight of our owned-and-operated stations and sevenunmanned repeater stations. Approximately 58  million people arewithin the coverage of Domashny’s signal.

We generatesubstantially all of our revenues from the sale of televisionadvertising. In 2006, our share of the total Russian televisionadvertising market was approximately 15.6%. The CTCNetwork’s average overall audience share was 10.4% andits average audience share in its target demographic was 12.9%,making CTC the fourth-most watched broadcaster in Russia overall andthe third-most watched in its target demographic. Domashny’saverage overall audience share for 2006 was 1.4%, and itsaverage audience share in its target demographic was1.7%.

We commenced television operations in May1994, initially broadcasting from our first owned-and-operated stationin St. Petersburg to 22 cities across Russia as a‘‘superstation’’ — a single stationthat retransmits its signal to remote locations. In December1996, we launched CTC (the Cyrillic acronym for the‘‘Network of Television Stations’’), anational network broadcasting by satellite from our center in Moscow.Domashny, our second national network, was launched in March2005 following our acquisition in 2004 of four affiliated televisionstations in Moscow, St. Petersburg, Perm and Kazan.

OurBusiness

We have modeled our business on the major U.S.broadcast television networks. We manage our network programmingcentrally, own and operate stations in strategic cities and expand ourbroadcast coverage through agreements with independent affiliates andby means of unmanned repeater transmitters in smaller markets, whichallows us to enhance our coverage without incurring incrementalinfrastructure costs. In exchange for the right to broadcast oursignal, we allow our affiliates to broadcast local advertising duringdesignated time windows, from which they derive revenues. Our networkstructure differs from the ‘‘channel’’model used by our biggest competitors, Channel One and Rossiya, inwhich these national broadcasters provide their own transmissioninfrastructure throughout the area they desire to reach and bear thefull cost of such infrastructure.

Our networks’ managementis responsible for our programming, marketing and promotion for bothCTC and Domashny, as well as relations with our independent affiliatesand with our advertising saleshouse.

Programming

In order to maximize theaudience numbers and desirable demographics that we deliver toadvertisers, we seekto:    

|  |              |                                                                                           |
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|  | •  | emphasize entertainmentprogramming to support our brand and the affinity of ouraudiences; |

|  |              |                                                                                                     |
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|  | •  | target viewers in the 6-54age range on the CTC Network and women aged 25-60 on the DomashnyNetwork; |

|  |              |                                                                                                                                            |
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|  | •  | broadcast an optimal mix ofRussian and foreign entertainment programming and develop high-qualityoriginal programs with Russian producers; |

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|  |              |                                                                                                                                                                         |
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|  | •  | schedule accordingto a well-researched ‘‘daypart’’ strategy,focusing on discrete parts of the day that have distinctive viewingcharacteristics; |

|  |              |                                                                                                                                                                                       |
|--|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | create‘‘appointment viewing’’ — where aregularly scheduled program has such a strong appeal that viewers setaside a specific time period to view it;and |

|  |              |                                                                               |
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|  | •  | adapt our broadcast schedule toreflect seasonal variations in viewing habits. |

Entertainmentfocus.    From our inception, our focus has been onentertainment. We seek to capture a dynamic, youthful audience byoffering a range of entertainment programs suited to particular timeslots, including original Russian series and shows, recent and classicRussian and Soviet films, popular foreign series and films, andanimation. Although we broadcast entertainment and celebrity news onour national networks, we do not broadcast national‘‘hard’’ news, commentary oranalysis.

Advertising sales.    Televisionadvertising revenues are generally affected by the overall size of thetelevision advertising market, a broadcaster’s ratings andaudience share, and its audience profile. In general, the price ofnational television advertising in any particular time slot is based ona reference price determined on the basis of ‘‘grossrating points,’’ or ‘‘GRPs.’’An advertiser or advertising agency will typically place with VideoInternational, our sales house, either a ‘‘fixedplacement,’’ an amount of advertising placed on aspecific broadcaster and time slot by reference to the GRPs estimatedby Video International to be delivered by that broadcaster during thattime slot, or a ‘‘floating placement,’’ anamount of advertising placed at Video International’s discretionat a time that will deliver the total number of agreedGRPs.

Because advertisers often seek to reach particulardemographic groups, including particular ages and genders, they willoften base their advertising placement decisions on the specificratings among such groups, rather than among the overall population.Video International generally places CTC’s advertising on thebasis of GRPs achieved in our target audience, the 6-54 demographic,and places Domashny’s advertising on the basis of ratings inDomashny’s target audience, 25-60 year-old women.

We alsoderive revenues from the sale of advertising by our owned-and-operatedstations in their local markets, as well as through the sale ofsponsorships of our programming, product placement and sublicensing ofprogramming. Historically, our owned-and-operated stations sold theirlocal advertising principally through their own sales forces. However,since January  2006, Video International has placed localadvertising on behalf of substantially all of our owned-and-operatedstations.

Russian law currently limits the amount of advertisingtime broadcasters may air to 15% of daily broadcasting time, andno more than 20% in any hour. From 2008, advertising will belimited to no more than 15% per hour of broadcasting time. See‘‘Risk Factors — Effective from 2008, Russian lawwill further limit the amount of advertising time permitted ontelevision, which could materially adversely affect our results ofoperations.’’

Role of VideoInternational

In Russia, virtually all national televisionadvertising has historically been sold through so-called‘‘sales houses’’ — intermediariesbetween the television broadcasters and the advertisers and advertisingagencies — which receive commissions on the sales. We haveagreements with one of the two primary sales houses, VideoInternational, to sell national advertising on both CTC and Domashny.We also have an agreement with Video International to sell localadvertising for substantially all of our owned-and-operated stations.For more details of these arrangements, see ‘‘Item 7.Management’s Discussion and Analysis of Financial Condition andResults of Operations — Our Agreements with VideoInternational.’’

Demographictargets.    Although we seek to maximize our audience share onthe CTC Network among the entire viewing population (considered to bethose age 4 and older, or ‘‘4+’’), we focusprincipally on viewers in the 6-54 age group and have particularlystrong appeal to younger audiences. We believe that in Russia, as inmore mature advertising markets, the 6-54 age group is the demographicgroup most in demand by television advertisers. This group generallyhas the most disposable income and, we believe, is the most responsiveto advertising. Viewers in the 55+ category, on the other hand, aregenerally deemed less likely to change their purchasing decisions basedon advertising and, in Russia, to have less average disposableincome.

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Among both children and teenagers, CTC isone of the top two broadcasters in most applicable time slots. Althoughthese younger demographic groups are not currently the principaltargets of advertisers in Russia, we believe they will be of increasingimportance, both as consumers themselves and because of their influenceon their parents’ purchasing decisions. In addition, we believethat if CTC can capture this audience early, these viewers may maintaina strong identification with the CTC brand as they enteradulthood.

Our target audience for the Domashny Network is womenaged 25-60. We believe that this focus limits overlap between thetarget viewers of Domashny and CTC. We also believe that no otherbroadcaster in Russia currently exclusively targets this demographicgroup, which we believe to be in particular demand in Russia byadvertisers of products for women.

Optimal mix of Russian andinternational programming.    During 2006, approximately30% of the content we broadcast on CTC consisted of Russianseries, 17% consisted of Russian shows that were developedspecifically for CTC, 25% consisted of foreign movies,11% consisted of foreign series, 13% consisted ofanimation and 4% consisted of other types of programming such asdocumentaries. Reflecting the higher cost of original programming, ouroriginal Russian series and shows accounted for approximately63% of our amortized programming costs in 2006, while foreignmovies accounted for 23%, foreign series for 7%,animation for 2% and other programming for 5%.

ForDomashny, during 2006 approximately 36% of the content webroadcast was Russian programming developed specifically for Domashny,a further 26% consisted of movies (predominantly RussianSoviet-era films and Hollywood classics), 28% consisted offoreign series, and 10% consisted of other types ofprogramming.

As of December  31,  2006, we hadcontractual programming rights for approximately 9,700 hours ofprogramming, including approximately 1300 hours of Russian series,4,900 hours of foreign series, 1,700 hours of foreign movies, 500 hoursof Russian movies, 100 hours of Russian shows and 1,200 hours ofanimation, in each case including rights to multiple runs. We generallyacquire the rights to classic Soviet movies and contemporary Russianmovies shortly in advance of broadcast and do not have substantialadvance contractual rights to such programming.

Emphasis onRussian programming.    We believe that our emphasis ontelevision series and shows produced in Russia is an important factorin maximizing our share of our target viewers on both CTC and Domashny.We develop original individual programs and long-running series,including dramas, sitcoms and game shows, with production companieslocated in Russia and Ukraine — sometimes in conjunction with aforeign studio or rights holder, which allows us to leverage existingformats of foreign programs for use in the Russian market. For example,we have entered into licensing and production agreements with SonyPictures Television and A-Media Group, a Russian production house, fora number of series produced exclusively for the CTC Network, includingboth original scripts and foreign adaptations.

Through theselicensing and production arrangements, we obtain access to the formatsof existing foreign series (including plotlines, scripts andcharacters), as well as expertise in translating such material intoRussian and reworking it to maximize its appeal to Russian audiences.In conjunction with production houses such as A-Media Group, we areable to leverage existing production facilities and expertise to costeffectively produce targeted original programming based on suchformats.

A format licensor will generally provide an agreednumber of scripts under these licensing and production arrangements.Our programming department then works with the licensor’s writersto adapt the scripts to Russian tastes and culture. The licensor alsoprovides production experts who typically supervise pre-production andthe early stages of production and provide advice regarding productionquality, set design, consistency with the original format and casting.We then work with a production company that undertakes the actualproduction, which includes set design, filming and pre- andpost-production activities. Our programming department is integrallyinvolved in all steps in this process.

We have also entered intolicense agreements with Russian studios and distributors for the rightsto broadcast recent Russian made-for-cinema films.

International programming.    We have developedimportant relationships with suppliers of programming in the UnitedStates, Western and Central Europe and Latin America. We translate anddub foreign programming into Russian using both our own translators andcontract translators.

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We have programming agreements with anumber of major Hollywood studios, including Sony Pictures TelevisionInternational, Walt Disney (Buena Vista International), Paramount,Universal, Warner Brothers and MGM. These contracts give us the rightto broadcast a broad range of feature films, series, mini-series andanimated programs. We license other international programming fromindependent producers in the United States, as well as leading Europeandistributors such as the BBC in the UK and EM-TV in Germany. Licensingagreements with Russian distributors have also become significant to usin recent years.

Cost-effective programming.    Wedo not generally own our programming or maintain a program library ofowned titles. Instead, we license a limited number of runs of eachprogram from foreign or Russian producers and distributors. Wecarefully plan our acquisitions to ensure our access to the mostdesirable programming on the most favorable terms possible. A number ofstudios and distributors ‘‘pre-sell’’licenses to Russian and foreign films well in advance of release inRussia. Many studios and distributors also require licensees to licensepackages of films or shows — for example, bundling less populartitles with titles that are expected to be particularly successful. Inaddition, to date some distributors have agreed to arrangementspursuant to which two or more broadcasters in Russia may‘‘share’’ the rights to multiple showingsof certain movies or shows at different times, resulting in lowerlicensing costs for each broadcaster. For example, our agreement withSony permits us to sublicense programming rights to certain channels inRussia. We have entered into such agreements with Channel One, pursuantto which we ‘‘share’’ with Channel One therights to multiple runs of certain programming available under theagreement, primarily blockbuster movies. By sharing programming rights,the cost to us of these rights is materiallyreduced.

Programming format and schedule.    Wefollow a ‘‘daypart’’ format on both ournetworks and have designed our broadcast schedules in a manner similarto that of a U.S. television network. We research, map and analyze ouraudience flow and incorporate the results into our program acquisitionand scheduling strategy. The result is a differentiated programmingstrategy according to which we seek to assign different kinds ofprogramming to different parts of the day and days of the week based onviewer characteristics and preferences.

One of the goals of ourprogramming strategy is to create ‘‘appointmentviewing’’ by broadcasting  programs with strongdrawing power, promoting them, and scheduling them at consistent,easy-to-remember times. We believe that this strategy can create ahabit among viewers over time that may generate consistently highaudience levels. This ‘‘western’’-styleformat was entirely new to Russia (with the exception of the dailygovernment news program) when we introduced it on CTC, and we believeit has now been adopted by many of our competitors.

CTCNetwork.    Our programming strategy for CTC focuses onentertainment and an optimal mix between Russian production andinternational programming of interest to our target viewers. We seek toschedule relatively expensive programming for broadcast during timeslots with higher viewership. We seek to adjust our weekend schedulesappropriately to reflect our viewers’schedules.

Domashny Network.    Our programmingstrategy for Domashny also focuses on entertainment and an optimal mixbetween Russian and international programs, targeting women viewers.Approximately 36% of programming broadcast on the DomashnyNetwork in 2006 was original Russian programming developed specificallyfor Domashny, consisting primarily of talk shows, cooking programs andsimilarly formatted programs. Such shows are designed to appeal to thenetwork’s target audience and are typically less expensive toproduce than original drama series orsitcoms.

Seasonality.    We seek to exploit seasonalfluctuations in overall television viewership and televisionadvertising sales to maximize our revenues and control our costs.Overall television viewership is lower during the summer months, whengood weather results in a reduction in the number of viewers andaverage viewing times, and highest in the fourth quarter, when theweather is colder and vacations and holidays are lesscommon.

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Channel One, Rossiya and NTV broadcast moreexpensive and popular programming during the month of January, whichincreases their audience shares at the expense of their competitors,including CTC and Domashny. Seasonal fluctuations in consumer patternsalso affect television advertising expenditures. We therefore seek toconcentrate programming that we believe will achieve relatively higheraudience shares in those periods when viewership is higher andadvertising is in greater demand, while taking into account therelative strength of our competitors’ programming in particularperiods.

Audience share and ratings

Ouradvertising revenues are largely driven by our audience share (thepercentage of all people watching television at a given time who arewatching CTC or Domashny) and ratings (the percentage of the totalpopulation that is watching CTC or Domashny at a given time). Ouraudience shares and ratings, in turn, depend in large part upon theappeal of our programming, and vary depending on the day of the week,time of the day, nature of our competitors’ programming at anygiven time, shifting public tastes and interests, and the success ofour promotional activities.

Russian television viewing data,including ratings, audience shares and related metrics, are currentlygathered by TNS Gallup Media. The TNS measurement system usesinternationally recognized methods and is the standard currently usedby all major television broadcasters, advertisers and advertisingagencies in Russia.

Information on audience numbers is gatheredthrough the use of TNS’s‘‘Peoplemeters,’’ which are physicallyinstalled in households in selected locations, based on samplingtechniques and census data designed to capture a statisticallysignificant sample of the desired population. Currently, Peoplemetersare installed in a panel of 52 cities, plus two cities not currentlypart of the panel. The panel cities are chosen from among those Russiancities with more than 100,000 residents (according to the 2002 census),which together account for approximately 43% of the totalpopulation of Russia. Because of the relative lack of affluence insmaller communities — and consequently very different consumerhabits — we believe that advertisers are not currently focusedon reaching audiences in cities with populations of less than100,000.

The CTC Network signal is currently broadcast in eachof the 52 panel cities. The Domashny Network signal is currentlybroadcast in 49 of the 52 panel cities. TNS Gallup Media reported that,in 2006, 86.6% of households located in cities of more than100,000 residents had the technical ability to receive the CTC Networkbroadcast signal, and 58.2% had the ability to receive theDomashny Network signal.

CTC Network.    In 2006,the overall average audience share of CTC was 10.4%, compared to10.3% in 2005, making CTC the fourth most-watched broadcaster inRussia for the third year in a row. Prior to 2003, the top sixtelevision broadcasters in Russia could be classified into twogroupings according to audience shares — with Channel One,Rossiya and NTV in the top tier, and CTC, REN-TV and TNT in the secondtier. Since 2003 these broadcasters have fallen into three pairs byaudience shares — with Channel One and Rossiya in the top tier,NTV and CTC in the middle tier, and REN-TV and TNT in the bottom tier.We believe that our improved positioning reflects our success inpromoting the CTC network and in licensing and developing attractiveprogramming, and represents a fundamental realignment of the top of theRussian broadcasting market. The table below presents a comparison ofCTC’s average audience shares for 2002 through 2006 with thoseof its major competitors, and demonstrates this realignment since2003:

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Average Audience Shares of the MajorNational Networks and Channels,2002-2006

|            |  |  |      |  |      |      |   |  |      |  |  |      |  |   |      |  |  |  |      |  |   |  |  |  |  |      |  |   |  |  |  |  |      |  |   |
|------------|--|--|------|--|------|------|---|--|------|--|--|------|--|---|------|--|--|--|------|--|---|--|--|--|--|------|--|---|--|--|--|--|------|--|---|
|       |  |  | 2002 |  |      | 2003 |   |  | 2004 |  |  | 2005 |  |   | 2006 |
| ChannelOne |  |  |      |  | 29.0 |      | % |  |      |  |  | 25.6 |  | % |      |  |  |  | 25.8 |  | % |  |  |  |  | 23.0 |  | % |  |  |  |  | 21.3 |  | % |
| Rossiya    |  |  |      |  | 19.4 |      |   |  |      |  |  | 19.4 |  |   |      |  |  |  | 19.9 |  |   |  |  |  |  | 22.7 |  |   |  |  |  |  | 19.5 |  |   |
| NTV        |  |  |      |  | 14.2 |      |   |  |      |  |  | 13.2 |  |   |      |  |  |  | 11.9 |  |   |  |  |  |  | 11.1 |  |   |  |  |  |  | 12.8 |  |   |
| CTC        |  |  |      |  | 6.6  |      |   |  |      |  |  | 9.2  |  |   |      |  |  |  | 9.8  |  |   |  |  |  |  | 10.3 |  |   |  |  |  |  | 10.4 |  |   |
| REN-TV     |  |  |      |  | 5.4  |      |   |  |      |  |  | 5.4  |  |   |      |  |  |  | 5.2  |  |   |  |  |  |  | 5.0  |  |   |  |  |  |  | 4.2  |  |   |
| TNT        |  |  |      |  | 3.5  |      |   |  |      |  |  | 5.2  |  |   |      |  |  |  | 6.7  |  |   |  |  |  |  | 6.7  |  |   |  |  |  |  | 6.0  |  |   |
|            |

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|--|--------------------------|
|  | Source:TNS Gallup Media. |

Within CTC’s principal targetaudience, the 6-54 year-old demographic group, CTC had an averageaudience share of 12.9% in both 2005 and 2006, In its targetaudience, CTC in 2006 had the third-largest audience share in Russia,after Channel One and Rossiya and ahead of NTV.

CTC AudienceShares in Key DemographicGroups,2002-2006

|          |  |  |      |  |     |      |  |  |      |  |      |      |  |  |      |  |      |   |  |  |  |  |      |   |  |  |  |  |      |   |
|----------|--|--|------|--|-----|------|--|--|------|--|------|------|--|--|------|--|------|---|--|--|--|--|------|---|--|--|--|--|------|---|
| AgeRange |  |  | 2002 |  |     | 2003 |  |  | 2004 |  |      | 2005 |  |  | 2006 |
| 4/6+     |  |  |      |  | 6.6 | %    |  |  |      |  | 9.2  | %    |  |  |      |  | 9.8  | % |  |  |  |  | 10.3 | % |  |  |  |  | 10.4 | % |
| 6-54     |  |  |      |  | 8.1 |      |  |  |      |  | 11.2 |      |  |  |      |  | 12.0 |   |  |  |  |  | 12.9 |   |  |  |  |  | 12.9 |   |
|          |

|  |
|--|
|  |  |
|  |

|  |                          |
|--|--------------------------|
|  | Source:TNS Gallup Media. |

Domashny Network.    Theoverall average audience share of Domashny in 2006 was 1.4%compared to 1% in 2005. Within Domashny’s principaltarget audience, 25-60 year-old women, Domashny had an average audienceshare of 1.7% in 2006, compared with 1.3% in 2005.

Principal network television advertisers

In 2006,approximately 300 advertisers purchased national advertising on CTCand/or Domashny. Of these, our 120 key clients generated approximately90% of our national advertising revenues. The top tenadvertisers, in the aggregate, represented approximately 31% ofour total national advertising revenues for the two networks together,and included many of the multinational companies that are the largestadvertisers in the Russian national television advertising market (suchas Procter & Gamble and L’Oreal, which together accountedfor 11.5% of our total advertising revenues in 2006). We do notbelieve that we are dependent on any one or any small number ofadvertisers for a material portion of our revenues.

We haveexperienced shifts in the types of advertisers placing nationaladvertising over the past three years, which we believe reflects shiftsin the broader market as new types of companies, such as mobile phoneproviders, have initiated or expanded their advertising on television.Certain advertising sectors, such as financial services, that typicallypurchase a substantial proportion of total television advertising inmore developed markets do not currently place significant amounts ofadvertising on Russian television. 

Marketing andpromotion

Our marketing team promotes awareness of both CTCand Domashny among television viewers and advertisers, with an emphasison the promotion of our prime-time lineups, new shows, special eventsand morning programming. Such efforts include producing on-airpromotional television spots, placing commercials on national andregional radio stations, print advertisements and outdoor media. Wehave a small on-site studio and a state-of-the-art editing system forproducing on-air promotional segments. We have pioneered the use inRussia of ‘‘western’’ television promotiontechniques, such as the use of a contact management system and on-airpromotions.

Our marketing team also assists our affiliates withtheir local marketing efforts, preparing high-quality, standardizedregional marketing materials, including print advertisements, radiospots and 

6

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promotional materials, which it sends to ouraffiliates for distribution in their regions. Our agreements with ouraffiliates contain provisions with respect to the marketing of networkprogramming in the local area. In particular, when broadcasting CTC andDomashny programming, our affiliates are required to display the CTC orDomashny logo on screen. Affiliates must also ensure that the CTC andDomashny programming schedules are published in the local press and arerequired to advertise CTC and Domashny programming in their localmarkets.

Transmission 

From our headquarters inMoscow, CTC and Domashny send their signals digitally via a dedicatedfiber optic cable to a transmission center, from which they aretransmitted to satellite uplinks and by satellite throughout theterritory of Russia. Our broadcasts are time-shifted for four differenttime zones so that programs are aired at the appropriate local times ineach of Russia’s far-flung population centers across 11 timezones, with a maximum of a one-hour time shift from our standard dailyprogramming schedule in some areas. In order to reach areas acrossRussia, the signals are uplinked separately to two separate satellitesystems launched in 2003 and 2004, respectively, both of which areowned by the Russian Satellite Communications Company, a state-ownedcompany. For the CTC Network, we also have an agreement with a thirdback-up satellite facility owned by Gazcom, an affiliate ofstate-controlled Gazprom. In the event of the loss of service of anyone of these satellite systems, the remaining systems will continue todeliver our signal to between 62% and 100% of ouraffiliates. We believe that the remaining useful life of the satelliteswe currently use is between 10 and 15 years.

Distribution

Our signals are broadcast by the owned-and-operatedstations in our Television Station Groups, our independent affiliatestations and local cable operators, and unmanned repeatertransmitters.

Television Station Groups.    We ownand operate stations in significant markets throughout Russia, in somecases together with local joint venture partners. Theseowned-and-operated stations comprise our  CTC and DomashnyTelevision Station Groups. Our CTC Television Station Group includes17  owned-and-operated stations that are currently broadcastingour signal and our Domashny Television Station Group includes eightsuch stations. In addition, one of the stations that we acquired in2006 continues to carry a competing broadcaster; we anticipate that itwill start broadcasting Domashny in 2007. Two additional companies thatwe have established are in the process of developing frequencies,obtaining licenses through public tenders and conducting otherpreparatory activities; we expect that these will join our CTCTelevision Station Group if and when they are able to beginbroadcasting. Like our independent affiliates, our owned-and-operatedstations broadcast programming received by satellite from the CTCNetwork or the Domashny Network, including national advertising. Inaddition, they earn revenues by selling local advertising, which isbroadcast during designated windows.

We believe that ourowned-and-operated stations are strategically positioned to captureRussia’s largest local markets and secure our position in keycities where audiences are measured. These stations serve as thebackbone of our networks’ operations by ensuring that ourprogram schedules, generally in their entirety, along with our nationaladvertising and promotional announcements are telecast with the highestquality to the audiences in Russia’s principal televisionmarkets.

Although historically we found it useful to enter intojoint venture arrangements with local partners in establishing and/oracquiring our owned-and-operated stations, our general strategy now istypically to seek majority control of the stations we acquire orestablish. We are either the sole or majority shareholder of all butthree of our owned-and-operated stations.

We believe that ourstrong market position now makes it easier than was historically thecase for us to seek a majority position in the case of acquisitions ornewly formed companies, and we believe that a majority positionmaximizes our flexibility in implementing our business decisions. Wetherefore intend typically to seek majority control of new stationsthat we acquire or establish. At the same time, we believe that in manycases we will continue to benefit from participation by local partnerson a minority basis.

7

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The table below presents information oneach of the stations in our CTC Television Station Group:

CTCTelevision Station Group Owned-and-OperatedStations

|                    |  |  |              |  |     |                                           |  |  |        |  |      |  |  |  |     |
|--------------------|--|--|--------------|--|-----|-------------------------------------------|--|--|--------|--|------|--|--|--|-----|
|               |  |  |         |  |     | YearStation Acquired orFounded byCTCMedia |  |  |   |
| StationName        |  |  | OurOwnership |  |     | SignalBroadcast                           |
| CTC-Moscow         |  |  |              |  | 100 | %                                         |  |  |        |  | 1995 |  |  |  | CTC |
| CTC-St.Petersburg  |  |  |              |  | 80  |                                           |  |  |        |  | 1991 |  |  |  | CTC |
| CTC-Balakovo(1)    |  |  |              |  | 50  |                                           |  |  |        |  | 2003 |  |  |  | CTC |
| CTC-Barnaul        |  |  |              |  | 51  |                                           |  |  |        |  | 2006 |  |  |  | CTC |
| CTC-Ekaterinburg   |  |  |              |  | 51  |                                           |  |  |        |  | 2003 |  |  |  | CTC |
| CTC-Kazan(1)       |  |  |              |  | 50  |                                           |  |  |        |  | 1995 |  |  |  | CTC |
| CTC-NizhnyNovgorod |  |  |              |  | 100 |                                           |  |  |        |  | 2002 |  |  |  | CTC |
| CTC-Omsk           |  |  |              |  | 84  |                                           |  |  |        |  | 1996 |  |  |  | CTC |
| CTC-Perm           |  |  |              |  | 85  |                                           |  |  |        |  | 1995 |  |  |  | CTC |
| CTC-Rostov-on-Don  |  |  |              |  | 51  |                                           |  |  |        |  | 2003 |  |  |  | CTC |
| CTC-Samara         |  |  |              |  | 100 |                                           |  |  |        |  | 1996 |  |  |  | CTC |
| CTC-Tver           |  |  |              |  | 100 |                                           |  |  |        |  | 2003 |  |  |  | CTC |
| CTC-Ufa            |  |  |              |  | 100 |                                           |  |  |        |  | 2003 |  |  |  | CTC |
| CTC-Vladivostok    |  |  |              |  | 74  |                                           |  |  |        |  | 1998 |  |  |  | CTC |
| CTC-Volgograd      |  |  |              |  | 100 |                                           |  |  |        |  | 2002 |  |  |  | CTC |
| CTC-Voronezh       |  |  |              |  | 90  |                                           |  |  |        |  | 2002 |  |  |  | CTC |
| CTC-Novosibirsk(1) |  |  |              |  | 50  |                                           |  |  |        |  | 2005 |  |  |  | CTC |
|                    |

|  |
|--|
|  |  |
|  |

|     |                  |
|-----|------------------|
| (1) | Notconsolidated. |

The table below presents information on eachof the stations in our Domashny Television StationGroup:

Domashny Television Station Group Owned-and-OperatedStations

|                        |  |  |              |  |       |                                           |  |  |        |  |      |  |  |  |          |
|------------------------|--|--|--------------|--|-------|-------------------------------------------|--|--|--------|--|------|--|--|--|----------|
|                   |  |  |         |  |       | YearStation Acquired orFounded byCTCMedia |  |  |   |
| StationName            |  |  | OurOwnership |  |       | SignalBroadcast                           |
| Domashny-Moscow        |  |  |              |  | 99.99 | %                                         |  |  |        |  | 2004 |  |  |  | Domashny |
| Domashny-St.Petersburg |  |  |              |  | 100   |                                           |  |  |        |  | 2004 |  |  |  | Domashny |
| Domashny-Kazan         |  |  |              |  | 52    |                                           |  |  |        |  | 2004 |  |  |  | Domashny |
| Domashny-Perm          |  |  |              |  | 100   |                                           |  |  |        |  | 2004 |  |  |  | Domashny |
| Domashny-Voronezh      |  |  |              |  | 100   |                                           |  |  |        |  | 2005 |  |  |  | Domashny |
| Domashny-Rostov-on-Don |  |  |              |  | 100   |                                           |  |  |        |  | 2007 |  |  |  | Domashny |
| Domashny-Kemerovo      |  |  |              |  | 100   |                                           |  |  |        |  | 2006 |  |  |  | Domashny |
| Domashny-Barnaul       |  |  |              |  | 51    |                                           |  |  |        |  | 2006 |  |  |  | NTV      |
| Domashny-Samara        |  |  |              |  | 100   |                                           |  |  |        |  | 2006 |  |  |  | Domashny |
|                        |

Ourlargest owned-and-operated stations are those in Russia’s twolargest cities, Moscow and St. Petersburg. We believe that thesestations have been successful in capturing advertising market sharessubstantially greater than their audience shares, in part because thenational channels, Channel One, Rossiya and NTV, which constitute threeof our principal competitors, place less emphasis on local advertising.We believe that these cities are key advertising markets because theirresidents have substantially higher average incomes than residents inthe rest of Russia.

8

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Independent affiliatestations.    We have arrangements with independent affiliatestations, including local cable operators, that provide for them toreceive and broadcast our networks’ programming and nationaladvertising. The CTC Network currently has approximately 290independent affiliates and the Domashny Network currently has over 190.Approximately 60% of CTC’s independent affiliates havesigned written agreements with us that generally require them tobroadcast the CTC signal for two- to five-year terms, although bothparties typically have the right to terminate the agreement by writtennotice prior to the end of the term. Arrangements with the remainder ofour independent affiliates are generally governed by letters ofunderstanding. Approximately 20% of Domashny’s affiliateshave signed written agreements with us, with the remainder generallygoverned by letters of understanding.

We have no ownershipinterest in our independent affiliates. These independent affiliatesbenefit from the CTC and Domashny brands and content in selling theirown local advertising, and provide us with a leveraged means ofextending the coverage of our two networks.

CTC and Domashnygrant each affiliate a non-exclusive right within its territory tobroadcast the network signal, including all national advertising airedby the network. Affiliates are required to broadcast the networksignal, except during four half-hour‘‘local’’ time blocks per day anddesignated local advertising windows throughout each time slot duringthe day. The affiliates have the right to fill the four local timeblocks with their own or licensed content, as well as with localadvertising and announcements. Alternatively, the affiliates maycontinue to broadcast network programming during these periods. Weencourage them to broadcast the network signal during the entire day(other than in local advertising windows) in order to ensure that theprogramming that is broadcast appeals to our target audiences. Ouraffiliates do not pay any fees to us for access to our networkprogramming, but earn revenues from the sale of local advertising. Wedo not pay any fees to our affiliates.

We seek to ensureconsistent quality across our networks in order to maximize the valueof our brands. Our agreements with affiliates provide for nominalfinancial penalties in the event that a station fails to broadcast ournational programming and advertising (other than during the designatedlocal windows). We employ monitors and have instituted additionalcontrols to ensure compliance by our affiliates with theserequirements.

Broadcast licenses in Russia are typically issuedfor a period of five years. At CTC Network, of our 330 affiliates(including cable television operators) as of December  31,2006, 193, including all our owned-and-operated stations and unmannedrepeater transmitters, consisted of local stations operating on thebasis of broadcast licenses. The remainder, which were primarily localcable networks, operated without broadcast licenses. Of the 193 CTCaffiliate stations, the licenses of approximately 15% hadexpired as of January  31,  2007 and are being extended ormodified, an additional 22% expire before the end of 2007,27% expire before the end of 2008, 7% expire before theend of 2009 and 21% expire before the end of 2010. See‘‘Item 1A. Risk Factors — The inability of ouraffiliates to renew existing licenses upon expiration of their termscould also result in the loss of audience share.’’ Webelieve that expired licenses have not yet been renewed primarily dueto delays in processing renewal applications by the issuing authoritiesand expect that these affiliates will be able to renew theirbroadcasting licenses in due course, but can provide no assurance thatthey will be successful in doing so. Some of the local cable operatorsthat broadcast our networks may not possess all requiredlicenses.

Unmanned repeater transmitters.    Incertain smaller markets where establishing a station is not currentlyeconomical, we have installed unmanned repeater transmitters. Thesetransmitters are installed on local transmission towers and receive thesignal of our networks by satellite for broadcast locally without theneed for local personnel or partners or a substantial investment infacilities. We currently have 19 operating repeaters broadcasting theCTC Network and seven repeaters broadcasting the Domashny Network. Weanticipate that we will, over time, install additional repeaters andconvert some repeaters to owned-and-operated stations, making use ofthe license initially obtained for the repeater to expand operations inthat locality.

Competition

The Russian televisionbusiness is highly competitive. We compete with other broadcasters andother forms of media for advertising spending, and we compete withother broadcasters for audience share, 

9

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programming rights, affiliate stations andbroadcast frequencies (in particular, stronger VHF frequencies in keymarkets). In particular, as competition for advertising expendituresincreases, we anticipate a comparable increase in competition amongbroadcasters for the rights to the most popular Russian and foreignprograms.

In addition, the television broadcasting industry iscontinuously faced with technological change and innovation. Commercialfree-to-air television broadcasting in Russia will likely face futurecompetition from interactive video and data services, information anddata services delivered by commercial television stations, cabletelevision, direct broadcast satellites, multi-point distributionsystems and other video delivery systems.

For sales ofadvertising, we compete primarily on the basis of both the actual andanticipated sizes of our audiences for specific time slots, as well asthe demographic characteristics of our viewers. Competition fortelevision audiences is based principally on the selection ofprogramming, the acceptance of which is dependent on the viewingpublic, which is often difficult to predict. Both CTC and Domashnycompete with broadcasters that have significantly higher audienceshares and coverage than they do.

Televisionbroadcasters

On a national level, CTC competes directlywith the other larger national networks and channels, Channel One,Rossiya, NTV, REN-TV and TNT. Though Domashny does not currently havedirect competitors that focus exclusively on its target audience, itcompetes for advertising sales generally with the other thematicchannels and smaller networks such as DTV, MTV, TV-3 and TVC and alsocompetes with the national broadcast networks and channels for viewerswithin its target demographic group. In local television markets, wealso compete with a multitude of stations. We compete to a more limitedextent with pay television services, which are currently relativelyundeveloped in Russia.

We believe that our network model willallow us to continue to compete effectively in the Russian televisionmarket. Our network structure, in contrast to a channel structure,allows us to use independent affiliates to increase our broadcastcoverage without incurring additional transmission costs. In addition,our owned-and-operated stations allow us to capture a portion of thelocal advertising market that some of our national competitors have notcaptured using their channel strategy. Moreover, we believe that, asthe Russian television advertising market continues to mature, ourstrategy of targeting 6-54 year-old viewers for CTC and of focusing onthe targeted audience of Domashny will increase our shares of thetelevision advertising market relative to our audience shares

Thetable below provides certain key statistics about CTC and its majortelevisioncompetitors:

|            |  |  |                         |  |      |                                 |   |  |        |                          |  |                         |           |  |  |  |                     |      |  |   |  |      |  |  |      |  |   |  |      |  |  |
|------------|--|--|-------------------------|--|------|---------------------------------|---|--|--------|--------------------------|--|-------------------------|-----------|--|--|--|---------------------|------|--|---|--|------|--|--|------|--|---|--|------|--|--|
|       |  |  |                    |  |      | Principaltargetaudience(age)(2) |   |  |   |                          |  | Averageaudienceshare(3) |
|       |  |  | Technicalpenetration(1) |  |      | Ownership                       |   |  | 2005   |                          |  | 2006                    |
| ChannelOne |  |  |                         |  | 99.3 |                                 | % |  |        | All   18+ |  |                         | 51%state  |  |  |  |                     | 23.0 |  | % |  |      |  |  | 21.3 |  | % |
| Rossiya    |  |  |                         |  | 99.3 |                                 |   |  |        | All   18+ |  |                         | 100%state |  |  |  |                     | 22.7 |  |   |  |      |  |  | 19.5 |  |   |
| NTV        |  |  |                         |  | 92.7 |                                 |   |  |        |                          |  | 18-45                   |           |  |  |  | 50+%GazpromMedia(4) |      |  |   |  | 11.1 |  |  |      |  |   |  | 12.8 |  |  |
| CTC        |  |  |                         |  | 86.6 |                                 |   |  |        |                          |  | 6-54                    |           |  |  |  | 100%private         |      |  |   |  | 10.3 |  |  |      |  |   |  | 10.4 |  |  |
| TNT        |  |  |                         |  | 79.9 |                                 |   |  |        |                          |  | 18-45                   |           |  |  |  | 50+%GazpromMedia(4) |      |  |   |  | 6.7  |  |  |      |  |   |  | 6.0  |  |  |
| REN-TV     |  |  |                         |  | 74.8 |                                 |   |  |        |                          |  | 18-45                   |           |  |  |  | 100%private(5)      |      |  |   |  | 5.0  |  |  |      |  |   |  | 4.2  |  |  |
|            |

|  |
|--|
|  |  |
|  |

|     |                                             |
|-----|---------------------------------------------|
| (1) | TNSGallup Media, Establishment Survey,2006. |

|     |                     |
|-----|---------------------|
| (2) | CTC Mediaestimates. |

|     |                  |
|-----|------------------|
| (3) | TNS GallupMedia. |

|     |                                                                                                     |
|-----|-----------------------------------------------------------------------------------------------------|
| (4) | Gazprom Media is anindirect subsidiary of Gazprom, the state-controlled natural gas andoil company. |

|     |                                                                                                                                                    |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------|
| (5) | REN-TV is 56%owned by Russia Bank, 30% by the RTL Group, 7% bySeverstal, and 7% by Surgutneftegaz. The RTL Group is asubsidiary of Bertelsmann AG. |

10

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The table below provides certain keystatistics about Domashny and its major televisioncompetitors:

|             |  |  |                         |  |      |                                 |   |  |        |              |  |                         |             |  |  |                    |  |     |  |  |     |  |   |  |     |  |  |     |  |   |
|-------------|--|--|-------------------------|--|------|---------------------------------|---|--|--------|--------------|--|-------------------------|-------------|--|--|--------------------|--|-----|--|--|-----|--|---|--|-----|--|--|-----|--|---|
|        |  |  |                    |  |      | Principaltargetaudience(age)(2) |   |  |   |              |  | Averageaudienceshare(3) |
|        |  |  | Technicalpenetration(1) |  |      | Ownership                       |   |  | 2005   |              |  | 2006                    |
| TVC         |  |  |                         |  | 68.5 |                                 | % |  |        |              |  | 18-54                   |             |  |  | 99.2%City ofMoscow |  |     |  |  | 2.5 |  | % |  |     |  |  | 2.6 |  | % |
| TV-3        |  |  |                         |  | 58.1 |                                 |   |  |        |              |  | 18-54                   |             |  |  | 100%private(4)     |  |     |  |  | 1.9 |  |   |  |     |  |  | 2.3 |  |   |
| DTV         |  |  |                         |  | 44.9 |                                 |   |  |        |              |  | 6-54                    |             |  |  | 100%private(5)     |  |     |  |  | 1.5 |  |   |  |     |  |  | 1.7 |  |   |
| Domashny(7) |  |  |                         |  | 58.2 |                                 |   |  |        | 25-60(women) |  |                         | 100%private |  |  |                    |  | 1.0 |  |  |     |  |   |  | 1.4 |  |  |
| MTV         |  |  |                         |  | 50.5 |                                 |   |  |        |              |  | 11-34                   |             |  |  | 100%private(6)     |  |     |  |  | 1.0 |  |   |  |     |  |  | 1.1 |  |   |
|             |

|  |
|--|
|  |  |
|  |

|     |                                            |
|-----|--------------------------------------------|
| (1) | TNSGallup Media, Establishment Survey,2006 |

|     |                    |
|-----|--------------------|
| (2) | CTC Mediaestimates |

|     |                 |
|-----|-----------------|
| (3) | TNS GallupMedia |

|     |                                                                   |
|-----|-------------------------------------------------------------------|
| (4) | TV-3 is wholly owned byProf-Media, a Russian media holdingcompany |

|     |                                                                                                                                                                                                                                                          |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (5) | DTV is wholly owned byMTG Broadcasting AB. See ‘‘Item 1A. Risk Factors —One of our principal stockholders owns a controlling interest in acompeting Russian television network, and its interests may conflictwith ours.’’ |

|     |                                                                           |
|-----|---------------------------------------------------------------------------|
| (6) | MTV is50% owned by Viacom International and 50% by RussiaPartners II Fund |

|     |                                                                                                                                                     |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------|
| (7) | For Domashny,audience share for the year is calculated on the basis of the fullyear; the Domashny Network only began broadcasting on March6,  2005. |

Principal competitors

Todate, CTC’s primary competitors have been networks and channelsowned by the state as well as NTV, controlled by state-controlledGazprom Media. With large direct and indirect government subsidies, thestate broadcasters have been able to air recent‘‘blockbuster’’ movies and hit series,bidding up the price on high-quality programming. They have alsomaintained their dominance through significant outlays on news andlocal production.

Channel One.    Channel One, theformerly 100% state-owned national television station Ostankino,was reorganized in 1995 and since that time has been 49%privately owned. Channel One’s schedule includes Vremya(Time), the highest-rated and longest-running news program inRussia; Russian-made series; foreign-produced programming, includingblockbuster movies; game shows; and major sporting events, such asmajor soccer and ice hockey games. Channel One is particularly wellpositioned in the Russian national television broadcasting market dueto its historical position as the ‘‘FirstChannel’’ in Russia and its broadcast coverage, which isthe greatest of all Russian television broadcasters. As a result of itsbroadcast coverage and channel model, however, we believe that ChannelOne’s transmission expenditures are substantially greater thanours.

Rossiya.    Rossiya, the state-owned televisionchannel, is the second largest television broadcaster in Russia interms of audience share. Following the partial privatization of ChannelOne, Rossiya is the sole remaining 100% state-owned channel inRussia. Rossiya remains a primary source of government-sponsored newsand information programs. Rossiya’s programming scheduleincludes the channel’s trademark program Vesti (News);political programs; a variety of Russian-produced series andmade-for-television films; talk and game shows; documentaries; someforeign-produced programming, including blockbuster movies; and majorsports programming. The channel was also one of the first Russianbroadcasters to attempt its own large-scale television film production.We believe that, as with Channel One, Rossiya’s transmissionexpenditures are substantially greater than ours because of its channelmodel and the extent of its broadcastcoverage.

NTV.    NTV’s programming consists ofinformation and entertainment programming, with a major emphasis onnews and movies. From its broadcasting launch in 1994, NTV rapidlygained audience share and in both 1999 and 2000 achieved the secondlargest average national audience share, surpassing Rossiya.Thereafter, highly publicized financial and political difficultiesresulted in abrupt changes in NTV’s ownership and management,with a controlling interest in NTV being transferred in Spring 2001 toGazprom Media, NTV’s principal creditor and part of thestate-controlled Gazprom natural gas and oil 

11

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company. Shortly after these ownership andmanagement changes, NTV’s programming changed as the rights toseveral of its popular Russian series and shows were bought by acompeting network. Over the same period, NTV’s average audienceshare declined from 17.9% in 2000 to 12.6% in 2001, withaudience shares of 13.2% in 2003, 11.9% in 2004,11.1% in 2005 and 12.8% in 2006.

Additionalcompetitors

Over the past decade, a number of new, smallernetworks or thematic channels targeting specific audiences have beenestablished. As of the end of 2006, there were a total of 19free-to-air TV channels and networks with nationwide coverage. We haveidentified the following as other key competitors of CTC and/orDomashny:

|        |  |  |               |  |      |                   |  |  |                                                                                                                                                                                                                  |  |  |                            |  |      |   |  |  |  |  |     |   |
|--------|--|--|---------------|--|------|-------------------|--|--|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|----------------------------|--|------|---|--|--|--|--|-----|---|
| Name   |  |  | Yearof Launch |  |      | ProgrammingFormat |  |  | Technicalpenetration                                                                                                                                                                                             |  |  | AverageAudienceSharein2006 |
| REN-TV |  |  |               |  | 1996 |                   |  |  | Newsand analytical programs, documentaries, entertainment and musicprograms, sports news and major sporting events, popular foreign seriesand Hollywood movies Produces a large proportion of its ownprogramming |  |  |                            |  | 74.8 | % |  |  |  |  | 4.2 | % |
| TNT    |  |  |               |  | 1998 |                   |  |  | Domesticallyproduced programming, including entertainment, talk shows,documentaries and educational programs, news programs andchildren’s programming Produces a large proportion of itsownprogramming     |  |  |                            |  | 79.9 |   |  |  |  |  | 6.0 |   |
| TVC    |  |  |               |  | 1997 |                   |  |  | Moscowpolitical and social themes, news and analytical programs, movies andRussian and foreign dramaseries                                                                                                       |  |  |                            |  | 68.5 |   |  |  |  |  | 2.6 |   |
| TV-3   |  |  |               |  | 1998 |                   |  |  | Foreignprogramming, primarilymovies                                                                                                                                                                              |  |  |                            |  | 58.1 |   |  |  |  |  | 2.3 |   |
| DTV(1) |  |  |               |  | 2002 |                   |  |  | Mixof entertainmentprogramming                                                                                                                                                                                   |  |  |                            |  | 44.9 |   |  |  |  |  | 1.7 |   |
|        |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                                                                              |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | See‘‘Item 1A. Risk Factors — One of our principalstockholders owns a controlling interest in a competing Russiantelevision network, and its interests may conflict withours.’’ |

Intellectual Property

We relyheavily upon the rights we obtain through license agreements withprogramming providers and through contracts with production houses forour ability to broadcast content.

We have registered trademarksfor the ‘‘CTC’’ name and logo in theRussian Federation. We have applied in the Russian Federation fortrademarks for the ‘‘CTC Media’’ and‘‘Domashny’’ names andlogos.

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Employees

The following tablesets forth the number of our employees as of December  31,2006, and a breakdown byfunction.

|                |  |  |           |  |         |          |  |  |                         |  |         |       |  |  |  |  |     |  |  |  |  |  |       |  |
|----------------|--|--|-----------|--|---------|----------|--|--|-------------------------|--|---------|-------|--|--|--|--|-----|--|--|--|--|--|-------|--|
|           |  |  | Corporate |  |         | Networks |  |  | TelevisionStationGroups |  |         | Total |
| Technical      |  |  |           |  | — |          |  |  |                         |  | 37      |       |  |  |  |  | 142 |  |  |  |  |  | 179   |  |
| Programming    |  |  |           |  | — |          |  |  |                         |  | 61      |       |  |  |  |  | 76  |  |  |  |  |  | 137   |  |
| Production     |  |  |           |  | — |          |  |  |                         |  | 18      |       |  |  |  |  | 159 |  |  |  |  |  | 177   |  |
| Sales          |  |  |           |  | — |          |  |  |                         |  | 22      |       |  |  |  |  | 70  |  |  |  |  |  | 92    |  |
| Marketing      |  |  |           |  | — |          |  |  |                         |  | 32      |       |  |  |  |  | 38  |  |  |  |  |  | 70    |  |
| Distribution   |  |  |           |  | — |          |  |  |                         |  | 14      |       |  |  |  |  | 7   |  |  |  |  |  | 21    |  |
| Repeatersgroup |  |  |           |  |    |          |  |  |                         |  | — |       |  |  |  |  | 7   |  |  |  |  |  | 7     |  |
| Administration |  |  |           |  | 36      |          |  |  |                         |  | 83      |       |  |  |  |  | 242 |  |  |  |  |  | 361   |  |
| Totalemployees |  |  |           |  | 36      |          |  |  |                         |  | 267     |       |  |  |  |  | 741 |  |  |  |  |  | 1,044 |  |
|                |

AVAILABLEINFORMATION

We file reports, proxy statements and otherdocuments with the Securities and Exchange Commission, which areavailable on the SEC’s Internet site at http://www.sec.gov. Youmay also read and copy any document we file at the SEC offices at 100 FStreet, NE, Washington, D.C. 20549. You should call1-800-SEC-0330 for more information on the public reference room.

Our internet address is www.ctcmedia.ru. We are not including theinformation contained in our website as part of, or incorporating it byreference into, this Annual Report on Form 10-K. We makeavailable free of charge through our website our annual reports onForm 10-K, quarterly reports on Form 10-Q, currentreports on Form 8-K and amendments to these reports filed orfurnished pursuant to Section 13(a) or 15(d) of the SecuritiesExchange Act of 1934, as amended, as soon as reasonably practicableafter we electronically file such materials with the Securities andExchange Commission.

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Item 1A.    Risk Factors.

Investing in our common stock involves a high degree of risk. Youshould carefully consider the following risk factors and all otherinformation contained in this Annual Report on Form 10-K beforepurchasing our common stock. The risks and uncertainties describedbelow are not the only ones that we face. Additional risks anduncertainties of which we are unaware, or that we currently deemimmaterial, may also become important factors that affect us. Any ofthe following risks could adversely affect our business, financialcondition and results of operations. In such case, the trading price ofour common stock could decline, and you could lose some or all of yourinvestment.

Risks relating to our business andindustry

Effective from 2008, Russian law will furtherlimit the amount of advertising time permitted on television, whichcould materially adversely affect our results ofoperations.

In early 2006, a new Russian law was introducedto limit the amount of time that a broadcaster could devote toadvertising. The new law took effect on July  1,  2006 and,as a result, advertising was limited to 15% of dailybroadcasting time, and no more than 20% in any hour, compared to20% of total broadcasting time per day prior to July  1.From January  1,  2008, the new law will further limitadvertising such that no more than 15% of broadcasting time perhour can be devoted to advertising. In addition, Russia has signed aninternational convention that, if ratified by the Russian parliament,would further limit the amount of advertising that could be broadcastduring feature films. Alexander Rodnyansky, our chief executiveofficer, has stated in interviews that this convention, if ratified,could significantly reduce the revenues that we are able to generatefrom the broadcast of feature films.

Video Internationalrenegotiated advertising rates with advertisers to reflect the impactof the reduction in available advertising time in 2006. We alsoincreased the share of our total daily advertising time allocated tothe CTC Network from 70% to 75% (excluding localprogramming windows), decreasing the amount allocated to our CTCaffiliates. As a result, we believe that the reduced amount ofavailable advertising time did not negatively affect our results ofoperations in 2006. However, we can provide no assurance that it wouldbe possible for Video International to renegotiate pricing tocompensate for reductions set to take effect in 2008 or pursuant to theinternational convention, if ratified. We also provide no assurancethat we would be able to take measures similar to those taken in 2006to reallocate advertising time to the CTC Network. We expect that theeffectiveness of the further reduction in permitted advertising time,and the international convention, if ratified, could materiallyadversely affect our revenues and results of operations.

Wederive almost all of our revenues from the sale of advertising, whichis sensitive to broader economic conditions, and our revenues maytherefore substantially decrease if general economic conditions inRussia were to deteriorate.

Since the introduction oftelevision advertising in Russia following the fall of the SovietUnion, advertising spending has fluctuated substantially, generallyincreasing during periods of economic growth and decreasing duringdownturns. For example, in August  1998 the Russian governmentdefaulted on certain of its outstanding financial obligations and theCentral Bank of Russia stopped its support of the ruble, leading to asteep devaluation. During the ensuing economic crisis, total spendingon television advertising in Russia declined significantly, fallingfrom a pre-crisis high of $550  million in 1997 to a low of$190  million in 1999. Economic recovery following the crisis wasslow, and spending on Russian television advertising did not exceed the1997 figure in US dollar terms until 2002. As a result, our revenuesdeclined significantly after the 1998 economic crisis. By significantlyreducing the salaries of our employees, reducing corporate overhead,limiting purchases of new programming, renegotiating the terms ofexisting programming agreements and obtaining third-party financing, wewere able to continue to operate until the advertising marketrecovered.

Although the Russian economy has improvedsubstantially since the 1998 crisis, many analysts have expressedconcerns that it is overly dependent upon commodities, particularly thenatural gas and oil sectors, and therefore substantially dependent uponinternational supply, demand and pricing conditions 

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in those fields. A sudden or prolongeddownturn in the Russian economy could substantially reduce Russiantelevision advertising expenditures. Any decrease in the size of theRussian television advertising market will likely result in a decreasein our advertising revenues, which would adversely affect our resultsof operations.

If free-to-air television does not continueto constitute a significant advertising forum in Russia, our revenuescould be materially reduced.

We generate substantially allour revenues from the sale of free-to-air television advertising inRussia, which constituted approximately 47% of all advertisingexpenditures in Russia in 2005 and 49% in 2006, having increasedfrom 25% in 1999. In the broader advertising market, televisioncompetes with various other advertising media, such as print, radio,the internet and outdoor advertising. While television currentlyconstitutes the single largest component of all advertising spending inRussia there can be no assurance that television will maintain itscurrent position among advertising media or that changes in theregulatory environment will not favor other advertising media or othertelevision broadcasters. Increases in competition arising from thedevelopment of new forms of advertising media could have an adverseeffect on our ability to maintain and develop our advertising revenuesand, as a result, on our results of operations. Any decline in theappeal of television generally or of our networks specifically, whetheras a result of the growth in popularity of other forms of media, adecline in the attractiveness of television as an advertising medium orany other factor, could have a material adverse effect on our resultsof operations.

In addition to competing with other free-to-airbroadcasters, we compete with pay television services that offermultiple channels to subscribers for a regular subscription fee, andthat typically do not generate a significant portion of their revenuesfrom advertising. Compared with pay television in the United States andEuropean countries, Russian pay television has yet to attract asignificant customer base, although the recent introduction of suchservices in several major cities suggests the potential for growth. Inother countries, such as the United States, growth in pay televisionservices has often resulted in a fragmentation of the market and acorresponding decrease in the audience share of large national networksand channels. If pay television services attract a significant customerbase in Russia, our audience shares and ratings could be negativelyaffected, which would adversely affect our advertisingrevenues.

We rely on a single television advertising saleshouse for substantially all of our revenues, and therefore ouroperating results could be materially adversely affected if ourrelationship with this sales house were to deteriorate or if it were tofail to sell advertising on our behalfeffectively.

National television advertising in Russia isgenerally not placed directly with broadcasters. Instead, two‘‘sales houses,’’ Video International andNTV Media, a sales house affiliated with the television channel NTV(one of our principal competitors), control the placement of mostnational television advertising in Russia, with a third sales houseplacing advertising for several smaller channels. Video Internationalcurrently also places local advertising for local television stations.Video International has served as our exclusive sales house for theplacement of national advertising on the CTC Network since 1999 and onthe Domashny Network since its launch in March  2005. InJanuary  2006, Video International began acting as the exclusivesales house for the placement of local television advertising forsubstantially all of the stations in our Television StationGroups.

Payments from Video International accounted forapproximately 71% of our total operating revenues in 2005 and95% in 2006. We expect revenues from Video International toaccount for substantially all of our consolidated revenues in 2007. Wehave separate agreements with Video International that run throughDecember  2007 and 2009 for CTC and Domashny, respectively, and2010 for our Television Station Groups. These agreements are generallyterminable upon 180 days’ notice by either party. We cannotguarantee that the Video International agreements will not beterminated prior to their scheduled expiration, or that if they areterminated we will be able to conclude replacement agreements thatprovide us with the same level of advertising revenues or otherbenefits as the current agreements.

Video International,typically in consultation with us, determines advertising prices,agrees the terms of sales contracts between it and advertisers andoversees the collection of advertising sales revenue. 

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Video International typically consults withus on general budgeting matters, including average selling prices, thetotal number of GRPs expected over the year, the allocation of GRPsacross the year and similar matters. Our agreements with VideoInternational require it to forward payment to us within three businessdays of its receipt of funds from advertisers. However, we do not haveany direct input into the evaluation of the creditworthiness ofpotential new advertisers or direct control over collection ofadvertising sales revenues, and Video International could actunilaterally should it choose to do so when setting advertising pricesand allocating GRPs. For example, in January  2007 VideoInternational sent a letter to certain advertisers on the CTC Networkindicating that it intended to reallocate some placements to otherchannels as well as our regional stations due to lower than forecastedratings on the CTC Network in 2007. We also bear the credit riskassociated with any failure by an advertiser to make payment when due.If Video International were to sell to non-creditworthy customers, failto successfully collect advertising sales revenues or act unilaterallywhen setting advertising prices or allocating GRPs, our inability todirectly control the process and limited provisions for recourse couldhave a material adverse effect on our business, financial condition andresults of operations.

The Russian Federal Anti-monopoly Servicehas publicly indicated on several occasions in the past, including in2006, that it intends to regulate Video International as a monopolywith a dominant market position or to require the establishment of apublic exchange for the sale of advertising; we are not aware of anyspecific plans to initiate any such efforts at any particular time. Ifthe Federal Anti-monopoly Service were to do so, under applicableanti-monopoly legislation it could impose various restrictions on VideoInternational and its activities, including forced divestitures ofcompanies within the group. Such actions by the Federal Anti-monopolyService, if implemented, could disrupt Video International’sability to effectively place our advertising, which in turn could havea material adverse effect on our business, financial condition andresults of operations.

The only other major televisionadvertising sales house in Russia is controlled by one of our principalcompetitors, NTV. We understand that this sales house coordinates withVideo International in the placement of local advertising.Consequently, we do not know whether they would agree to act as oursales house or, if they did, whether they would be as effective asVideo International at placing our television advertising.

Adisruption in our relationship with Video International or earlytermination of our agreements or any adverse event with respect toVideo International’s ability to pay would have a materialadverse effect on our business, financial condition and results ofoperations.

Restrictions on foreign involvement in thetelevision business in Russia could potentially be amended orinterpreted in such a way as to result in our loss of necessarylicenses or to require us to divest majority control of our Russianoperating subsidiaries.

Amendments to the law of theRussian Federation ‘‘On Mass Media’’ (the‘‘Mass Media Law’’), which went into effectin August  2001, restrict foreign involvement in Russiantelevision businesses in a number of ways. As a result of theseamendments, all Russian television companies with existing foreignownership had to restructure their operations prior to August6,  2002, to avoid violating the amended Mass Media Law.Unlike other Russian legislation regarding foreign control in certainindustries, however, the amendments to the Mass Media Law do notcontain ‘‘look-through’’ provisions withrespect to the ultimate beneficial ownership of Russian companiesengaged in television operations in Russia. Because CTC Media does notbroadcast or distribute television programming in the RussianFederation, we believe that CTC Media itself does not fall under thedefinition of a ‘‘founder of a television or videoprogram,’’ and that CTC Media itself does not violate theforeign involvement restrictions of the Mass Media Law.

Inresponse to the adoption of these amendments to the Mass Media Law, weimplemented a restructuring plan pursuant to which we created a holdingcompany structure and reduced CTC Media’s direct ownership inCTC and each of our owned-and-operated stations below 50%. CTCMedia’s direct ownership of Domashny, which was acquiredsubsequent to the adoption of these amendments, is also below50%. The transfers of CTC and our owned-and-operated stations,other than with respect to our Moscow station that broadcasts CTC, wascompleted by the August  2002 deadline. The change in the

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ownership structure for our Moscow stationthat broadcasts CTC was completed in December  2002, after thespecified deadline. To date, no Russian governmental authorities havetaken any action against our CTC-Moscow station for its failure tocomply with the restrictions on foreign legal ownership by theAugust  2002 deadline.

According to recent press reports,the Russian parliament plans to consider new legislation in 2007 tofurther restrict foreign ownership in a number of‘‘key’’ industries. No draft legislationhas been publicly released.

If the Mass Media Law or any newlyadopted law were to be interpreted by the Russian governmentalauthorities or a Russian court to extend to, and to prohibit, indirectforeign ownership of or control over Russian broadcasters of televisionor video programs, Russian governmental authorities may suspend orrevoke broadcasting licenses and permits held by our networks and ourowned-and-operated stations. If the Mass Media Law were to be amended,or any new law were to be adopted, to expressly restrict indirectforeign ownership and control of Russian television broadcasters andsuch amendments or law were to be applied retroactively, CTC Mediacould be obliged to restructure its ownership structure so that itcomplies with such interpretation of new requirements, including bydivesting a controlling stake in our networks and ourowned-and-operated stations. If CTC Media were required to restructureits ownership structure in accordance with such new requirements andfailed to do so or to do so in a timely manner, Russian governmentalauthorities could suspend or revoke broadcasting licenses and permitsheld by our networks and our owned-and-operatedstations.

Increasing demand for popular Russian content, aswell as competition for popular foreign programming, may result incontinued material increases in our programming costs, which couldmaterially adversely affect our operating margins and results ofoperations.

Our ability to attract and retain viewersdepends primarily on our success in offering programming that appealsto our target audiences. Russian viewer preferences have been changingin recent years, with increasing demand for programming produced inRussia. We have responded to this change by increasing the percentageof Russian-produced programming we air, most of which we license ordevelop with third-party producers. To continue to increase audienceshare, we believe we will need to continue to increase the amount ofRussian-produced programming broadcast on our networks. As ofDecember  31,  2006, Russian programming accounted forapproximately 42% of the carrying value of our programmingrights.

There is currently a limited supply of Russian-producedprogramming and strong competition among the Russian networks andchannels for such programming. Russian-produced programming aimed atour target audience is generally more expensive for us to license thancomparable western programming. Therefore, we believe that ourprogramming costs will continue to increase in absolute terms andpossibly also relative to our advertisingrevenues.

Although we expect to continue to increasethe amount of Russian content we air in the future, we plan to continueto offer a selection of high-quality western programming. As thetelevision advertising market in Russia has grown, competition forwestern, as well as Russian-produced, programming has resulted in ageneral increase in programming costs. For example, we estimate thatthe average contractual cost per hour of the original Russianprogramming we commissioned in 2006 was 9% greater than that ofthe programming we commissioned in 2005. During the past several years,we have been able to collaborate with some of our competitors,including Channel One, in licensing programming from major studiosbased in the United States, as well as Russian producers anddistributors, on a shared basis. Under these sharing arrangements, thecost of these programming rights to us is substantially reduced. If, inthe future, high-quality television programming were unavailable on ashared basis, the costs to us of obtaining licenses for thisprogramming could increase significantly or we may be unable to obtainaccess to such programming. If we are unable to maintain our access tosuch programming, we might attract a smaller audience share, resultingin a decrease in our advertising revenues.

If we are unable tosecure a steady supply of high-quality programming, or if we fail toanticipate, identify or react appropriately to changes in Russianviewer tastes by providing appropriate programming, 

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our audience share could be negativelyaffected, which would adversely affect our advertising revenues.Moreover, if any of the programming we license or commission does notachieve the audience share levels we anticipate, we may be required towrite-off all or a portion of the carrying cost of such programming, orwe could be forced to broadcast more expensive programming to maintainaudience share, both of which could have a material adverse impact onour results of operations.

A reduction in our audienceshares and ratings could result in a reduction in our advertisingrevenues.

The level of advertising revenues that we receiveis directly tied to our audience share and ratings. If our audienceshare or ratings were to fall as a result, for example, of competitivepressures, the underperformance of key programs, particularly inprimetime, the failure to renew licenses, or a change in the method ofmeasuring television audiences, this could result in a materialdecrease in our advertising revenues.

A change in the methodof measuring television audiences could reduce our audience share andratings.

The system of audience measurement has beenevolving in Russia as the advertising market has matured and inresponse to changing Russian demographics. Most recently, TNS GallupMedia changed the composition and weighting of its panel of measuredcities, effective January  1,  2006, based upon 2002Russian census data that indicated shifting demographic patterns, mostnotably the movement of populations from rural and smaller urban areasto larger urban areas and a decrease in the percentage of children inthe total population. As a result of these changes, 12 additionalcities were added to the panel of 40 cities with populations exceeding100,000 where audiences were previously measured, and the weight ofMoscow in the universe of measured cities increased from approximately12.8% to 15.5%. The overall impact of the change in themeasuring methods resulted in slightly lower audience shares in 2006for our networks than would have been achieved under the earliermeasurement methods. This can be explained, in part, by the decrease inchildren in the weighting, a demographic where CTC has traditionallybeen particularly strong, and an increase in the weight of Moscow inthe universe of measured cities, where CTC’s ratings aretypically lower than in many other Russian cities as a result ofgreater competition among broadcasters in Moscow. When changes to thesystem of audience measurement occur, we attempt to take steps inrespect of our programming and distribution to counteract the effectsof such changes. We cannot assure you that these steps or any furtherchanges in the measurement systems would not result in a decrease inour audience share, which could result in a material decrease in ouradvertising revenues.

The loss of licenses, or the failureto comply with the terms of licenses, could result in the loss ofaudience share. 

All broadcast television stations inRussia are required to have broadcast and other operating licenses,which generally have renewable terms of five years. Only a limitednumber of such licenses are available in each locality. In addition,Russian law could be interpreted as requiring cable televisionoperators to have broadcast and other operating licenses for each ofthe channels or networks they transmit on their cable systems. Not allof the independent cable television operators that currently carry ournetworks possess such licenses. The issuance of a license, as well asthe terms and conditions of any license, are often subject to theexercise of broad discretion by governmental authorities.

Thebroadcast licenses of our affiliate stations also contain variousrestrictions and obligations, including requirements with respect tothe minimum amount of Russian-produced programming (usually requiringat least 50%) as well as locally-produced programming. Ouraffiliates have not always been in full compliance with allrequirements of their licenses or obtained all the licenses necessaryfor broadcasting. If the terms of a license are not fulfilled, or if atelevision station violates applicable Russian legislation orregulations, the license may be suspended or terminated (which decisionmay be appealed in court). If an affiliate were to broadcast withoutall the necessary licenses, broadcasting may be terminated and finescould be imposed.

The loss of an existing broadcast license, orthe failure to obtain a broadcast license in a new market, could reduceor limit the coverage of our networks and result in a loss of audienceshare and a fall in ratings, which could materially adversely affectour advertising revenues and business.

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The inability of our affiliates torenew existing licenses upon expiration of their terms could alsoresult in the loss of audience share.

The renewal ofexisting licenses is often subject to the exercise of broad discretionby governmental authorities. In addition, the Russian governmentalreorganization during 2004 resulted in extensive delays in the renewalof expiring and expired licenses for all broadcasters. Of our more than300 affiliates at the CTC Network (including cable televisionoperators) as of December  31,  2006, 193, including allour owned-and-operated stations and unmanned repeater transmitters,operate pursuant to broadcast licenses. Of these, the licenses ofapproximately 15% had expired as of January  31,2007 and are being extended or modified. Of our 17 owned-and-operatedstations that broadcast CTC, the license of one station is currentlyscheduled to expire by July  2007, and we are in the process ofrenewing that license. Of our more than 210 affiliates at the DomashnyNetwork (including cable television operators) as of December31,  2006, 41, including our owned-and-operated stations andunmanned repeater transmitters, operate pursuant to broadcast licenses.Of these, the licenses of seven, including the license of oneowned-and-operated station, had expired and were being renewed as ofDecember  31,  2006, and an additional eight licensesexpire before the end of 2007.

The inability to renew an existingbroadcast license, particularly in a significant market, could reduceor limit the coverage of our networks and result in a loss of audienceshare and a fall in ratings, which could materially adversely affectour advertising revenues and business.

The loss ofindependent affiliates could result in a loss of audience share and afall in ratings.

We seek to enter into formal agreementswith our independent affiliate stations that govern various aspects ofthe broadcast of our network programming. These agreements generallyprovide each party with the right to terminate the agreement on60-days’ notice without penalty. In certain instances,particularly in smaller cities and towns and with local cable networks,our arrangements are governed by letters of understanding that provideus with only limited recourse in the event of a disagreement. We do notpay fees to any of our independent affiliates in return forbroadcasting our networks, although we understand that other networksin Russia have done so in some instances.

If an independentaffiliate in a larger market, particularly in those cities whereaudiences are measured and in which we do not own and operate astation, were to terminate its agreement with us or to lose its abilityto broadcast our signal, this could result in a decrease in ouraudience share. For example, in April  2006 an independentaffiliate in Novosibirsk, a city in which audience share is measured,lost the right to broadcast CTC’s signal. Although we had alreadypurchased a new station in that city, we were not able to beginbroadcasting on that station until May  2006. As an interimmeasure, we broadcast the CTC signal on a weaker UHF channel forseveral weeks. As a result of that channel’s more limitedcoverage, we estimate that the audience share of our CTC Network wasapproximately 0.15 percentage points lower during that time than itwould otherwise have been. Although the termination of the relationshipwith us or the loss of the ability to broadcast by one such independentaffiliate would not have a material effect on us, several suchoccurrences taken together could result in a material decrease in ouradvertising revenues.

Our overall audience share and ratingsin any period may be influenced by the success of a small number ofhighly popular programs, and we may not be able consistently to selector obtain rights to new programs that are as popular.

Fromtime to time we air one or two ‘‘hit’’series during primetime that contribute disproportionately to ouroverall audience share, resulting in an overall audience share that wemay not be able to sustain once that‘‘hit’’ series is discontinued or losespopularity. If we do not consistently select programs or obtain rightsto programs that achieve particularly high audience shares in key timeslots, our overall audience share and, therefore, our revenues will beadversely affected.

We rely on third parties for theproduction of original Russian programming, and our business could beadversely affected if we are unable to continue such relationships onacceptable terms. 

We have no in-house capability toproduce full-length original programming and therefore rely onthird-party production houses, particularly A-Media, which has producedseveral of our most successful 

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original programs. In 2006, A-Media Groupaccounted in monetary terms for approximately 22% of the totalprogramming rights we acquired that year. If we are unable to continueour close working relationships with the production houses we use or todevelop new relationships, our ability to air premium new Russiancontent may be impeded, which would likely result in a loss of audienceshare and therefore a reduction in our share of the televisionadvertising market.

We rely on third parties to provide uswith re-transmission capabilities in certain locations, and ourbusiness would be adversely affected if such parties terminated oradversely changed the terms of those relationships.

Incertain locations, we depend on cable operators or other third partiesto carry our signal. In Moscow, television signals are transmitted froma central tower to roof antennas located on buildings throughout thecity, and then amplified for retransmission within the buildings. Theoriginal system, which was introduced in the 1960’s, carriedonly six VHF channels. Mostelecom, the local provider, upgraded anumber of roof antenna systems from 1997 to 2004 to add capacity for alimited number of additional channels. We collaborated with Mostelecomin this project, paying an amount per additional household connected,in order to help ensure that we were allocated access onMostelecom’s systems where capacity was increased. Both CTC andDomashny are currently carried on these systems where capacity wasincreased. Unlike the state-controlled national channels, however, wehave no legal or contractual guarantee that Mostelecom will continue tocarry our signals. A similar technical system is in place in St.Petersburg, operated by the local provider; there, too, we have nobinding contractual right of access to the system. If Mostelecom oranother local provider, or any of their successors, were to deny usaccess on the applicable system, our audience share and televisionadvertising market share in the locality in question would both bematerially adversely affected.

We may not be able to competesuccessfully against other television channels and networks that mayhave broader coverage, greater name recognition, larger market share,wider programming content or access to more funding than we do, or withnewer niche channels offering competitive programmingformats.

The Russian television broadcasting business ishighly competitive. Both CTC and Domashny compete for audience sharewith other national television networks and channels and with localstations, as well as with niche broadcasters. We compete on the basisof both the actual and anticipated size of our audiences for specifictime slots, as well as the demographic characteristics of ourviewers.

On a national level, CTC competes directly with othernational broadcast networks and channels, including Channel One,Rossiya and NTV, as well as with the smaller networks REN-TV and TNT.The Domashny Network competes for advertising revenues primarily withother smaller channels such as DTV, MTV, TV-3 and TVC, although it alsocompetes with the national broadcast networks and channels for viewerswithin its target demographic group. On a local level, ourowned-and-operated stations compete with other stations for localadvertising. We also compete to a limited extent with pay televisionservices and other advertising media.

Channel One and Rossiyawere established as state television channels during the Soviet periodand they remain under Russian state control. As a result, we understandthat these channels receive state benefits not generally available toprivate companies, including free signal transmission (in the case ofChannel One) and direct state budget subsidies (in the case of Rossiya)and preferences in licensing. Moreover, nearly every viewing householdin Russia can receive the broadcast signals of Channel One and Rossiya,while only a more limited viewing audience can currently receive ournetwork signals. The much broader coverage and name recognition ofChannel One and Rossiya, coupled with programming geared toward abroader demographic group, help them to attract large audience shares.NTV, which is indirectly controlled by the state through Gazprom, thestate-controlled natural gas and oil company, also has a broadercoverage than CTC and Domashny, and we believe also benefits from freesignal transmission. Channel One had an audience share of 21.3%in 2006, while Rossiya’s was 19.5% and NTV’s was12.8%. We believe that such strong audience shares may givethese broadcasters added leverage in negotiations with advertisers,advertising agencies and sales houses.

As we focus onentertainment programming, we are unable to compete with otherbroadcasters for audiences for news and sporting programs, some ofwhich have among the highest audience shares and ratings in their timeslots.

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We have substantial futureprogramming commitments that we may not be able to vary in response toa decline in advertising revenues, and as a result could experiencematerial reductions in operating margins.

Programmingrepresents our most significant expense, and at any given time wegenerally have substantial fixed commitments for the succeeding two tothree years. For example, as of December  31,  2006 we hadcontractual commitments for the acquisition of approximately$44.8  million in programming rights through 2007 and anadditional $7.6  million in 2008-2009. Given the size of thesecommitments at any time, a reduction in our advertising revenues couldadversely affect our operating margins and results of operations. Wewould have only limited ability to reduce our costs in the short-run inresponse to such developments.

We may seek to makeacquisitions of other stations, networks, content providers or othercomplementary media companies in the future, and may fail to identifysuitable targets, acquire them on acceptable terms or successfullyintegrate them.

The acquisition and integration of newcompanies pose significant risks to our existing operations,including:

|  |              |                                                                                                                  |
|--|--------------|------------------------------------------------------------------------------------------------------------------|
|  | •  | additional demands placed onour senior management, who are also responsible for managing ourexisting operations; |

|  |              |                                                                                                        |
|--|--------------|--------------------------------------------------------------------------------------------------------|
|  | •  | increased overalloperating complexity of our business, requiring greater personnel andother resources; |

|  |              |                                                                                                                                 |
|--|--------------|---------------------------------------------------------------------------------------------------------------------------------|
|  | •  | difficulties ofexpanding beyond our core expertise, in the event that we acquirecontent providers or other ancillarybusinesses; |

|  |              |                                                                                  |
|--|--------------|----------------------------------------------------------------------------------|
|  | •  | significant initial cashexpenditures to acquire and integrate new businesses;and |

|  |              |                                                                                         |
|--|--------------|-----------------------------------------------------------------------------------------|
|  | •  | incurrence of debt to financeacquisitions and higher debt service costs relatedthereto. |

Moreover, the integration of new businesses may also bedifficult for a variety of reasons, including differing cultures ormanagement styles, poor target records or internal controls and aninability to establish control over cash flows. Furthermore, even if weare successful in integrating new businesses, expected synergies andcost savings may not materialize, resulting in lower than expectedprofit margins.

Our relationships with the co-owners of ourtelevision stations may limit our ability to implement our businessplans and strategy.

Twelve of our 25 owned-and-operatedstations that are currently broadcasting our networks’ signalsare 100% owned by CTC Media. Other investors own between lessthan 1% and 50% of each of the remaining 14owned-and-operated stations. In some cases, we depend to a significantextent on our local partners for their familiarity with the localbusiness environment and public authorities and we understand that someof our local partners are also minority shareholders in the local VideoInternational subsidiary that sells local advertising for ourowned-and-operated stations. Moreover, we may in the future similarlyrely on joint-owners as we acquire additional stations. Any significantdisruption in our relationship with these parties could make it moredifficult for us to operate our existing stations.

Russian lawand some of the agreements governing these stations grant protectiverights to our co-owners that enable them to block certain significantcorporate actions. Under Russian company law, significant corporatedecisions, such as declaring and paying dividends and entering intosubstantial transactions, require the consent of the holders oftwo-thirds or three-quarters of the voting interests of the company,depending on the subject matter and the legal structure of the company.In addition, unanimous shareholder approval is required in limitedinstances, which could further affect our control over certain actions.For example, approval of a joint stock company’s initial charterand reorganization of a joint stock company into a non-commercialpartnership require 100% approval of shareholders and, in thecase of a limited liability company, increases in charter capital,amendments to a limited liability company’s charter, andliquidation, among other actions, require 100% approval of theholders of participation interests.

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As a result, we are often required toobtain the consent of our co-owners when making significant corporatedecisions. Although we are not aware of any specific transaction inwhich we failed to obtain the requisite approval of the co-owners ofour stations, due to the formalistic nature of Russian law and thelarge number of corporate actions that are taken annually by ourco-owned stations, we believe it is likely that, from time to time, notall necessary minority shareholder consents have been obtained. As aresult, we cannot guarantee that co-owners of our stations will notbring claims against us for failure to obtain these necessary consents,which, if successful, could result in the transaction in question beingvoided. Moreover, even if not technically required by law or contract,we generally prefer to obtain the consent and support of our co-ownersbefore undertaking significant corporate actions. If this consentcannot be obtained, we may decide to forego a transaction that iscommercially favorable to us in an effort to preserve goodwill with ourco-owners.

A systems failure could prevent us fromtransmitting our network signal and lead to a loss of viewers, damageto our reputation and a reduction in our advertisingrevenues.

The CTC and Domashny Network signals originate atour Moscow center and are uplinked to two separate satellite systems,plus one backup system, that transmit our network signals to ouraffiliate stations and unmanned repeater transmitters. We experienced asignal outage on one of the primary systems on March  29,2006 for approximately three hours in Eastern Siberia and the RussianFar East.  Prior to its replacement, we also experienced signaloutages on three occasions, once for nine hours, from one of ourprimary satellites.

There can be no assurance that we will notexperience future disruptions in the satellite transmission of ournetwork signal to our affiliates, or that our affiliates will notexperience disruptions in broadcasting our signal similar to that whichoccurred at Ostankino tower. Prolonged or repeated disruptions in theCTC or Domashny signal could lead to a loss of viewers, damage to ourreputation and a reduction in our advertising revenues. We do not carrybusiness interruption insurance to protect us in the event of acatastrophe or termination of CTC’s or Domashny’s abilityto transmit their signals, even though such an event could have asignificant negative impact on our business.

One of ourprincipal stockholders owns a controlling interest in a competingRussian television network, and its interests may conflict with ours.

One of our principal stockholders, MTG Broadcasting AB, anaffiliate of the publicly listed Modern Times Group MTG AB(‘‘MTG’’), owns 100% of ZAO TVDarial (‘‘DTV’’), a Russian televisionnetwork with which we compete. Hans-Holger Albrecht, the president andCEO of MTG, is a Co-Chairman of our board and Maria Brunell, the formerchief financial officer of MTG and current chief executive officer ofone of MTG’s principal stockholders, is also one of ourdirectors. We understand that Mr.  Albrecht and Kaj Gradevik,another member of our board of directors, serve on the board ofDTV.

DTV broadcasts a mix of entertainment programming that issimilar to the programming on CTC. Its audience share for 2006 was1.7%. We have a non-competition agreement with MTG pursuant towhich it has agreed that it will not compete with us in the area offree-to-air television in Russia and certain other CIS countries, otherthan through DTV, and agreeing to certain restrictions on DTV’sactivities in Russia. Nevertheless, MTG’s ownership of one ofour competitors may result in conflicts of interest among MTG, us andour other stockholders in circumstances in which our interests are notaligned. We can provide no assurance that any such conflicts will beresolved in our favor.

Loss of key personnel could affectour growth and future success.

We believe that our growthand our future success will depend in large part upon our ability tocontinue to retain our Chief Executive Officer and to attract andretain other highly skilled senior management, finance and marketingpersonnel. The competition for qualified personnel in Russia who arefamiliar with the television industry in Russia and/or who areknowledgeable about U.S. accounting and legal practices is intense. Wemay encounter particular difficulty in hiring and/or retainingappropriate financial staff in Russia needed to enable us to complywith the internal controls requirements under the Sarbanes-Oxley Actand related regulations. We cannot assure you that we will be able tohire and retain qualified personnel on reasonable terms or atall.

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We do not carry all of the insurancecoverage customary in many countries for a business of our size andnature, and as a result could experience substantial loss ordisruption.

The insurance industry is not yet welldeveloped in Russia, and many forms of insurance protection common inother countries are not yet available in Russia on comparable terms,including coverage for business interruption. At present, we have nocoverage for business interruption or loss of key management personnel.We do not maintain separate funds or otherwise set aside reserves forthese types of losses. Any such loss may cause substantial disruptionand may have a material adverse effect on our business, results ofoperations and financial condition.

Decreases in the valueof the Russian ruble compared with the US dollar could materiallyadversely affect our results of operations.

The value ofthe Russian ruble has risen generally against the US dollar in recentyears. In 2006, the ruble appreciated approximately 9.3% againstthe US dollar. However, the ruble has in the past declinedsubstantially against the US dollar, including a significant drop as aresult of the economic crisis of 1998.

Prior to 2006, ourprincipal source of revenue (contracts for the placement ofadvertising) was denominated primarily in US dollars. Because ourexpenses were also primarily denominated in US  dollars, theimpact on our results of the ruble depreciation was insignificant.Beginning in January  2006, substantially all new advertisingcontracts between Video International and advertisers areruble-denominated with the result that substantially all of ouradvertising revenues in 2007 are denominated in rubles as ourlonger-term advertising contracts denominated in US dollars expire andare replaced.

In response, we shifted a substantial majority ofour operating expenses from dollars to rubles. Nevertheless, we cangive no assurance that we are adequately protected from the impact ofcurrency fluctuations. Moreover, given that our reporting currency isthe US dollar, rubles held in banks and other ruble-denominated assetsand liabilities could fluctuate in line with any change in the value ofthe ruble.

As a result of these factors, any decline in the valueof the Russian ruble against the US dollar could materially adverselyaffect our results of operations. We do not currently undertake anyhedging transactions to offset any decline in the value of our rublecash or non-cash assets, but are currently evaluating options in thisregard.

Risks relating to the political environment inRussia

Businesses in Russia, especially media companies,can be subject to politically motivated actions, which could materiallyadversely affect our operations.

The Russian government hastaken various actions in recent years against business people andcompanies operating in Russia that have been perceived as having beenpolitically motivated, including actions for technical violations oflaw or violations of laws that have been applied retroactively,including violations of tax laws. These actions have on occasionresulted in significant fluctuations in the market prices of thesecurities of businesses operating in Russia, a weakening of investorconfidence in Russia and doubts about the progress of market andpolitical reforms in Russia. These concerns were intensified as aresult of the events leading to the imprisonment of MikhailKhordorkovsky and the effective re-nationalization of Yukos, the oilcompany he controlled.

Media businesses can be particularlyvulnerable to politically motivated actions, in particular ahead ofnational elections such as the presidential election scheduled for2008. NTV, TV-6 and TVS have all experienced what some wouldcharacterize as politically motivated actions, including efforts toeffect changes of control. As a result of these actions, TV-6, whichbecame TVS, is no longer broadcasting. We believe that our focus onentertainment, and the fact that we broadcast entertainment andcelebrity news, but do not offer ‘‘hard’’news, commentary or analysis on our national networks, could lessen therisk of provoking politically motivated actions. However, we do notrestrict the ability of our independent affiliates to broadcast localnews in local broadcasting windows, and approximately 20% of ourindependent affiliates, as well as two of our owned-and-operatedstations that carry the CTC Network, 

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broadcast local political news, generallywith the approval of our local partners and the local authorities. Anyaction against us, our networks, or any of our principal stockholders,including Alfa Group, which is active in many industries in Russia,could materially adversely affect our operations.

Broaderpolitical developments could adversely affect our business operationsand financial condition.

The current Russian presidentialadministration has taken a number of steps to expand its authority,including by further centralizing power in a number of areas andremoving decision making authority from the federal regions. Theultimate extent or impact of these changes is uncertain. These andfuture changes in the government, major policy shifts or lack ofconsensus between various branches of the government and powerfuleconomic groups could disrupt or reverse economic and regulatoryreforms. In addition, the Russian presidential elections scheduled for2008 could bring more volatility to the market. Any disruption orreversal of reform policies could lead to political or governmentalinstability or the occurrence of conflicts among powerful economicgroups, which could have a material adverse effect on our business,financial condition, results of operations and prospects and the valueof our common stock.

It has been widely reported in the Russianand foreign media that the Russian government is exerting pressure onthe so-called ‘‘oligarchs’’ to cause themto divest their commercial interests in certain areas of economicactivity. The media have also reported that the government has exertedsignificant influence on companies owned or controlled by the oligarchsthrough tax inspections, management changes, threats of and actualprosecution of management and key officials, and other means. Real andperceived pressure on the oligarchs and their businesses has seriouslyaffected the economic activities of these enterprises and theirmanagement. If the current or future governments in Russia were toapply significant pressure on Alfa Group and its affiliated companies,it could have serious adverse effects on our operations and financialresults. Such effects could include, but would not be limited to, theinability of the board of directors to act independently from externalpressure and the distraction of our management from our day-to-dayoperations.

Civil conflicts could adversely affect the valueof investments in Russia, which could result in a decline in the valueof our common stock.

Ethnic, religious, historical andother divisions have, on occasion, given rise to tensions and, incertain cases, military conflict, such as the continuing conflict inChechnya, which has brought normal economic activity within Chechnya toa halt and disrupted the economies of neighboring regions. The furtherintensification of violence, including terrorist activities, or itscontinued spread to other parts of Russia, could have significantpolitical consequences, including the imposition of a state ofemergency in some or all of Russia. Moreover, any terrorist attacks andthe resulting heightened security measures may cause disruptions todomestic commerce, and could materially adversely affect our businessand the value of our common stock.

Risks relating to theeconomic environment in Russia

Emerging markets such asRussia are subject to greater risks than more developed markets andfinancial turmoil in any emerging market could disrupt our business, aswell as cause the price of our common stock to decline.

Generally, investment in emerging markets is only suitablefor sophisticated investors who fully appreciate the significance ofthe risks involved in, and are familiar with, investing in suchmarkets. Emerging markets such as Russia are also subject to rapidchange, and financial turmoil in any emerging market country tends toadversely affect prices of the stock of companies operating in otheremerging market countries as investors move their money to more stable,developed markets. As has happened in the past, financial problems oran increase in the perceived risks associated with investing inemerging economies could dampen foreign investment in Russia andadversely affect the Russian economy.

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Economic instability in Russia couldreduce spending on television advertising, which could adversely affectour results of operations.

Since the dissolution of theSoviet Union, the Russian economy has experienced at varioustimes:

|  |              |                                               |
|--|--------------|-----------------------------------------------|
|  | •  | significant declines in grossdomesticproduct; |

|  |              |                 |
|--|--------------|-----------------|
|  | •  | hyperinflation; |

|  |              |                      |
|--|--------------|----------------------|
|  | •  | anunstable currency; |

|  |              |                                                         |
|--|--------------|---------------------------------------------------------|
|  | •  | high government debtrelative to gross domestic product; |

|  |              |                                                                         |
|--|--------------|-------------------------------------------------------------------------|
|  | •  | aweak banking system providing limited liquidity to Russianenterprises; |

|  |              |                                                                                                                       |
|--|--------------|-----------------------------------------------------------------------------------------------------------------------|
|  | •  | a large number ofloss-making enterprises that continued to operate due to the lack ofeffective bankruptcyproceedings; |

|  |              |                                                                                                       |
|--|--------------|-------------------------------------------------------------------------------------------------------|
|  | •  | significant use of bartertransactions and illiquid promissory notes to settle commercialtransactions; |

|  |              |                        |
|--|--------------|------------------------|
|  | •  | widespread taxevasion; |

|  |              |                                               |
|--|--------------|-----------------------------------------------|
|  | •  | the growth of black and graymarket economies; |

|  |              |                          |
|--|--------------|--------------------------|
|  | •  | pervasive capitalflight; |

|  |              |                                                                                  |
|--|--------------|----------------------------------------------------------------------------------|
|  | •  | high levels of corruption andthe penetration of organized crime into theeconomy; |

|  |              |                                                              |
|--|--------------|--------------------------------------------------------------|
|  | •  | significant increases inunemployment and underemployment;and |

|  |              |                                                                 |
|--|--------------|-----------------------------------------------------------------|
|  | •  | the impoverishment of a largeportion of the Russian population. |

Though recent increases inglobal commodity prices have resulted in increases in disposable incomeand consumer spending in Russia, the Russian economy has been subjectto abrupt downturns, including the severe crisis of 1998.

Many ofthe largest advertisers in the Russian market, including many of thelargest advertisers on CTC and Domashny, are multinational companiesthat sell consumer products on a worldwide basis. If Russia experiencessignificant economic or political instability or uncertainty, such asthat which occurred during the 1998 financial crisis, these companiesmay choose to reduce their advertising spending in Russia. If overallspending by these companies in the Russian television advertisingmarket falls substantially, our advertising revenues may besignificantly reduced, materially adversely affecting our results ofoperations.

Russia’s inexperience with a market economyalso poses numerous risks. It is difficult for us or our businesspartners to gauge the creditworthiness of some of our advertisers andbusiness partners, as there are no reliable mechanisms, such as creditreports or credit databases, for evaluating their financial condition.Consequently, we face the risk that some of our advertisers will failto pay us or that they or other service providers, such as productionhouses, will fail to comply with the terms of their agreements with us,which could adversely affect our results of operations.

Recenttrends in the Russian economy — such as the increase in thegross domestic product, a relatively stable ruble and a reduced rate ofinflation — may not continue or may be abruptly reversed.Additionally, because Russia produces and exports large quantities ofnatural gas and oil, the Russian economy is especially vulnerable tofluctuations in the price of these commodities on the world market. Astrengthening of the ruble in real terms relative to the US dollar,changes in monetary policy, inflation, a decline in natural gas and oilprices or other factors could adversely affect Russia’s economyand our business in the future. Any such market downturn or economicslowdown could also severely limit our and our customers’ accessto capital, also adversely affecting our and our customers’businesses in the future.

The Russian banking system remainsunderdeveloped, and another banking crisis could place severe liquidityconstraints on our business.

Russia’s banking andother financial systems are less developed and regulated than those ofmany other developed countries, and Russian legislation relating tobanks and bank accounts is subject to 

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varying interpretations and inconsistentapplication. The August  1998 financial crisis resulted in thebankruptcy and liquidation of many Russian banks and almost entirelyeliminated the developing market for commercial bank loans at thattime. Many Russian banks do not meet international banking standards,and the transparency of the Russian banking sector still lags farbehind internationally accepted norms. In part due to inadequatesupervision by regulators, certain banks do not follow existing CentralBank of Russia regulations with respect to lending criteria, creditquality, loan loss reserves or diversification of exposure.Furthermore, Russian bank deposits made by corporate entities generallyare not insured.

Recently, there has been a rapid increase inlending by Russian banks, which many believe has been accompanied by adeterioration in the credit quality of borrowers. In addition, a robustdomestic corporate debt market is leading to Russian banks increasinglyholding large amounts of Russian corporate ruble bonds in theirportfolios. Weaknesses in the Russian banking sector, combined with therelatively high risk credit portfolios of Russian banks, may result inthe banking sector being more susceptible to market downturns oreconomic slowdowns, including due to Russian corporate defaults. Inaddition, the Russian Central Bank has from time to time revoked thelicenses of certain Russian banks, which in the second quarter of 2004resulted in market rumors about additional bank closures and manydepositors withdrawing their savings. If a banking crisis were tooccur, companies operating in Russia would be subject to severeliquidity constraints due to the limited supply of domestic savings andthe withdrawal of foreign funding sources that would occur during sucha crisis.

There are currently a limited number of creditworthyRussian banks, most of which are located in Moscow and the largest ofwhich are state-owned. Of our $91  million US dollar and2,251  million ruble cash outstanding as of December31,  2006, we held $22  million US dollars and all of ourrubles in Russian banks (such as Alfa Bank, which is an affiliate ofone of our principal stockholders), including subsidiaries of foreignbanks. There are few, if any, safe ruble-denominated instruments inwhich we may invest our excess ruble cash. Another banking crisis orthe bankruptcy or insolvency of the banks from which we receive or withwhich we hold our funds could result in the loss of our deposits oraffect our ability to complete banking transactions in Russia, whichcould have a material adverse effect on our business, financialconditions and results of operations.

Risks relating to Russianlegislation and the Russian legal system

Weaknesses in theRussian legal system create an uncertain environment for investment andbusiness activity and could have a material adverse effect on ourbusiness and the value of our common stock.

Russia is stilldeveloping the legal framework required to support a market economy,and its legal system is largely characterizedby:

|  |              |                                                                                                                                                               |
|--|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | inconsistencies between and amonglaws, presidential decrees and governmental, ministerial and localregulations, orders, decisions, resolutions and otheracts; |

|  |              |                                                                                                                         |
|--|--------------|-------------------------------------------------------------------------------------------------------------------------|
|  | •  | substantial gaps in the regulatorystructure resulting from the delay in adoption or absence ofimplementing regulations; |

|  |              |                                                                                 |
|--|--------------|---------------------------------------------------------------------------------|
|  | •  | limitedjudicial and administrative guidance on interpreting Russianlegislation; |

|  |              |                                                                                             |
|--|--------------|---------------------------------------------------------------------------------------------|
|  | •  | the relative inexperienceof judges and courts in interpreting recent commerciallegislation; |

|  |              |                                                                             |
|--|--------------|-----------------------------------------------------------------------------|
|  | •  | a lack of judicialindependence from political, social and commercialforces; |

|  |              |                                                                                          |
|--|--------------|------------------------------------------------------------------------------------------|
|  | •  | a high degree of discretion onthe part of the judiciary and governmental authorities;and |

|  |              |                                                                  |
|--|--------------|------------------------------------------------------------------|
|  | •  | poorly developed bankruptcyprocedures that are subject to abuse. |

The independence of thejudicial system and of the prosecutor general’s office and theirimmunity from economic, political and other influences have at timesbeen questioned. The court system is understaffed and underfunded.Judges and courts are generally inexperienced in the area of businessand corporate law. As is true of civil law systems generally, judicialprecedents generally have no binding effect on subsequent decisions.Not all Russian legislation and court decisions are readily availableto the public or organized in a manner that facilitates understanding.The Russian judicial system can be slow, and 

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enforcement of court orders can in practicebe very difficult. All of these factors make judicial decisions inRussia difficult to predict and effective redress uncertain.Additionally, court claims and governmental prosecutions are sometimesused in furtherance of political aims.

In addition, several keyRussian laws, including the amended Communications Law and new law onadvertising, have only recently become effective. The untested natureof much of recent Russian legislation, the lack of consensus about thescope, content and pace of economic and political reform and the rapidevolution of the Russian legal system in ways that may not alwayscoincide with market developments may place the enforceability andunderlying constitutionality of laws in doubt and result inambiguities, inconsistencies and anomalies in the Russian legal system.Any of these weaknesses could affect our ability to enforce our rightsunder our licenses and under our contracts, or to defend ourselvesagainst claims by others. Furthermore, we cannot assure you thatregulators, judicial authorities or third parties will not challengeour compliance with applicable laws, decrees andregulations.

These uncertainties also extend to property rights.Although legislation has been enacted to protect private propertyagainst expropriation and nationalization, due to the lack ofexperience in enforcing these provisions and due to political factors,these protections may not be enforced in the event of an attemptedexpropriation or nationalization. Expropriation or nationalization ofany of our entities or their assets, potentially without adequatecompensation, would have a material adverse effect on our business,financial condition, results of operations andprospects.

Unlawful, selective or arbitrary governmentaction may have an adverse effect on our business and the value of ourcommon stock.

Government authorities have a high degree ofdiscretion in Russia and have at times exercised their discretionselectively or arbitrarily, without hearing or prior notice, andsometimes in a manner that is contrary to law or influenced bypolitical or commercial considerations. The government also has thepower, in certain circumstances, to interfere with the performance of,nullify or terminate contracts. Unlawful, selective or arbitraryactions have included withdrawal of licenses, sudden and unexpected taxaudits, criminal prosecutions and civil actions. Federal and localgovernment entities have also used common defects in documentation aspretexts for court claims and other demands to invalidate and/or tovoid transactions, apparently for political purposes. We cannot assureyou that regulators, judicial authorities or third parties will notchallenge our compliance (including that of our subsidiaries) withapplicable laws, decrees and regulations in Russia. Unlawful orarbitrary government action could have a material adverse effect on ourbusiness and on the value of our common stock.

If theRussian Federal Anti-monopoly Service were to conclude that we acquiredor created a new company in contravention of anti-monopoly legislation,it could impose administrative sanctions and require the divestiture ofthis company or other assets.

Our business has grown inpart through the acquisition and establishment of companies, many ofwhich required the prior approval of or subsequent notification to theRussian Federal Anti-monopoly Service or its predecessor agencies. Inpart, relevant legislation restricts the acquisition or establishmentof companies by groups of companies or individuals acting in concertwithout this approval or notification. This legislation is vague inparts and subject to varying interpretations. If the FederalAnti-monopoly Service were to conclude that an acquisition orestablishment of a new company was effected in contravention ofapplicable legislation and competition has been reduced as a result, itcould impose administrative sanctions and require the divestiture ofthis company or other assets, adversely affecting our business strategyand our results of operations.

Russian law requires theapproval of certain transactions by the minority shareholders of oursubsidiaries, including many of our own-and-operated televisionstations, and failure to receive this approval could adversely affectour business and results of operations.

We own less than100% of many of our owned-and-operated stations. Under Russianlaw, certain transactions defined as ‘‘interested partytransactions’’ require approval by disinterested membersof the board of directors or disinterested shareholders of thecompanies involved. Our owned-and-operated 

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stations that have other shareholders engagein numerous transactions with us that require interested partytransaction approvals in accordance with Russian law. Thesetransactions have not always been properly approved, and therefore maybe contested by minority shareholders. In the event that these othershareholders were successfully to contest past interested partytransactions, or prevent the approval of such transactions in thefuture, our flexibility in operating these television stations could belimited and our results of operations could be adverselyaffected.

Certain transactions between members of ourconsolidated corporate group may constitute interested partytransactions under Russian law even when the companies involved arewholly owned by us. Although we generally endeavor to obtain allcorporate approvals required under Russian law to consummate thesetransactions, we have not always applied special approval procedures inconnection with our consummation of transactions with or between oursubsidiaries. In the event that a claim is filed in relation to certaintransactions with or between our subsidiaries, such transactions arefound to have been interested party transactions, and we are found tohave failed to obtain the appropriate approvals, such transactions maybe declared invalid. The unwinding of any transactions concluded withor between our subsidiaries may have a negative impact on our businessand results of operations.

If one of our principalsubsidiaries is forced into liquidation due to negative net assets, ourresults of operations could suffer.

If at the end of anyfiscal year a Russian company’s net assets as determined inaccordance with Russian accounting regulations are below the minimumamount of charter capital required by Russian law, the company isrequired to convene a shareholders meeting to adopt a decision toliquidate. If it fails to do so within a ‘‘reasonableperiod,’’ the company’s creditors may requestearly termination or acceleration of the company’s obligationsto them, as well as damages, and governmental authorities may seek tocause the involuntary liquidation of the company. Under an earlierversion of this law, the company’s shareholders could also bringan action to force the liquidation of the company. It is unclear underRussian law whether an historical violation of this requirement may beretroactively cured, even if a company later comes into compliance withthe requirement. On occasion, Russian courts have ordered theinvoluntary liquidation of a company for having negative net assetseven if the company has continued to fulfill its obligations and hadnet assets in excess of the minimum amount at the time ofliquidation.

At December  31,  2003 and at priordates, CTC Network, our most significant subsidiary, had net assetsbelow the minimum charter capital required by law, as reported in itsRussian statutory accounting statements. As of year end 2006, ten ofour subsidiaries, including the Domashny Network, failed to meet theminimum net assets requirements. In 2006, approximately 8% ofour consolidated revenues were attributable to these subsidiaries. Noneof these companies has applied for voluntary liquidation. We have nottaken any steps to remedy the negative net asset value of thesesubsidiaries or included it as a contingency in our financialstatements because we believe that, so long as these subsidiariescontinue to fulfill their obligations, the risk of their forcedliquidation is remote.

There has been no judicial or otherofficial interpretation of what constitutes a‘‘reasonable period’’ within which acompany must act to liquidate. If Domashny or any of our othersubsidiaries were to be liquidated involuntarily, we would be forced toreorganize the operations we currently conduct through that subsidiary.The liquidation of any of the subsidiaries within our TelevisionStation Groups would result in the termination of their existingbroadcast and other licenses, and we cannot assure you that we would beable to secure new licenses needed for these stations to continue tooperate. Accordingly, any liquidation could have a material adverseeffect on our business.

Shareholder liability under Russianlegislation could cause us to become liable for the obligations of oursubsidiaries.

The Russian Civil Code, the Law on JointStock Companies and the Law on Limited Liability Companies generallyprovide that shareholders in a Russian joint stock company or limitedliability company are not liable for the obligations of the company andbear only the risk of loss of their investment. This may not be thecase, however, when one person (an ‘‘effectiveparent’’) is capable of determining decisions made byanother (an ‘‘effective subsidiary’’). Theeffective parent bears joint and several responsibility fortransactions concluded by the effective subsidiary in carrying outthese decisions if:

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|  |              |                                                                                                                                     |
|--|--------------|-------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | thisdecision-making capability is provided for in the charter of theeffective subsidiary or in a contract between the companies;and |

|  |              |                                                                              |
|--|--------------|------------------------------------------------------------------------------|
|  | •  | the effective parent givesobligatory directions to the effective subsidiary. |

In addition,an effective parent is secondarily liable for an effectivesubsidiary’s debts if an effective subsidiary becomes insolventor bankrupt as a result of the action or inaction of an effectiveparent. This is the case no matter how the effective parent’scapability to determine decisions of the effective subsidiary arises.For example, this liability could arise through ownership of votingsecurities or by contract. In these instances, other shareholders ofthe effective subsidiary may claim compensation for the effectivesubsidiary’s losses from the effective parent that caused theeffective subsidiary to act or fail to act, knowing that such action orinaction would result in losses. Accordingly, in our position as aneffective parent, we could be liable in some cases for the debts of oureffective subsidiaries. Although the total indebtedness of oureffective subsidiaries is currently immaterial, it is possible that wecould face material liability in this regard in the future, which couldmaterially adversely affect our business and our results ofoperations.

Changes in the Russian tax system or arbitraryor unforeseen application of existing rules could materially adverselyaffect our financial condition.

Our tax burden may becomegreater than the estimated amount that we have expensed to date andpaid or accrued on our balance sheets. Russian tax authorities haveoften been arbitrary and aggressive in their interpretation of tax lawsand their many ambiguities, as well as in their enforcement andcollection activities. Many companies are often forced to negotiatetheir tax bills with tax inspectors who may demand higher taxes thanapplicable law appears to provide. Any additional tax liability, aswell as any unforeseen changes in Russian tax laws, could have amaterial adverse effect on our future results of operations or cashflows in a particular period. We have at times accrued substantialamounts for probable contingent tax liabilities, a substantial portionof which accruals we have reversed as contingencies have been resolvedfavorably or changes in circumstances have occurred. The amountscurrently accrued for probable tax contingencies may not be sufficientto meet any liability we may ultimately face. We have also identifiedpossible tax contingencies of up to approximately $4.5  millionfor which we have not provided an accrual. Such possible taxcontingencies could materialize and require us to pay additionalamounts of tax.

Under Russian accounting and tax principles,financial statements of Russian companies are not consolidated for taxpurposes. As a result, each Russian-registered entity in our group paysits own Russian taxes and we cannot offset the profits or losses in anysingle entity against the profits and losses of any other entity.Consequently, our overall effective tax rate may increase as we expandour operations, unless we are able to implement an effective corporatestructure that minimizes the effect of these Russian accounting and taxnorms.

The Russian tax system imposes additional burdens andcosts on our operations in Russia, and complicates our tax planning andrelated business decisions. The uncertainty involved potentiallyexposes us to significant fines and penalties and enforcement measuresdespite our best efforts at compliance, and could result in a greaterthan expected tax burden on our subsidiaries. These factors raise therisk of a sudden imposition of arbitrary or onerous taxes on ouroperations in Russia. This could adversely affect our business and thevalue of our common stock.

Any U.S. or other foreignjudgments you may obtain against us may be difficult to enforce againstus in Russia.

Although CTC Media is a Delaware corporation,subject to suit in U.S. federal and other courts, we have no operationsin the United States, many of our assets are located in Russia, andmost of our directors and their assets are located outside the UnitedStates. Although arbitration awards are generally enforceable inRussia, judgments obtained in the United States or in other foreigncourts, including those with respect to U.S. federal securities lawclaims, may not be enforceable in Russia. There is no mutualrecognition treaty between the United States and the RussianFederation, and no Russian federal law 

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provides for the recognition and enforcementof foreign court judgments. Therefore, it may be difficult meaningfullyto enforce any U.S. or other foreign court judgment obtained againstour company, any of our operating subsidiaries or any of our directorsin Russia.

Risks relating to our stock

The price ofour common stock may be volatile.

Prior to June1,  2006, there was no public trading market for our commonstock. Moreover, as of February  19,  2007, approximately25% of our outstanding common stock was held by parties otherthan our directors, executive officers and principal stockholders andtheir respective affiliates. As a result, only a relatively smallnumber of shares of our common stock are currently actively traded inthe public market. The relative immaturity of the trading market forour common stock and the limited liquidity may have a material adverseeffect on the price of our common stock.

The stock markets ingeneral have experienced substantial volatility that has often beenunrelated to the operating performance of individual companies. Thesebroad market fluctuations may adversely affect the trading price of ourcommon stock.

In the past, following periods of volatility inthe market price of a company’s securities, stockholders haveoften instituted class action securities litigation against thosecompanies. Such litigation, if instituted, could result in substantialcosts and diversion of management attention and resources, which couldsignificantly harm our profitability and reputation.

Ifequity research analysts do not publish research or reports about ourbusiness or if they issue unfavorable commentary or downgrade ourcommon stock, the price of our common stock coulddecline.

The trading market for our common stock will relyin part on the research and reports that equity research analystspublish about us and our business. We do not control these analysts.The price of our stock could decline if one or more equity researchanalysts downgrade our stock or if those analysts issue otherunfavorable commentary or cease publishing reports about us or ourbusiness.

Insiders continue to have substantial controlover us and could delay or prevent a change in corporatecontrol.

As of February  19,  2007, ourdirectors, executive officers and principal stockholders, and theirrespective affiliates, beneficially owned, in the aggregate,approximately 75% of our outstanding common stock. As a result,these stockholders, if acting together, may have the ability todetermine the outcome of matters submitted to our stockholders forapproval, including the election and removal of directors and anymerger, consolidation or sale of all or substantially all of ourassets. In addition, these persons, acting together, may have theability to control the management and affairs of our company. Inparticular, our principal stockholders have entered into a votingarrangement that determines the composition of our board ofdirectors.

Anti-takeover provisions in our charterdocuments and under Delaware law could prevent or delaychange-of-control transactions.

Anti-takeover provisions ofDelaware law and our charter documents may make a change in control ofour company more difficult. Forexample:

|  |              |                                                                                                                                                                          |
|--|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Stockholders’ meetingsmay only be called by one of the Co-Chairmen of our board of directors,our Chief Executive Officer or the majority of the board ofdirectors. |

|  |              |                                                         |
|--|--------------|---------------------------------------------------------|
|  | •  | Our stockholders may not takeaction by written consent. |

|  |              |                                                                                                                                                                                                                                                                                                                              |
|--|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | We have aclassified board of directors, which means that our directors serve forstaggered three-year terms and only one-third of our directors areelected each year. This structure may make it more difficult for anacquiror to take control of our company, which may make our company aless desirable acquisition target. |

30

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Delaware law also prohibits a corporationfrom engaging in a business combination with any holder of 15%or more of its capital stock until the holder has held the stock forthree years unless, among other possibilities, the board of directorsapproves the transaction. The board may use this provision to preventchanges in our management. Under applicable Delaware law, our board ofdirectors may adopt additional anti-takeover measures in thefuture.

In addition, we are party to a stockholders’agreement with our three largest stockholders pursuant to which each ofthese stockholders has agreed not to acquire additional shares of ourcapital stock to the extent that such acquisition would cause itsbeneficial ownership to exceed 50% of the voting power of ouroutstanding shares without making a tender offer for all of ouroutstanding shares in compliance with the tender offer rules under theSecurities Exchange Act of 1934, unless it reaches this ownership levelthrough the exercise of rights of first offer set forth in thestockholders’ agreement.

If there are substantialsales of our common stock in the market by our existing stockholders,our stock price could decline.

If our existing stockholderssell a large number of shares of our common stock or the public marketperceives that existing stockholders might sell shares of common stock,the market price of our common stock could decline significantly. Theholders of over 75% of common stock have the right underspecified circumstances to require us to register their shares forresale to the public or participate in a registration of shares byus.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

We own a building in Moscowwith office and production space of approximately 3,100 square meters.We also lease approximately 3,400 square meters of office andoperations space in Moscow under leases that expire on December31,  2008. The fiber optic cable that transmits our networksignals to the satellite transmission center originates at our leasedfacilities.

In November  2006 we entered into agreementsin regard to the future 10-year lease of approximately 12,000 squaremeters of office space in a building currently under construction inMoscow. Pursuant to Russian law and market practice, the agreements arestructured as preliminary agreements which allow us to fix certain keyterms of a final lease agreement that will be signed in the future.Under these preliminary agreements, we are obligated to enter intofinal lease agreements if the building is completed according tocertain specifications and the state registration of title to thebuilding is granted within the required timeframe. The building isscheduled to be available for occupancy by July  2008.

Some of our owned-and-operated stations own real estate, none ofwhich represents a material portion of our consolidated assets.

Item 3. Legal Proceedings.

We are not currently party toany legal proceedings, the outcome of which could have a materialadverse effect on our financial results or operations.

Item 4.Submission of Matters to a Vote of Security Holders.

No matterwas submitted to a vote of our stockholders, through the solicitationof proxies or otherwise, during the fourth quarter of fiscal year2006.

31

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PARTII

|               |                                                                                                                   |
|---------------|-------------------------------------------------------------------------------------------------------------------|
| Item 5.  | Market forRegistrant’s Common Equity, Related Stockholder Matters andIssuer Purchases of Equity Securities. |

Our common stock istraded on The NASDAQ Global Market under the symbol CTCM. The followingtable sets forth, for the periods indicated, the high and low saleprices of our common stock, as quoted on The NASDAQ Global Market(previously the NASDAQ National Market).

|                                   |  |  |      |   |        |     |  |  |  |   |        |  |
|-----------------------------------|--|--|------|---|--------|-----|--|--|--|---|--------|--|
| Period                            |  |  | High |   |        | Low |
| 2006                              |  |  |      |   |   |     |  |  |  |   |   |  |
| Firstquarter                      |  |  |      |   | n/a    |     |  |  |  |   | n/a    |  |
| Secondquarter (from June  1,2006) |  |  |      | $ | 18.75  |     |  |  |  | $ | 13.89  |  |
| Thirdquarter                      |  |  |      | $ | 25.49  |     |  |  |  | $ | 16.59  |  |
| Fourthquarter                     |  |  |      | $ | 28.66  |     |  |  |  | $ | 20.31  |  |
|                                   |

As ofDecember  31,  2006, there were approximately 18 holders ofrecord of our common stock. Because many of the shares are held bybrokers and other institutions on behalf of stockholders, we are unableto estimate the total number of individual stockholders represented bythese holders of record.

The closing price for our common stockon December  29,  2006, which is the last business day ofour most recently completed fiscal year, was $24.01.

We havenever paid cash dividends on our common stock. We intend to retain ourearnings for use in our business and, therefore, do not anticipatepaying any cash dividends on our common stock for the foreseeablefuture.

We registered shares of our common stock under theSecurities Act in connection with our initial public offering. Ourregistration statement on Form S-1 (registration number 333-132228) wasdeclared effective by the SEC on May  31,  2006. Theoffering commenced as of May  31,  2006 and has sinceterminated. Including shares sold pursuant to the exercise by theunderwriters of their over-allotment option, 7,909,748 shares of ourcommon stock were registered and sold in the IPO by us and anadditional 19,270,580 shares of common stock were registered and soldby the selling stockholders named in the registration statement. Allthe shares were sold at a price to the public of $14.00 per share. Theaggregate gross purchase price was $380.5  million.

Themanaging underwriters of the offering were Morgan Stanley & Co.Incorporated and Deutsche Bank Securities Inc. We and the sellingstockholders paid the underwriters $19.6  million in underwritingdiscounts. We incurred approximately $1.4  million in otherIPO-related expenses consisting of, among other things, legal,accounting and printing expenses.

Of the $105  million ofnet IPO proceeds to us, we have used $22  million to repayshort-term loans from Alfa Bank, $1.4  million for variousIPO-related expenses, and $0.9  million for general corporatepurposes.

We did not purchase any shares of our common stock in2006.

32

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Item 6.    Selected FinancialData.

You should read the following consolidated financial datain conjunction with the Financial Statements, including the relatednotes, and ‘‘Item 7 — Management’sDiscussion and Analysis of Financial Condition and Results ofOperations.’’ The results shown herein are notnecessarily indicative of the results to be expected for any futureperiods.

SELECTED CONSOLIDATED FINANCIALDATA

|                                                                                                                                                                                                          |  |  |                                                             |   |         |      |  |  |      |   |         |      |  |  |      |   |         |   |  |  |  |   |          |   |  |  |  |   |          |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|-------------------------------------------------------------|---|---------|------|--|--|------|---|---------|------|--|--|------|---|---------|---|--|--|--|---|----------|---|--|--|--|---|----------|---|
|                                                                                                                                                                                                     |  |  | Yearended December  31,                                     |
|                                                                                                                                                                                                     |  |  | 2002                                                        |   |         | 2003 |  |  | 2004 |   |         | 2005 |  |  | 2006 |
|                                                                                                                                                                                                     |  |  | (inthousands of US dollars, except share and per sharedata) |
| Statementof IncomeData:                                                                                                                                                                                  |  |  |                                                             |   |    |      |  |  |      |   |    |      |  |  |      |   |    |   |  |  |  |   |     |   |  |  |  |   |     |   |
| REVENUES:                                                                                                                                                                                                |  |  |                                                             |   |    |      |  |  |      |   |    |      |  |  |      |   |    |   |  |  |  |   |     |   |  |  |  |   |     |   |
| Advertising(including related partyrevenue)                                                                                                                                                              |  |  |                                                             | $ | 46,643  |      |  |  |      | $ | 94,183  |      |  |  |      | $ | 153,775 |   |  |  |  | $ | 232,410  |   |  |  |  | $ | 357,334  |   |
| Sublicensing(including related partyrevenue)                                                                                                                                                             |  |  |                                                             |   | — |      |  |  |      |   | — |      |  |  |      |   | — |   |  |  |  |   | 3,088    |   |  |  |  |   | 11,322   |   |
| Otherrevenue (including related partyrevenue)                                                                                                                                                            |  |  |                                                             |   | 361     |      |  |  |      |   | 1,373   |      |  |  |      |   | 1,792   |   |  |  |  |   | 1,979    |   |  |  |  |   | 2,178    |   |
| Totaloperatingrevenues                                                                                                                                                                                   |  |  |                                                             | $ | 47,004  |      |  |  |      | $ | 95,556  |      |  |  |      |   | 155,567 |   |  |  |  | $ | 237,477  |   |  |  |  | $ | 370,834  |   |
| EXPENSES:                                                                                                                                                                                                |  |  |                                                             |   |    |      |  |  |      |   |    |      |  |  |      |   |    |   |  |  |  |   |     |   |
| Directoperating expenses (exclusive of amortization of programming rights andsublicensing rights, shown below, and exclusive of depreciation andamortization, and inclusive of stock-based compensation) |  |  |                                                             |   | (4,973  | )    |  |  |      |   | (6,837  | )    |  |  |      |   | (9,381  | ) |  |  |  |   | (12,747  | ) |  |  |  |   | (15,774  | ) |
| Selling,general and administrative (exclusive of depreciation and amortizationand inclusive of stock-basedcompensation)                                                                                  |  |  |                                                             |   | (10,426 | )    |  |  |      |   | (24,550 | )    |  |  |      |   | (30,450 | ) |  |  |  |   | (41,229  | ) |  |  |  |   | (56,297  | ) |
| Amortizationof programmingrights                                                                                                                                                                         |  |  |                                                             |   | (14,703 | )    |  |  |      |   | (24,683 | )    |  |  |      |   | (45,215 | ) |  |  |  |   | (77,351  | ) |  |  |  |   | (118,026 | ) |
| Amortizationof sublicensingrights                                                                                                                                                                        |  |  |                                                             |   | — |      |  |  |      |   | — |      |  |  |      |   | — |   |  |  |  |   | (2,043   | ) |  |  |  |   | (6,773   | ) |
| Depreciationand amortization (exclusive of amortization of programming rights andsublicensingrights)                                                                                                     |  |  |                                                             |   | (1,825  | )    |  |  |      |   | (3,138  | )    |  |  |      |   | (7,962  | ) |  |  |  |   | (13,920  | ) |  |  |  |   | (19,651  | ) |
| Totaloperatingexpenses                                                                                                                                                                                   |  |  |                                                             |   | (31,927 | )    |  |  |      |   | (59,208 | )    |  |  |      |   | (93,008 | ) |  |  |  |   | (147,290 | ) |  |  |  |   | (216,521 | ) |
| Operatingincome(loss)                                                                                                                                                                                    |  |  |                                                             |   | 15,077  |      |  |  |      |   | 36,348  |      |  |  |      |   | 62,559  |   |  |  |  |   | 90,187   |   |  |  |  |   | 154,313  |   |
| Foreigncurrency gains(losses)                                                                                                                                                                            |  |  |                                                             |   | (223    | )    |  |  |      |   | 517     |      |  |  |      |   | 695     |   |  |  |  |   | (877     | ) |  |  |  |   | 1,579    |   |
| Interestincome (including related party interestincome)                                                                                                                                                  |  |  |                                                             |   | 222     |      |  |  |      |   | 1,800   |      |  |  |      |   | 5,380   |   |  |  |  |   | 3,101    |   |  |  |  |   | 3,479    |   |
| Interestexpense (including related party interestexpense)                                                                                                                                                |  |  |                                                             |   | (1,329  | )    |  |  |      |   | (2,673  | )    |  |  |      |   | (6,651  | ) |  |  |  |   | (8,525   | ) |  |  |  |   | (1,774   | ) |
| Gain(losses) on sale ofbusinesses                                                                                                                                                                        |  |  |                                                             |   | (65     | )    |  |  |      |   | — |      |  |  |      |   | 4,613   |   |  |  |  |   | —  |   |  |  |  |   | 919      |   |
|                                                                                                                                                                                                          |

33

----

|                                              |  |  |                                                             |   |        |      |  |  |      |   |        |      |  |  |      |   |        |   |  |  |  |   |        |  |  |  |  |   |         |   |
|----------------------------------------------|--|--|-------------------------------------------------------------|---|--------|------|--|--|------|---|--------|------|--|--|------|---|--------|---|--|--|--|---|--------|--|--|--|--|---|---------|---|
|                                         |  |  | Yearended December  31,                                     |
|                                         |  |  | 2002                                                        |   |        | 2003 |  |  | 2004 |   |        | 2005 |  |  | 2006 |
|                                         |  |  | (inthousands of US dollars, except share and per sharedata) |
| Other non-operating income (losses),net      |  |  |                                                             |   | (68    | )    |  |  |      |   | (145   | )    |  |  |      |   | (83    | ) |  |  |  |   | 206    |  |  |  |  |   | (200    | ) |
| Equityin income (loss) of investeecompanies  |  |  |                                                             |   | (85    | )    |  |  |      |   | 308    |      |  |  |      |   | 713    |   |  |  |  |   | 578    |  |  |  |  |   | 1,896   |   |
| Incomebefore income tax and minorityinterest |  |  |                                                             | $ | 13,529 |      |  |  |      | $ | 36,155 |      |  |  |      | $ | 67,226 |   |  |  |  | $ | 84,670 |  |  |  |  | $ | 160,212 |   |
|                                              |

|                                                         |  |  |                                                             |   |             |      |  |  |      |   |            |      |  |  |      |   |             |   |  |  |  |   |             |   |  |  |  |   |             |   |
|---------------------------------------------------------|--|--|-------------------------------------------------------------|---|-------------|------|--|--|------|---|------------|------|--|--|------|---|-------------|---|--|--|--|---|-------------|---|--|--|--|---|-------------|---|
|                                                    |  |  | Yearended December  31,                                     |
|                                                    |  |  | 2002                                                        |   |             | 2003 |  |  | 2004 |   |            | 2005 |  |  | 2006 |
|                                                    |  |  | (inthousands of US dollars, except share and per sharedata) |
| Income tax (expense)benefit                             |  |  |                                                             |   | 2,046       |      |  |  |      |   | (11,189    | )    |  |  |      |   | (17,872     | ) |  |  |  |   | (24,861     | ) |  |  |  |   | (48,969     | ) |
| Incomeattributable to minorityinterest                  |  |  |                                                             |   | (223        | )    |  |  |      |   | (941       | )    |  |  |      |   | (1,904      | ) |  |  |  |   | (2,514      | ) |  |  |  |   | (4,918      | ) |
| Netincome                                               |  |  |                                                             | $ | 15,352      |      |  |  |      | $ | 24,025     |      |  |  |      | $ | 47,450      |   |  |  |  | $ | 57,295      |   |  |  |  | $ | 106,325     |   |
| Netincome per share attributable to commonstockholders: |  |  |                                                             |   |        |      |  |  |      |   |       |      |  |  |      |   |        |   |  |  |  |   |        |   |  |  |  |   |        |   |
| Basic                                                   |  |  |                                                             | $ | 0.14        |      |  |  |      | $ | 0.13       |      |  |  |      | $ | 0.32        |   |  |  |  | $ | 0.39        |   |  |  |  | $ | 0.73        |   |
| Diluted                                                 |  |  |                                                             | $ | 0.14        |      |  |  |      | $ | 0.10       |      |  |  |      | $ | 0.30        |   |  |  |  | $ | 0.37        |   |  |  |  | $ | 0.69        |   |
| Weightedaverage common sharesoutstanding:               |  |  |                                                             |   |        |      |  |  |      |   |       |      |  |  |      |   |        |   |  |  |  |   |        |   |  |  |  |   |        |   |
| Basic                                                   |  |  |                                                             |   | 21,833,600  |      |  |  |      |   | 41,972,000 |      |  |  |      |   | 80,580,000  |   |  |  |  |   | 79,339,024  |   |  |  |  |   | 117,880,814 |   |
| Diluted                                                 |  |  |                                                             |   | 113,148,800 |      |  |  |      |   | 51,050,400 |      |  |  |      |   | 156,570,711 |   |  |  |  |   | 154,344,956 |   |  |  |  |   | 154,077,957 |   |
|                                                         |

|                                |  |  |                             |   |         |      |  |  |      |   |         |      |  |  |      |   |         |  |  |  |  |   |         |  |  |  |  |   |         |  |
|--------------------------------|--|--|-----------------------------|---|---------|------|--|--|------|---|---------|------|--|--|------|---|---------|--|--|--|--|---|---------|--|--|--|--|---|---------|--|
|                           |  |  | December31,                 |
|                           |  |  | 2002                        |   |         | 2003 |  |  | 2004 |   |         | 2005 |  |  | 2006 |
|                           |  |  | (inthousands of US dollars) |
| BalanceSheetData:              |  |  |                             |   |    |      |  |  |      |   |    |      |  |  |      |   |    |  |  |  |  |   |    |  |  |  |  |   |    |  |
| Cashand cashequivalents        |  |  |                             | $ | 7,882   |      |  |  |      | $ | 28,892  |      |  |  |      | $ | 29,677  |  |  |  |  | $ | 15,300  |  |  |  |  | $ | 176,542 |  |
| Restrictedcash(1)              |  |  |                             |   | — |      |  |  |      |   | 35,900  |      |  |  |      |   | 35,978  |  |  |  |  |   | 105     |  |  |  |  |   | 120     |  |
| Intangibleassets,net           |  |  |                             |   | 1,690   |      |  |  |      |   | 19,855  |      |  |  |      |   | 50,133  |  |  |  |  |   | 41,094  |  |  |  |  |   | 53,371  |  |
| Goodwill                       |  |  |                             |   | 333     |      |  |  |      |   | 38,101  |      |  |  |      |   | 69,041  |  |  |  |  |   | 68,273  |  |  |  |  |   | 70,768  |  |
| Programmingrights,net          |  |  |                             |   | 20,690  |      |  |  |      |   | 30,434  |      |  |  |      |   | 43,882  |  |  |  |  |   | 66,468  |  |  |  |  |   | 65,901  |  |
| Sublicensingrights,net         |  |  |                             |   |    |      |  |  |      |   |    |      |  |  |      |   |    |  |  |  |  |   | 1,836   |  |  |  |  |   | 7,611   |  |
| Workingcapital                 |  |  |                             |   | 932     |      |  |  |      |   | 42,057  |      |  |  |      |   | 37,402  |  |  |  |  |   | 45,692  |  |  |  |  |   | 232,289 |  |
| Totalassets                    |  |  |                             |   | 49,472  |      |  |  |      |   | 179,292 |      |  |  |      |   | 293,221 |  |  |  |  |   | 273,697 |  |  |  |  |   | 484,797 |  |
| Long-termloans(1)              |  |  |                             |   | — |      |  |  |      |   | 35,900  |      |  |  |      |   | 20,184  |  |  |  |  |   | 37,188  |  |  |  |  |   | 210     |  |
| Totalstockholders’equity |  |  |                             |   | 24,236  |      |  |  |      |   | 118,405 |      |  |  |      |   | 174,939 |  |  |  |  |   | 179,098 |  |  |  |  |   | 421,017 |  |
|                                |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | InAugust  2003, we entered into a loan agreement with a commercialbank pursuant to which we deposited an amount of cash in a restrictedaccount equal to the principal amount of $35.9  million due underthe loan. At December  31,  2003, this loan was accountedfor as a long-term loan and at December  31,  2004 it wasaccounted for as a short-term loan as it matured in August  2005.In July  2005, we repaid the loan in full, resulting in a releaseof the cash held in the restricted account. In February  2006, weterminated this loan agreement. |

34

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OperatingData

|                                                      |  |  |                         |  |        |      |  |  |      |  |        |      |  |  |      |  |        |   |  |  |  |  |        |   |  |  |  |  |        |   |
|------------------------------------------------------|--|--|-------------------------|--|--------|------|--|--|------|--|--------|------|--|--|------|--|--------|---|--|--|--|--|--------|---|--|--|--|--|--------|---|
|                                                 |  |  | Yearended December  31, |
|                                                 |  |  | 2002                    |  |        | 2003 |  |  | 2004 |  |        | 2005 |  |  | 2006 |
| CTCNetwork OperatingData:                            |  |  |                         |  |   |      |  |  |      |  |   |      |  |  |      |  |   |   |  |  |  |  |   |   |  |  |  |  |   |   |
| Averageaudienceshare(1)                              |  |  |                         |  | 6.6    | %    |  |  |      |  | 9.2    | %    |  |  |      |  | 9.8    | % |  |  |  |  | 10.3   | % |  |  |  |  | 10.4   | % |
| Technicalpenetration(1)                              |  |  |                         |  | 69     | %    |  |  |      |  | 78     | %    |  |  |      |  | 83     | % |  |  |  |  | 85     | % |  |  |  |  | 86.6   | % |
| Numberof owned-and-operated stations at periodend(2) |  |  |                         |  | 8      |      |  |  |      |  | 13     |      |  |  |      |  | 13     |   |  |  |  |  | 14     |   |  |  |  |  | 17     |   |
|                                                      |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                                                                                                                                                                                  |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Priorto 2002, audience share was measured in cities with more than 400,000residents; from 2002 through 2005, it was measured in the largeruniverse of cities with more than 100,000 residents. Since 2001, therelated technical penetration survey has likewise been conductedin this larger universe. |

|     |                                                                                                                                                 |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Inaddition, 11 unmanned repeater transmitters were in operation atyear-end 2003, 16 at year-end 2004,17 at year-end 2005 and 19 atyear-end2006. |

|                                                      |  |  |                       |  |        |                       |  |  |  |  |        |   |
|------------------------------------------------------|--|--|-----------------------|--|--------|-----------------------|--|--|--|--|--------|---|
|                                                 |  |  | YearendedDecember 31, |  |        | Year endedDecember31, |
|                                                 |  |  | 2005                  |  |        | 2006                  |
| DomashnyNetwork OperatingData:                       |  |  |                       |  |   |                       |  |  |  |  |   |   |
| Average audienceshare                                |  |  |                       |  | 1.0    | %                     |  |  |  |  | 1.4    | % |
| Technicalpenetration                                 |  |  |                       |  | 47     | %                     |  |  |  |  | 58.2   | % |
| Numberof owned-and-operated stations at periodend(1) |  |  |                       |  | 4      |                       |  |  |  |  | 7      |   |
|                                                      |

|  |
|--|
|  |  |
|  |

|     |                                                                                                              |
|-----|--------------------------------------------------------------------------------------------------------------|
| (1) | Inaddition, two unmanned repeater transmitters were in operation atyear-end 2005 and seven at year-end 2006. |

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|              |                                                                                            |
|--------------|--------------------------------------------------------------------------------------------|
| Item7.  | Management’s Discussion and Analysis ofFinancial Condition and Results of Operations |

The followingdiscussion and analysis of our financial condition and results ofoperations should be read in conjunction with our consolidatedfinancial statements and the related notes included elsewhere in thisAnnual Report on Form 10-K. This discussion contains forward-lookingstatements based upon current expectations that involve risks anduncertainties. Our actual results and the timing of events could differmaterially from those anticipated in these forward-looking statementsas a result of a number of factors, including those set forth under‘‘Risk Factors’’ and elsewhere in thisAnnual Report on Form 10-K.

Overview

We operate theCTC Network, a Russian television network offering entertainmentprogramming targeted principally at 6-54 year-old viewers, and theDomashny, or ‘‘Home’’ Network, a Russiantelevision network targeted principally at 25-60 year-old women.CTC’s signal is broadcast by over 330  television stationsand local cable operators, including 17 owned-and-operated stations and19 unmanned repeater transmitters. Domashny’s signal isbroadcast by over 210 television stations and local cable operators,including eight owned-and-operated stations and seven unmanned repeaterstations. The signals of CTC and Domashny cover approximately100  million people and 58  million people in Russia,respectively.

We organize our operations into four businesssegments: CTC Network, Domashny Network, CTC Television Station Groupand Domashny Television StationGroup.

|  |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Networks.    Eachnetwork is responsible for its broadcasting operations, including thelicensing and commissioning of programming, producing its programmingschedule and managing its relationships with its independentaffiliates. Both the CTC Network and the Domashny Network generatesubstantially all of their revenues from the sale of nationaltelevision advertising, which they place through Video International,their exclusive advertising saleshouse. |

|  |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Television StationGroups.    The CTC Television Station Group manages its 17owned-and-operated stations and 19 repeater transmitters. The DomashnyStation Group manages its eight owned-and-operated stations and sevenrepeater transmitters. Both Television Station Groups generatesubstantially all of their revenues from the sale of local televisionadvertising that is broadcast during the local advertising windowsallotted to the affiliates by our Networks. Substantially all of ourlocal advertising has been placed through Video International sinceJanuary  2006. |

Key Factors Affecting Our Results ofOperations

Our results of operations are affected primarily bythe overall demand for television advertising, the limited supply oftelevision advertising time, our ability to deliver a large share ofviewers with desirable demographics, and the availability and cost ofquality programming.

Overall demand for television advertising inRussia has experienced significant growth in recent years due toimproved general business and economic conditions, including the levelsof gross domestic product (‘‘GDP’’),disposable income and consumer spending. Presently, the Russianadvertising market is one of the largest and fastest growing in Europe.Despite this rapid growth, however, advertising spending in Russia,both on a per capita basis and as a percentage of GDP, remains low byinternational standards. We believe this indicates that the televisionadvertising market is still relatively under-developed. We intend tocapitalize on this growth by strengthening our position as a leadingadvertising platform for reaching consumers in Russia.

The supplyof television advertising time is limited by Russian legislation (asdiscussed below). As a result of this limited supply of advertisingtime, we are only able to increase our revenues by delivering largeraudience shares and by increases in the price of advertising.

Thecontinued success of our advertising sales depends on our ability toattract a large share of the key target audiences, especially duringprimetime. Our ability to attract our key target audiences in turndepends in large part on our ability to broadcast quality programming.To date, we have been able to 

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achieve significant audience share at the CTCNetwork by broadcasting attractive entertainment programming, includingoriginal Russian series, shows and films as well as popular foreignseries, films and animation. Although we believe we have beensuccessful in licensing programming content that appeals to our keytarget audiences, we continue to compete with other televisionbroadcasters for programming content, and to seek to air programmingthat addresses evolving audience tastes and trends in televisionbroadcasting. Our programming costs have risen substantially in recentyears and we expect that they will continue to do so as competition forhigh-quality Russian and foreign entertainment programming intensifiesamong Russian television broadcasters, in conjunction with anticipatedgrowth in the Russian television advertising market.

While theongoing development and expansion of our television networks representsthe core of our strategy, we also seek opportunities to expand ourbusiness through the acquisition or launch of additional networks. Inaddition, we review opportunities to expand in adjacent Russianspeaking markets where we can effectively and efficiently leverage ourmanagement and programming resources. Moreover, we evaluateopportunities from time to time in selected media sub-sectors thatoffer strong growth potential. We will also continue to exploreopportunities to further expand our presence in the local advertisingmarket, principally through the careful expansion of ourowned-and-operated television stations in major cities. Any suchacquisitions or expansion plans, if completed, could subject us to arange of additional factors that could affect our subsequent results ofoperations.

Initial Public Offering and Use ofProceeds

On June  1,  2006, we announcedthe pricing of the initial public offering(‘‘IPO’’) of our common stockat $14.00 per share.Of the 24,709,389 shares sold in theoffering, 7,190,680 shares were offered by usand 17,518,709 shares were offered by sellingstockholders. Additionally, the underwriters fully exercised onJune  6,  2006, an over-allotment option to purchase719,068 additional shares of common stock from CTC Mediaand 1,751,871 additional shares of common stockfrom certain selling stockholders. Our management and executiveofficers, our directors, the selling stockholders and our other majorshareholders agreed to a lock-up period that ended on November27,  2006.

We received net proceeds of $105.0million from the sale of shares in the offering and aggregate exerciseproceeds of $5.8  million from stock options exercised inconnection with the IPO. We recognized approximately $1.4million in other IPO-related expenses of which approximately$0.4  million was recorded as a reduction of additional paid-incapital and $1.0  million was expensed.

Afterthe closing of the IPO, we had a total of151,505,672 shares outstanding. Shares of our common stock aretraded on the NASDAQ Global Market under the symbol‘‘CTCM’’.

As of December31,  2006, we had approximately $86.5  million of netproceeds remaining after using $22.0  million to repay short-termloans due to Alfa Bank, $1.4  million for various IPO-relatedexpenses, and $0.9  million for general corporatepurposes.

Television Advertising Sales

In the Russiantelevision market, national advertising is generally not placeddirectly with broadcasters. Instead, two ‘‘saleshouses,’’ Video International and NTV Media, control theplacement of virtually all national television advertising in Russia.Since 1999, Video International has placed, on an exclusive basis, ournational advertising.

Prior to 2006, local advertising sales atour owned-and-operated stations were generally placed directly by ourin-house sales teams. Because of Video International’s strengthin placing local advertising, beginning on January  1,2006, we engaged Video International to place, on an exclusive basis,local advertising at substantially all of our owned-and-operatedstations. Therefore, revenue sold through Video International accountedfor substantially all of our advertising revenues in2006.

Legislation came into effect on July  1,  2006,that imposed stricter limitations on airtime available for advertising,reducing maximum advertising time to no more than 15% of totalbroadcasting time each day, while at the same time stipulating that nomore than 20% of advertising time may be allotted for

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commercial advertising in any given hour. Thelegislation will further reduce the maximum permissible amount ofadvertising to no more than 15% per hour effectiveJanuary  1,  2008. We responded to these regulatory changesby taking steps to increase the amount of advertising time allocated tothe CTC Network by its affiliates and to implement rate increases inresponse to the decline in airtime available for advertising. We alsopartnered with Video International, our sales agent, to effectuate rateincreases in response to the decline in airtime available foradvertising that has resulted from the new law. Video Internationalsuccessfully negotiated an increase of over 20% in averageadvertising rates for the second half of 2006.

The price oftelevision advertising is primarily driven by demand, reflecting thefact that the amount of available television advertising is relativelylimited. In general, national television advertising in any particulartime slot is sold on the basis of gross rating points(‘‘GRPs’’), which refers to a particularmeasure of the population that has been watching a given broadcasterduring a given 30-second time slot. Local television advertising, onthe other hand, is currently sold by time (in 30 second slots) in someRussian cities, rather than by GRPs. Video International is seeking torestructure local sales to be sold on a GRP basis in larger Russiancities where audience shares are individually reported. It currentlysells a portion of local advertising on the basis of GRPs, primarily inMoscow and St. Petersburg.

At the network level, whereadvertisers and advertising agencies purchase advertising on the basisof GRPs, if we fail to achieve the projected audience share for aparticular time period, we will have fewer GRPs to sell and, therefore,our advertising revenues will be less than anticipated. On the otherhand, if we achieve higher than anticipated audience share for aparticular time period, advertisers do not generally compensate us forthe over-delivery of GRPs. We therefore seek to adjust the projectedGRPs to be delivered for a particular time slot on a rolling monthlybasis in an effort to minimize the advertising revenues lost toover-delivery of GRPs when our audience share in that time slot isgenerally increasing. 

Because advertisers often seek to reachparticular demographic groups, including particular ages and genders,they will often base their advertising placement decisions on ratingsamong such groups, rather than among the overall population —for example, on the basis of ratings among 18-45 year olds. VideoInternational generally places the CTC Network’s advertising onthe basis of ratings in CTC’s target audience, the 6-54demographic, and it generally places the Domashny Network’sadvertising on the basis of our ratings in Domashny’s targetaudience, 25-60 year-old women.

We derive no direct revenues fromour independent affiliates. These independent affiliates broadcast ournetwork signal in their local areas in exchange for the right tobroadcast local advertising during designated time windows, from whichthey derive their own revenues. By providing us with a means ofexpanding our broadcast coverage with limited investment on our part,these independent affiliates help to increase our audience share andratings, thereby indirectly increasing our national advertisingrevenues.

Television advertising sales vary over the course ofthe year. As a result of seasonality trends in viewing, thebroadcasting industry generally achieves a greater proportion ofadvertising revenues in the fourth quarter. In 2004 and 2005,approximately 37% of our total advertising revenues for eachyear were generated in the fourth quarter. In 2006, however, thepercentage of total advertising revenues generated in the fourthquarter decreased to approximately 32% mainly due to the effectthat the success of our primetime ‘‘hit’’series Born Not Pretty had on our revenues during the first halfof 2006. We broadcast the first episode of Born Not Pretty inprimetime in September  2005 and we broadcast the last episode inJuly  2006. Additionally, our audience share for the CTC Networkin the fourth quarter of 2006 was negatively impacted by the relativeunderperformance of a few of our primetime shows during the fallseason.

We expect that our future growth in advertising revenuewill depend primarily on increases in the price of our advertising andour ability to increase our advertising inventory. At the nationallevel, our ability to increase our advertising inventory depends uponour success in increasing our audience share, which in turn increasesthe number of GRPs we have available to sell. At the local level, theacquisition of additional owned-and-operated stations would provide uswith additional local advertising time to sell.

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Our Agreements with VideoInternational

We have three agreements with Video Internationalfor the placement of our advertising: one with CTC, one with Domashnyand one umbrella agreement for both of our Television Station Groups,with sub-agreements for each of our individual owned-and-operatedstations that have retained Video International to place theiradvertising. The agreements with the CTC Network and the DomashnyNetwork run through December  2007 and 2009, respectively. Theumbrella agreement for our Television Station Groups runs throughDecember  2010.

We believe that the strength of ourbusiness relationship with Video International has grown as ourbusiness has grown. As a result, we have recently been able to securemore favorable commercial terms from Video International. FromJanuary  1,  2006, we pay Video International a fixedcommission of 13% of gross advertising sales placed on the CTCNetwork. Prior to that, we paid variable commission rates to VideoInternational that averaged 17.9% and 15.5% in 2004 and2005, respectively. From the launch of our Domashny Network, we havepaid Video International a fixed commission of 12% of grossadvertising sales placed on the Domashny Network. The commission ratepayable by our Television Station Groups is 15% of grossadvertising sales placed on the owned-and-operated stations that haveretained Video International to place their advertising. Localadvertising sales generally command a higher rate of commission giventhat local advertising placements do not benefit from the economies ofscale available to national sales.

In December  2004 andFebruary  2005, we entered into new agreements in respect of CTCand Domashny Networks, respectively, providing for the fixedcommissions described above. In connection with signing those newagreements, we paid Video International a one-time $9.9  millionsigning fee that we are recording on a straight-line basis from 2005through 2007 as a reduction in revenues. We account for that signingfee as commission, allocating it to the CTC and Domashny Networksproportionally to their revenues. This increases VideoInternational’s effective average commission rate onCTC’s and Domashny’s gross advertising sales.

Priorto 2006, our principal source of revenue (contracts for the placementof advertising) was denominated primarily in US dollars, with onlycontracts for the placement of local advertising outside of our Moscowand St. Petersburg stations being denominated in rubles. Beginning inJanuary  2006, Video International began placing substantiallyall our advertising sales in rubles, and we currently expect thatalmost all of our advertising revenues in future years will bedenominated in rubles as contracts from previous years that weredenominated in US dollars expire.

In order to mitigate ourcurrency risk exposure, Video International has agreed that it willseek to further amend its agreements with existing advertisers. Theseamendments would provide that either Video International or theadvertiser could terminate the agreement in the event that the averageexchange rate between the ruble and the dollar during any 30-day periodfluctuates by more than 15% from the exchange rate onJanuary  1 in the same calendar year, provided that the partieshave not otherwise agreed to new advertising rates to reflect suchcurrency fluctuations. We have further agreed with Video Internationalthat, in the event that Video International does not enter into suchamendments with advertisers and such currency fluctuations do occur,Video International will compensate us for depreciations in the valueof the ruble as compared to the dollar in excess of such 15%variation.

Video International, in consultation with us,determines advertising prices, agrees the terms of sales contractsbetween it and advertisers and oversees the collection of advertisingsales revenue. Video International consults with us on generalbudgeting matters, including average selling prices, the total numberof GRPs expected over the year, the allocation of GRPs across the yearand similar matters. We do not have any input into the evaluation ofthe creditworthiness of potential new advertisers. We do, however, bearthe credit risk associated with any failure by an advertiser to makepayment when due.

We receive copies of all contracts enteredinto between Video International and advertisers in respect of ournetwork advertising, including agreed pricing terms, and we verify therevenues under these agreements based on the contract terms and theadvertising spots that we air for the advertisers. We are in theprocess of implementing a similar monitoring process at the locallevel, where most advertising sales have been handled by VideoInternational only since the beginning of 2006. Although our agreements

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with Video International do not containspecific provisions regarding audit procedures, this monitoring processenables us to verify revenues and related data reported by VideoInternational.

The Video International agreements are terminableupon 180 days’ notice by either party. As compensation for earlytermination, the terminating party must generally pay the other partyan amount equal to the commission that was paid for the six-monthperiod preceding the termination date as compensation for termination.In addition, the Video International agreement with our TelevisionStation Groups may be terminated by us without liquidated damages ifVideo International fails to meet certain mutually agreed, localadvertising sales targets by more than 10%, so long as theaudience shares of our owned-and-operated stations are not materiallybelow those achieved in the preceding year. These targets have beenestablished only for purposes of these termination provisions, andVideo International is not required to meet thesetargets.

Recent Acquisitions and Disposals

InApril  2006, we acquired a 51% interest in two stations inBarnaul for $3.5  million in cash for each station, as well as a100% interest in a station in Samara for a purchase price of$11.5  million, consisting of $11.1  million in cash and$0.4  million in assumed debt.

In April  2006, wealso sold our 85% interest in two radio stations located in Permfor total cash consideration of $1.0  million and recognized again on sale of $0.8  million.

In November  2006, weacquired 100% of a station in Kemerovo for cash consideration of$1.7  million. 

In November  2006, we also sold our100% interest in a radio station located in Samara for totalcash consideration of $0.6  million and recognized a $0.1million gain on the sale.

In February  2007, we acquiredthe remaining 50% interest in a station located in Samara,bringing our ownership in this station to 100%, for cashconsideration of $4.6  million.

In February  2007, wealso acquired a 100% interest in a station located in Rostov fora total purchase price of $2.7  million, consisting of$2.6  million in cash consideration and $0.1  million inassumed debt.

Office Space

We have entered intoagreements in regard to the future 10-year lease of approximately12,000  square meters of office space in a building currentlyunder construction in Moscow. Pursuant to Russian law and marketpractice, these agreements are structured as preliminary agreementswhich allow us to fix certain key terms of a final lease agreement thatwill be signed in the future. Under these preliminary agreements, weare obligated to enter into final lease agreements if the building iscompleted according to certain specifications and the stateregistration of title to the building is granted within the requiredtimeframe. We can however cancel the preliminary agreements prior tosigning the final lease agreements, in which case we would forfeit thesecurity deposit paid of $1.7  million (at exchange rates as ofDecember 31, 2006) and be required to pay certain other expensesincurred by the landlord on our behalf.

The building is scheduledto be available for occupancy by July  2008. If we consummate thefinal lease agreement under the currently agreed terms, we will pay abase annual rent commencing as of the occupancy date of approximately$8.6  million ($716 per square meter at exchange rates as ofDecember  31,  2006). The rent is payable in rubles, butthe rate will fluctuate based on the exchange rate between the rubleand the dollar and the ruble and the Euro, with annual increases afterthe second year of between 3% and 6% based on inflationrates in the United States. For the first twelve months of the lease,the annual rent will be reduced to approximately $6.2  million($519 per square meter at exchange rates as of December31,  2006) to compensate us for a portion of its fit-out costs.The final lease agreements would require us to pay an annual fee forproperty management and utilities of approximately $1.3  million(at exchange rates as of December 31, 2006) with increases starting inthe second year of occupancy indexed to the Russian rate of inflation.Once we enter into the final lease, we may terminate the lease for anyreason during the first five years upon twenty months’ writtennotice, the payment of $3.5  million (at exchange rates as ofDecember  31,  2006) and the forfeiture of the securitydeposit. We may terminate the lease during the remaining five years ofthe final lease agreement for any reason upon twelve months’written notice.

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Recent Stock Option Grants

InMay  2006, our board of directors approved the grant of optionsto members of management to purchase an aggregate of 4,918,556 sharesof our common stock upon the closing of the IPO. The exercise price forthese options is $16.95 per share, equal to the average closing salesprice per share of our common stock for the first twenty trading dayson the NASDAQ Global Market. These stock options vest on a quarterlybasis over three to four-year periods and have a maximum term of tenyears from the grant date.

In September  2006, our board ofdirectors approved the grant of options to another member of managementto purchase an aggregate of 50,000 shares of our common stock. Theexercise price for these options is $21.53 per share, equal to theclosing sales price per share on the date of grant. These stock optionsvest on a quarterly basis over four years and have a maximum term often years from the grant date.

We are expensing the fair value ofthese options over their vesting periods. The fair value assigned tothese options depends on several assumptions such as volatility,expected option term, and the risk free rate as well as the exerciseprice and the fair market value of our stock on the date of grant. Wewill recognize approximately $42.0  million in total compensationcosts related to these options over a four-year period.

For 2006we have recognized approximately $7.2  million in totalstock-based compensation costs. The compensation costs related to theseoptions is included in our consolidated statement of income as acomponent of selling, general and administrative expenses, except for$0.1  million that was classified in direct operatingexpenses.

Critical Accounting Policies, Estimates andAssumptions

Our accounting policies affecting our financialcondition and results of operations are more fully described in ourconsolidated financial statements for the year ended December31,  2006. The preparation of these consolidated financialstatements requires us to make judgments in selecting appropriateassumptions for calculating financial estimates, which inherentlycontain some degree of uncertainty. We base our estimates on historicalexperience and on various other assumptions that we believe to bereasonable under the circumstances, the results of which form the basisof making judgments about the carrying values of assets and liabilitiesand the reported amounts of revenues and expenses that are not readilyapparent from other sources. Actual results may differ from theseestimates under different assumptions or conditions. We believe ourcritical accounting policies that affect the more significant judgmentsand estimates used in the preparation of our consolidated financialstatements are as follows: 

Foreign currencytranslation

Prior to January  1,  2006, ourfunctional currency was the US dollar. Beginning in January2006, Video International began placing all our advertising sales inrubles. As a result, a substantial amount of our advertising revenuesfor 2006 was denominated in rubles. Going forward substantially all ofour advertising revenues will be denominated in rubles, as longer-termadvertising contracts denominated in US dollars expire and are replacedwith contracts denominated in rubles. Accordingly, we re-evaluated thefunctional currency criteria under SFAS No. 52, Foreign CurrencyTranslation, and determined that beginning in 2006, the functionalcurrency of our subsidiaries domiciled in Russia is the ruble.Therefore, since January  1,  2006, the financialstatements of our Russian subsidiaries are translated into US dollarsusing the current rate method. We translate assets and liabilities atthe rate of exchange prevailing at the applicable balance sheet dateand stockholders’ equity is translated at the applicablehistorical rate. We translate revenue and expenses at monthly averagerates of exchange. Translation gains and losses are included as part ofthe accumulated other comprehensive income. We adopted this change inour functional currency prospectively beginning January1,  2006, in accordance with SFAS No. 52.

Programmingrights 

Our largest operating expense consists of theamortization of the cost of obtaining programming rights, substantiallyall of which we license from studios and third-party production houses.Programming 

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rights are stated at the lower of theiramortized cost or net realizable value. We record the cost of acquiredprogramming rights as an asset only after we have the rights that giveus immediate access to the materials needed to broadcast the relatedprogram. Once recorded, we amortize these programming rights inaccordance with the policy described below. Programming rights that weexpect to amortize within one year are classified as currentassets.

The amortization policy we apply to the costs of ourprogramming rights varies in accordance with the type of programmingbeing amortized and the expected revenues from each run of suchprogramming. 

For foreign programming, which includes movies,series and animation, we amortize the cost of the programming on astraight-line basis over the licensed number of runs. Russian-producedmovies and animation are also amortized on a straight-line basis overthe licensed number of runs. We expense Russian-produced shows that wecommission as they are aired.

Prior to July  1,2005, we amortized Russian-produced series and sitcoms on astraight-line basis over the licensed number of runs, but not more thanthree runs. Starting July  1,  2005, we changed to a moreaccelerated amortization policy for Russian series and sitcoms based onchanging patterns of historic and estimated future revenues from thistype of programming in light of changes to our programming schedule,our audience share performance and projected increases in the price ofadvertising. After the change, Russian series with twenty episodes orless and sitcoms irrespective of the number of episodes are amortized45% after the first run, 35% after the second run and20% after the third run, when a license provides for three ormore runs. When a license provides for two runs, we amortize the costof Russian series and sitcoms 60% after the first run and40% after the second run. Russian series with more than twentyepisodes are amortized 60% after the first run, 30% afterthe second run and 10% after the third run, when a licenseprovides for three or more runs. When a license provides for two runs,these series are amortized 70% after the first run and30% after the second run.

From time to time, we obtainextensions of licenses for additional runs of successful foreign andRussian series, sitcoms and movies. We treat these extensions as newlicenses and amortize them in accordance with the abovepolicy.

Based on our analysis of advertising revenues, we believethat our amortization policy appropriately allocates the cost ofprogramming rights with revenues earned. We review our amortizationpolicy each quarter to ensure its continued appropriateness in light ofchanges in the Russian television advertising market, viewing patterns,our programming mix and schedule and our Networks’ audienceshare. We carry program rights on our balance sheet at the lower ofamortized cost or net realizable value. We review the carrying amountsof our programming rights on a quarterly basis or more frequently ifdetermined necessary.  If the carrying amount of any programmingright exceeds its expected future revenues, we write down the carryingvalue to net realizable value. We recognized impairment charges on ourprogramming rights of $4.7  million, $5.4  million and$3.7  million for 2004, 2005 and 2006,respectively.

Stock-based compensationexpense

On January  1,  2006, we adopted SFASNo. 123-R, Share-Based Payment, under the modified prospectivemethod. Under SFAS No. 123-R, companies must calculate and record thecost of equity instruments, such as stock options or restricted stock,awarded to employees for services received in the statement of income;pro forma disclosures are no longer permitted. The cost of the equityinstruments should be measured based on fair value of the instrumentson the date they are granted (with certain exceptions) and is requiredto be recognized over the period during which the employees arerequired to provide services in exchange for the equity instruments.Since we had previously accounted for our stock-based compensationplans sunder the fair value provisions of SFAS No. 123, our adoptiondid not significantly impact our financial position or results ofoperations.

We estimate the fair value of stock options at thedate of grant using the Black-Scholes option pricing model. TheBlack-Scholes pricing model was originally developed for use inestimating the fair value of traded options, which have differentcharacteristics than our employee stock options. The model is alsosensitive to changes in the subjective assumptions, which canmaterially affect the fair value estimate. These subjective assumptionsinclude expected volatility, the expected life of the options, and thefair value of our common stock on the date of grant.

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Since our IPO in June  2006, wedetermine the fair value of our common stock by using closing prices asquoted on the NASDAQ Global Market. However, for stock options grantedbefore our IPO on June  1,  2006, we determined the fairvalue of our common stock as of the date of grant using the incomeapproach. Under the income approach, we forecast net cash flows fromour business operations based on projected earnings for a discreteforecast period and then apply appropriate discount rates to theseestimated future cash flows. When using the income approach method tovalue our common stock, we were required to make significantassumptions to estimate future cash flows and the appropriate discountrate to be applied to those cash flows, including, but not limited to,assumptions related to:

|  |              |                                                                             |
|--|--------------|-----------------------------------------------------------------------------|
|  | •  | the future sizeand development of the Russian television advertisingmarket; |

|  |              |                              |
|--|--------------|------------------------------|
|  | •  | our projected audienceshare; |

|  |              |                                        |
|--|--------------|----------------------------------------|
|  | •  | our estimated advertising marketshare; |

|  |              |                                                                                                                      |
|--|--------------|----------------------------------------------------------------------------------------------------------------------|
|  | •  | the development of variouscategories of expenses relative to prior years and to inflationexpectations going forward; |

|  |              |                         |
|--|--------------|-------------------------|
|  | •  | the timevalue of money; |

|  |              |                               |
|--|--------------|-------------------------------|
|  | •  | future rates ofinflation; and |

|  |              |                                                                               |
|--|--------------|-------------------------------------------------------------------------------|
|  | •  | Russia-specific risks andother risks inherent in the ownership of our shares. |

Whencalculating the value of one share of our common stock under the incomeapproach, we divided the fair value of the company by the total commonstock equivalents outstanding. We had convertible preferred stockoutstanding until the completion of our IPO in June  2006.Preferred stock was included in the total common stock equivalentsoutstanding on an as-converted-to-common-stock basis. We did not assumea greater per share value for our preferred stock given the relativevalue of the liquidation preference payable to certain holders of ourpreferred stock compared to our estimated value of ourcompany.

Volatility is another key input in the Black-Scholesoption pricing model. For stock options granted before our IPO onJune  1,  2006, we used the minimum value method, whichassumes expected volatility of zero. However, for stock option grantsoccurring after our IPO, we estimated the volatility of our commonstock by considering the volatility of the stock of other publiccompanies in the media industry and in Russia. The transition away fromthe minimum value method has contributed to the higher valuation of ourstock options granted after IPO and to the increase in the relatedcompensation expense.

Accounting for acquisitions; goodwill andother intangible assets

In accordance with SFAS No. 141,Business Combinations, we allocate the purchase price of ouracquisitions to the tangible assets, liabilities and identifiableintangible assets acquired based on their estimated fair values, withthe excess purchase price over those fair values being recorded asgoodwill. The fair value assigned to intangible assets acquired issupported by valuations using estimates and assumptions provided bymanagement. If we had made different estimates, the amount of thepurchase price attributable to intangible assets and goodwill wouldhave changed, resulting in changes to the annual amortization chargerecorded in the Consolidated Statements of Income and ComprehensiveIncome as well as reclassifications between goodwill and intangibleassets.

We assess the carrying value of intangible assets withindefinite lives and goodwill on an annual basis, or more frequently ifevents or changes in circumstances indicate that such carrying valuemay not be recoverable. Other than our annual review, factors weconsider important which could trigger an impairment review are:under-performance of operating segments or changes in projectedresults, changes in the manner of utilization of the asset, andnegative market conditions or economic trends. Therefore, our judgmentas to the future prospects of each business has a significant impact onour results and financial condition.

Our annual assessment of thecarrying values of intangible assets with indefinite lives and goodwillis based on discounted projected future cash flows. When an impairmentreview is undertaken, whether it be our annual assessment or if eventsor changes in circumstances indicate such carrying value may not

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be recoverable, significant judgment isrequired in estimating projected future cash flows including thedetermination of certain variables: discount rates, terminal values,the number of years on which to base the cash flow projections as wellas the assumptions and estimates used to determine the cash inflows andoutflows. We believe that our assumptions are appropriate. If futurecash flows do not materialize as expected or there is a future adversechange in market conditions, we may be unable to recover the carryingamount of an asset, resulting in future impairment losses.

Taxprovisions and valuation allowance for deferred tax assets

Inthe course of preparing financial statements in accordance with US GAAPand for tax other than income tax, we record potential tax losscontingency provisions under the guidelines of SFAS No. 5,Accounting for Contingencies. In general, SFAS No. 5 requiresloss contingencies to be recorded when they are both probable andreasonably determinable. In addition, we record income tax and deferredtax provisions under the guidelines of SFAS No. 109, Accounting forIncome Taxes. Significant judgment is required to determine whensuch provisions should be recorded and, when facts and circumstanceschange, when such provisions should be released.

Our actualRussian taxes may be in excess of the estimated amount expensed to dateand accrued at December  31,  2006 due to ambiguities inand evolution of Russian tax legislation, varying approaches byregional and local tax inspectors, and inconsistent rulings ontechnical matters at the judicial level. With respect to certainissues, the risk of ultimately losing in court is more than remote,although we believe that it is not probable. We have also identifiedpossible tax contingencies of up to approximately $4.5  millionas of December  31,  2006, for which we have not providedan accrual. Such possible tax contingencies could materialize andrequire us to pay additional amounts of tax. We cannot guarantee thatthe amount and timing of an unfavorable resolution of any taxcontingency would not have a material adverse effect on our results ofoperations in a particular period.

In the fourth quarter of 2006,our wholly owned subsidiary, ZAO CTC Network, was engaged in litigationwith the Russian tax inspectorate in regard to a claim received inAugust  2006 for approximately $0.4  million (at exchangerate as of December  31,  2006) relating to tax paymentstransferred in 1998 and 1999 from its bank accounts that were allegedlynot received by the government. In October  2006, we filed alawsuit disputing the claim, and the court ruled in our favor inDecember  2006. While we intend to defend our positionvigorously, if the courts were to rule in favor of the tax inspectorateupon appeal, it is possible that the tax inspectorate could also claimsignificant late payment interest. We do not believe an unfavorableoutcome of this matter to be probable at this time; therefore, noprovision is currently recorded in our financial statements.

Werecord valuation allowances related to tax effects of deductibletemporary differences and loss carryforwards when, in the opinion ofmanagement, it is more likely than not that the respective tax assetswill not be realized. Changes in our assessment of probability ofrealization of deferred tax assets may affect our effective income taxrate.

44

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Results of Operations

Thefollowing table presents our historical consolidated operating resultsas a percentage of total operating revenues for the periodsindicated:

Consolidated statement of income data

|                                                                                |  |  |                                  |  |         |      |  |  |      |  |         |   |  |  |  |  |        |   |
|--------------------------------------------------------------------------------|--|--|----------------------------------|--|---------|------|--|--|------|--|---------|---|--|--|--|--|--------|---|
|                                                                           |  |  | Yearended December31,            |
|                                                                           |  |  | 2004                             |  |         | 2005 |  |  | 2006 |
|                                                                           |  |  | (inthousands, exceptpercentages) |
| Revenues:                                                                      |  |  |                                  |  |    |      |  |  |      |  |    |   |  |  |  |  |   |   |
| Advertising                                                                    |  |  |                                  |  | 98.8    | %    |  |  |      |  | 97.9    | % |  |  |  |  | 96.4   | % |
| Sublicensingandother                                                           |  |  |                                  |  | 1.2     |      |  |  |      |  | 2.1     |   |  |  |  |  | 3.6    |   |
| Totaloperatingrevenues                                                         |  |  |                                  |  | 100.0   |      |  |  |      |  | 100.0   |   |  |  |  |  | 100.0  |   |
| Expenses:                                                                      |  |  |                                  |  |    |      |  |  |      |  |    |   |  |  |  |  |   |   |
| Directoperating expenses (exclusive of depreciation andamortization)           |  |  |                                  |  | (6.0    | )    |  |  |      |  | (5.4    | ) |  |  |  |  | (4.3   | ) |
| Selling,general and administrative (exclusive of depreciation andamortization) |  |  |                                  |  | (19.6   | )    |  |  |      |  | (17.4   | ) |  |  |  |  | (15.2  | ) |
| Amortizationof programmingrights                                               |  |  |                                  |  | (29.1   | )    |  |  |      |  | (32.6   | ) |  |  |  |  | (31.8  | ) |
| Amortizationof sublicensingrights                                              |  |  |                                  |  | — |      |  |  |      |  | (0.9    | ) |  |  |  |  | (1.8   | ) |
| Depreciationand amortization (exclusive of amortization of programmingrights)  |  |  |                                  |  | (5.1    | )    |  |  |      |  | (5.9    | ) |  |  |  |  | (5.3   | ) |
| Totaloperatingexpenses                                                         |  |  |                                  |  | (59.8   | )    |  |  |      |  | (62.0   | ) |  |  |  |  | (58.4  | ) |
| Operatingincome                                                                |  |  |                                  |  | 40.2    |      |  |  |      |  | 38.0    |   |  |  |  |  | 41.6   |   |
| Foreigncurrency gains(losses)                                                  |  |  |                                  |  | 0.4     |      |  |  |      |  | (0.4    | ) |  |  |  |  | 0.4    |   |
| Interestincome                                                                 |  |  |                                  |  | 3.5     |      |  |  |      |  | 1.3     |   |  |  |  |  | 0.9    |   |
| Interestexpense                                                                |  |  |                                  |  | (4.3    | )    |  |  |      |  | (3.6    | ) |  |  |  |  | (0.5   | ) |
| Gains onsale ofbusinesses                                                      |  |  |                                  |  | 3.0     |      |  |  |      |  | — |   |  |  |  |  | 0.3    |   |
| Othernon-operating income (losses),net                                         |  |  |                                  |  | (0.1    | )    |  |  |      |  | 0.1     |   |  |  |  |  | (0.1   | ) |
| Equityin income of investeecompanies                                           |  |  |                                  |  | 0.5     |      |  |  |      |  | 0.2     |   |  |  |  |  | 0.6    |   |
| Incomebefore income tax and minorityinterest                                   |  |  |                                  |  | 43.2    |      |  |  |      |  | 35.7    |   |  |  |  |  | 43.2   |   |
| Incometaxexpense                                                               |  |  |                                  |  | (11.5   | )    |  |  |      |  | (10.5   | ) |  |  |  |  | (13.2  | ) |
| Incomeattributable to minorityinterest                                         |  |  |                                  |  | (1.2    | )    |  |  |      |  | (1.1    | ) |  |  |  |  | (1.3   | ) |
| Netincome                                                                      |  |  |                                  |  | 30.5    | %    |  |  |      |  | 24.1    | % |  |  |  |  | 28.7   | % |
|                                                                                |

Comparisonof Consolidated Results of Operations for the Years endedDecember  31,  2004, 2005 and 2006

Total operating revenues

|                                 |  |  |                                   |   |         |      |  |  |      |   |         |   |  |  |  |   |         |   |
|---------------------------------|--|--|-----------------------------------|---|---------|------|--|--|------|---|---------|---|--|--|--|---|---------|---|
|                            |  |  | Yearended December31,             |
|                            |  |  | 2004                              |   |         | 2005 |  |  | 2006 |
|                            |  |  | (inthousands, except percentages) |
| CTCNetwork                      |  |  |                                   | $ | 115,288 |      |  |  |      | $ | 168,669 |   |  |  |  | $ | 264,733 |   |
| Changeperiod-to-period          |  |  |                                   |   | — |      |  |  |      |   | 46.3    | % |  |  |  |   | 57.0    | % |
| DomashnyNetwork                 |  |  |                                   |   | — |      |  |  |      |   | 9,346   |   |  |  |  |   | 20,649  |   |
| Changeperiod-to-period          |  |  |                                   |   | — |      |  |  |      |   | — |   |  |  |  |   | 120.9   | % |
| CTCTelevision StationGroup      |  |  |                                   |   | 37,712  |      |  |  |      |   | 51,741  |   |  |  |  |   | 74,765  |   |
| Changeperiod-to-period          |  |  |                                   |   | — |      |  |  |      |   | 37.2    | % |  |  |  |   | 44.5    | % |
| DomashnyTelevision StationGroup |  |  |                                   |   | 2,955   |      |  |  |      |   | 7,761   |   |  |  |  |   | 11,566  |   |
| Changeperiod-to-period          |  |  |                                   |   | — |      |  |  |      |   | 162.6   | % |  |  |  |   | 49.0    | % |
| Eliminationsandother            |  |  |                                   |   | (388    | )    |  |  |      |   | (40     | ) |  |  |  |   | (879    | ) |
| Total                           |  |  |                                   | $ | 155,567 |      |  |  |      | $ | 237,477 |   |  |  |  | $ | 370,834 |   |
| Changeperiod-to-period          |  |  |                                   |   | — |      |  |  |      |   | 52.7    | % |  |  |  |   | 56.2    | % |
|                                 |

45

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Our total operating revenues grew byapproximately 52.7% and 56.2%, respectively, whencomparing 2004 to 2005 and 2005 to 2006. The increase in revenuesreflects the continued growth of the Russian television advertisingmarket and the strength of our television networks in delivering theirtarget audiences. On an annual basis, our revenue growth hashistorically outpaced the growth of the Russian television marketoverall, and we have continued to grow our audience shares. Inaddition, the increase in our revenues when comparing 2005 to 2006 waspartially due to the fact that a significant majority of ouradvertising revenues for 2006 was denominated in rubles. We estimatethat the appreciation of the Russian ruble against the US dollar in2006 resulted in approximately a 4.0% increase in ouradvertising revenues.

Advertisingrevenues

|                                 |  |  |                                   |   |         |      |  |  |      |   |         |   |  |  |  |   |         |   |
|---------------------------------|--|--|-----------------------------------|---|---------|------|--|--|------|---|---------|---|--|--|--|---|---------|---|
|                            |  |  | Year endedDecember31,             |
|                            |  |  | 2004                              |   |         | 2005 |  |  | 2006 |
|                            |  |  | (inthousands, except percentages) |
| CTCNetwork                      |  |  |                                   | $ | 113,737 |      |  |  |      | $ | 165,003 |   |  |  |  | $ | 253,321 |   |
| Changeperiod-to-period          |  |  |                                   |   | — |      |  |  |      |   | 45.1    | % |  |  |  |   | 53.5    | % |
| DomashnyNetwork                 |  |  |                                   |   | — |      |  |  |      |   | 9,344   |   |  |  |  |   | 20,647  |   |
| Changeperiod-to-period          |  |  |                                   |   | — |      |  |  |      |   | — |   |  |  |  |   | 121.0   | % |
| CTCTelevision StationGroup      |  |  |                                   |   | 36,803  |      |  |  |      |   | 50,412  |   |  |  |  |   | 73,549  |   |
| Changeperiod-to-period          |  |  |                                   |   | — |      |  |  |      |   | 37.1    | % |  |  |  |   | 45.9    | % |
| DomashnyTelevision StationGroup |  |  |                                   |   | 2,920   |      |  |  |      |   | 6,345   |   |  |  |  |   | 9,436   |   |
| Changeperiod-to-period          |  |  |                                   |   | — |      |  |  |      |   | 117.3   | % |  |  |  |   | 48.7    | % |
| Eliminationsandother            |  |  |                                   |   | 315     |      |  |  |      |   | 1,306   |   |  |  |  |   | 382     |   |
| Total                           |  |  |                                   | $ | 153,775 |      |  |  |      | $ | 232,410 |   |  |  |  | $ | 357,335 |   |
| Changeperiod-to-period          |  |  |                                   |   | — |      |  |  |      |   | 51.1    | % |  |  |  |   | 53.8    | % |
|                                 |

Werecognize advertising revenues in the period that the correspondingadvertising spots are broadcast. Our advertising revenue is recordednet of VAT and sales commissions.

CTCNetwork.    Advertising revenues for the CTC Network increasedby 45.1% and 53.5%, respectively, when comparing 2004 to2005 and 2005 to 2006. This increase was principally due to thecontinued growth of television advertising in Russia from $1.7billion in 2004 to $2.3  billion in 2005, and then to $3.2billion in 2006, which resulted in a general increase in ouradvertising rates. The increase in our advertising revenues over theperiod under review was, to a lesser extent, also due to an increase inour audience share on the CTC Network from 9.8% in 2004 to10.3% in 2005 and to 10.4% in 2006.

The increasein our audience share was partially the result of broadcasting of ourhighly successful series Born Not Pretty. This series, whichmade its debut in September  2005, was the CTC Network’smost successful program to date in terms of audience share, andgenerated an average overall primetime audience share of 24.1%during the period from September  5,  2005 toDecember  31,  2005, and 28.8% while being broadcastduring primetime from January  16,  2006 until July7,  2006. This level of audience share is significantly higherthan the average audience share of any other series or sitcom broadcaston the CTC Network. Although we continue to seek to acquire andcommission high quality Russian and international programming, we donot expect that we will be able to replace Born Not Pretty withprogramming that is as successful as this series. For example,primarily as a result of the conclusion of this series, our audienceshare on the CTC Network for the fourth quarter of 2006 wasapproximately 9.0%, which was lower than its audience share forthe first three quarters of 2006. We also anticipate that our audienceshare on the CTC Network for the first half of 2007 will be below 2006levels for the same reason.

The impact of the factors noted aboveon our revenues was partially offset by the effect of the legislationwhich came into effect on July  1,  2006 and imposedstricter limitations on airtime available for advertising. See‘‘Item 7. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations — TelevisionAdvertising Sales’’ for more information about this newlegislation. Additionally, our audience share on the CTC Network in thefourth quarter of 2006 was negatively impacted by the relativeunderperformance of a few of our primetime shows during the fallseason.

46

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Domashny Network.    TheDomashny Network contributed $9.3  million and $20.6million, respectively, to our consolidated advertising revenues for2005 and 2006. This is equal to 4.0% and 5.8%,respectively, of our consolidated advertising revenues. The DomashnyNetwork was launched on March  6,  2005. As a result, 2006was its first full year of operation.

Television StationGroups.    Advertising revenues of the CTC Television StationGroup increased by 37.1% and 45.9%, respectively, whencomparing 2004 to 2005 and 2005 to 2006. The increase in revenuesduring the periods under review was primarily the result of increasedadvertising rates. Advertising rates generally increased during theperiods under review due to an overall increase in the demand fortelevision advertising in Russia. Beginning in the third quarter of2006, however, the rate of revenue growth of the CTC Television StationGroup slowed due to the reallocation of advertising time on the CTCNetwork which decreased the proportion available to affiliates andowned-and-operated stations from 30.0% to 25.0%.Additionally, the new advertising legislation introduced on July1,  2006 reduced the airtime available for advertising. See‘‘Item 7. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations — TelevisionAdvertising Sales’’ for more information about thisreallocation of advertising time and this new legislation.

TheDomashny Television Station Group contributed $2.9  million,$6.3  million and $9.4  million, respectively, to ourconsolidated advertising revenues for 2004, 2005 and 2006, amounting to1.9%, 2.7% and 2.6%, respectively, of ourconsolidated advertising revenues in those years.

Prior toJanuary  2006, the internal sales teams at our Television StationGroups were responsible for advertising sales, with only limitedassistance from local advertising agencies. From January  2006,our Television Station Groups engaged Video International to act astheir exclusive sales house for advertising sales.

Sublicensing and other revenues

|                                 |  |  |                                   |   |         |      |  |  |      |   |         |   |  |  |  |   |        |    |
|---------------------------------|--|--|-----------------------------------|---|---------|------|--|--|------|---|---------|---|--|--|--|---|--------|----|
|                            |  |  | Year endedDecember31,             |
|                            |  |  | 2004                              |   |         | 2005 |  |  | 2006 |
|                            |  |  | (inthousands, except percentages) |
| CTCNetwork                      |  |  |                                   | $ | 1,551   |      |  |  |      | $ | 3,667   |   |  |  |  | $ | 11,412 |    |
| Changeperiod-to-period          |  |  |                                   |   | — |      |  |  |      |   | 136.4   | % |  |  |  |   | 211.2  | %  |
| DomashnyNetwork                 |  |  |                                   |   | — |      |  |  |      |   | 2       |   |  |  |  |   | 3      |    |
| Changeperiod-to-period          |  |  |                                   |   | — |      |  |  |      |   | — |   |  |  |  |   | 50.0   | %  |
| CTCTelevision StationGroup      |  |  |                                   |   | 909     |      |  |  |      |   | 1,330   |   |  |  |  |   | 1,217  |    |
| Changeperiod-to-period          |  |  |                                   |   | — |      |  |  |      |   | 46.3    | % |  |  |  |   | (8.5   | )% |
| DomashnyTelevision StationGroup |  |  |                                   |   | 34      |      |  |  |      |   | 1,414   |   |  |  |  |   | 2,130  |    |
| Changeperiod-to-period          |  |  |                                   |   | — |      |  |  |      |   | 4058.8  | % |  |  |  |   | 50.6   | %  |
| Eliminationsandother            |  |  |                                   |   | (702    | )    |  |  |      |   | (1,346  | ) |  |  |  |   | (1,262 | )  |
| Total                           |  |  |                                   | $ | 1,792   |      |  |  |      | $ | 5,067   |   |  |  |  | $ | 13,500 |    |
| Changeperiod-to-period          |  |  |                                   |   | — |      |  |  |      |   | 182.8   | % |  |  |  |   | 166.4  | %  |
|                                 |

Networks.    Thesubstantial increase in sublicensing and other revenues at the CTCNetwork level primarily resulted from the sublicensing of programmingthat we had commissioned, such as Born Not Pretty, Cadets andPeter the Magnificent, to Studio 1+1 in Ukraine. Additionally, werecognized $2.6  million in December  2006 from the sale ofcertain Russian mini-series originally commissioned by us to FirstChannel in Russia. Generally, we anticipate that our sublicensingactivity will increase in future periods as we explore opportunities toearn supplemental revenues from our Russianprogramming.

Television Station Groups.    Otherrevenues for the CTC Television Station Group primarily represent feesreceived for transmission. The Domashny Television StationGroup’s other revenues were primarily generated by leasing spaceand production equipment at its Moscow facility to other groupcompanies and to third-party production companies. A significantportion of the Television Station Groups’ sublicensing and otherrevenues are eliminated in consolidation.

47

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Total operating expenses

|                                 |  |  |                                   |   |         |      |  |  |      |   |          |   |  |  |  |   |          |   |
|---------------------------------|--|--|-----------------------------------|---|---------|------|--|--|------|---|----------|---|--|--|--|---|----------|---|
|                            |  |  | Year endedDecember31,             |
|                            |  |  | 2004                              |   |         | 2005 |  |  | 2006 |
|                            |  |  | (inthousands, except percentages) |
| CTCNetwork                      |  |  |                                   | $ | (58,247 | )    |  |  |      | $ | (84,828  | ) |  |  |  | $ | (125,021 | ) |
| Changeperiod-to-period          |  |  |                                   |   | — |      |  |  |      |   | 45.6     | % |  |  |  |   | 47.4     | % |
| DomashnyNetwork                 |  |  |                                   |   | — |      |  |  |      |   | (16,594  | ) |  |  |  |   | (25,276  | ) |
| Changeperiod-to-period          |  |  |                                   |   | — |      |  |  |      |   | —  |   |  |  |  |   | 52.3     | % |
| CTCTelevision StationGroup      |  |  |                                   |   | (21,228 | )    |  |  |      |   | (23,779  | ) |  |  |  |   | (26,692  | ) |
| Changeperiod-to-period          |  |  |                                   |   | — |      |  |  |      |   | 12.0     | % |  |  |  |   | 12.2     | % |
| DomashnyTelevision StationGroup |  |  |                                   |   | (4,754  | )    |  |  |      |   | (14,164  | ) |  |  |  |   | (21,031  | ) |
| Changeperiod-to-period          |  |  |                                   |   | — |      |  |  |      |   | 197.9    | % |  |  |  |   | 48.5     | % |
| Eliminationsandother            |  |  |                                   |   | (8,779  | )    |  |  |      |   | (7,925   | ) |  |  |  |   | (18,501  | ) |
| Total                           |  |  |                                   | $ | (93,008 | )    |  |  |      | $ | (147,290 | ) |  |  |  | $ | (216,521 | ) |
| Changeperiod-to-period          |  |  |                                   |   | — |      |  |  |      |   | 58.4     | % |  |  |  |   | 47.0     | % |
| %of total operatingrevenues     |  |  |                                   |   | 59.8    | %    |  |  |      |   | 62.0     | % |  |  |  |   | 58.4     | % |
|                                 |

Ourtotal operating expenses as a percentage of operating revenues amountedto 59.8%, 62.0% and 58.4%, respectively, in 2004,2005 and 2006. As we pursue our growth strategy, we continue to manageour costs by taking a disciplined approach to expanding our operations.The structure of our networks, which is based on the traditional USbroadcasting model, has enabled us to minimize investments in ourinfrastructure, while seeking to maximize viewingaudience.

Direct operating expenses

|                                 |  |  |                                   |   |         |      |  |  |      |   |         |    |  |  |  |   |         |   |
|---------------------------------|--|--|-----------------------------------|---|---------|------|--|--|------|---|---------|----|--|--|--|---|---------|---|
|                            |  |  | Year endedDecember31,             |
|                            |  |  | 2004                              |   |         | 2005 |  |  | 2006 |
|                            |  |  | (inthousands, except percentages) |
| CTCNetwork                      |  |  |                                   | $ | (4,645  | )    |  |  |      | $ | (4,522  | )  |  |  |  | $ | (5,158  | ) |
| Changeperiod-to-period          |  |  |                                   |   | — |      |  |  |      |   | (2.6    | )% |  |  |  |   | 14.1    | % |
| DomashnyNetwork                 |  |  |                                   |   | — |      |  |  |      |   | (2,186  | )  |  |  |  |   | (2,793  | ) |
| Changeperiod-to-period          |  |  |                                   |   | — |      |  |  |      |   | — |    |  |  |  |   | 27.8    | % |
| CTCTelevision StationGroup      |  |  |                                   |   | (4,577  | )    |  |  |      |   | (3,945  | )  |  |  |  |   | (4,984  | ) |
| Changeperiod-to-period          |  |  |                                   |   | — |      |  |  |      |   | (13.8   | )% |  |  |  |   | 26.3    | % |
| DomashnyTelevision StationGroup |  |  |                                   |   | (713    | )    |  |  |      |   | (2,660  | )  |  |  |  |   | (3,333  | ) |
| Changeperiod-to-period          |  |  |                                   |   | — |      |  |  |      |   | 273.1   | %  |  |  |  |   | 25.3    | % |
| Eliminationsandother            |  |  |                                   |   | 554     |      |  |  |      |   | 566     |    |  |  |  |   | 494     |   |
| Total                           |  |  |                                   | $ | (9,381  | )    |  |  |      | $ | (12,747 | )  |  |  |  | $ | (15,774 | ) |
| Changeperiod-to-period          |  |  |                                   |   | — |      |  |  |      |   | 35.9    | %  |  |  |  |   | 23.8    | % |
| %of total operatingrevenues     |  |  |                                   |   | 6.0     | %    |  |  |      |   | 5.4     | %  |  |  |  |   | 4.3     | % |
|                                 |

Networks.    Atthe Network level, direct operating expenses principally comprise thesalaries of our Networks’ engineering, programming andproduction staff and satellite transmission fees. Direct operatingexpense at the CTC Network as a percentage of this segment’stotal operating revenues were 4.0%, 2.7%, and1.9%, respectively, in 2004, 2005 and 2006. At the DomashnyNetwork, direct operating expense as a percentage of thissegment’s total operating revenues were 23.4% to13.5%, respectively, in 2005 and 2006.

TelevisionStation Groups.    At the Television Station Group level,direct operating expenses primarily consist of transmission andmaintenance costs and payroll expenses for engineering, programming,production and distribution staff. Direct operating expenses at ourTelevision Station Groups are materially higher as a percentage ofthose segments’ total operating revenues compared to thenetworks because we bear the transmission costs of ourowned-and-operated stations. For the CTC Television Station Group,direct operating expenses as a percentage of that segment’stotal operating revenues amounted to 12.1%, 7.6% and6.7%, respectively, in 2004, 2005 and 2006.

48

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For the Domashny Television StationGroup, direct operating expenses as a percentage of thatsegment’s total operating revenues were 24.1%,34.3% and 28.8%, respectively, in 2004, 2005 and 2006.Direct operating expenses as a percentage of this segment’stotal operating revenues is higher than that of the CTC TelevisionStation Group reflecting the start-up ofoperations.

Eliminations and other.    We eliminateinter-company expenses from direct operating expenses. Theseinter-company expenses consist primarily of service fees charged to ourNetworks by our Television Station Groups for the operation andmaintenance of repeater transmitters. Other direct operating expensesalso includes costs related to the operation of our radio stations,which are not significant and continue to decline due to the sale ofour 85% interest in two radio stations in Perm in April2006.

Selling, general and administrative expenses

|                                 |  |  |                                   |   |         |      |  |  |      |   |         |   |  |  |  |   |         |   |
|---------------------------------|--|--|-----------------------------------|---|---------|------|--|--|------|---|---------|---|--|--|--|---|---------|---|
|                            |  |  | Year endedDecember31,             |
|                            |  |  | 2004                              |   |         | 2005 |  |  | 2006 |
|                            |  |  | (inthousands, except percentages) |
| CTCNetwork                      |  |  |                                   | $ | (11,169 | )    |  |  |      | $ | (12,384 | ) |  |  |  | $ | (12,785 | ) |
| Changeperiod-to-period          |  |  |                                   |   | — |      |  |  |      |   | 10.9    | % |  |  |  |   | 3.2     | % |
| DomashnyNetwork                 |  |  |                                   |   | — |      |  |  |      |   | (4,747  | ) |  |  |  |   | (5,981  | ) |
| Changeperiod-to-period          |  |  |                                   |   | — |      |  |  |      |   | — |   |  |  |  |   | 26.0    | % |
| CTCTelevision StationGroup      |  |  |                                   |   | (11,455 | )    |  |  |      |   | (13,326 | ) |  |  |  |   | (13,831 | ) |
| Changeperiod-to-period          |  |  |                                   |   | — |      |  |  |      |   | 16.3    | % |  |  |  |   | 3.8     | % |
| DomashnyTelevision StationGroup |  |  |                                   |   | (1,184  | )    |  |  |      |   | (4,609  | ) |  |  |  |   | (6,628  | ) |
| Changeperiod-to-period          |  |  |                                   |   | — |      |  |  |      |   | 289.3   | % |  |  |  |   | 43.8    | % |
| Eliminationsandother            |  |  |                                   |   | (6,642  | )    |  |  |      |   | (6,163  | ) |  |  |  |   | (17,072 | ) |
| Total                           |  |  |                                   | $ | (30,450 | )    |  |  |      | $ | (41,229 | ) |  |  |  | $ | (56,297 | ) |
| Changeperiod-to-period          |  |  |                                   |   | — |      |  |  |      |   | 35.4    | % |  |  |  |   | 36.5    | % |
| %of total operatingrevenues     |  |  |                                   |   | 19.6    | %    |  |  |      |   | 17.4    | % |  |  |  |   | 15.2    | % |
|                                 |

Ourselling, general and administrative expenses principally consist ofadvertising and promotion expenses; salaries and benefits; stock-basedcompensation; rent and utilities; audit, legal and other consultingfees; travel expenses; insurance costs and non-incometaxes.

CTC Network.    Selling, general andadministrative expenses of the CTC Network as a percentage of thissegment’s total operating revenues amounted to 9.7%,7.3% and 4.8%, respectively, in 2004, 2005 and 2006. Theincrease in selling general and administrative expenses in absoluteterms over the three-year period under review is due in part to salaryincreases and the fact that we switched the denomination of thesalaries of most of our employees from dollars to rubles effectiveJuly  2006. When comparing 2005 and 2006, the impact of salaryincreases was offset by the first quarter reduction in the headcount ofour CTC Network sales and support personnel by approximately 30 peopleas a result of our engagement of Video International to make localadvertising sales. This resulted in a severance charge of $0.2million which was expensed in the fourth quarter of 2005. Increases inadvertising and promotional expenses from $1.9  million in 2004to $3.1  million in 2005 and to $3.3  million in 2006 alsocontributed to the increase in absolute terms of selling, general andadministrative expenses for the three-year period under review.

Stock-based compensation expense was $1.1  million,$0.4  million and $0.1  million, respectively, in 2004,2005 and 2006. Stock-based compensation expense at the CTC Networkrelates to a stock appreciation right granted to our Chief ExecutiveOfficer in 2003. This stock appreciation right became fully vested inthe second quarter of 2006. The impact of the Chief ExecutiveOfficer’s stock options granted in conjunction with the IPO isaccounted for at the parent company level.

DomashnyNetwork.    Selling, general and administrative expenses of theDomashny Network as a percentage of the segment’s operatingrevenue were 50.8% and 29.0% in 2005 and 2006,respectively. This decrease reflects growth in DomashnyNetwork’s revenues over the periods under review. In absoluteterms, selling, general and administrative expenses at the DomashnyNetwork increased primarily due to increases in salaries and benefits,and promotional expenses. As we continue to build the Domashny

49

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brand, we expect selling, general andadministrative expenses to increase in absolute terms but decrease as apercentage of this segment’s operating revenues.

CTCand Domashny Television Station Groups.    Selling, general andadministrative expenses of the CTC Television Station Group as apercentage of this segment’s total operating revenues amountedto 30.4%, 25.8% and 18.5%, respectively, in 2004,2005 and 2006. The decrease in this expense as a percentage of thissegment’s total operating revenues is principally the result ofstrong revenue growth and the decrease in the headcount of thissegment’s sales and support personnel, as discussed below. Inabsolute terms, selling, general and administrative expenses increasedprimarily due to increases in advertising and promotion expenses.

Selling, general and administrative expenses of the DomashnyTelevision Station Group as a percentage of this segment’s totaloperating revenues were 40.1%, 59.4% and 57.3%,respectively, in 2004, 2005 and 2006. In absolute terms, selling,general and administrative expenses increased between the periodsprimarily due to increases in advertising and promotion, as well asincreases in salaries and benefits. Advertising and promotion expensesincreased between the periods due to additional promotion campaigns atour newly acquired stations. Salaries and benefits increased betweenthe periods due to raises effectuated at the beginning of each year, aswell as from the addition of three new Domashny stations during2006.

In connection with engaging Video International to be theexclusive advertising sales house for substantially all of theowned-and-operated stations in our Television Station Groups, wedecreased the headcount of the sales and support personnel in ourTelevision Station Groups by 170 in the beginning of 2006, resulting in$0.4  million in severance costs that were expensed in the fourthquarter of 2005. Despite the decrease in sales headcount, ourTelevision Station Group’s selling, general and administrativeexpense continued to increase in 2006 as a result of new stationacquisitions, increased marketing and promotional expenses andheadcount growth outside the sales function. We expect selling, generaland administrative expenses in out Television Stations Groups tocontinue to grow in absolute terms, but to decrease as a percentage oftotal segment operating revenues.

Eliminations andother.    Other selling, general and administrative expensesconsist principally of the general and administrative expenses of ourcorporate headquarters. These expenses, excluding stock-basedcompensation, amounted to $6.4  million, $5.7  million and$10.2  million, respectively, for 2004, 2005 and 2006. Thegeneral rise in these expenses over the three-year period at thecorporate level is mainly due to the expansion of our corporatefunction in order to address the requirements of becoming a publiclytraded company. Due to additional headcount, annual compensationincreases, and increased board member fees, salaries and benefitsamounted to $1.9  million, $2.5  million and $4.5million, respectively, for 2004, 2005 and 2006. Additionally, in 2006we expensed approximately $1.0  million in IPO-related costs, andincurred approximately $1.1  million in management consultingfees for advice on strategic and organizational issues and $0.8million in directors and officers insurance premiums.

Corporatestock-based compensation expense amounted to nil, $0.2  millionand $7.1  million, respectively, for 2004, 2005 and 2006. Thisincrease over the periods under review resulted from the grant of stockoptions to our executive officers and other management in June2006 upon the closing of our IPO.

We expect our general andadministrative expenditures at the corporate level to increase during2007 and subsequent years due to expenses associated with being apublicly traded company, increases in salaries and benefits as we addto our corporate headcount and as competition for qualified personnelcontinues to intensify in Russia.

50

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Amortization of programmingrights

|                                 |  |  |                                   |   |         |      |  |  |      |   |         |    |  |  |  |   |          |    |
|---------------------------------|--|--|-----------------------------------|---|---------|------|--|--|------|---|---------|----|--|--|--|---|----------|----|
|                            |  |  | Year endedDecember31,             |
|                            |  |  | 2004                              |   |         | 2005 |  |  | 2006 |
|                            |  |  | (inthousands, except percentages) |
| CTCNetwork                      |  |  |                                   | $ | (41,647 | )    |  |  |      | $ | (64,768 | )  |  |  |  | $ | (99,249  | )  |
| Changeperiod-to-period          |  |  |                                   |   | — |      |  |  |      |   | 55.5    | %  |  |  |  |   | 53.2     | %  |
| DomashnyNetwork                 |  |  |                                   |   | — |      |  |  |      |   | (9,291  | )  |  |  |  |   | (15,954  | )  |
| Changeperiod-to-period          |  |  |                                   |   | — |      |  |  |      |   | — |    |  |  |  |   | 71.7     | %  |
| CTCTelevision StationGroup      |  |  |                                   |   | (2,249  | )    |  |  |      |   | (2,643  | )  |  |  |  |   | (2,933   | )  |
| Changeperiod-to-period          |  |  |                                   |   | — |      |  |  |      |   | 17.5    | %  |  |  |  |   | 10.9     | %  |
| DomashnyTelevision StationGroup |  |  |                                   |   | (798    | )    |  |  |      |   | (440    | )  |  |  |  |   | (39      | )  |
| Changeperiod-to-period          |  |  |                                   |   | — |      |  |  |      |   | (44.9   | )% |  |  |  |   | (91.1    | )% |
| Eliminationsandother            |  |  |                                   |   | (521    | )    |  |  |      |   | (209    | )  |  |  |  |   | 149      |    |
| Total                           |  |  |                                   | $ | (45,215 | )    |  |  |      | $ | (77,352 | )  |  |  |  | $ | (118,026 | )  |
| Changeperiod-to-period          |  |  |                                   |   | — |      |  |  |      |   | 71.1    | %  |  |  |  |   | 52.6     | %  |
| %of total operatingrevenues     |  |  |                                   |   | 29.1    | %    |  |  |      |   | 32.6    | %  |  |  |  |   | 31.8     | %  |
|                                 |

CTCNetwork.    The amortization of programming rights is our mostsignificant expense at the Network level. Amortization of programmingrights for the CTC Network segment as a percentage of CTCNetwork’s total operating revenues amounted to 36.1%,38.4% and 37.5%, respectively, for 2004, 2005 and 2006.The increase in amortization of programming rights for the CTC Networkover the periods in absolute terms was due primarily to increases inthe cost of programming, particularly foreign movies andRussian-produced programming. Effective July  1,  2005, webegan amortizing our Russian series and sitcoms on a more acceleratedbasis, which resulted in an increase in our amortization expense ofapproximately $2.9  million for 2005 compared to 2004 and$4.4  million for 2006 compared to 2005. Impairment chargesamounted to $4.7  million, $5.4  million and $3.7million, respectively, for 2004, 2005 and 2006. For 2007, we expect ourprogramming costs to continue to increase in response to intensecompetition for quality programming.

DomashnyNetwork.    Amortization of programming rights for the DomashnyNetwork segment as a percentage of its operating revenues amounted to99.4% and 77.3% when comparing 2005 to 2006. As 2005 wasthe first year of operation of Domashny Network, we used programming tobuild audience share to attract viewers to the new product and torecruit new affiliates. We expect Domashny’s amortization ofprogramming expense to decrease as a percentage of its operatingrevenues for 2007 as we build on this segment’s advertisingrevenues, but expect that this expense will continue to constitute ahigher percentage of its operating revenues than is expected to be thecase for the CTC Network as we continue to make substantial investmentsin programming in order to build Domashny’s audienceshare.

Television Station Groups.    Our TelevisionStation Groups amortize the programming that they commission forbroadcast during the local windows. The investment ourowned-and-operated stations make in programming has historically beenlimited. Governmental authorities recently added an additional term tothe broadcast licenses of some of our CTC owned-and-operated stationsrequiring that 9% of daily broadcast time at these stations bedevoted to ‘‘local content’’. We view thisaction primarily as a positive attempt to standardize the local contentrequirements in our CTC licenses, some of which previously containedhigher or lower local content requirements. However, compliance withthe provision could increase our local programmingcosts.

51

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Amortization of sublicensingrights

|                             |  |  |                                   |  |         |      |  |  |      |   |         |   |  |  |  |   |        |   |
|-----------------------------|--|--|-----------------------------------|--|---------|------|--|--|------|---|---------|---|--|--|--|---|--------|---|
|                        |  |  | Year endedDecember31,             |
|                        |  |  | 2004                              |  |         | 2005 |  |  | 2006 |
|                        |  |  | (inthousands, except percentages) |
| CTCNetwork                  |  |  |                                   |  | — |      |  |  |      | $ | (2,043  | ) |  |  |  | $ | (6,773 | ) |
| Total                       |  |  |                                   |  | — |      |  |  |      | $ | (2,043  | ) |  |  |  | $ | (6,773 | ) |
| Changeyear-on-year          |  |  |                                   |  | — |      |  |  |      |   | — |   |  |  |  |   | 231.6  | % |
| %of total operatingrevenues |  |  |                                   |  | — |      |  |  |      |   | 0.9     | % |  |  |  |   | 1.8    | % |
|                             |

Amortizationof sublicensing rights was nil, $2.0  million and $6.8million, respectively, for 2004, 2005 and 2006. From the third quarterof 2005, we began to sublicense programs that we had commissioned forthe CTC Network, such as Born Not Pretty, Kadets and Peterthe Magnificent to Studio 1+1 in Ukraine. Additionally, weamortized $2.1  million in December  2006 related to thesale of certain Russian mini-series originally commissioned by us toFirst Channel in Russia. Generally, we anticipate that our sublicensingactivity will increase in future periods as we explore opportunities toearn supplemental revenues from our Russianprogramming.

Depreciation and amortization (exclusive ofamortization of programming rights and sublicensingrights)

|                                 |  |  |                                   |   |         |      |  |  |      |   |         |   |  |  |  |   |         |    |
|---------------------------------|--|--|-----------------------------------|---|---------|------|--|--|------|---|---------|---|--|--|--|---|---------|----|
|                            |  |  | Year endedDecember31,             |
|                            |  |  | 2004                              |   |         | 2005 |  |  | 2006 |
|                            |  |  | (inthousands, except percentages) |
| CTCNetwork                      |  |  |                                   | $ | (786    | )    |  |  |      | $ | (1,111  | ) |  |  |  | $ | (1,056  | )  |
| Changeperiod-to-period          |  |  |                                   |   | — |      |  |  |      |   | 41.3    | % |  |  |  |   | (5.0    | )% |
| DomashnyNetwork                 |  |  |                                   |   | — |      |  |  |      |   | (370    | ) |  |  |  |   | (548    | )  |
| Changeperiod-to-period          |  |  |                                   |   | — |      |  |  |      |   | — |   |  |  |  |   | 48.0    | %  |
| CTCTelevision StationGroup      |  |  |                                   |   | (2,948  | )    |  |  |      |   | (3,865  | ) |  |  |  |   | (4,945  | )  |
| Changeperiod-to-period          |  |  |                                   |   | — |      |  |  |      |   | 31.1    | % |  |  |  |   | 27.9    | %  |
| DomashnyTelevision StationGroup |  |  |                                   |   | (2,059  | )    |  |  |      |   | (6,455  | ) |  |  |  |   | (11,031 | )  |
| Changeperiod-to-period          |  |  |                                   |   | — |      |  |  |      |   | 213.5   | % |  |  |  |   | 70.9    | %  |
| Eliminationsandother            |  |  |                                   |   | (2,169  | )    |  |  |      |   | (2,119  | ) |  |  |  |   | (2,071  | )  |
| Total                           |  |  |                                   | $ | (7,962  | )    |  |  |      | $ | (13,920 | ) |  |  |  | $ | (19,651 | )  |
| Changeperiod-to-period          |  |  |                                   |   | — |      |  |  |      |   | 74.8    | % |  |  |  |   | 41.2    | %  |
| %of total operatingrevenues     |  |  |                                   |   | 5.1     | %    |  |  |      |   | 5.9     | % |  |  |  |   | 5.3     | %  |
|                                 |

Ourdepreciation and amortization (exclusive of amortization of programmingrights and sublicensing rights) relates to the depreciation of ourproperty and equipment, mainly broadcasting equipment, transmitters,buildings, computer hardware and office furniture, and the amortizationof our intangible assets other than programming rights and sublicensingrights, principally broadcast licenses, network affiliation agreementsand cable network connections.

Networks.    At theNetwork level, the depreciation of broadcasting equipment, computerhardware and office furniture represents the principal component ofthis expense. This expense remained relatively constant in absoluteterms for the three-year period under review.

CTC TelevisionStation Group.    As a percentage of this segment’soperating revenues, depreciation and amortization expense amounted to7.8%, 7.5% and 6.6%, respectively, for 2004, 2005and 2006. In absolute terms depreciation and amortization increasedfrom 2004 to 2005 due to our purchase in 2004 of the remaining minorityinterest in CTC-Moscow and ownership interests in two otherowned-and-operated stations in this segment. In 2006, depreciation andamortization increased further as we acquired a station in Barnaul. For2007, we expect total depreciation and amortization expense of the CTCTelevision Station Group to increase in absolute terms as we amortizeintangible assets in connection with the acquisitions of new stations,but to decrease as a percentage of this segment’s operatingrevenues.

52

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Domashny Television StationGroup.    Depreciation and amortization expense amounted to69.7%, 83.2% and 95.4%, respectively, for 2004,2005 and 2006. The principal component of this segment’sdepreciation and amortization expense relates to the acquisition in thethird quarter of 2004 of majority interests in the four televisionstations that we acquired to launch the Domashny Network. In connectionwith this transaction, we allocated approximately $28.2  millionto the acquired intangible assets based on their relative fair values.In 2006, we acquired an additional three television stations for thistelevision station group. For 2007, we expect the depreciation andamortization expense of the Domashny Television Station Group toincrease slightly in absolute terms due to recentacquisitions.

Other.    Other depreciation andamortization expense consists primarily of the amortization expense of$2.0  million recorded in each of the years under review,recognized as a result of the assignment of $10  million in valueto affiliation agreements of the CTC Network in connection with ouracquisition in August  2003 of Alfa’s 25% plus oneshare interest in our CTC Network.

Foreign currency gains(losses)

|                               |  |  |                                   |   |         |      |  |  |      |   |        |    |  |  |  |   |        |    |
|-------------------------------|--|--|-----------------------------------|---|---------|------|--|--|------|---|--------|----|--|--|--|---|--------|----|
|                          |  |  | Year endedDecember31,             |
|                          |  |  | 2004                              |   |         | 2005 |  |  | 2006 |
|                          |  |  | (inthousands, except percentages) |
| Foreign currencygains(losses) |  |  |                                   | $ | 695     |      |  |  |      | $ | (877   | )  |  |  |  | $ | 1,579  |    |
| Changeperiod-to-period        |  |  |                                   |   | — |      |  |  |      |   | (226.3 | )% |  |  |  |   | (280.1 | )% |
|                               |

Priorto January  1,  2006, the gains and losses from themeasurement of monetary assets and liabilities that were notdenominated in dollars were credited or charged to our consolidatedstatements of income. Therefore, the foreign currency gains and lossesshown in 2004 and 2005, respectively, relate to the impact of exchangerate fluctuations of our ruble-denominated assets.

EffectiveJanuary  1,  2006, the functional currency of our Russiansubsidiaries changed to the ruble from the US dollar, but we retainedthe US dollar as our reporting currency. In 2006, our foreign currencygain primarily represents the impact of ruble appreciation on ourdollar-denominated liabilities.

Interestincome

|                        |  |  |                                   |   |         |      |  |  |      |   |       |    |  |  |  |   |       |   |
|------------------------|--|--|-----------------------------------|---|---------|------|--|--|------|---|-------|----|--|--|--|---|-------|---|
|                   |  |  | Year endedDecember31,             |
|                   |  |  | 2004                              |   |         | 2005 |  |  | 2006 |
|                   |  |  | (inthousands, except percentages) |
| Interestincome         |  |  |                                   | $ | 5,380   |      |  |  |      | $ | 3,101 |    |  |  |  | $ | 3,479 |   |
| Changeperiod-to-period |  |  |                                   |   | — |      |  |  |      |   | (42.4 | )% |  |  |  |   | 12.2  | % |
|                        |

Ourinterest income consists of interest earned on our bank accounts.During 2004 and first half of 2005, a substantial portion of ourinterest income was attributable to interest earned on a blockedaccount with a balance of $35.9  million of restricted cash thatserved as collateral for a loan of the same amount from RaiffeisenZentralbank to the CTC Network. We entered into this loan arrangementso that we could deduct the interest payments for Russian tax purposes.The blocked account was released in July  2005 when we repaid theloan, and the loan agreement was terminated in February  2006. In2006 our interest income primarily represents interest earned on ourIPO proceeds received in early June.

Interestexpense

|                        |  |  |                                   |   |         |      |  |  |      |   |        |   |  |  |  |   |        |    |
|------------------------|--|--|-----------------------------------|---|---------|------|--|--|------|---|--------|---|--|--|--|---|--------|----|
|                   |  |  | Year endedDecember31,             |
|                   |  |  | 2004                              |   |         | 2005 |  |  | 2006 |
|                   |  |  | (inthousands, except percentages) |
| Interestexpense        |  |  |                                   | $ | (6,651  | )    |  |  |      | $ | (8,525 | ) |  |  |  | $ | (1,774 | )  |
| Changeperiod-to-period |  |  |                                   |   | — |      |  |  |      |   | 28.2   | % |  |  |  |   | (79.2  | )% |
|                        |

Inthe period under review, our principal interest expense was interestpaid on loans extended by Alfa and Raiffeisen Zentralbank to the CTCNetwork. In 2003, we borrowed $35.9  million from RaiffeisenZentralbank, with interest payable at a rate of 14% per year,plus a 1% annual commission that we accounted for as interest.The various loans outstanding from Alfa for the period under reviewaccrued interest at annual rates that varied from 10.25% to15%. See ‘‘Item 7. Management’s Discussionand Analysis of Financial Condition and Results of Operations —Liquidity and Capital Resources’’. The decrease ininterest expense in 2006 is due to the full repayment of our loan withRaiffeisen Zentralbank in the third quarter of 2005 and our loans withAlfa Bank in the second quarter of 2006.

53

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Gain on sale of businesses

|                           |  |  |                                   |   |       |      |  |  |      |  |         |  |  |  |  |   |     |  |
|---------------------------|--|--|-----------------------------------|---|-------|------|--|--|------|--|---------|--|--|--|--|---|-----|--|
|                      |  |  | Year endedDecember31,             |
|                      |  |  | 2004                              |   |       | 2005 |  |  | 2006 |
|                      |  |  | (inthousands, except percentages) |
| Gain on sale ofbusinesses |  |  |                                   | $ | 4,613 |      |  |  |      |  | — |  |  |  |  | $ | 919 |  |
|                           |

InJuly  2004, we sold our 50% interest in Radio Maximum,resulting in a gain of $4.6  million.

In April  2006,we sold our 85% interests in two radio stations located in Permfor total cash consideration of $1.0  million and recognized a$0.8  million gain on the sale.

In November  2006, wesold our 100% interest in a radio station located in Samara fortotal cash consideration of $0.6  million and recognized a$0.1  million gain on the sale.

Equity in income ofinvesteecompanies

|                                      |  |  |                                   |   |         |      |  |  |      |   |       |    |  |  |  |   |       |   |
|--------------------------------------|--|--|-----------------------------------|---|---------|------|--|--|------|---|-------|----|--|--|--|---|-------|---|
|                                 |  |  | Year endedDecember31,             |
|                                 |  |  | 2004                              |   |         | 2005 |  |  | 2006 |
|                                 |  |  | (inthousands, except percentages) |
| Equity in income ofinvesteecompanies |  |  |                                   | $ | 713     |      |  |  |      | $ | 578   |    |  |  |  | $ | 1,896 |   |
| Changeperiod-to-period               |  |  |                                   |   | — |      |  |  |      |   | (19.0 | )% |  |  |  |   | 228.3 | % |
|                                      |

Underthe equity method, we record our interest in the stations’results of operations as an investment rather than consolidating itsresults with our results of operations, reflecting a portion of netincome commensurate with our ownership stake in it. We accounted forthe Perm station in our CTC Television Station Group using the equitymethod until November  2004 when we acquired a further 35%interest in this station and began consolidating its results. Ourinterest in Radio Maximum was also accounted for using the equitymethod until July  2004 when we sold it. The change in method ofaccounting for the Perm station and the sale of our interest in RadioMaximum are the principal reasons for the decrease in equity in incomeof investee companies from 2004 to 2005. Beginning in December2005, we began accounting for our newly acquired Novosibirsk stationunder the equity method. In 2006 our equity in income of investeecompanies primarily consists of income attributable to our interests inthe Kazan and Novosibirsk stations, over which we do not have effectivecontrol and which we account for under the equitymethod.

Income taxexpense

|                        |  |  |                                   |   |         |      |  |  |      |   |         |   |  |  |  |   |         |   |
|------------------------|--|--|-----------------------------------|---|---------|------|--|--|------|---|---------|---|--|--|--|---|---------|---|
|                   |  |  | Year endedDecember31,             |
|                   |  |  | 2004                              |   |         | 2005 |  |  | 2006 |
|                   |  |  | (inthousands, except percentages) |
| Income taxexpense      |  |  |                                   | $ | (17,872 | )    |  |  |      | $ | (24,861 | ) |  |  |  | $ | (48,969 | ) |
| Changeperiod-to-period |  |  |                                   |   | — |      |  |  |      |   | 39.1    | % |  |  |  |   | 97.0    | % |
|                        |

Oureffective tax rate was approximately 27%, 29% and31%, respectively, for 2004, 2005 and 2006. The increase in oureffective tax rate when comparing 2004 to 2005 reflects increases inboth non-offsettable losses and non-deductible expenses as a percentageof income before tax. The increase in our effective tax rate whencomparing 2005 to 2006 reflects an increase in non-deductible expensesas a percentage of income before tax offset by the decrease innon-offsettable losses. The increase in non-deductible expenses wasprimarily due to additional non-deductible stock-based compensationexpense in our US entity due to the grant of stock options to membersof management upon the closing of the IPO. We are unable to deductstock-based compensation expense for option grants to employees who arenot US residents.

Income attributable to minorityinterest

|                                        |  |  |                                   |   |         |      |  |  |      |   |        |   |  |  |  |   |        |   |
|----------------------------------------|--|--|-----------------------------------|---|---------|------|--|--|------|---|--------|---|--|--|--|---|--------|---|
|                                   |  |  | Year endedDecember31,             |
|                                   |  |  | 2004                              |   |         | 2005 |  |  | 2006 |
|                                   |  |  | (inthousands, except percentages) |
| Income attributableto minorityinterest |  |  |                                   | $ | (1,904  | )    |  |  |      | $ | (2,514 | ) |  |  |  | $ | (4,918 | ) |
| Changeperiod-to-period                 |  |  |                                   |   | — |      |  |  |      |   | 32.1   | % |  |  |  |   | 95.6   | % |
|                                        |

Minorityinterest represents the share of net income of each of our consolidatedowned-and-operated stations that is not wholly owned and that istherefore attributable to the minority stockholders of these

54

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companies. Income attributable to minorityinterest increased over the periods under review in line with theincreases in profitability of our consolidated owned-and-operatedstations comprising our CTC Television Station Group.

Othercomprehensive income

Effective January  1,2006, our Russian domiciled subsidiaries changed their functionalcurrency to the ruble. As a result, the financial statements of theseRussian subsidiaries were translated into US dollars using the currentrate method, resulting in translation adjustments of $18.0million to our consolidated financial statements that were recorded asother comprehensive income in 2006.

ConsolidatedFinancial Position — Significant Changes in our ConsolidatedBalance Sheets at December  31,  2006 Compared toDecember  31,  2005

Trade accounts receivable,net of allowance for doubtful accounts

Our accountsreceivable increased from $6.0  million to $8.6  million atDecember  31,  2005 to December  31,  2006.This increase in accounts receivable is primarily due to an increase inrevenue.

Prepayments

Current prepaymentsincreased from December  31,  2005 to December31,  2006 primarily due to payments related to programming notyet available for its first showing. Programming prepayments arereclassified as programming rights once the related programmingmaterial is available to be shown on ourNetworks.

Broadcasting licenses

Broadcastinglicenses increased from December  31,  2005 toDecember  31,  2006 due to the acquisition of fourowned-and-operated stations during 2006. See ‘‘Item 7.Management’s Discussion and Analysis of Financial Condition andResults of Operations — Recent Acquisitions andDisposals.’’

Sublicensingrights

Sublicensing rights as shown on our balance sheetincreased from December  31,  2005 to December31,  2006 primarily due to a reclassification of programmingcosts in 2006 given our expectation that we will sublicense certainRussian mini-series originally commissioned byus.

Short-term and long-term loans

Short-termand long-term loans decreased significantly from December31,  2005 to December  31,  2006 due to our fullrepayment of both our line of credit and the term loan that wereoutstanding with Alfa Bank on December  31,2005.

Deferred tax asset

Deferred tax assetincreased significantly from December  31,  2005 toDecember  31,  2006 mainly due to the increase in thedifference between the US GAAP book basis and tax basis of programmingrights. We amortize programming rights in our US GAAP accounts on amore accelerated basis than for tax purposes.

Other currentassets

Other current assets increased from December31,  2005 to December  31,  2006 mainly due to anincrease in VAT receivable and advance payments made to VideoInternational.

Liquidity and Capital Resources

We havefinanced our operations to date through cash from operations, loansfrom Alfa Bank, the private placement of equity and our recent IPO. AtDecember  31,  2006, we had $176.5  million in cashand cash equivalents.

55

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Cash flows

Below is asummary of our cash flows during the periodsindicated:

|                                                    |  |  |               |   |         |      |  |  |      |   |         |   |  |  |  |   |         |   |
|----------------------------------------------------|--|--|---------------|---|---------|------|--|--|------|---|---------|---|--|--|--|---|---------|---|
|                                               |  |  | 2004          |   |         | 2005 |  |  | 2006 |
|                                               |  |  | (inthousands) |
| Net cash provided by operatingactivities:          |  |  |               | $ | 33,216  |      |  |  |      | $ | 38,660  |   |  |  |  | $ | 116,784 |   |
| Netcash used in investingactivities:               |  |  |               |   | (52,557 | )    |  |  |      |   | (13,181 | ) |  |  |  |   | (23,604 | ) |
| Netcash provided by (used in) financingactivities: |  |  |               |   | 19,340  |      |  |  |      |   | (38,922 | ) |  |  |  |   | 65,356  |   |
|                                                    |

Substantiallyall of our cash flow from operating activities throughout the periodsunder review derived from advertising revenues. Our cash flow fromoperating activities increased significantly over the periods underreview principally because of the substantial increase in advertisingrevenues over these periods. Our advertising revenue was $153.8million, $232.4  million and $357.3  million, respectively,for 2004, 2005 and 2006.

Our most significant use of cash inrelation to operating assets and liabilities throughout the periodunder review was for the acquisition of sublicensing and programmingrights. Our cash expenditure for the acquisition of sublicensing andprogramming rights was $73.8  million, $98.4  million$133.6  million during 2004, 2005 and 2006, exceeding ourprogramming rights and sublicensing rights amortization expense in eachof these years. Programming rights and sublicensing rights amortizationwas $45.2  million, $79.4  million and $124.8million, respectively, during 2004, 2005 and 2006. We expect that in2007, our cash expenditure for the acquisition of programming rightswill continue to increase in absolute terms due primarily to increasesin the cost of foreign movies and Russian-producedprogramming.

Cash used in investing activities includes cash usedfor the acquisition of property, equipment and intangible assets, andpurchases and establishment of new owned-and-operated stations. In2004, our continuing investment in owned-and-operated stations, inparticular our acquisition in September and October  2004 of thefour stations that we used as the foundation to launch our DomashnyNetwork, resulted in a significant net use of cash in investingactivities. In 2005, cash used in investing activities consisted of$7.6  million paid in December  2005 towards theacquisition of a 50% interest in a station in Novosibirsk and a100% interest in a station in Voronezh. In 2006, we paid anadditional $1.8  million in connection with the completion of theacquisition of a 50% interest in a station in Novosibirsk and a100% interest in a station in Voronezh. In 2006, we also paid$7.0  million for the acquisition of a 51% interest ineach of two television stations in Barnaul, $11.1  million forthe acquisition of a 100% interest in one station located inSamara and $1.6  million for the acquisition of a 100%interest in a station in Kemerovo. Additionally, we paid approximately$1.0  million as deposits for station acquisition opportunitiescurrently being evaluated. We also received $1.0  million fromthe sale of our 85% interests in two radio stations located inPerm in April  2006. In 2005 and 2006, we spent $6.1million and $3.9  million, respectively, on capital expenditures,primarily the purchase of broadcasting, transmission and video editingequipment, and office and computer equipment.

Cash fromfinancing activities fluctuated significantly between the periodsprimarily due to proceeds from and repayments of loans from Alfa Bankand Raiffeisen Zentralbank to the CTC Network and, in 2006, the receiptof net proceeds from our IPO. In 2004, CTC Network borrowed $24million from Alfa to finance the purchase of the four stations acquiredto launch Domashny. We repaid this loan in August  2005. InJuly  2005, we repurchased preferred and common shares equivalentto 13,283,200 shares of common stock (calculated on as as-if-convertedto common stock basis) for approximately $54  million. To financethis repurchase and to fund working capital, we borrowed an aggregateof $68  million from Alfa in the second half of 2005, and hadrepaid $27  million of these borrowings by the end of 2005. Alsoin 2005, we repaid $35.9  million due to Raiffeisen Zentralbank.This repayment resulted in restricted cash decreasing by $35.9million as Raiffeisen Zentralbank released the restriction on a depositthat served as a pledge for the loan. In 2006, we borrowed $19.0million from Alfa Bank prior to our IPO to finance acquisitions andrepaid $60.0  million to fully extinguish our Alfa Bankborrowings. As of December  31,  2006, we had only$0.2  million in borrowings outstanding, consisting primarily ofa promissory note due in 2012 that was recorded as a contingentliability in the acquisition of one of our regional stations. Upon ourIPO in 2006, we received $105.0  million in net proceeds and$5.9  million from the exercise of stockoptions.

56

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We believe that our current cash on hand,along with cash from operations, will provide sufficient capital tofund our operations for at least the next 12 months. We cannot assureyou, however, that the assumed levels of revenues and expensesunderlying this projection will prove to beaccurate.

Off-balance sheet transactions

Fromtime to time, we issue guarantees in favor of banks that make loans toproduction companies that produce Russian programming for us.Currently, there are no such guarantees inplace.

Contractual obligations

The table belowsummarizes the principal categories of our contractual obligations foracquisitions of programming rights, transmission and satellite fees,leasehold obligations and equipment purchase obligations as ofDecember  31,2006:

|                                  |  |  |                       |   |         |             |  |  |                 |   |        |                 |  |  |            |   |         |  |  |  |  |   |         |  |  |  |  |   |         |  |
|----------------------------------|--|--|-----------------------|---|---------|-------------|--|--|-----------------|---|--------|-----------------|--|--|------------|---|---------|--|--|--|--|---|---------|--|--|--|--|---|---------|--|
|                             |  |  | PaymentsDue by Period |
|                             |  |  | Total                 |   |         | Through2007 |  |  | 2008through2009 |   |        | 2010through2011 |  |  | Thereafter |
|                             |  |  | (inthousands)         |
| Acquisition of programmingrights |  |  |                       | $ | 52,430  |             |  |  |                 | $ | 44,812 |                 |  |  |            | $ | 7,618   |  |  |  |  | $ | — |  |  |  |  | $ | — |  |
| Acquisitionof formatrights       |  |  |                       |   | 3,325   |             |  |  |                 |   | 3,325  |                 |  |  |            |   | — |  |  |  |  |   | — |  |  |  |  |   | — |  |
| Transmissionand satellitefees    |  |  |                       |   | 37,175  |             |  |  |                 |   | 7,696  |                 |  |  |            |   | 15,266  |  |  |  |  |   | 14,213  |  |  |  |  |   | — |  |
| Leaseholdobligations(1)          |  |  |                       |   | 7,732   |             |  |  |                 |   | 1,808  |                 |  |  |            |   | 2,041   |  |  |  |  |   | 878     |  |  |  |  |   | 3,005   |  |
| Equipmentpurchaseobligations     |  |  |                       |   | 541     |             |  |  |                 |   | 541    |                 |  |  |            |   | — |  |  |  |  |   | — |  |  |  |  |   | — |  |
| Total                            |  |  |                       | $ | 101,203 |             |  |  |                 | $ | 58,182 |                 |  |  |            | $ | 24,925  |  |  |  |  | $ | 15,091  |  |  |  |  | $ | 3,005   |  |
|                                  |

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Theamounts shown exclude leasehold obligations that would arise uponentering into final lease agreements for the 10-year lease ofapproximately 12,000 square meters of office space in a buildingcurrently under construction in Moscow. See ‘‘Item 7.Management’s Discussion and Analysis of Financial Condition andResults of Operations — Office space’’ for moreinformation about our preliminary lease agreements for this officespace. |

Recently Issued AccountingPronouncements

Accounting for Uncertainty in IncomeTaxes

In June  2006, the Financial AccountingStandards Board (‘‘FASB’’) issuedInterpretation No. 48 (‘‘FIN No. 48’’),Accounting for Uncertainty in Income Taxes — aninterpretation of FASB Statement 109. FIN No. 48 creates a singlemodel to address uncertainty in tax positions and clarifies theaccounting for income taxes by prescribing the minimum recognitionthreshold a tax position is required to meet before being recognized inthe financial statements. FIN No. 48 also provides guidance onderecognition, measurement, classification, interest and penalties,accounting in interim periods, disclosure and transition. In addition,FIN No. 48 scopes out income taxes from SFAS No. 5, Accounting forContingencies and is effective for fiscal years beginning afterDecember  15,  2006. We have substantially completed ouranalysis for transition to FIN No. 48 as of January  1,2007 and do not expect that its adoption will have a significant impacton our financial statements.

Fair ValueMeasurements

On September  15,  2006 the FASBissued FASB Statement No. 157 (SFAS No. 157), Fair ValueMeasurements. The standard provides guidance for using fair valueto measure assets and liabilities. The standard also responds toinvestors’ requests for expanded information about the extent towhich companies measure assets and liabilities at fair value, theinformation used to measure fair value, and the effect of fair valuemeasurements on earnings. The standard applies whenever other standardsrequire (or permit) assets or liabilities to be measured at fair value.The standard does not expand the use of fair value in any newcircumstances. SFAS No. 157 is effective for financial statementsissued for fiscal years beginning after November  15,2007, and interim periods within those fiscal years. Early adoption ispermitted. We are currently evaluating the provisions of SFASNo. 157 to determine the potential impact, if any, the adoptionwill have on our financial statements.

57

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Consideration of Effects of PriorYear Misstatements

In September  2006, the SECreleased Staff Accounting Bulletin No. 108,‘‘Considering the Effects of Prior Year Misstatementswhen Quantifying Misstatements in Current Year FinancialStatements’’(‘‘SAB 108’’). SAB 108provides interpretive guidance on the SEC’s views regarding theprocess of quantifying materiality of financial statementmisstatements. SAB 108 is effective for fiscal years endingafter November 15, 2006. The adoption of SAB 108 is notexpected to have a significant impact on our results of operations orfinancial position.

Income Statement Presentation ofTaxes Collected from Customers and Remitted to GovernmentAuthorities

In June  2006, the Emerging Issues Task Force(‘‘EITF’’) reached a consensus on EITFIssue No. 06-03 (‘‘EITF 06-03’’), How TaxesCollected from Customers and Remitted to Governmental AuthoritiesShould Be Presented in the Income Statement (That Is, Gross versus NetPresentation). EITF 06-03 provides that the presentation of taxesassessed by a governmental authority that is directly imposed on arevenue-producing transaction between a seller and a customer on eithera gross basis (included in revenues and costs) or on a net basis(excluded from revenues) is an accounting policy decision that shouldbe disclosed. The provisions of EITF 06-03 become effective for fiscalyears beginning after December 15, 2006. The adoption of ETIF 06-03 isnot expected to have a material effect on our consolidated financialposition or results of operations.

Item 7A.    Quantitativeand Qualitative Disclosures about Market Risk.

We are exposed tomarket risk from changes in foreign currency exchange rates. We do notcurrently use derivative financial instruments, such as foreignexchange forward contracts or foreign currency options, to manage ourforeign exchange risk because the market for these types of financialinstruments in Russia is not well developed and the cost of theseinstruments is relatively high. We do not hold or issue derivatives orother financial instruments for trading purposes.

Prior to 2006,our principal source of revenue (contracts for the placement ofadvertising) was denominated primarily in US dollars. Because ourexpenses were also primarily denominated in US dollars, the impact onour results of ruble depreciation was insignificant. Beginning inJanuary  2006, substantially all new advertising contractsbetween Video International and advertisers are ruble-denominated withthe result that substantially all of our advertising revenues in 2007are denominated in rubles as our longer-term advertising contractsdenominated in US dollars expire and are replaced.

In response,we shifted a substantial majority of our expenditures from dollars torubles. Nevertheless, we can give no assurance that we are adequatelyprotected from the impact of currency fluctuations. Moreover, giventhat our reporting currency is the US dollar, rubles held in banks andother ruble-denominated assets and liabilities could fluctuate in linewith any change in the value of the ruble. Prior to 2006, changes inthe value of our ruble-denominated monetary assets and liabilitiesresulted in foreign currency gains or losses in our income statement.However, effective January  1,  2006 we determined that thefunctional currency of our subsidiaries domiciled in Russia is theruble. Therefore, the financial statements of these subsidiaries aretranslated into US dollars using the current rate method andtranslation gains and losses are no longer included in net income, butare instead included as part of other comprehensive income.

Wecan, however, provide no assurance that these measures will adequatelyprotect us from the impact of currency fluctuations. A substantialdecline in the value of the Russian ruble against the US dollar couldmaterially adversely affect our results of operations.

58

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The followingtable provides information about our financial instruments denominatedin foreign currency and presents such information in US dollarequivalents (in thousands). All of our instruments that are sensitiveto foreign currency exchange rates are denominated inrubles.

|                                     |  |  |             |   |         |  |
|-------------------------------------|--|--|-------------|---|---------|--|
|                                |  |  | December31, |
|                                |  |  | 2006        |
| Cashequivalents                     |  |  |             | $ | 85,495  |  |
| Taxesreclaimable                    |  |  |             |   | 4,232   |  |
| Taxespayable                        |  |  |             |   | 11,485  |  |
| Long-termloans                      |  |  |             |   | 210     |  |
| Closingruble/US dollar exchangerate |  |  |             |   | 26.3311 |  |
|                                     |

Although we have tradeaccounts receivable and payable denominated in foreign currency, theircarrying amount approximates fair value since such balances generallydo not have extended payment terms.

Item 8.    FinancialStatements and Supplementary Data.

The informationrequired by this item may be found beginning on page F-1.

Item9.    Changes in and Disagreements with Accountants on Accounting andFinancial Disclosure.

None.

Item9A.    Controls and Procedures.

DisclosureControls and Procedures

Our management, with the participation ofour chief executive officer and chief financial officer, evaluated theeffectiveness of our disclosure controls and procedures as ofDecember  31,  2006. The term ‘‘disclosurecontrols and procedures,’’ as defined in Rules 13a-15(e)and 15d-15(e) under the Exchange Act, means controls and otherprocedures of a company that are designed to ensure that informationrequired to be disclosed by a company in the reports that it files orsubmits under the Exchange Act is recorded, processed, summarized andreported within the time periods specified in the SEC’s rulesand forms. Disclosure controls and procedures include, withoutlimitation, controls and procedures designed to ensure that informationrequired to be disclosed by a company in the reports that it files orsubmits under the Exchange Act is accumulated and communicated to thecompany’s management, including its principal executive andprincipal financial officers, as appropriate to allow timely decisionsregarding required disclosure. Management recognizes that any controlsand procedures, no matter how well designed and operated, can provideonly reasonable assurance of achieving their objectives and managementnecessarily applies its judgment in evaluating the cost-benefitrelationship of possible controls and procedures. Based on theevaluation of our disclosure controls and procedures as ofDecember  31,  2006, our chief executive officer and chieffinancial officer concluded that, as of such date, our disclosurecontrols and procedures were effective at the reasonable assurancelevel.

Internal Control over Financial Reporting

Thisannual report does not include a report of management’sassessment regarding internal control over financial reporting or anattestation report of the company’s registered public accountingfirm due to a transition period established by rules of the Securitiesand Exchange Commission for newly public companies.

There were nochanges in our internal control over financial reporting identified inconnection with the evaluation required by paragraph (d) of Rule 13a-15or Rule 15d-15 under the Exchange Act that was conducted during thefiscal quarter ended December  31,  2006 (our last fiscalquarter) that have materially affected, or are reasonably likely tomaterially affect, our internal control over financial reporting.

Item 9B.    Other Information.

Notapplicable.

59

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PARTIII

Item 10. Directors, Executive Officers andCorporate Governance.

Information relating to directors,certain executive officers and certain corporate governance matters iscontained in our definitive Proxy Statement for the Annual Meeting ofthe Stockholders to be held on May 16, 2007, and is incorporated hereinby reference.

We have adopted a Code of Business Conduct andEthics that applies to our principal executive officer, principalfinancial officer and principal accounting officer or controller, orpersons performing similar functions. A copy of our Code of BusinessConduct and Ethics is filed as an exhibit hereto, and the text of ourCode of Business Conduct and Ethics is posted in the‘‘Corporate Governance’’ section of ourwebsite, www.ctcmedia.ru. We intend to disclose on our website anyamendments to, or waivers from, our Code of Business Conduct and Ethicsthat are required to be disclosed pursuant to the disclosurerequirements of Item 5.05 of Form 8-K.

Item 11. ExecutiveCompensation.

Information relating to executive compensation andthe Company’s equity compensation plans is contained in ourdefinitive Proxy Statement for the Annual Meeting of Stockholders to beheld on May  16, 2007, and is incorporated herein byreference.

|                |                                                                                               |
|----------------|-----------------------------------------------------------------------------------------------|
| Item 12.  | SecurityOwnership of Certain Beneficial Owners and Management and RelatedStockholder Matters. |

Information with respect to beneficialownership of our common stock by each director and all directors andexecutive officers of the Company as a group is contained in ourdefinitive Proxy Statement for the Annual Meeting of Stockholders to beheld on May 16, 2007, and is incorporated herein byreference.

Information relating to any person who beneficiallyowns in excess of 5 percent of the total outstanding shares of ourcommon stock is contained in our definitive Proxy Statement for theAnnual Meeting of Stockholders to be held on May 16, 2007, and isincorporated herein by reference.

Information with respect tocompensation plans under which equity securities are authorized forissuance is contained in the definitive Proxy Statement for the AnnualMeeting of Stockholders to be held on May 10, 2007, and is incorporatedherein by reference.

Item 13. Certain Relationshipsand Related Transactions, and DirectorIndependence.

Information relating to certain relationshipsand related transactions and director independence is contained in ourdefinitive Proxy Statement for the Annual Meeting of Stockholders to beheld on May  16, 2007 and is incorporated herein byreference.

Item 14. Principal Accounting Fees andServices.

The information required by this item is includedunder the caption ‘‘Independent Registered PublicAccounting Firm’’ of our proxystatement.

60

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PART IV

Item 15. Exhibits, Financial Statement Schedules.

|  |           |                                   |
|--|-----------|-----------------------------------|
|  | (a)  | Financial Statements andSchedules |

|  |           |                                                                                          |
|--|-----------|------------------------------------------------------------------------------------------|
|  | (1)  | Financial Statements— see ‘‘Index to FinancialStatements’’ |

|  |           |                              |
|--|-----------|------------------------------|
|  | (2)  | FinancialStatement Schedules |

Financial statement schedules notincluded have been omitted because of the absence of conditions underwhich they are required or because the required information, wherematerial, is shown in the financial statements ornotes.

|  |           |           |
|--|-----------|-----------|
|  | (b)  | Exhibits: |

Exhibitsfiled as part of this Annual Report on Form 10-K are listed on theExhibit Index immediately preceding such exhibits, which isincorporated herein by reference.

61

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INDEXTO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                                                |  |  |      |  |     |  |
|----------------------------------------------------------------------------------------------------------------|--|--|------|--|-----|--|
|                                                                                                           |  |  | Page |
| Reportof Independent Registered Public AccountingFirm                                                          |  |  |      |  | F-2 |  |
| Consolidated Balance Sheets as ofDecember  31,  2005 and2006                                                   |  |  |      |  | F-3 |  |
| Consolidated Statements of Incomeand Comprehensive Income for the years ended December  31,2004, 2005 and 2006 |  |  |      |  | F-4 |  |
| ConsolidatedStatements of Cash Flows for the years ended December  31,2004, 2005 and  2006                     |  |  |      |  | F-5 |  |
| ConsolidatedStatements of Stockholders’ Equity for the years endedDecember  31,  2004, 2005 and2006      |  |  |      |  | F-6 |  |
| Notes to Consolidated FinancialStatements                                                                      |  |  |      |  | F-8 |  |
|                                                                                                                |

F-1

----

REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board ofDirectors and Shareholders ofCTC Media, Inc.

We haveaudited the accompanying consolidated balance sheets of CTC Media, Inc.and subsidiaries (‘‘the Company’’) as ofDecember 31, 2005 and 2006, and the related consolidatedstatements of income and comprehensive income, cash flows, andstockholders’ equity for each of the three years in the periodended December 31, 2006. These financial statements are theresponsibility of the Company’s management. Our responsibilityis to express an opinion on these financial statements based on ouraudits.

We conducted our audits in accordance with the standardsof the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement. We were not engaged to perform an audit of theCompany’s internal control over financial reporting. Our auditsincluded consideration of internal control over financial reporting asa basis for designing audit procedures that are appropriate inthe circumstances, but not for the purpose of expressing an opinion onthe effectiveness of the Company’s internal control overfinancial reporting. Accordingly, we express no such opinion. Anaudit also includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing theaccounting principles used and significant estimates made bymanagement, and evaluating the overall financial statementpresentation. We believe that our audits provide a reasonable basis forour opinion.

In our opinion, the financial statements referred toabove present fairly, in all material respects, the consolidatedfinancial position of CTC Media, Inc. and subsidiaries atDecember 31, 2005 and 2006, and the consolidated results oftheir operations and their cash flows for each of the three years inthe period ended December 31, 2006, in conformity withU.S. generally accepted accounting principles.

Asdiscussed in Note 2 to the accompanying consolidated financialstatements, the Company changed its method of accounting forShare-Based Payments in accordance with Statement of FinancialAccounting Standards No. 123(R), Share-Based Payment, on January1,  2006.

/s/ Ernst & YoungLLC

Moscow, RussiaFebruary  28,2007

F-2

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CTCMEDIA, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCESHEETS(in thousands of US dollars, except share and per sharedata)

|  |
|--|
|  |  |
|  |

|                                                                                                                                                                                                   |  |  |             |   |         |        |  |  |  |   |         |  |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|-------------|---|---------|--------|--|--|--|---|---------|--|
|                                                                                                                                                                                              |  |  | December31, |
|                                                                                                                                                                                              |  |  | 2005        |   |         | 2006   |
| ASSETS                                                                                                                                                                                            |  |  |        |   |         |   |
| CURRENTASSETS:                                                                                                                                                                                    |  |  |             |   |    |        |  |  |  |   |    |  |
| Cash and cashequivalents                                                                                                                                                                          |  |  |             | $ | 15,300  |        |  |  |  | $ | 176,542 |  |
| Tradeaccounts receivable, net of allowance for doubtful accounts (2005– $287; 2006 – $563) (including accounts receivable fromrelated parties: 2005 − $135; 2006 −$1,468) |  |  |             |   | 6,016   |        |  |  |  |   | 8,640   |  |
| Taxesreclaimable                                                                                                                                                                                  |  |  |             |   | 3,109   |        |  |  |  |   | 4,399   |  |
| Prepayments(including prepayments from related parties: 2005 − nil; 2006−$365)                                                                                                        |  |  |             |   | 25,886  |        |  |  |  |   | 38,302  |  |
| Programmingrights, net                                                                                                                                                                            |  |  |             |   | 38,100  |        |  |  |  |   | 41,634  |  |
| Deferred taxasset                                                                                                                                                                                 |  |  |             |   | 1,310   |        |  |  |  |   | 6,263   |  |
| Othercurrentassets                                                                                                                                                                                |  |  |             |   | 790     |        |  |  |  |   | 2,875   |  |
| TOTALCURRENTASSETS                                                                                                                                                                                |  |  |             |   | 90,511  |        |  |  |  |   | 278,655 |  |
| RESTRICTEDCASH                                                                                                                                                                                    |  |  |             |   | 105     |        |  |  |  |   | 120     |  |
| PROPERTY AND EQUIPMENT,net                                                                                                                                                                        |  |  |             |   | 19,405  |        |  |  |  |   | 22,388  |  |
| INTANGIBLEASSETS, net:                                                                                                                                                                            |  |  |             |   |    |        |  |  |  |   |    |  |
| Networkaffiliationagreements                                                                                                                                                                      |  |  |             |   | 5,333   |        |  |  |  |   | 3,333   |  |
| Tradenames                                                                                                                                                                                        |  |  |             |   | 5,834   |        |  |  |  |   | 5,888   |  |
| Broadcastinglicenses                                                                                                                                                                              |  |  |             |   | 28,896  |        |  |  |  |   | 43,387  |  |
| Cablenetworkconnections                                                                                                                                                                           |  |  |             |   | 805     |        |  |  |  |   | 409     |  |
| Otherintangibleassets                                                                                                                                                                             |  |  |             |   | 226     |        |  |  |  |   | 354     |  |
| Netintangibleassets                                                                                                                                                                               |  |  |             |   | 41,094  |        |  |  |  |   | 53,371  |  |
| GOODWILL                                                                                                                                                                                          |  |  |             |   | 68,273  |        |  |  |  |   | 70,768  |  |
| PROGRAMMINGRIGHTS,net                                                                                                                                                                             |  |  |             |   | 28,368  |        |  |  |  |   | 24,267  |  |
| SUBLICENSINGRIGHTS, net                                                                                                                                                                           |  |  |             |   | 1,836   |        |  |  |  |   | 7,611   |  |
| INVESTMENTSIN AND ADVANCES TOINVESTEES                                                                                                                                                            |  |  |             |   | 8,509   |        |  |  |  |   | 9,319   |  |
| PREPAYMENTS                                                                                                                                                                                       |  |  |             |   | 10,093  |        |  |  |  |   | 8,713   |  |
| DEFERREDTAX ASSET                                                                                                                                                                                 |  |  |             |   | 5,322   |        |  |  |  |   | 9,077   |  |
| OTHERNON-CURRENT ASSETS                                                                                                                                                                           |  |  |             |   | 181     |        |  |  |  |   | 508     |  |
| TOTALASSETS                                                                                                                                                                                       |  |  |             | $ | 273,697 |        |  |  |  | $ | 484,797 |  |
| LIABILITIESAND STOCKHOLDERS’EQUITY                                                                                                                                                          |  |  |             |   |    |        |  |  |  |   |    |  |
| CURRENTLIABILITIES:                                                                                                                                                                               |  |  |             |   |    |        |  |  |  |   |    |  |
| Accountspayable (including accounts payable from related parties: 2005 −$402; 2006 −$676)                                                                                             |  |  |             | $ | 16,349  |        |  |  |  | $ | 13,353  |  |
| Accruedliabilities                                                                                                                                                                                |  |  |             |   | 6,300   |        |  |  |  |   | 5,508   |  |
| Taxespayable                                                                                                                                                                                      |  |  |             |   | 8,765   |        |  |  |  |   | 11,528  |  |
| Short-termloans and interest accrued (including loans from related parties: 2005– $4,064; 2006  –nil)                                                                                 |  |  |             |   | 4,068   |        |  |  |  |   | — |  |
| Deferredrevenue (including deferred revenue from related parties: 2005 –$1,422;2006-$54)                                                                                                    |  |  |             |   | 8,171   |        |  |  |  |   | 12,440  |  |
| Deferredtaxliability                                                                                                                                                                              |  |  |             |   | 1,147   |        |  |  |  |   | 2,937   |  |
| Othercurrentliabilities                                                                                                                                                                           |  |  |             |   | 19      |        |  |  |  |   | 600     |  |
| TOTALCURRENTLIABILITIES                                                                                                                                                                           |  |  |             |   | 44,819  |        |  |  |  |   | 46,366  |  |
| LONGTERM LOANS (including loans from related parties: 2005 – $37,000;2006 –nil)                                                                                                       |  |  |             |   | 37,188  |        |  |  |  |   | 210     |  |
| DEFERRED TAXLIABILITY                                                                                                                                                                             |  |  |             |   | 10,677  |        |  |  |  |   | 14,080  |  |
| MINORITYINTEREST                                                                                                                                                                                  |  |  |             |   | 1,915   |        |  |  |  |   | 3,124   |  |
| COMMITMENTSAND CONTINGENCIES (Note16)                                                                                                                                                             |  |  |             |   |    |        |  |  |  |   |    |  |
| STOCKHOLDERS’EQUITY:                                                                                                                                                                        |  |  |             |   |    |        |  |  |  |   |    |  |
| Convertiblepreferred stock; $0.01 par value; shares authorized (2005 −90,000; 2006 −nil)                                                                                              |  |  |             |   |    |        |  |  |  |   |    |  |
| shares issued andoutstanding (2005 – 82,951; 2006 – nil)                                                                                                                              |  |  |             |   | 1       |        |  |  |  |   | — |  |
| Commonstock; $0.01 par value; shares authorized (2005 − 160,000,000;2006 −175,772,173);                                                                                               |  |  |             |   |    |        |  |  |  |   |    |  |
| shares issuedand outstanding (2005 – 72,824,800;2006-151,505,672)                                                                                                                           |  |  |             |   | 728     |        |  |  |  |   | 1,515   |  |
| Additionalpaid-incapital                                                                                                                                                                          |  |  |             |   | 210,740 |        |  |  |  |   | 327,587 |  |
| (Accumulateddeficit)/Retainedearnings                                                                                                                                                             |  |  |             |   | (32,371 | )      |  |  |  |   | 73,954  |  |
| Accumulatedother comprehensiveincome                                                                                                                                                              |  |  |             |   | — |        |  |  |  |   | 17,961  |  |
| TOTALSTOCKHOLDERS’EQUITY                                                                                                                                                                    |  |  |             |   | 179,098 |        |  |  |  |   | 421,017 |  |
| TOTALLIABILITIES AND STOCKHOLDERS’EQUITY                                                                                                                                                    |  |  |             | $ | 273,697 |        |  |  |  | $ | 484,797 |  |
|                                                                                                                                                                                                   |

Theaccompanying notes are an integral part of these financialstatements.

F-3

----

CTC MEDIA, INC. ANDSUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME ANDCOMPREHENSIVE INCOME(in thousands of US dollars, except share andper sharedata)

|  |
|--|
|  |  |
|  |

|                                                                                                                                                                                                                                                                                                                                |  |  |        |   |             |        |  |  |        |   |             |   |  |  |  |   |             |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|--------|---|-------------|--------|--|--|--------|---|-------------|---|--|--|--|---|-------------|---|
|                                                                                                                                                                                                                                                                                                                           |  |  | 2004   |   |             | 2005   |  |  | 2006   |
| REVENUES:                                                                                                                                                                                                                                                                                                                      |  |  |   |   |             |   |  |  |   |
| Advertising(including revenue from related parties of $99, $981 and $1,740 in2004, 2005 and 2006,respectively)                                                                                                                                                                                                                 |  |  |        | $ | 153,775     |        |  |  |        | $ | 232,410     |   |  |  |  | $ | 357,334     |   |
| Sublicensing(including revenue from related parties of nil, $2,596 and $8,241 in2004, 2005 and 2006,respectively)                                                                                                                                                                                                              |  |  |        |   | —     |        |  |  |        |   | 3,088       |   |  |  |  |   | 11,322      |   |
| Otherrevenue (including revenue from related parties of nil, $12 and $10 in2004, 2005 and 2006,respectively)                                                                                                                                                                                                                   |  |  |        |   | 1,792       |        |  |  |        |   | 1,979       |   |  |  |  |   | 2,178       |   |
| Totaloperatingrevenues                                                                                                                                                                                                                                                                                                         |  |  |        |   | 155,567     |        |  |  |        |   | 237,477     |   |  |  |  |   | 370,834     |   |
| EXPENSES:                                                                                                                                                                                                                                                                                                                      |  |  |        |   |        |        |  |  |        |   |        |   |  |  |  |   |        |   |
| Directoperating expenses (exclusive of amortization of programming rights andsublicensing rights, shown below, exclusive of depreciation andamortization of $6,781, $12,377 and $15,108 in 2004, 2005 and 2006,respectively, and inclusive of stock-based compensation of nil, nil and$64 in 2004, 2005 and 2006,respectively) |  |  |        |   | (9,381      | )      |  |  |        |   | (12,747     | ) |  |  |  |   | (15,774     | ) |
| Selling,general and administrative (exclusive of depreciation and amortizationof $1,181, $1,543 and $4,543 in 2004, 2005 and 2006, respectively, andinclusive of stock-based compensation of $1,082, $599 and $7,091 in2004, 2005 and 2006,respectively)                                                                       |  |  |        |   | (30,450     | )      |  |  |        |   | (41,229     | ) |  |  |  |   | (56,297     | ) |
| Amortizationof programmingrights                                                                                                                                                                                                                                                                                               |  |  |        |   | (45,215     | )      |  |  |        |   | (77,351     | ) |  |  |  |   | (118,026    | ) |
| Amortizationof sublicensingrights                                                                                                                                                                                                                                                                                              |  |  |        |   | —     |        |  |  |        |   | (2,043      | ) |  |  |  |   | (6,773      | ) |
| Depreciationand amortization (exclusive of amortization of programming rights andsublicensingrights)                                                                                                                                                                                                                           |  |  |        |   | (7,962      | )      |  |  |        |   | (13,920     | ) |  |  |  |   | (19,651     | ) |
| Totaloperatingexpenses                                                                                                                                                                                                                                                                                                         |  |  |        |   | (93,008     | )      |  |  |        |   | (147,290    | ) |  |  |  |   | (216,521    | ) |
| OPERATINGINCOME                                                                                                                                                                                                                                                                                                                |  |  |        |   | 62,559      |        |  |  |        |   | 90,187      |   |  |  |  |   | 154,313     |   |
| FOREIGNCURRENCY GAINS(LOSSES)                                                                                                                                                                                                                                                                                                  |  |  |        |   | 695         |        |  |  |        |   | (877        | ) |  |  |  |   | 1,579       |   |
| INTERESTINCOME (including interest income from related parties of $129, $217and $237 in 2004, 2005 and 2006,respectively)                                                                                                                                                                                                      |  |  |        |   | 5,380       |        |  |  |        |   | 3,101       |   |  |  |  |   | 3,479       |   |
| INTERESTEXPENSE (including interest expense to related parties of $1,062,$5,157and $1,762 in 2004, 2005 and 2006,respectively)                                                                                                                                                                                                 |  |  |        |   | (6,651      | )      |  |  |        |   | (8,525      | ) |  |  |  |   | (1,774      | ) |
| GAINSON SALE OFBUSINESSES                                                                                                                                                                                                                                                                                                      |  |  |        |   | 4,613       |        |  |  |        |   | —     |   |  |  |  |   | 919         |   |
| OTHERNON-OPERATING (LOSSES) INCOME,net                                                                                                                                                                                                                                                                                         |  |  |        |   | (83         | )      |  |  |        |   | 206         |   |  |  |  |   | (200        | ) |
| EQUITY ININCOME OF INVESTEECOMPANIES                                                                                                                                                                                                                                                                                           |  |  |        |   | 713         |        |  |  |        |   | 578         |   |  |  |  |   | 1,896       |   |
| Incomebefore income tax and minorityinterest                                                                                                                                                                                                                                                                                   |  |  |        |   | 67,226      |        |  |  |        |   | 84,670      |   |  |  |  |   | 160,212     |   |
| INCOMETAXEXPENSE                                                                                                                                                                                                                                                                                                               |  |  |        |   | (17,872     | )      |  |  |        |   | (24,861     | ) |  |  |  |   | (48,969     | ) |
| INCOMEATTRIBUTABLE TO MINORITYINTEREST                                                                                                                                                                                                                                                                                         |  |  |        |   | (1,904      | )      |  |  |        |   | (2,514      | ) |  |  |  |   | (4,918      | ) |
| NETINCOME                                                                                                                                                                                                                                                                                                                      |  |  |        | $ | 47,450      |        |  |  |        | $ | 57,295      |   |  |  |  | $ | 106,325     |   |
| Foreigncurrency translationadjustment                                                                                                                                                                                                                                                                                          |  |  |        |   | —     |        |  |  |        |   | —     |   |  |  |  |   | 17,961      |   |
| COMPREHENSIVEINCOME                                                                                                                                                                                                                                                                                                            |  |  |        | $ | 47,450      |        |  |  |        | $ | 57,295      |   |  |  |  | $ | 124,286     |   |
| Netincome attributable to preferredstockholders                                                                                                                                                                                                                                                                                |  |  |        |   | (21,300     | )      |  |  |        |   | (26,134     | ) |  |  |  |   | (20,621     | ) |
| Netincome attributable to commonstockholders                                                                                                                                                                                                                                                                                   |  |  |        |   | 26,150      |        |  |  |        |   | 31,161      |   |  |  |  |   | 85,704      |   |
| Netincome per share attributable to common stockholders –basic                                                                                                                                                                                                                                                           |  |  |        | $ | 0.32        |        |  |  |        | $ | 0.39        |   |  |  |  | $ | 0.73        |   |
| Netincome per share attributable to common stockholders –diluted                                                                                                                                                                                                                                                         |  |  |        | $ | 0.30        |        |  |  |        | $ | 0.37        |   |  |  |  | $ | 0.69        |   |
| Weightedaverage common shares outstanding –basic                                                                                                                                                                                                                                                                         |  |  |        |   | 80,580,000  |        |  |  |        |   | 79,339,024  |   |  |  |  |   | 117,880,814 |   |
| Weightedaverage common shares outstanding –diluted                                                                                                                                                                                                                                                                       |  |  |        |   | 156,570,711 |        |  |  |        |   | 154,344,956 |   |  |  |  |   | 154,077,957 |   |
|                                                                                                                                                                                                                                                                                                                                |

Theaccompanying notes are an integral part of these financialstatements.

F-4

----

CTC MEDIA, INC. ANDSUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (inthousands of USdollars)

|  |
|--|
|  |  |
|  |

|                                                                                                                                                              |  |  |                       |   |         |      |  |  |      |   |         |   |  |  |  |   |          |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|-----------------------|---|---------|------|--|--|------|---|---------|---|--|--|--|---|----------|---|
|                                                                                                                                                         |  |  | Yearended December31, |
|                                                                                                                                                         |  |  | 2004                  |   |         | 2005 |  |  | 2006 |
| CASHFLOWS FROM OPERATINGACTIVITIES:                                                                                                                          |  |  |                       |   |    |      |  |  |      |   |    |   |  |  |  |   |     |   |
| Netincome                                                                                                                                                    |  |  |                       | $ | 47,450  |      |  |  |      | $ | 57,295  |   |  |  |  | $ | 106,325  |   |
| Adjustmentsto reconcile net income to net cash provided by operatingactivities:                                                                              |  |  |                       |   |    |      |  |  |      |   |    |   |  |  |  |   |     |   |
| Deferredtaxbenefit                                                                                                                                           |  |  |                       |   | (3,060  | )    |  |  |      |   | (3,860  | ) |  |  |  |   | (9,615   | ) |
| Depreciationandamortization                                                                                                                                  |  |  |                       |   | 7,962   |      |  |  |      |   | 13,920  |   |  |  |  |   | 19,651   |   |
| Amortizationof programmingrights                                                                                                                             |  |  |                       |   | 45,215  |      |  |  |      |   | 77,351  |   |  |  |  |   | 118,026  |   |
| Amortizationof sublicensingrights                                                                                                                            |  |  |                       |   | — |      |  |  |      |   | 2,043   |   |  |  |  |   | 6,773    |   |
| Stockbased compensationexpense                                                                                                                               |  |  |                       |   | 1,082   |      |  |  |      |   | 599     |   |  |  |  |   | 7,155    |   |
| Gainon disposal of property andequipment                                                                                                                     |  |  |                       |   | — |      |  |  |      |   | (159    | ) |  |  |  |   | (174     | ) |
| Gainon sale ofbusinesses                                                                                                                                     |  |  |                       |   | (4,613  | )    |  |  |      |   | — |   |  |  |  |   | (919     | ) |
| Equityin income of unconsolidatedinvestees                                                                                                                   |  |  |                       |   | (713    | )    |  |  |      |   | (578    | ) |  |  |  |   | (1,896   | ) |
| Incomeattributable to minorityinterest                                                                                                                       |  |  |                       |   | 1,904   |      |  |  |      |   | 2,514   |   |  |  |  |   | 4,918    |   |
| Foreigncurrency (gains) losses                                                                                                                               |  |  |                       |   | (695    | )    |  |  |      |   | 877     |   |  |  |  |   | (1,579   | ) |
| Changesin operating assets andliabilities:                                                                                                                   |  |  |                       |   |    |      |  |  |      |   |    |   |  |  |  |   |     |   |
| Tradeaccountsreceivable                                                                                                                                      |  |  |                       |   | 66      |      |  |  |      |   | (2,993  | ) |  |  |  |   | (1,068   | ) |
| Prepayments                                                                                                                                                  |  |  |                       |   | (606    | )    |  |  |      |   | (5,804  | ) |  |  |  |   | 716      |   |
| Otherassets                                                                                                                                                  |  |  |                       |   | 11      |      |  |  |      |   | (20     | ) |  |  |  |   | (2,153   | ) |
| Accountspayable and accruedliabilities                                                                                                                       |  |  |                       |   | 7,526   |      |  |  |      |   | (6,187  | ) |  |  |  |   | (1,138   | ) |
| Deferredrevenue                                                                                                                                              |  |  |                       |   | 3,887   |      |  |  |      |   | 1,471   |   |  |  |  |   | 2,732    |   |
| Otherliabilities                                                                                                                                             |  |  |                       |   | 920     |      |  |  |      |   | (28     | ) |  |  |  |   | 1,942    |   |
| Dividendsreceived from equityinvestees                                                                                                                       |  |  |                       |   | 640     |      |  |  |      |   | 644     |   |  |  |  |   | 713      |   |
| Acquisitionof programming and sublicensing rights (including acquisition fromrelated parties of $1,273, $795 and $1,000 in 2004, 2005 and 2006,respectively) |  |  |                       |   | (73,760 | )    |  |  |      |   | (98,425 | ) |  |  |  |   | (133,625 | ) |
| Netcash provided by operatingactivities                                                                                                                      |  |  |                       |   | 33,216  |      |  |  |      |   | 38,660  |   |  |  |  |   | 116,784  |   |
| CASHFLOWS FROM INVESTINGACTIVITIES:                                                                                                                          |  |  |                       |   |    |      |  |  |      |   |    |   |  |  |  |   |     |   |
| Acquisitionsof property andequipment                                                                                                                         |  |  |                       |   | (5,565  | )    |  |  |      |   | (5,829  | ) |  |  |  |   | (3,650   | ) |
| Acquisitionsofintangibles                                                                                                                                    |  |  |                       |   | (154    | )    |  |  |      |   | (274    | ) |  |  |  |   | (224     | ) |
| Acquisitionsof businesses, net of cashacquired                                                                                                               |  |  |                       |   | (51,517 | )    |  |  |      |   | (7,650  | ) |  |  |  |   | (21,897  | ) |
| Acquisitionsof financialinstruments                                                                                                                          |  |  |                       |   | (508    | )    |  |  |      |   | — |   |  |  |  |   | —  |   |
| Proceedsfrom sale of businesses, net of cashdisposed                                                                                                         |  |  |                       |   | 5,100   |      |  |  |      |   | — |   |  |  |  |   | 1,482    |   |
| Proceedsfrom sale of property andequipment                                                                                                                   |  |  |                       |   | 22      |      |  |  |      |   | 624     |   |  |  |  |   | 673      |   |
| Other                                                                                                                                                        |  |  |                       |   | 65      |      |  |  |      |   | (52     | ) |  |  |  |   | 12       |   |
| Netcash used in investingactivities                                                                                                                          |  |  |                       |   | (52,557 | )    |  |  |      |   | (13,181 | ) |  |  |  |   | (23,604  | ) |
| CASHFLOWS FROM FINANCINGACTIVITIES:                                                                                                                          |  |  |                       |   |    |      |  |  |      |   |    |   |  |  |  |   |     |   |
| Proceedsfrom issuances of commonstock                                                                                                                        |  |  |                       |   | — |      |  |  |      |   | — |   |  |  |  |   | 105,041  |   |
| Commonstock issuancecosts                                                                                                                                    |  |  |                       |   | — |      |  |  |      |   | — |   |  |  |  |   | (394     | ) |
| Proceedsfrom exercise of stockoptions                                                                                                                        |  |  |                       |   | 3,159   |      |  |  |      |   | 157     |   |  |  |  |   | 5,855    |   |
| Repurchaseofstock                                                                                                                                            |  |  |                       |   | — |      |  |  |      |   | (53,954 | ) |  |  |  |   | —  |   |
| Proceedsfromloans                                                                                                                                            |  |  |                       |   | 24,021  |      |  |  |      |   | 68,000  |   |  |  |  |   | 19,000   |   |
| Repaymentsofloans                                                                                                                                            |  |  |                       |   | (6,505  | )    |  |  |      |   | (86,912 | ) |  |  |  |   | (60,384  | ) |
| (Increase)decrease in restrictedcash                                                                                                                         |  |  |                       |   | (62     | )    |  |  |      |   | 35,856  |   |  |  |  |   | (12      | ) |
| Dividendspaid to minorityinterest                                                                                                                            |  |  |                       |   | (1,273  | )    |  |  |      |   | (2,069  | ) |  |  |  |   | (3,750   | ) |
| Netcash provided by (used in) financingactivities                                                                                                            |  |  |                       |   | 19,340  |      |  |  |      |   | (38,922 | ) |  |  |  |   | 65,356   |   |
| EFFECTOF EXCHANGE RATE CHANGES ON CASH AND CASHEQUIVALENTS                                                                                                   |  |  |                       |   | 786     |      |  |  |      |   | (934    | ) |  |  |  |   | 2,706    |   |
| Netincrease (decrease) in cash and cashequivalents                                                                                                           |  |  |                       |   | 785     |      |  |  |      |   | (14,377 | ) |  |  |  |   | 161,242  |   |
| CASHAND CASH EQUIVALENTS AT BEGINNING OFPERIOD                                                                                                               |  |  |                       |   | 28,892  |      |  |  |      |   | 29,677  |   |  |  |  |   | 15,300   |   |
| CASHAND CASH EQUIVALENTS AT END OFPERIOD                                                                                                                     |  |  |                       | $ | 29,677  |      |  |  |      | $ | 15,300  |   |  |  |  | $ | 176,542  |   |
| SUPPLEMENTALDISCLOSURE OF CASH FLOWINFORMATION:                                                                                                              |  |  |                       |   |    |      |  |  |      |   |    |   |  |  |  |   |     |   |
| Interestpaid (including interest paid to related parties of $1,025, $5,130 and$1,846 in 2004, 2005 and 2006,respectively)                                    |  |  |                       | $ | 6,466   |      |  |  |      | $ | 8,353   |   |  |  |  | $ | 1,948    |   |
| Incometaxpaid                                                                                                                                                |  |  |                       | $ | 19,535  |      |  |  |      | $ | 27,501  |   |  |  |  | $ | 57,896   |   |
|                                                                                                                                                              |

Theaccompanying notes are an integral part of these financialstatements.

F-5

----

CTCMEDIA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTSOF STOCKHOLDERS’ EQUITYFOR THE YEARS ENDEDDECEMBER 31, 2004, 2005 AND 2006

(in thousands of USdollars, except sharedata)

|  |
|--|
|  |  |
|  |

|                                                                      |  |  |                         |  |             |                                                    |  |  |                                                  |  |         |             |  |  |                |  |         |                          |  |  |               |   |         |                                       |  |  |                                     |   |         |                                                        |  |  |                           |   |         |  |  |  |  |   |         |   |  |  |  |   |         |   |  |  |  |  |         |  |  |  |  |   |         |   |  |  |  |   |         |   |
|----------------------------------------------------------------------|--|--|-------------------------|--|-------------|----------------------------------------------------|--|--|--------------------------------------------------|--|---------|-------------|--|--|----------------|--|---------|--------------------------|--|--|---------------|---|---------|---------------------------------------|--|--|-------------------------------------|---|---------|--------------------------------------------------------|--|--|---------------------------|---|---------|--|--|--|--|---|---------|---|--|--|--|---|---------|---|--|--|--|--|---------|--|--|--|--|---|---------|---|--|--|--|---|---------|---|
|                                                                 |  |  | OutstandingCommonShares |  |             | OutstandingConvertibleClassASeniorPreferred Shares |  |  | OutstandingConvertibleSuperSeniorPreferredShares |  |         | CommonStock |  |  | PreferredStock |  |         | AdditionalPaid-inCapital |  |  | TreasuryStock |   |         | (AccumulatedDeficit)/RetainedEarnings |  |  | AccumulatedOtherComprehensiveIncome |   |         | SubscriptionandStockholders’(Receivable)/Payable |  |  | Stockholders’Equity |
| DECEMBER 31,2003                                                     |  |  |                         |  | 77,084,800  |                                                    |  |  |                                                  |  | 35,664  |             |  |  |                |  | 45,575  |                          |  |  |               | $ | 771     |                                       |  |  |                                     | $ | 1       |                                                        |  |  |                           | $ | 201,171 |  |  |  |  | $ | (407    | ) |  |  |  | $ | (82,884 | ) |  |  |  |  | — |  |  |  |  | $ | (247    | ) |  |  |  | $ | 118,405 |   |
| Programmingrights received from programmingdistributor               |  |  |                         |  | —     |                                                    |  |  |                                                  |  | — |             |  |  |                |  | — |                          |  |  |               |   | — |                                       |  |  |                                     |   | — |                                                        |  |  |                           |   | — |  |  |  |  |   | — |   |  |  |  |   | — |   |  |  |  |  | — |  |  |  |  |   | 187     |   |  |  |  |   | 187     |   |
| Fairvalue of stock optionsgranted                                    |  |  |                         |  | —     |                                                    |  |  |                                                  |  | — |             |  |  |                |  | — |                          |  |  |               |   | — |                                       |  |  |                                     |   | — |                                                        |  |  |                           |   | 1,082   |  |  |  |  |   | — |   |  |  |  |   | — |   |  |  |  |  | — |  |  |  |  |   | — |   |  |  |  |   | 1,082   |   |
| Stockoptionsexercised                                                |  |  |                         |  | 4,906,400   |                                                    |  |  |                                                  |  | — |             |  |  |                |  | 2,100   |                          |  |  |               |   | 49      |                                       |  |  |                                     |   | — |                                                        |  |  |                           |   | 3,121   |  |  |  |  |   | — |   |  |  |  |   | — |   |  |  |  |  | — |  |  |  |  |   | — |   |  |  |  |   | 3,170   |   |
| Issuanceof shares in connection with acquisition of minorityinterest |  |  |                         |  | 1,979,200   |                                                    |  |  |                                                  |  | — |             |  |  |                |  | — |                          |  |  |               |   | 20      |                                       |  |  |                                     |   | — |                                                        |  |  |                           |   | 4,625   |  |  |  |  |   | — |   |  |  |  |   | — |   |  |  |  |  | — |  |  |  |  |   | — |   |  |  |  |   | 4,645   |   |
| Cancellationof treasurystock                                         |  |  |                         |  | —     |                                                    |  |  |                                                  |  | — |             |  |  |                |  | — |                          |  |  |               |   | — |                                       |  |  |                                     |   | — |                                                        |  |  |                           |   | — |  |  |  |  |   | 407     |   |  |  |  |   | (407    | ) |  |  |  |  | — |  |  |  |  |   | — |   |  |  |  |   | — |   |
| Netincome                                                            |  |  |                         |  | —     |                                                    |  |  |                                                  |  | — |             |  |  |                |  | — |                          |  |  |               |   | — |                                       |  |  |                                     |   | — |                                                        |  |  |                           |   | — |  |  |  |  |   | — |   |  |  |  |   | 47,450  |   |  |  |  |  | — |  |  |  |  |   | — |   |  |  |  |   | 47,450  |   |
| DECEMBER31,2004                                                      |  |  |                         |  | 83,970,400  |                                                    |  |  |                                                  |  | 35,664  |             |  |  |                |  | 47,675  |                          |  |  |               | $ | 840     |                                       |  |  |                                     | $ | 1       |                                                        |  |  |                           | $ | 209,999 |  |  |  |  |   | — |   |  |  |  | $ | (35,841 | ) |  |  |  |  | — |  |  |  |  | $ | (60     | ) |  |  |  | $ | 174,939 |   |
| Programmingrights received from programmingdistributor               |  |  |                         |  | —     |                                                    |  |  |                                                  |  | — |             |  |  |                |  | — |                          |  |  |               |   | — |                                       |  |  |                                     |   | — |                                                        |  |  |                           |   | — |  |  |  |  |   | — |   |  |  |  |   | — |   |  |  |  |  | — |  |  |  |  |   | 60      |   |  |  |  |   | 60      |   |
| Fairvalue of stock optionsgranted                                    |  |  |                         |  | —     |                                                    |  |  |                                                  |  | — |             |  |  |                |  | — |                          |  |  |               |   | — |                                       |  |  |                                     |   | — |                                                        |  |  |                           |   | 599     |  |  |  |  |   | — |   |  |  |  |   | — |   |  |  |  |  | — |  |  |  |  |   | — |   |  |  |  |   | 599     |   |
| Stockoptionsexercised                                                |  |  |                         |  | 1,827,200   |                                                    |  |  |                                                  |  | — |             |  |  |                |  | — |                          |  |  |               |   | 18      |                                       |  |  |                                     |   | — |                                                        |  |  |                           |   | 142     |  |  |  |  |   | — |   |  |  |  |   | — |   |  |  |  |  | — |  |  |  |  |   | — |   |  |  |  |   | 160     |   |
| Repurchaseofshares                                                   |  |  |                         |  | (12,972,800 | )                                                  |  |  |                                                  |  | (388    | )           |  |  |                |  | — |                          |  |  |               |   | — |                                       |  |  |                                     |   | — |                                                        |  |  |                           |   | — |  |  |  |  |   | (53,955 | ) |  |  |  |   | — |   |  |  |  |  | — |  |  |  |  |   | — |   |  |  |  |   | (53,955 | ) |
| Cancellationof treasurystock                                         |  |  |                         |  | —     |                                                    |  |  |                                                  |  | — |             |  |  |                |  | — |                          |  |  |               |   | (130    | )                                     |  |  |                                     |   | — |                                                        |  |  |                           |   | — |  |  |  |  |   | 53,955  |   |  |  |  |   | (53,825 | ) |  |  |  |  | — |  |  |  |  |   | — |   |  |  |  |   | — |   |
| Netincome                                                            |  |  |                         |  | —     |                                                    |  |  |                                                  |  | — |             |  |  |                |  | — |                          |  |  |               |   | — |                                       |  |  |                                     |   | — |                                                        |  |  |                           |   | — |  |  |  |  |   | — |   |  |  |  |   | 57,295  |   |  |  |  |  | — |  |  |  |  |   | — |   |  |  |  |   | 57,295  |   |
| DECEMBER31,2005                                                      |  |  |                         |  | 72,824,800  |                                                    |  |  |                                                  |  | 35,276  |             |  |  |                |  | 47,675  |                          |  |  |               | $ | 728     |                                       |  |  |                                     | $ | 1       |                                                        |  |  |                           | $ | 210,740 |  |  |  |  |   | — |   |  |  |  | $ | (32,371 | ) |  |  |  |  | — |  |  |  |  |   | — |   |  |  |  | $ | 179,098 |   |
|                                                                      |

F-6

----

CTCMEDIA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTSOF STOCKHOLDERS’ EQUITY  (CONTINUED)FOR THE YEARS ENDEDDECEMBER 31, 2004, 2005 AND 2006

(in thousands of USdollars, except sharedata)

|  |
|--|
|  |  |
|  |

|                                       |  |  |                         |  |             |                                                    |  |  |                                                  |  |         |             |  |  |                |  |         |                          |  |  |               |   |         |                                       |  |  |                                     |  |         |                                                        |  |  |                           |   |         |   |  |  |  |  |         |  |  |  |  |   |         |  |  |  |  |   |         |  |  |  |  |  |         |  |  |  |  |   |         |  |
|---------------------------------------|--|--|-------------------------|--|-------------|----------------------------------------------------|--|--|--------------------------------------------------|--|---------|-------------|--|--|----------------|--|---------|--------------------------|--|--|---------------|---|---------|---------------------------------------|--|--|-------------------------------------|--|---------|--------------------------------------------------------|--|--|---------------------------|---|---------|---|--|--|--|--|---------|--|--|--|--|---|---------|--|--|--|--|---|---------|--|--|--|--|--|---------|--|--|--|--|---|---------|--|
|                                  |  |  | OutstandingCommonShares |  |             | OutstandingConvertibleClassASeniorPreferred Shares |  |  | OutstandingConvertibleSuperSeniorPreferredShares |  |         | CommonStock |  |  | PreferredStock |  |         | AdditionalPaid-inCapital |  |  | TreasuryStock |   |         | (AccumulatedDeficit)/RetainedEarnings |  |  | AccumulatedOtherComprehensiveIncome |  |         | SubscriptionandStockholders’(Receivable)/Payable |  |  | Stockholders’Equity |
| Fair value of stock optionsgranted    |  |  |                         |  | —     |                                                    |  |  |                                                  |  | — |             |  |  |                |  | — |                          |  |  |               |   | — |                                       |  |  |                                     |  | — |                                                        |  |  |                           |   | 7,155   |   |  |  |  |  | — |  |  |  |  |   | — |  |  |  |  |   | — |  |  |  |  |  | — |  |  |  |  |   | 7,155   |  |
| Stockoptionsexercised                 |  |  |                         |  | 4,410,324   |                                                    |  |  |                                                  |  | — |             |  |  |                |  | — |                          |  |  |               |   | 44      |                                       |  |  |                                     |  | — |                                                        |  |  |                           |   | 5,811   |   |  |  |  |  | — |  |  |  |  |   | — |  |  |  |  |   | — |  |  |  |  |  | — |  |  |  |  |   | 5,855   |  |
| Conversionof preferredstock           |  |  |                         |  | 66,360,800  |                                                    |  |  |                                                  |  | (35,276 | )           |  |  |                |  | (47,675 | )                        |  |  |               |   | 664     |                                       |  |  |                                     |  | (1      | )                                                      |  |  |                           |   | (663    | ) |  |  |  |  | — |  |  |  |  |   | — |  |  |  |  |   | — |  |  |  |  |  | — |  |  |  |  |   | — |  |
| Commonstockissued                     |  |  |                         |  | 7,909,748   |                                                    |  |  |                                                  |  | — |             |  |  |                |  | — |                          |  |  |               |   | 79      |                                       |  |  |                                     |  | — |                                                        |  |  |                           |   | 104,544 |   |  |  |  |  | — |  |  |  |  |   | — |  |  |  |  |   | — |  |  |  |  |  | — |  |  |  |  |   | 104,623 |  |
| Foreigncurrency translationadjustment |  |  |                         |  | —     |                                                    |  |  |                                                  |  | — |             |  |  |                |  | — |                          |  |  |               |   | — |                                       |  |  |                                     |  | — |                                                        |  |  |                           |   | — |   |  |  |  |  | — |  |  |  |  |   | — |  |  |  |  |   | 17,961  |  |  |  |  |  | — |  |  |  |  |   | 17,961  |  |
| Netincome                             |  |  |                         |  | —     |                                                    |  |  |                                                  |  | — |             |  |  |                |  | — |                          |  |  |               |   | — |                                       |  |  |                                     |  | — |                                                        |  |  |                           |   | — |   |  |  |  |  | — |  |  |  |  |   | 106,325 |  |  |  |  |   | — |  |  |  |  |  | — |  |  |  |  |   | 106,325 |  |
| DECEMBER31,2006                       |  |  |                         |  | 151,505,672 |                                                    |  |  |                                                  |  | — |             |  |  |                |  | — |                          |  |  |               | $ | 1,515   |                                       |  |  |                                     |  | — |                                                        |  |  |                           | $ | 327,587 |   |  |  |  |  | — |  |  |  |  | $ | 73,954  |  |  |  |  | $ | 17,961  |  |  |  |  |  | — |  |  |  |  | $ | 421,017 |  |
|                                       |

Theaccompanying notes are an integral part of these financialstatements.

F-7

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NOTESTO CONSOLIDATED FINANCIALSTATEMENTS

|          |                    |
|----------|--------------------|
| 1.  | ORGANIZATION  |

Theaccompanying consolidated financial statements include the accounts ofCTC Media, Inc. and all consolidated subsidiaries (the‘‘Company’’). CTC Media, Inc., a Delawarecorporation, operates the CTC and Domashny television networks inRussia. The Company transmits its signal by satellite to itsowned-and-operated affiliate stations and to independent affiliates.The Company’s network operations, including its relationshipswith its independent affiliates, are managed by CTC and DomashnyNetworks (the ‘‘Networks’’), its televisionentertainment network subsidiaries. CTC and Domashny Television StationGroups (the ‘‘Television Stations Group’’)manage the owned-and-operated affiliate stations and repeatertransmitters. The Company generates substantially all of its revenuesfrom the sale of television advertising, on both a national andregional basis. At the national level, this advertising is placed onthe Networks through Video International (‘‘VideoInternational’’), an advertising sales house(Note 16). Effective January 1, 2006, VideoInternational began acting as the exclusive sales house for theplacement of regional television advertising for substantially all ofthe stations in the Television Station Groups as well. The Company alsogenerates sublicensing revenue primarily from sales of programmingrights.

|          |                                           |
|----------|-------------------------------------------|
| 2.  | SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES |

Principles of Consolidation

Wholly ownedsubsidiaries and majority owned ventures where the Company hasoperating and financial control are consolidated. Minority interestrepresents a minority owner’s proportionate share of the equityin certain of the Company’s consolidated entities. Thoseventures where the Company exercises significant influence, but doesnot exercise operating and financial control, are accounted for underthe equity method. Inter-company accounts and transactions areeliminated upon consolidation.

The Company recognizes profits andlosses in accordance with its underlying ownership percentage orallocation percentage as specified in the agreements with its partners;however, losses are allocated to minority interests to the extent theydo not exceed the minority interest in the equity capital of thesubsidiary. Losses in excess of the minority interests are allocated tothe Company. When such ventures and subsidiaries become profitable, theCompany recognizes 100% of the profits until such time as theexcess losses previously recognized have been recovered.

TheCompany uses the purchase method of accounting for all businesscombinations. Results of subsidiaries acquired and accounted for underthe purchase method are included in operations from the date ofacquisition. Disposals are reflected at the time risks and rewards ofownership have been transferred.

The principal subsidiariesincluded in the accompanying consolidated financial statements are ZAOCTC Network(‘‘CTC Network’’), ZAO NewChannel (‘‘Domashny Network’’),OOO Marathon TV (‘‘CTC-Moscow’’),ZAO 6th Channel(‘‘CTC-St. Petersburg’’) andOAO Teleexpress(‘‘Domashny Moscow’’). CTC Media,Inc.’s ownership interests in these subsidiaries atDecember  31,  2004, 2005 and 2006 are asfollows:

|                         |  |  |      |  |        |      |  |  |      |  |        |   |  |  |  |  |        |   |
|-------------------------|--|--|------|--|--------|------|--|--|------|--|--------|---|--|--|--|--|--------|---|
|                    |  |  | 2004 |  |        | 2005 |  |  | 2006 |
| TVNetworks              |  |  |      |  |   |      |  |  |      |  |   |   |  |  |  |  |   |   |
| CTCNetwork              |  |  |      |  | 100.0  | %    |  |  |      |  | 100.0  | % |  |  |  |  | 100.0  | % |
| DomashnyNetwork         |  |  |      |  | 100.0  | %    |  |  |      |  | 100.0  | % |  |  |  |  | 100.0  | % |
| TelevisionStationGroups |  |  |      |  |   |      |  |  |      |  |   |   |  |  |  |  |   |   |
| CTC-Moscow              |  |  |      |  | 100.0  | %    |  |  |      |  | 100.0  | % |  |  |  |  | 100.0  | % |
| CTC-St.Petersburg       |  |  |      |  | 80.0   | %    |  |  |      |  | 80.0   | % |  |  |  |  | 80.0   | % |
| DomashnyMoscow          |  |  |      |  | 99.9   | %    |  |  |      |  | 99.9   | % |  |  |  |  | 99.9   | % |
|                         |

BusinessSegments

The Company operates in four business segments —CTC Network, Domashny Network, CTC Television Station Group andDomashny Television Station Group. The Company evaluates performancebased on the operating income of each segment, among other performancemeasures (Note 17).

F-8

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Foreign Currency Translation

Priorto January  1,  2006, the Company’s functionalcurrency was the US dollar. However, as a result of a change in thecontractual arrangement between Video International and advertisersthat took place in January  2006, the Company’s 2006revenue was primarily denominated in rubles. Accordingly, the Companyreevaluated the functional currency criteria under Statement ofFinancial Accounting Standards (‘‘SFAS’’)No. 52, Foreign Currency Translation, and determined that,beginning in 2006, the functional currency of its subsidiariesdomiciled in Russia is the ruble. Therefore, the financial statementsof the Company’s subsidiaries domiciled in Russia for the yearended December  31,  2006, were translated into US dollarsusing the current rate method. Assets and liabilities were translatedat the rate of exchange prevailing at the balance sheet date.Stockholders’ equity was translated at the applicable historicalrate. Revenue and expenses were translated at monthly average rates ofexchange. Translation gains and losses were included as part ofaccumulated other comprehensive income.

No restatement ofcomparative numbers was made for the change in functional currency. Thechange was adopted prospectively beginning January  1,2006 in accordance with SFAS No. 52.

RevenueRecognition

The Company recognizes advertising revenues in theperiod that the corresponding advertising spots are aired. Advertisingrevenue is recorded net of sales commissions paid primarily to VideoInternational. The advertising sales commissions amounted to $25,072,$35,875 and $59,660 in 2004, 2005 and 2006, respectively.

In2004, Video International guaranteed a certain level of advertisingsales depending on the Company’s audience share and size of thetotal Russian national advertising market. Effective the first quarterof 2005, the Company entered into new sales agreements with VideoInternational for both the CTC and Domashny Networks. The newagreements do not contain a guarantee clause. Under these agreementswith Video International, the Company paid signing fees in the amountof $9.9  million in May  2005. These signing fees arecapitalized (included in prepayments) and expensed (included inadvertising sales commissions) ratably over the underlying contractualterm, which is three years. Signing fees expected to be expensed withinone year are classified as current assets.

Sublicensing and otherrevenue primarily represent revenue the Company earns from sublicensingits rights to programming. Sublicensing revenue is recognized at suchtime as there is persuasive evidence that a sale or sublicensingarrangement with a customer exists, the underlying programming iscomplete and has been transferred to the customer, the sublicensingperiod has commenced and the customer can begin exploitation, thearrangement fee is fixed or determinable, and collection of thearrangement fee is reasonably assured.

Payments received inadvance for advertising and other revenue are recorded as deferredrevenue until earned.

Programming Rights

Programmingrights are stated at historic acquisition cost less accumulatedamortization. In accordance with SFAS No. 63, Financial Reporting byBroadcasters, the Company capitalizes expenditures for theacquisition of programming rights.

For foreign andRussian-produced movies, foreign series, foreign and Russian-producedanimation, the Company amortizes the cost of the programming on astraight-line basis over the licensed number of runs consistent withthe expected revenue generation pattern. Russian-produced shows whichthe Company commissions are expensed as aired.

ForRussian-produced series and sitcoms, the Company’s previouspolicy was to amortize the costs of programming on a straight-linebasis over the estimated number of runs, generally not more than threeruns. Effective July  1,  2005, the Company changed itsamortization policy. The policy was changed based on the performance ofpast runs and expected future revenue generation patterns. After thechange, series with twenty episodes or less and sitcoms, irrespectiveof the number of episodes, are amortized 45% after 

F-9

----

the first run, 35% after the secondrun and 20% after the third run when a license provides forthree or more runs. When a license provides for two runs, such seriesand sitcoms are amortized 60% after the first run and 40%after the second run. Series with more than twenty episodes areamortized 60% after the first run, 30% after the secondrun and 10% after the third run when a license provides forthree or more runs. When a license provides for two runs, such seriesare amortized 70% after the first run and 30% after thesecond run.

The Company from time to time obtains extensions oflicenses for additional runs of successful foreign and Russian series,sitcoms, and movies. Such extensions are treated as a new license andare amortized in accordance with the above policy.

Managementreviews the carrying amounts of programming rights on a quarterly basisor more frequently, if necessary. If the carrying amount of anyprogramming right exceeds its expected future revenues, the Companywrites down the carrying value to net realizable value. Unamortizedprogramming rights expected to be amortized within one year areclassified as current assets.

Had the Company continued in 2005with its prior policy to amortize Russian-produced series and sitcoms,net income and net income per common share would be asfollows:

|                                                                   |  |  |                            |   |         |   |
|-------------------------------------------------------------------|--|--|----------------------------|---|---------|---|
|                                                              |  |  | YearendedDecember 31, 2005 |
| Net income asreported                                             |  |  |                            | $ | 57,295  |   |
| Add: Program amortizationas reported                              |  |  |                            |   | 79,394  |   |
| Deduct: Programamortization based on policy prior to July  1,2005 |  |  |                            |   | (76,459 | ) |
| Income tax effect at24%                                           |  |  |                            |   | (704    | ) |
| Proforma netincome                                                |  |  |                            | $ | 59,527  |   |
| Proforma net income per commonshare:                              |  |  |                            |   |    |   |
| Basic                                                             |  |  |                            | $ | 0.41    |   |
| Diluted                                                           |  |  |                            | $ | 0.39    |   |
|                                                                   |

SublicensingRights

Sublicensing rights include the unamortized cost ofcompleted television episodes, television series in production andprogramming rights acquired for sublicensing rather than for exhibitionon the Company’s own networks. Sublicensing rights principallyconsist of production costs, development and format costs, and arestated at the lower of cost, less accumulated amortization, or fairvalue. The Company accounts for sublicensing rights in accordance withAmerican Institute of Certified Public Accountants Statement ofPosition 00-2, Accounting by Producers or Distributors of Films.The amount of capitalized sublicensing rights recognized as cost for agiven episode as it is exhibited in various markets, throughout itslife cycle, is determined using the film forecast method. Under thismethod, the amount of capitalized costs recognized as expense is basedon the proportion of the television episode’s revenuesrecognized for such period to the television episode’s estimatedremaining ultimate revenues. These estimates are revised periodicallyand projected losses, if any, are provided in full.

Property andEquipment

Property and equipment are stated at historicacquisition cost less accumulated depreciation. Depreciation isprovided utilizing the straight-line method over the estimated usefullives of the assets, which range from 3 to 23 years. Maintenanceand repairs are charged to expense as incurred. Significant renewalsand betterments are capitalized. At the time of retirement or otherdisposition of property and equipment, the cost and accumulateddepreciation are removed from the accounts and any resulting gain orloss is recorded in the consolidated statement of income andcomprehensive income.

Goodwill and Intangible Assets

TheCompany classifies intangible assets as definite-lived orindefinite-lived intangible assets. Definite-lived intangible assetsprimarily consist of broadcast licenses and network affiliationagreements, 

F-10

----

both of which are amortized on astraight-basis over the estimated useful life of each asset, generallyfive years. These assets are stated at cost less accumulatedamortization. Indefinite-lived intangible assets are comprised of tradenames. Goodwill represents the excess of acquisition costs over theCompany’s share of fair value of the net assets of acquiredbusinesses. Indefinite-lived intangible assets and goodwill are notsubject to amortization but are tested for impairment at leastannually.

Impairment of Goodwill and Indefinite-Lived IntangibleAssets

Goodwill is reviewed for impairment annually, as of thebeginning of the fourth quarter, or if it is determined that impairmentindicators exist using a two-step impairment test under SFAS No. 142,Goodwill and Other Intangible Assets. The Company determineswhether an impairment has occurred by assigning goodwill to thereporting units identified in accordance withSFAS No. 142, and comparing the carrying amount of theentire reporting unit to the estimated fair value based on discountedcash flows of the reporting unit (Step 1). If the carrying value of thereporting unit is less than the estimated fair value of the reportingunit, the Company compares the implied fair value of goodwill based ona hypothetical purchase price allocation to the carrying value of thegoodwill (Step 2). If the carrying value of goodwill exceeds theimplied fair value of goodwill based on Step 2, goodwill impairment isdeemed to have occurred, and the Company recognizes a loss for thedifference between the carrying amount and the implied fair value ofgoodwill.

The Company is also required to test indefinite-livedintangible assets for impairment on an annual basis based upon a fairvalue approach. Indefinite-lived intangible assets must be testedbetween annual tests if events or changes in circumstances indicatethat the asset might be impaired. These events or circumstances couldinclude a significant change in the business climate, such as asignificant sustained decline in an entity’s market value, legalfactors, operating performance indicators, competition, sale ordisposition of a significant portion of the business, or otherfactors.

The Company completed its goodwill and indefinite-livedintangible assets impairment tests in the fourth quarter of 2006, andno impairment has been recognized through December  31,2006.

Long-Lived Assets

Long-lived assets, includingproperty and equipment and definite-lived intangibles, are reviewedperiodically to determine whether an event or change in circumstancesindicates that the carrying amount of the asset may not be recoverable.For long-lived assets to be held and used, the Company bases itsevaluation on such impairment indicators as the nature of the assets,the future economic benefit of the assets, any historical or futureprofitability measurements, as well as other external market conditionsor factors that may be present. If such impairment indicators arepresent or other factors exist that indicate that the carrying amountof the asset may not be recoverable, the Company determines whether animpairment has occurred through the use of an undiscounted cash flowsanalysis of assets at the lowest level for which identifiable cashflows exist. If the carrying value of the asset or group of assetsexceeds the undiscounted cash flows, an impairment is deemed to haveoccurred, and the Company recognizes an impairment loss for thedifference between the carrying amount and the estimated fair value ofthe asset. The fair value of the asset is estimated using a discountedcash flow analysis or other valuation techniques.

Prepayments

Prepayments primarily represent payments toproducers of programming prior to the commencement of the licenseperiod for programming rights. At December  31,  2005 andDecember  31,  2006, prepayments for programming rightswere $27,162 and $37,323, respectively.

Accounts Receivable andAllowance for Doubtful Accounts

Accounts receivable are shown attheir net realizable value which approximates their fairvalue.

The Company establishes an allowance for doubtful accountsreceivable based on specific identification and management estimates ofrecoverability, in consultation with Video International, asappropriate. In 

F-11

----

cases where the Company is aware ofcircumstances which may impair a receivable, the Company records aspecific allowance against amounts due, and thereby reduces the netrecognized receivable to the amount the Company believes will becollected. If all collection efforts have been exhausted, thereceivable is written off against the allowance.

Cash and CashEquivalents

The Company classifies cash on hand and deposits inbanks, including money market accounts, and any other investments withan original maturity of three months or less from the date of purchase,that the Company may hold from time to time, as cash and cashequivalents.

Restricted Cash

Restricted cash isprimarily related to cash held at a financial institution for thecollateralization of debt obligations of one of the Company’sconsolidated subsidiaries.

Income Taxes

The Company usesthe liability method of accounting for income taxes required by SFASNo. 109, Accounting for Income Taxes. Deferred incometaxes result from temporary differences between the tax bases of assetsand liabilities and the bases as reported in the consolidated financialstatements, as well as the expected tax benefits of net operating losscarryforwards which are expected to be realized. Additionally, SFAS No.109 requires that a valuation allowance must be established when it ismore likely than not that all or a portion of deferred tax assets willnot be realized (Note 13).

AdvertisingCosts

Advertising costs are expensed as incurred. Advertisingexpenses for the years ended December 31, 2004, 2005 and 2006were $5,884, $10,323 and $11,919,respectively.

Pensions

The Company contributes to thelocal state pension funds and social funds on behalf of all itsemployees in Russia. In Russia, all social contributions, includingcontributions to the pension fund, are made through a unified socialtax (‘‘UST’’) calculated by the applicationof a regressive rate from 35.6% to 2% to the annual grossremuneration of each employee. In 2004 the Company allocated UST tothree social funds, including the pension fund, where the rate ofcontributions to the pension fund varies from 28% to 2%,respectively, depending on the annual gross salary of each employee.Starting from January 1, 2005, the following newregressive rates of UST apply: from 26% to 2%.

Fair Value of Financial Instruments

The carrying amounts forcash and cash equivalents, accounts receivable, accounts payable,accrued liabilities, and short-term debt approximate their fair value.At December  31,  2005 and 2006, the Company’slong-term debt and short-term debt at fixed rates approximated theirfair value for similar arrangements.

Use of Estimates

Thepreparation of financial statements in conformity with the accountingprinciples generally accepted in the United States requires managementto make estimates and assumptions that affect the reported amounts ofassets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period.Significant estimates in the financial statements include, amongothers, the estimate of fair value for the Company’s commonstock in determining stock-based compensation, the amortization methodand periods for programming rights and sublicensing rights, usefullives of tangible and intangible assets, impairment of goodwill,indefinite-lived intangible assets and long-lived assets, estimates oftax contingencies, and the determination of valuation allowances fordeferred tax assets. Consequently, actual results may differ from thoseestimates.

F-12

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Comprehensive Income

SFAS No. 130,Reporting Comprehensive Income, requires the reporting ofcomprehensive income in addition to net income. Accumulated othercomprehensive income includes foreign currency translation adjustments.For the years ended December  31,  2004 and 2005,comprehensive income for the Company is equal to net income. For theyear ended December  31,  2006, as a result of the changein functional currency described previously in this Note, totalcomprehensive income included, in addition to net income, the effect oftranslating the ruble-denominated financial statements of subsidiariesdomiciled in Russia into the Company’s reporting currency, inaccordance with SFAS No. 52.

Stock-Based Compensation

OnJanuary  1,  2006, the Company adopted SFAS No. 123 (R),Share-Based Payment, under the modified prospective method.Under SFAS No. 123 (R), companies must calculate and record the cost ofequity instruments, such as stock options or restricted stock, awardedto employees for services received in the statement of income andcomprehensive income; pro forma disclosures are no longer permitted.The cost of the equity instruments is to be measured based on fairvalue of the instruments on the date they are granted (with certainexceptions) and is required to be recognized over the period duringwhich the employees are required to provide services in exchange forthe equity instruments. Since the Company had previously accounted forits stock-based compensation plans under the fair value provisions ofSFAS No. 123, the Company’s adoption did not significantly impactits financial position or its results of operations.

The Companyestimates the fair value of stock options at the date of grant using aBlack-Scholes option pricing model. The Black-Scholes pricing model wasoriginally developed for use in estimating the fair value of tradedoptions, which have different characteristics than the Company’semployee stock options. The model is also sensitive to changes in thesubjective assumptions, which can materially affect the fair valueestimate. Once the Company has estimated the fair value of the equityinstruments, it recognizes this estimated cost as stock-basedcompensation expense on a straight-line basis over the serviceperiod.

Although the Company has an insignificant number of stockoptions outstanding that were accounted for under Accounting PrinciplesBoard Opinion No. 25, Accounting for Stock Issued to Employees,net income as reported in the periods presented equals pro forma netincome as determined using the fair value method to determine totalstock-based compensation expense since these stock options were fullyvested.

Non-cash Investing and FinancingActivities

During 2004, the Company concluded a certaintransaction that did not result in cash receipts or cash payments. Thissignificant transaction represented issuance of shares in connectionwith the acquisition of a minority interest in CTC-Moscow of $4,645(Note 4).

Comparative Figures

Reclassifications have beenmade to the prior period consolidated financial statements to conformto the current period presentation.

Recently Issued AccountingPronouncements

Accounting for Uncertainty in IncomeTaxes

In June  2006, the FASB issued InterpretationNo. 48 (‘‘FIN No. 48’’), Accounting forUncertainty in Income Taxes — an interpretation of SFASNo.  109. FIN No. 48 creates a single model to addressuncertainty in tax positions and clarifies the accounting for incometaxes by prescribing the minimum recognition threshold a tax positionis required to meet before being recognized in the financialstatements. FIN No. 48 also provides guidance on derecognition,measurement, classification, interest and 

F-13

----

penalties, accounting in interim periods,disclosure and transition. In addition, FIN No. 48 scopes out incometaxes from SFAS No. 5, Accounting for Contingencies, and iseffective for fiscal years beginning after December  15,2006. The Company has substantially completed its analysis fortransition to FIN No. 48 as of January  1,  2007 and doesnot expect that its adoption will have a significant impact on theCompany’s financial statements.

Fair ValueMeasurements

On September  15,  2006 the FASBissued SFAS No. 157, Fair Value Measurements. The standardprovides guidance for using fair value to measure assets andliabilities. The standard also responds to investors’ requestsfor expanded information about the extent to which companies measureassets and liabilities at fair value, the information used to measurefair value, and the effect of fair value measurements on earnings. Thestandard applies whenever other standards require (or permit) assets orliabilities to be measured at fair value. The standard does not expandthe use of fair value in any new circumstances. SFAS No. 157 iseffective for financial statements issued for fiscal years beginningafter November  15,  2007, and interim periods within thosefiscal years. Early adoption is permitted. The Company is currentlyevaluating the provisions of SFAS No. 157 to determine thepotential impact, if any, the adoption will have on its financialstatements.

Consideration of Effects of Prior YearMisstatements

In September  2006, the SEC releasedStaff Accounting Bulletin No. 108(‘‘SAB No. 108’’), Consideringthe Effects of Prior Year Misstatements when Quantifying Misstatementsin Current Year Financial Statements. SAB No. 108 providesinterpretive guidance on the SEC’s views regarding the processof quantifying materiality of financial statement misstatements.SAB No. 108 is effective for fiscal years ending afterNovember 15, 2006. The adoption of SAB No. 108 did nothave any impact on the Company’s consolidated results ofoperations or financial position.

Income StatementPresentation of Taxes Collected from Customers and Remitted toGovernment Authorities

In June  2006, the EmergingIssues Task Force (‘‘EITF’’) reached aconsensus on EITF Issue No. 06-03 (‘‘EITF No.06-03’’), How Taxes Collected from Customers andRemitted to Governmental Authorities Should Be Presented in the IncomeStatement (That Is, Gross versus Net Presentation). EITF No.06-03 provides that the presentation of taxes assessed by agovernmental authority that is directly imposed on a revenue-producingtransaction between a seller and a customer on either a gross basis(included in revenues and costs) or on a net basis (excluded fromrevenues) is an accounting policy decision that should be disclosed.The provisions of EITF No. 06-03 become effective for fiscal yearsbeginning after December 15, 2006. The adoption of ETIF No. 06-03 isnot expected to have a material effect on the Company’sconsolidated financial position or results ofoperations.

|          |                      |
|----------|----------------------|
| 3.  | NET INCOME PER SHARE |

Basic netincome per share for the years ended December  31,  2004,2005 and 2006 is computed on the basis of the weighted average numberof common shares outstanding, using the‘‘two-class’’ method (Note 14). Diluted netincome per common share is computed using the ‘‘ifconverted method’’ with the weighted average number ofcommon shares outstanding plus the effect of the outstanding stockoptions calculated using the ‘‘treasurystock’’ method. The number of stock options excluded fromthe diluted net income per common share computation, because theireffect was antidilutive for the years ended December  31,2004, 2005 and 2006 was nil, nil and 4,968,556 stock options,respectively. All potential shares of common stock from the assumedconversion of convertible preferred stock have been included in thediluted earnings calculation for the years ended December31,  2004 and 2005. No convertible preferred stock wasoutstanding at December  31,  2006.

F-14

----

The components of basic and diluted netincome per share were asfollows:

|                                                          |  |  |                       |   |             |      |  |  |      |   |             |   |  |  |  |   |             |   |
|----------------------------------------------------------|--|--|-----------------------|---|-------------|------|--|--|------|---|-------------|---|--|--|--|---|-------------|---|
|                                                     |  |  | Yearended December31, |
|                                                     |  |  | 2004                  |   |             | 2005 |  |  | 2006 |
| Netincome                                                |  |  |                       | $ | 47,450      |      |  |  |      | $ | 57,295      |   |  |  |  | $ | 106,325     |   |
| Netincome attributable to preferredstockholders          |  |  |                       |   | (21,300     | )    |  |  |      |   | (26,134     | ) |  |  |  |   | (20,621     | ) |
| Netincome attributable to commonstockholders             |  |  |                       | $ | 26,150      |      |  |  |      | $ | 31,161      |   |  |  |  | $ | 85,704      |   |
| Weightedaverage common shares outstanding –basic   |  |  |                       |   |        |      |  |  |      |   |        |   |  |  |  |   |        |   |
| Commonstock                                              |  |  |                       |   | 80,580,000  |      |  |  |      |   | 79,339,024  |   |  |  |  |   | 117,880,814 |   |
| Dilutiveeffectof:                                        |  |  |                       |   |        |      |  |  |      |   |        |   |  |  |  |   |        |   |
| Convertiblepreferredstock                                |  |  |                       |   | 65,635,200  |      |  |  |      |   | 66,538,400  |   |  |  |  |   | 28,362,400  |   |
| Commonstock options andSARs                              |  |  |                       |   | 9,494,711   |      |  |  |      |   | 8,467,532   |   |  |  |  |   | 7,834,743   |   |
| Preferredstockoptions                                    |  |  |                       |   | 860,800     |      |  |  |      |   | —     |   |  |  |  |   | —     |   |
| Weightedaverage common shares outstanding –diluted |  |  |                       | $ | 156,570,711 |      |  |  |      | $ | 154,344,956 |   |  |  |  | $ | 154,077,957 |   |
| Netincome per share attributable to commonstockholders:  |  |  |                       |   |        |      |  |  |      |   |        |   |  |  |  |   |        |   |
| Basic                                                    |  |  |                       | $ | 0.32        |      |  |  |      | $ | 0.39        |   |  |  |  | $ | 0.73        |   |
| Diluted                                                  |  |  |                       | $ | 0.30        |      |  |  |      | $ | 0.37        |   |  |  |  | $ | 0.69        |   |
|                                                          |

Thenumerator used to calculate diluted net income per common share for2004, 2005 and 2006 was net income.

|          |                              |
|----------|------------------------------|
| 4.  | INVESTMENTTRANSACTIONS  |

Acquisitions in 2004

InSeptember  2004, the Company acquired 99.9% interest inOAO Teleexpress (Moscow), 100% interest in ZAO Nevsky Kanal (St.Petersburg) and 52% interest in ZAO Variant (Kazan). InOctober  2004, the Company acquired 100% interest in OOOT-8 (Perm). The four acquired television stations were entities undercommon control and were used to launch the Domashny Network.

Thetotal purchase consideration for the four entities acquired inSeptember and October  2004 of $49,397 consisted of cashconsideration of $49,139 and $258 in direct transactioncosts.

The following reflects the amounts assigned to the netassetsacquired:

|                                                  |  |  |  |   |        |  |
|--------------------------------------------------|--|--|--|---|--------|--|
| ASSETS:                                          |  |  |  |   |   |  |
| Currentassets                                    |  |  |  | $ | 1,793  |  |
| Property andequipment                            |  |  |  |   | 8,245  |  |
| Programmingrights                                |  |  |  |   | 408    |  |
| Intangible assets,net                            |  |  |  |   |   |  |
| Broadcastinglicenses                             |  |  |  |   | 26,613 |  |
| Cable networkconnections                         |  |  |  |   | 1,546  |  |
| Other intangibleassets                           |  |  |  |   | 14     |  |
| Goodwill                                         |  |  |  |   | 30,360 |  |
| Totalassets                                      |  |  |  | $ | 68,979 |  |
| LIABILITIES:                                     |  |  |  |   |   |  |
| Currentliabilities                               |  |  |  |   | 11,474 |  |
| Non-currentliabilities                           |  |  |  |   | 161    |  |
| Deferred taxliability                            |  |  |  |   | 7,935  |  |
| Minorityinterest                                 |  |  |  |   | 12     |  |
| Netassets                                        |  |  |  | $ | 49,397 |  |
| Totalpurchase consideration and acquisitioncosts |  |  |  | $ | 49,397 |  |
|                                                  |

F-15

----

The Company’s financial statementsreflect the allocation of the purchase price based on a fair valueassessment of the assets acquired and liabilities assumed. As such, theCompany assigned $26,613 to broadcasting licenses, which are beingamortized over an estimated useful life of 5 years, $1,546 to the cablenetwork connections, which are being amortized over a weighted averageperiod of approximately 5 years, and $8,245 to property and equipment,which is being amortized over a weighted average period of 23 years.The excess purchase price over the net identifiable assets andliabilities acquired of approximately $30,360 has been assigned togoodwill, which is not deductible for tax purposes.

In 2004, inconnection with this acquisition, the Company began implementation of aplan intended to eliminate duplication of resources within theconsolidated company. The plan included the termination of the salesagreement with the Video International affiliate and cease of certainemployment agreements.

As of December  31,  2004, theCompany included $1,167 as part of the acquisition cost of the acquiredentities related to this acquisition’s restructuring plans. Theliabilities related to the termination of the Video International salesagreement and employment agreements of $881 and $286 were included inaccounts payable and accrued liabilities, respectively. These amountswere fully paid in 2005.

The following unaudited pro formacombined results of operations for the Company give effect to theacquisition of the four stations as if it had occurred at the beginningof 2004. Information relating to 2003 results was not available topresent pro forma information. In management’s opinion thisinformation is not material to the Company’s current results ofoperations or financial position. These pro forma amounts are providedfor informational purposes only and do not purport to present theresults of operations of the Company had the transactions assumedtherein occurred on or as of the date indicated, nor is it necessarilyindicative of the results of operations which may be achieved in thefuture.

|                                      |  |  |             |   |         |  |
|--------------------------------------|--|--|-------------|---|---------|--|
|                                 |  |  | 2004        |
|                                 |  |  | (Unaudited) |
| Operatingrevenues                    |  |  |             | $ | 160,260 |  |
| Pro forma netincome                  |  |  |             | $ | 44,258  |  |
| Pro forma netincome per commonshare: |  |  |             |   |    |  |
| Basic                                |  |  |             | $ | 0.30    |  |
| Diluted                              |  |  |             | $ | 0.28    |  |
|                                      |

Inthe year ended December  31,  2004, the Company alsoacquired (in separate transactions) interests in the followingentities:

|  |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | In July and August2002, the Company entered into stock exchange agreements with twominority stockholders in OOO Marathon TV. These agreementsprovided the minority stockholders the right to exchange theiraggregate 5% ownership in OOO Marathon TV for stock ofthe Company based on the determination of their respective fair valuesin the first quarter of 2003. In December  2003, following theinability to agree on exchange ratios with the minority stockholders,this right was amended and immediately exercised, whereby inApril  2004 the Company issued an aggregate of 1,979,200 sharesof common stock for the minority interests. The estimated fair value ofthe acquired 5% interest was $4,645. Approximately $5,445 of thepurchase price was allocated to broadcastlicenses. |

|  |              |                                                                                                                                                                                                                                                                                                                             |
|--|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | In March  2004, theCompany acquired the 49% minority interest in OOO NTK(CTC-Nizhny Novgorod) for $800. As a result of this transactionCTC-Nizhny Novgorod became a wholly owned subsidiary of the Company.The acquisition resulted in goodwill in the amount of $325 that wasallocated to the CTC Television StationGroup. |

|  |              |                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | In November  2004, theCompany acquired 100% in ZAO Delta-Max (Perm) for cashconsideration of $1,500. ZAO Delta-Max, in its turn, owned 35%of ZAO TV Maxima (Perm), 40% of ZAO Music Radio (Perm) and40% of OOO Radio Maximum (Perm). Currently the Company has85% interest in all of these companies. The acquisition resultedin goodwill in the amount of $369 that was allocated to theCTC Television Station Group. |

Goodwill recognizedin those transactions is not deductible for tax purposes.

Theacquisitions of the above minority interests were not significant tothe Company’s unaudited pro forma statements ofoperations.

F-16

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Disposals in 2004

In July2004, the Company sold its 50% interest in OOO Maximum Radio(Moscow) for $5,000, resulting in a gain of $4,613. The Company’sinvestment in OOO Maximum Radio was accounted for under theequity method prior to the sale.

Acquisitions in 2005

InDecember  2005, the Company acquired a 100% interest inOOO PKF Radiosvyaz (Voronezh) for $1,150, consisting of $1,000 in cashconsideration and direct transaction costs of $150 charged by AlfaGroup (Note 15).

In December  2005, the Company acquired a50% interest in OOO TV Station Mir (Novosibirsk) for $8,200,consisting of $8,000 in cash consideration and direct transaction costsof $200 charged by Alfa Group (Note 15). This acquisition wasaccounted for under the equity method.

Acquisitions in2006

In April  2006, the Company acquired a 51%interest in each of two television stations located in Barnaul, OOOVega-TV and OOO Tekhnicheskiy Zentr‘‘Vecher’’, for cash consideration of$3,500 each. In April  2006, the Company acquired a 100%interest in ZAO Orion TV (Samara), for a total purchase price of$11,500, consisting of $11,124 in cash consideration and $376 in debtassumed. The Company’s consolidated financial statements reflecta preliminary allocation of the purchase price based on a fair valueassessment of the assets acquired and liabilities assumed. The Companyassigned $21,311 to broadcasting licenses and $1,536 to property andequipment. The remainder of the purchase price was assigned to otherassets acquired and to other liabilities assumed.

InNovember  2006, the Company acquired a 100% interest inOOO TC Kemerovo Tom for a total purchase price of $1,663. TheCompany’s consolidated financial statements reflect a preliminaryallocation of the purchase price based on a fair value assessment ofthe assets acquired and liabilities assumed. The Company assigned$2,117 to broadcasting licenses. The remainder of the purchase pricewas assigned to other assets acquired and to other liabilitiesassumed.

Disposals in 2006

In April  2006, theCompany sold its 85% interests in two radio stations located inPerm, ZAO Music Radio and OOO Radio Maximum, for total cashconsideration of $1,000 and recognized a gain of $782.

InDecember  2006, the Company sold its 100% interest inradio station located in Samara, OOO Sozvezdie Orion for total cashconsideration of $600 and recognized a gain of $137.

|          |                              |
|----------|------------------------------|
| 5.  | PROGRAMMING RIGHTS,NET  |

Programming rights as of December31,  2005 and 2006 comprise thefollowing:

|                         |  |  |      |   |         |      |  |  |  |   |          |   |
|-------------------------|--|--|------|---|---------|------|--|--|--|---|----------|---|
|                    |  |  | 2005 |   |         | 2006 |
| Historicalcost          |  |  |      | $ | 135,181 |      |  |  |  | $ | 177,012  |   |
| Accumulatedamortization |  |  |      |   | (68,713 | )    |  |  |  |   | (111,111 | ) |
| Netbookvalue            |  |  |      | $ | 66,468  |      |  |  |  | $ | 65,901   |   |
| Currentportion          |  |  |      |   | 38,100  |      |  |  |  |   | 41,634   |   |
| Non-currentportion      |  |  |      |   | 28,368  |      |  |  |  |   | 24,267   |   |
|                         |

During 2004,2005 and 2006, the Company recognized impairment charges on programmingrights of $4,720, $5,356 and $3,741, respectively. The impairmentcharges are included in amortization of programming rights in theaccompanying consolidated statements of income.

F-17

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|          |                         |
|----------|-------------------------|
| 6.  | SUBLICENSING RIGHTS,NET |

Sublicensing rights as of December 31, 2005 and 2006comprise thefollowing:

|                                |  |  |                 |   |         |                  |  |  |  |   |       |  |
|--------------------------------|--|--|-----------------|---|---------|------------------|--|--|--|---|-------|--|
|                           |  |  | December31,2005 |   |         | December 31,2006 |
| Released,lessamortization      |  |  |                 | $ | — |                  |  |  |  | $ | 5,183 |  |
| Completedand not released      |  |  |                 |   | — |                  |  |  |  |   | 928   |  |
| Inproduction                   |  |  |                 |   | 1,836   |                  |  |  |  |   | 717   |  |
| In developmentorpre-production |  |  |                 |   | — |                  |  |  |  |   | 783   |  |
| Netbookvalue                   |  |  |                 | $ | 1,836   |                  |  |  |  | $ | 7,611 |  |
|                                |

Asof December  31,  2006, the Company expects the entire$5,183 balance of unamortized sublicensing rights for released productsto be fully amortized within three years. In addition, the Companyexpects approximately $4,248 of the sublicensing rights for releasedproducts and completed and not released products to be amortized duringthe twelve-month period ending December  31,2007.

The Company recognized impairment charges on sublicensingrights of nil, nil and $233 in 2004, 2005 and 2006, respectively. Theimpairment charges are included in amortization of sublicensing rightsin the accompanying consolidated statements of income and comprehensiveincome.

|          |                            |
|----------|----------------------------|
| 7.  | PROPERTY AND EQUIPMENT,NET |

Property and equipment as of December  31,  2005and 2006 comprise thefollowing:

|                         |  |  |                  |  |       |        |   |         |        |   |        |  |   |         |   |   |        |  |
|-------------------------|--|--|------------------|--|-------|--------|---|---------|--------|---|--------|--|---|---------|---|---|--------|--|
|                    |  |  | Usefullife,years |  |       | 2005   |   |         | 2006   |
| Cost:                   |  |  |             |  |       |   |   |         |   |
| Buildings               |  |  |                  |  | 10-23 |        |   |         |        | $ | 9,157  |  |   |         |   | $ | 11,040 |  |
| Broadcastingequipment   |  |  |                  |  | 7     |        |   |         |        |   | 18,923 |  |   |         |   |   | 24,534 |  |
| Vehicles                |  |  |                  |  | 5     |        |   |         |        |   | 812    |  |   |         |   |   | 824    |  |
| Officeequipment         |  |  |                  |  | 3     |        |   |         |        |   | 5,550  |  |   |         |   |   | 7,131  |  |
| Totalcost               |  |  |             |  |       |        | $ | 34,442  |        |   |        |  | $ | 43,529  |   |
| Accumulateddepreciation |  |  |             |  |       |        |   | (15,037 | )      |   |        |  |   | (21,141 | ) |
| Netbookvalue            |  |  |             |  |       |        | $ | 19,405  |        |   |        |  | $ | 22,388  |   |
|                         |

Depreciationexpense was $2,143, $3,183 and $4,618 in 2004, 2005 and 2006,respectively.

|          |                        |
|----------|------------------------|
| 8.  | INTANGIBLE ASSETS, NET |

Intangibleassets as of December  31,  2005 and 2006 comprise thefollowing:

|                              |  |  |                  |  |        |      |  |       |                         |   |        |      |  |         |                         |   |         |   |  |       |  |   |        |  |  |         |  |   |         |   |
|------------------------------|--|--|------------------|--|--------|------|--|-------|-------------------------|---|--------|------|--|---------|-------------------------|---|---------|---|--|-------|--|---|--------|--|--|---------|--|---|---------|---|
|                         |  |  |             |  |        | 2005 |  |       | 2006                    |
|                         |  |  | Usefullife,years |  |        | Cost |  |       | Accumulatedamortization |   |        | Cost |  |         | Accumulatedamortization |
| Networkaffiliationagreements |  |  |                  |  | 5      |      |  |       |                         | $ | 10,000 |      |  |         |                         | $ | (4,667  | ) |  |       |  | $ | 10,000 |  |  |         |  | $ | (6,667  | ) |
| Tradenames                   |  |  | indefinite       |  |        |      |  | 5,834 |                         |   |        |      |  | — |                         |   |         |   |  | 5,888 |  |   |        |  |  | — |  |
| Broadcastinglicenses         |  |  |                  |  | 5      |      |  |       |                         |   | 41,991 |      |  |         |                         |   | (13,095 | ) |  |       |  |   | 69,848 |  |  |         |  |   | (26,461 | ) |
| Otherintangibleassets        |  |  |                  |  | 5      |      |  |       |                         |   | 2,206  |      |  |         |                         |   | (1,175  | ) |  |       |  |   | 2,938  |  |  |         |  |   | (2,175  | ) |
| Total                        |  |  |                  |  |   |      |  |       |                         | $ | 60,031 |      |  |         |                         | $ | (18,937 | ) |  |       |  | $ | 88,674 |  |  |         |  | $ | (35,303 | ) |
|                              |

Amortizationexpense was $5,819, $10,737 and $15,033 in 2004, 2005 and 2006,respectively.

F-18

----

Estimated amortization expenses for thenext five years related to intangible assets included in theaccompanying consolidated balance sheet as of December31,  2006 are asfollows:

|                                       |  |  |  |   |        |  |
|---------------------------------------|--|--|--|---|--------|--|
| Forthe year ended December  31,2007   |  |  |  | $ | 16,371 |  |
| For the year endedDecember  31,  2008 |  |  |  |   | 14,401 |  |
| Forthe year ended December  31,2009   |  |  |  |   | 9,909  |  |
| For the year endedDecember  31,  2010 |  |  |  |   | 5,358  |  |
| Forthe year ended December  31,2011   |  |  |  |   | 1,444  |  |
|                                  |  |  |  | $ | 47,483 |  |
|                                       |

|          |                |
|----------|----------------|
| 9.  | GOODWILL  |

Goodwillas of December  31,  2004, 2005 and 2006 comprises thefollowing:

|                                                     |  |  |            |   |         |                 |  |  |                 |   |         |                      |  |  |       |   |         |  |  |  |  |   |        |   |  |  |  |   |        |   |
|-----------------------------------------------------|--|--|------------|---|---------|-----------------|--|--|-----------------|---|---------|----------------------|--|--|-------|---|---------|--|--|--|--|---|--------|---|--|--|--|---|--------|---|
|                                                |  |  | CTCNetwork |   |         | DomashnyNetwork |  |  | CTCStationGroup |   |         | DomashnyStationGroup |  |  | Total |
| Balance as of December31,2004                       |  |  |            | $ | 36,538  |                 |  |  |                 | $ | 17,858  |                      |  |  |       | $ | 2,143   |  |  |  |  | $ | 12,502 |   |  |  |  | $ | 69,041 |   |
| Reversalof contingent income tax liability (Note16) |  |  |            |   | — |                 |  |  |                 |   | — |                      |  |  |       |   | — |  |  |  |  |   | (768   | ) |  |  |  |   | (768   | ) |
| Balanceas of December  31,2005                      |  |  |            |   | 36,538  |                 |  |  |                 |   | 17,858  |                      |  |  |       |   | 2,143   |  |  |  |  |   | 11,734 |   |  |  |  |   | 68,273 |   |
| Reversalof contingent income tax liability (Note16) |  |  |            |   | — |                 |  |  |                 |   | — |                      |  |  |       |   | — |  |  |  |  |   | (1,023 | ) |  |  |  |   | (1,023 | ) |
| Foreigncurrency translationadjustment               |  |  |            |   | — |                 |  |  |                 |   | 1,821   |                      |  |  |       |   | 275     |  |  |  |  |   | 1,422  |   |  |  |  |   | 3,518  |   |
| Balanceas of December  31,2006                      |  |  |            | $ | 36,538  |                 |  |  |                 | $ | 19,679  |                      |  |  |       | $ | 2,418   |  |  |  |  | $ | 12,133 |   |  |  |  | $ | 70,768 |   |
|                                                     |

|           |                                |
|-----------|--------------------------------|
| 10.  | INVESTMENTSIN EQUITY INVESTEES |

As of December  31,  2005 and2006, the Company’s principal equity investees comprise thefollowing:

|                                           |  |  |                     |  |        |      |  |  |                     |   |        |      |  |  |  |  |        |  |  |  |  |   |        |  |
|-------------------------------------------|--|--|---------------------|--|--------|------|--|--|---------------------|---|--------|------|--|--|--|--|--------|--|--|--|--|---|--------|--|
|                                      |  |  | Ownershipinterest,% |  |        | 2005 |  |  | Ownershipinterest,% |   |        | 2006 |
| TelevisionStations:                       |  |  |                     |  |   |      |  |  |                     |   |   |      |  |  |  |  |   |  |  |  |  |   |   |  |
| CTC-Kazan                                 |  |  |                     |  | 50     |      |  |  |                     | $ | 268    |      |  |  |  |  | 50     |  |  |  |  | $ | 564    |  |
| CTC-Novosibirsk                           |  |  |                     |  | 50     |      |  |  |                     |   | 8,200  |      |  |  |  |  | 50     |  |  |  |  |   | 8,721  |  |
| OtherTelevisionStations                   |  |  |                     |  | 21-50  |      |  |  |                     |   | 41     |      |  |  |  |  | 21-50  |  |  |  |  |   | 34     |  |
| Totalinvestments and advances toinvestees |  |  |                     |  |   |      |  |  |                     | $ | 8,509  |      |  |  |  |  |   |  |  |  |  | $ | 9,319  |  |
|                                           |

|           |                    |
|-----------|--------------------|
| 11.  | ACCRUEDLIABILITIES |

As of December  31,  2005 and 2006, theCompany’s accrued liabilities comprise thefollowing:

|                                |  |  |      |   |        |      |  |  |  |   |        |  |
|--------------------------------|--|--|------|---|--------|------|--|--|--|---|--------|--|
|                           |  |  | 2005 |   |        | 2006 |
| Accruedliabilities consistof:  |  |  |      |   |   |      |  |  |  |   |   |  |
| Agencycommissions              |  |  |      | $ | 1,184  |      |  |  |  | $ | 30     |  |
| Taxcontingencies               |  |  |      |   | 2,019  |      |  |  |  |   | 876    |  |
| Bonusesand accruedvacation     |  |  |      |   | 2,156  |      |  |  |  |   | 2,394  |  |
| Auditingand consultingservices |  |  |      |   | 231    |      |  |  |  |   | 1,376  |  |
| Otheraccruedliabilities        |  |  |      |   | 710    |      |  |  |  |   | 832    |  |
| Totalaccruedliabilities        |  |  |      | $ | 6,300  |      |  |  |  | $ | 5,508  |  |
|                                |

F-19

----

|           |            |
|-----------|------------|
| 12.  | BORROWINGS |

Short termloans and interest accrued as of December  31,  2005 and2006 comprise thefollowing:

|                                     |  |  |      |   |       |      |  |  |  |  |         |  |
|-------------------------------------|--|--|------|---|-------|------|--|--|--|--|---------|--|
|                                |  |  | 2005 |   |       | 2006 |
| AlfaBank principal                  |  |  |      | $ | 4,000 |      |  |  |  |  | — |  |
| AlfaBank interestaccrued            |  |  |      |   | 64    |      |  |  |  |  | — |  |
| Other loans andinterestaccrued      |  |  |      |   | 4     |      |  |  |  |  | — |  |
| Shortterm loans and interestaccrued |  |  |      | $ | 4,068 |      |  |  |  |  | — |  |
|                                     |

Longterm loans as of December  31,  2005 and 2006 comprise thefollowing:

|                   |  |  |      |   |        |      |  |  |  |   |         |  |
|-------------------|--|--|------|---|--------|------|--|--|--|---|---------|--|
|              |  |  | 2005 |   |        | 2006 |
| AlfaBankprincipal |  |  |      | $ | 37,000 |      |  |  |  |   | — |  |
| Otherloans        |  |  |      |   | 188    |      |  |  |  |   | 210     |  |
| Longtermloans     |  |  |      | $ | 37,188 |      |  |  |  | $ | 210     |  |
|                   |

InAugust  2003, the Company entered into a back-to-back loanarrangement. CTC Network received from Raiffeisen Bank a US dollardenominated loan in the amount of $35,900. The loan proceeds were usedto repay an inter-company loan to CTC Media, Inc. The loan boreinterest at 14.00% per annum. In addition, Raiffeisen Bankcharged a commission of 1.00% per annum. Interest and commissionexpense related to this loan amounted to $5,385, $3,192 and nil in2004, 2005 and 2006, respectively.

As collateral for the loan andinterest accruing thereon, CTC Media, Inc. deposited $35,900 withRaiffeisen Bank in a pledged account. The interest on the account was14.00% per annum. The deposited funds were blocked and could beused only with the permission of Raiffeisen Bank and are shown asrestricted cash. Interest income on funds in the pledged accountamounted to $5,026, $2,837 and nil in 2004, 2005 and 2006,respectively.

In July  2005, the Company reduced theRaiffeisen Bank back-to-back facility balance to nil. CTC Networkrepaid to Raiffeisen Bank the loan principal of $35,900 and $978 ofinterest accrued through the date of repayment. Raiffeisen Bankreleased the restriction on use of funds of $36,878 held in the depositaccount open by CTC Media, Inc. with the bank. The facility was closedin February  2006.

In September  2004, CTC Networkentered into a $40,000 US dollar denominated term loan with Alfa Bank.In September  2004, CTC Network received $20,000 under this termloan with a maturity in March  2006 and an interest rate of14.00%, and $4,000 with a maturity in September  2005 andinterest of 13.75%. In 2005, CTC Network repaid the wholeprincipal and interest outstanding. The arrangement was terminated inAugust  2005. Interest expense related to this borrowing amountedto $1,062 and $1,841 in 2004 and 2005, respectively.

InJuly  2005, CTC Network entered into a $55,000 US dollardenominated term loan with Alfa Bank. The term loan was secured by30.00% of CTC Network’s stock held by CTC Media, Inc. InJuly  2005, CTC Network received $51,000 under this term loanwith a maturity in July  2007 and an interest rate of14.00%. In 2005, CTC Network repaid $14,000 and, in 2006, CTCNetwork repaid the remaining balance in full and closed the facility.Interest expense related to this borrowing amounted to $2,930 and$1,302 in 2005 and 2006, respectively.

In July  2005, CTCNetwork entered into a $30,000 US dollar denominated credit line withAlfa Bank. The credit line is secured by 19.00% of CTCNetwork’s stock held by CTC Media, Inc. As of December31,  2005, CTC Network had drawn down $14,000 with a maturity inAugust  2006 and interest of 11.50%, had repaid $13,000under this tranche and had drawn down $3,000 with a maturity inJune  2006 and interest of 10.25%. In 2006, CTC Networkdrew down $19,000 with a maturity in October  2006 andweighted-average interest rate of 10.20%. In 2006, CTC Networkrepaid the loan in full. The weighted average interest on short-termborrowings as of December  31,  2005, was approximately10.60%. The interest expense related to this borrowing amountedto $386 and $470 in 2005 and 2006, respectively.

F-20

----

|           |              |
|-----------|--------------|
| 13.  | INCOME TAXES |

TheCompany accounts for income taxes using the liability method requiredby SFAS No. 109. The components of income (loss) before incometaxes were asfollows:

|                     |  |  |      |   |        |      |  |  |      |   |        |   |  |  |  |   |         |   |
|---------------------|--|--|------|---|--------|------|--|--|------|---|--------|---|--|--|--|---|---------|---|
|                |  |  | 2004 |   |        | 2005 |  |  | 2006 |
| Pretaxincome(loss): |  |  |      |   |   |      |  |  |      |   |   |   |  |  |  |   |    |   |
| Domestic            |  |  |      | $ | 2,439  |      |  |  |      | $ | (6,327 | ) |  |  |  | $ | (17,764 | ) |
| Foreign             |  |  |      |   | 64,787 |      |  |  |      |   | 90,997 |   |  |  |  |   | 177,976 |   |
|                |  |  |      | $ | 67,226 |      |  |  |      | $ | 84,670 |   |  |  |  | $ | 160,212 |   |
|                     |

Thefollowing is the Company’s significant components of the(provision) benefit for incometaxes:

|                         |  |  |      |   |         |      |  |  |      |   |         |   |  |  |  |   |         |   |
|-------------------------|--|--|------|---|---------|------|--|--|------|---|---------|---|--|--|--|---|---------|---|
|                    |  |  | 2004 |   |         | 2005 |  |  | 2006 |
| Domestic–current  |  |  |      | $ | (363    | )    |  |  |      | $ | (389    | ) |  |  |  | $ | (388    | ) |
| Foreign–current   |  |  |      |   | (20,569 | )    |  |  |      |   | (28,332 | ) |  |  |  |   | (58,196 | ) |
| Domestic–deferred |  |  |      |   | 544     |      |  |  |      |   | 300     |   |  |  |  |   | (148    | ) |
| Foreign–deferred  |  |  |      |   | 2,516   |      |  |  |      |   | 3,560   |   |  |  |  |   | 9,763   |   |
|                    |  |  |      | $ | (17,872 | )    |  |  |      | $ | (24,861 | ) |  |  |  | $ | (48,969 | ) |
|                         |

TheCompany is subject to US and Russian income taxes, based on US, Russiantax legislation and the Double Tax Treaty of 1992 between the US andRussia (‘‘Treaty’’). The Russian-basedinvestee companies are subject to Russian income tax. US taxable incomeor losses recorded are reported on CTC Media, Inc.’s US incometax return. The statutory income tax rate in Russia was 24% in2004, 2005 and 2006.

CTC Media, Inc.’s taxable revenuesconsist predominantly of dividends and interest paid by theowned-and-operated affiliate stations. Dividends distributed to CTCMedia, Inc. are subject to a Russian withholding tax of 5% underthe Treaty. Dividends distributed within Russia are subject to awithholding tax of 6% in 2004, and 9% in 2005 and2006.

The reconciliation of the US statutory federal tax rate of35% to the Company’s effective tax rate is asfollows:

|                                              |  |  |      |   |         |      |  |  |      |   |         |   |  |  |  |   |         |   |
|----------------------------------------------|--|--|------|---|---------|------|--|--|------|---|---------|---|--|--|--|---|---------|---|
|                                         |  |  | 2004 |   |         | 2005 |  |  | 2006 |
| Incometax expense at US statutory rates(35%) |  |  |      | $ | (23,529 | )    |  |  |      | $ | (29,635 | ) |  |  |  | $ | (56,074 | ) |
| Non-off-settablegains(losses)                |  |  |      |   | 750     |      |  |  |      |   | (4,836  | ) |  |  |  |   | (5,845  | ) |
| Non-deductibleexpenses                       |  |  |      |   | (799    | )    |  |  |      |   | (1,368  | ) |  |  |  |   | (5,643  | ) |
| Equityin income of investeecompanies         |  |  |      |   | 250     |      |  |  |      |   | 202     |   |  |  |  |   | 664     |   |
| Foreignexchange differences (gains)losses    |  |  |      |   | (1,189  | )    |  |  |      |   | 540     |   |  |  |  |   | — |   |
| Differentforeign taxrates                    |  |  |      |   | 7,129   |      |  |  |      |   | 10,534  |   |  |  |  |   | 20,470  |   |
| Valuationallowanceutilized                   |  |  |      |   | — |      |  |  |      |   | — |   |  |  |  |   | 143     |   |
| Foreignwithholdingtax                        |  |  |      |   | (936    | )    |  |  |      |   | (1,436  | ) |  |  |  |   | (2,688  | ) |
| Otherpermanentdifferences                    |  |  |      |   | 452     |      |  |  |      |   | 1,138   |   |  |  |  |   | 4       |   |
| Incometaxexpense                             |  |  |      | $ | (17,872 | )    |  |  |      | $ | (24,861 | ) |  |  |  | $ | (48,969 | ) |
|                                              |

F-21

----

Deferred tax assets and liabilities arerecorded based on temporary differences between book bases of assetsand liabilities and their bases for income tax purposes. The followingtable summarizes the major components of the Company’s deferredtax assets and liabilities as of December 31, 2005 and2006:

|                                                |  |  |      |   |         |      |  |  |  |   |         |   |
|------------------------------------------------|--|--|------|---|---------|------|--|--|--|---|---------|---|
| Deferredtax assets andliabilities              |  |  | 2005 |   |         | 2006 |
| Netoperating losses and tax loss carryforwards |  |  |      | $ | 6,479   |      |  |  |  | $ | 8,136   |   |
| Previouslytaxed deemed dividendincome          |  |  |      |   | 3,975   |      |  |  |  |   | 6,447   |   |
| Programmingrights                              |  |  |      |   | 2,844   |      |  |  |  |   | 13,064  |   |
| Cable networkconnections cost                  |  |  |      |   | 1,043   |      |  |  |  |   | 954     |   |
| Accruedagencycommissions                       |  |  |      |   | 284     |      |  |  |  |   | 30      |   |
| Stock-basedcompensation                        |  |  |      |   | — |      |  |  |  |   | 423     |   |
| Otherdeferred taxassets                        |  |  |      |   | 432     |      |  |  |  |   | 305     |   |
| Valuationallowance                             |  |  |      |   | (8,242  | )    |  |  |  |   | (14,019 | ) |
| Totaldeferred taxasset                         |  |  |      | $ | 6,815   |      |  |  |  | $ | 15,340  |   |
| Intangibleassets                               |  |  |      |   | (9,369  | )    |  |  |  |   | (12,435 | ) |
| Property andequipment                          |  |  |      |   | (1,491  | )    |  |  |  |   | (1,827  | ) |
| Otherdeferred taxliabilities                   |  |  |      |   | (1,147  | )    |  |  |  |   | (2,755  | ) |
| Totaldeferred taxliability                     |  |  |      | $ | (12,007 | )    |  |  |  | $ | (17,017 | ) |
|                                                |

Thefollowing table presents the Company’s deferred tax assets andliabilities as of December 31, 2005 and 2006 attributableto different tax paying components in different taxjurisdictions:

|                            |  |  |      |   |         |      |  |  |  |   |         |   |
|----------------------------|--|--|------|---|---------|------|--|--|--|---|---------|---|
|                       |  |  | 2005 |   |         | 2006 |
| Deferredtax assets:        |  |  |      |   |    |      |  |  |  |   |    |   |
| Domestic taxcomponent      |  |  |      | $ | 9,471   |      |  |  |  | $ | 14,163  |   |
| Foreigntaxcomponent        |  |  |      |   | 5,586   |      |  |  |  |   | 15,196  |   |
| Valuationallowance         |  |  |      |   | (8,242  | )    |  |  |  |   | (14,019 | ) |
| Totaldeferred taxasset     |  |  |      | $ | 6,815   |      |  |  |  | $ | 15,340  |   |
| Deferredtax liabilities:   |  |  |      |   |    |      |  |  |  |   |    |   |
| Domestictaxcomponent       |  |  |      | $ | — |      |  |  |  | $ | — |   |
| Foreigntaxcomponent        |  |  |      |   | (12,007 | )    |  |  |  |   | (17,017 | ) |
| Totaldeferred taxliability |  |  |      | $ | (12,007 | )    |  |  |  |   | (17,017 | ) |
|                            |

Asof December  31,  2005 and 2006, CTC Media, Inc. had netoperating loss carryforwards (‘‘NOLs’’) forUS income tax purposes of $15,704 and $20,836, respectively, resultingin potential deferred tax benefits of $5,496 and $7,293, respectively.The NOLs expire in the period from 2012 to 2022.

In 2005 CTCMedia, Inc. received loans from CTC Network, which resulted in areduction in NOLs, as these loans are treated as deemed dividends forUS tax purposes and are subject to US income tax. Future dividenddistribution from CTC Network to CTC Media, Inc. in the amount of thepreviously taxed deemed dividend income(‘‘PTI’’) will not be taxed. As ofDecember  31,  2005 and 2006, the PTI potential deferredtax benefit amounted to $3,975 and $6,447, respectively. As ofDecember  31,  2006, the loans had been fullyrepaid.

During 2006, the Company elected not to claim foreign taxcredits in favor of claiming NOLs. For comparative purposes, theCompany has revised its 2005 description of the tax attributesunderlying its deferred tax asset and the related valuation allowanceon such deferred tax asset to reflect this change in tax planningstrategy.

As of December  31,  2005 and 2006,certain of the Company’s consolidated Russian subsidiaries hadtax loss carryforwards of $4,096 and $3,516, respectively, resulting inpotential deferred tax benefits of $983 and $844, respectively. Taxloss carryforwards expire primarily in 2015. For Russian income taxpurposes, the Company can use tax loss carry forwards for up to 10years after the year when the loss was 

F-22

----

incurred. Until December  31,2006, the relief could not exceed 50% of taxable income in agiven year. Effective January  1,  2007, full utilizationof the relief within a year is allowed.

As of December31,  2005 and 2006, the Company has recorded a valuationallowance due to the uncertainty of the realization of US NOLs of$3,341 and $5,139, respectively, Russian tax loss carryforwards of $926and $805, respectively, PTI of $3,975 and $6,447, respectively, andother deferred tax assets of nil and $1,628,respectively.

|           |                            |
|-----------|----------------------------|
| 14.  | STOCKHOLDERS’ EQUITY |

Asof December  31,  2004, 2005 and 2006, the Company’soutstanding share capital was asfollows:

|                                 |  |  |      |  |            |      |  |  |      |  |            |  |  |  |  |  |             |  |
|---------------------------------|--|--|------|--|------------|------|--|--|------|--|------------|--|--|--|--|--|-------------|--|
| Type                            |  |  | 2004 |  |            | 2005 |  |  | 2006 |
| Commonstockoutstanding          |  |  |      |  | 83,970,400 |      |  |  |      |  | 72,824,800 |  |  |  |  |  | 151,505,672 |  |
| Convertiblepreferredstock       |  |  |      |  |       |      |  |  |      |  |       |  |  |  |  |  |        |  |
| Class ASenior preferredstock    |  |  |      |  | 35,664     |      |  |  |      |  | 35,276     |  |  |  |  |  | —     |  |
| SuperSenior preferredstock      |  |  |      |  | 47,675     |      |  |  |      |  | 47,675     |  |  |  |  |  | —     |  |
| Totalpreferred stockoutstanding |  |  |      |  | 83,339     |      |  |  |      |  | 82,951     |  |  |  |  |  | —     |  |
|                                 |

CommonStock

The Company’s certificate of incorporationauthorizes the Company to issue 175,772,173 shares of common stock and,as of December  31,  2006, 151,505,672 shares were issuedand outstanding. Each holder of common stock is entitled to one votefor each share of common stock held of record on all matters whichstockholders generally are entitled to vote.

As ofDecember  31,  2006, the Company had reserved shares ofcommon stock for issuance of 11,657,840 common stock options.

During 2004, both former and current employees and directors and/ortheir affiliated entities exercised options to purchase an aggregate of4,906,400 shares of common stock for an aggregate consideration of$2,275.

During 2005, both former employees and current and formerdirectors and/or their affiliated entities exercised options topurchase an aggregate of 1,827,200 shares of common stock for anaggregate consideration of $1,827.

During 2006, both former andcurrent employees and directors and/or their affiliated entitiesexercised options to purchase an aggregate of 4,410,324 shares ofcommon stock for an aggregate consideration of $5,855.

OnJuly  29,  2005, the Company repurchased from itsstockholders an aggregate of 12,972,800 shares of its common stock foran aggregate consideration of $52,655 (net of $1,688 of aggregateexercise prices paid upon the exercise of options by former directorsand employees to buy shares that were immediately thereafterrepurchased by the Company).

Stock Splits

OnAugust  20,  2004, a 200-for-one stock split was effectedwith respect to the Company’s common stock. Concurrently, theconversion terms of the Class A Senior preferred stock and Super Seniorpreferred stock were increased from 1:1 to 1:200. On March2,  2006 a further four-for-one stock split was effected withrespect to the Company’s common stock. Concurrently with thislater stock split, the conversion terms of the Class A Senior preferredstock and Super Senior preferred stock were increased from 1:200 to1:800. All references in the accompanying consolidated financialstatements and notes to share and per share amounts have beenretroactively adjusted to reflect these changes.

F-23

----

Convertible Preferred Stock

As ofDecember  31,  2004, the authorized and outstandingconvertible preferred stock of the Company was asfollows:

|                              |  |  |                  |  |        |              |  |  |                                |  |        |                     |  |  |                       |  |  |  |  |         |  |  |  |  |   |         |  |
|------------------------------|--|--|------------------|--|--------|--------------|--|--|--------------------------------|--|--------|---------------------|--|--|-----------------------|--|--|--|--|---------|--|--|--|--|---|---------|--|
| Type                         |  |  | SharesAuthorized |  |        | SharesIssued |  |  | ConversionRateinto CommonStock |  |        | Liquidationpriority |  |  | Liquidationpreference |
| ClassA Senior preferredstock |  |  |                  |  | 40,000 |              |  |  |                                |  | 35,664 |                     |  |  | 1:800                 |  |  |  |  | — |  |  |  |  | $ | — |  |
| SuperSenior preferredstock   |  |  |                  |  | 50,000 |              |  |  |                                |  | 47,675 |                     |  |  | 1:800                 |  |  |  |  | 1       |  |  |  |  |   | 68,175  |  |
| Total                        |  |  |                  |  | 90,000 |              |  |  |                                |  | 83,339 |                     |  |  |                  |  |  |  |  |    |  |  |  |  | $ | 68,175  |  |
|                              |

OnAugust  13,  2004, an affiliate of a director exercised anoption to purchase 2,100 shares of Super Senior preferred stock for atotal consideration of $895.

As of December  31,2005, the authorized and outstanding convertible preferred stock of theCompany was asfollows:

|                              |  |  |                  |  |        |              |  |  |                                  |  |        |                     |  |  |                       |  |  |  |  |         |  |  |  |  |   |         |  |
|------------------------------|--|--|------------------|--|--------|--------------|--|--|----------------------------------|--|--------|---------------------|--|--|-----------------------|--|--|--|--|---------|--|--|--|--|---|---------|--|
| Type                         |  |  | SharesAuthorized |  |        | SharesIssued |  |  | Conversion Rate into CommonStock |  |        | Liquidationpriority |  |  | Liquidationpreference |
| ClassA Senior preferredstock |  |  |                  |  | 40,000 |              |  |  |                                  |  | 35,276 |                     |  |  | 1:800                 |  |  |  |  | — |  |  |  |  | $ | — |  |
| SuperSenior preferredstock   |  |  |                  |  | 50,000 |              |  |  |                                  |  | 47,675 |                     |  |  | 1:800                 |  |  |  |  | 1       |  |  |  |  |   | 68,175  |  |
| Total                        |  |  |                  |  | 90,000 |              |  |  |                                  |  | 82,951 |                     |  |  |                  |  |  |  |  |    |  |  |  |  | $ | 68,175  |  |
|                              |

OnJuly  29,  2005, the Company repurchased from itsstockholders an aggregate of 388 shares of Class A Senior preferredstock of an aggregate consideration of $1,300.

On June6,  2006, all convertible preferred stock was converted intocommon stock in conjunction with the Company’s initial publicoffering (‘‘IPO’’) as discussedbelow.

Initial Public Offering

The Company filed aregistration statement with the SEC to register shares of theCompany’s common stock in connection with the IPO. Upon closingof the IPO on June  6,  2006, the Company issued 7,909,748additional shares of common stock and all the convertible preferredstock outstanding automatically converted into 66,360,800 shares ofcommon stock. On December  31,  2006, the Company had atotal of 151,505,672 shares outstanding.

Stock-BasedCompensation

The Company has granted options and stockappreciation rights (‘‘SAR’’) to its employees,consultants and member of its Board of Directors pursuant to its 1997Stock Option/Stock Issuance Plan and its 1992 Stock Option Plan, aswell as pursuant to individual option agreements that are described inmore detail below.

|           |                                      |
|-----------|--------------------------------------|
| The  | 1997 Stock Option/StockIssuance Plan |

The 1997 Stock Option/Stock Issuance Plan(‘‘1997 Plan’’) provides for the issuanceof a maximum of 3,460,000 shares of common stock to employees,consultants and members of the Board of Directors. The 1997 Planconsists of two separate equity programs: the option grant program,under which eligible participants may be granted options to purchaseshares of common stock; and the stock issuance program, under whicheligible participants may be issued shares of common stock directly,either through the immediate purchase of such shares or as a bonus forservices rendered to the Company. For both programs, the exercise orpurchase price was historically fixed by the Company’s Board ofDirectors and, in the future, will be fixed by the CompensationCommittee of the Board of Directors.

F-24

----

Under the option grant program, theoption exercise price per share may not be less than 85% of thefair market value per share of common stock on the option grant datefor nonqualified options or 100% of fair market value forincentive stock options. If the person to whom the option is granted isa holder of 10% or more of common stock, then the exercise priceper share shall not be less than 110% of fair market value pershare of common stock on the option grant date.

Under the stockissuance program, the purchase price per share may not be less than85% of the fair market value per share of common stock on theissue date. If the person purchasing the common stock is a holder of10% or more of common stock, then the purchase price per shareshall not be less than 110% of fair market value per share ofcommon stock on the issue date.

The maximum term of an optiongranted under the 1997 Plan may not exceed ten years. The 1997 Planexpires at midnight on May  14,  2007. After itsexpiration, no further grants can be made under the 1997 Plan but thevesting and effectiveness of options previously granted will remainunaffected.

In November  2004, the Company granted anoption to an officer of the Company to purchase 376,604 shares ofcommon stock at an exercise price of $3.98. In April  2005, theCompany granted an option to an officer of the Company to purchase376,604 shares of common stock at an exercise price of $3.98.

Thefollowing assumptions were used in the option-pricingmodel:

|                                                             |  |  |             |  |  |             |
|-------------------------------------------------------------|--|--|-------------|--|--|-------------|
|                                                        |  |  | 2004options |  |  | 2005options |
| Riskfree interestrate                                       |  |  | 3.13%       |  |  | 3.76%       |
| Expectedoption life (years)                                 |  |  | 4           |  |  | 4           |
| Expecteddividendyield                                       |  |  | —     |  |  | —     |
| Volatilityfactor                                            |  |  | 0%          |  |  | 0%          |
| Weighted-averagegrant date fair value of options (pershare) |  |  | $0          |  |  | $0.84       |
|                                                             |

As ofDecember  31,  2006 there were outstanding options topurchase 918,084 shares of common stock at a weighted average exerciseprice of $10.60 granted under the 1997 Plan’s option grantprogram and issuances of an aggregate of 56,000 shares under the 1997Plan’s stock issuance program. As ofDecember 31, 2006 options to purchase 1,625,524 shareshad been exercised under the 1997 Plan at a weighted average exerciseprice of $1.40. To date, the exercise price of all options granted hasbeen at or above the estimated fair market value of the shares at thegrant date, as determined by the Company’s Board ofDirectors.

The 1992 Stock Option Plan

The 1992Stock Option Plan (‘‘1992 Plan’’) providedfor the grant of options to purchase a maximum of 5,189,600 shares ofcommon stock to employees, consultants and members of the Board ofDirectors. The 1992 Plan expired in October  2002. As a result,no further grants can be made under this plan but the vesting andeffectiveness of options previously granted are unaffected by theexpiration of the 1992 Plan.

In 1992 the Company granted to aformer officer of the Company an option to purchase 186,400 shares ofcommon stock at an exercise price of $0.56. The option expired atSeptember  14,  2004 without being exercised.

As ofDecember  31,  2006 there were options to purchase 13,600shares outstanding under the 1992 Plan at a weighted average exerciseprice of $0.70. In addition, as of such date, options to purchase3,908,800 shares of common stock at a weighted average exercise priceof $0.35 had been exercised. All options granted under the 1992 Planwere granted at the estimated fair market value of the shares at dateof grant as determined by the Company’s Board ofDirectors.

CEO Stock Appreciation Rights

InSeptember  2003, the Company granted to Alexander Rodnyansky, itsChief Executive Officer and the General Director of the CTC Network,SAR to purchase a total of 9,326,400 shares of common stock.

F-25

----

The exercise price applicable to thepurchase of 50% of those shares is $1.19 per share and theexercise price for the remaining shares is $1.79 per share. The SARvests quarterly over a three-year period that commenced on June30,  2003, and is fully vested. Upon exercise of the SAR, theCompany has the option to settle its obligation by issuing commonshares, paying cash, or any combination. As of December31,  2006, the Company intends to settle the SAR by issuingcommon shares. In connection with the Company’s IPO, Mr.Rodnyansky partially exercised the SAR with respect to 3,108,800 sharesat an exercise price of $1.19 per share and sold such shares in theIPO. The SAR expires on September  15,  2013.

As ofthe grant date the Company expected that all the rights under the SARwill vest. The Company’s compensation expense was measured at thegrant date and is being recognized over the graded vesting period ofthe rights under the SAR. The Company determined the fair value of theSAR using the minimum value method. The Company expensed $1,082, $416and $57 as a component of stock-based compensation in the accompanyingconsolidated statements of income in 2004, 2005 and 2006,respectively.

The following assumptions were used in theSAR-pricingmodel:

|                                                         |  |  |             |   |         |   |
|---------------------------------------------------------|--|--|-------------|---|---------|---|
|                                                    |  |  | 2003options |
| Risk free interestrate                                  |  |  |             |   | 2.16    | % |
| Expected option life(years)                             |  |  |             |   | 3       |   |
| Expected dividendyield                                  |  |  |             |   | — |   |
| Volatilityfactor                                        |  |  |             |   | 0       | % |
| Weighted-average grant datefair value of SAR (pershare) |  |  |             | $ | 0.40    |   |
|                                                         |

Director StockOptions

During 2003, the Company granted options to purchasean aggregate of 3,200,000 shares of common stock to one of itsdirectors and affiliates of two other directors. Two of these grantswere made in connection with consulting agreements. The weightedaverage exercise price of these option grants was $0.91 per share. Inconnection with these grants, one director and an affiliate of anotherdirector agreed to cancel existing options to purchase 2,420,800 sharesof common stock at a weighted average exercise price of $3.26 pershare. The Company attributed the grant of the options to past servicesand expensed the $2,704 estimated value of these options in 2003.During 2004, as described above, these options were exercised topurchase 1,876,000 shares of common stock at a weighted averageexercise price of $0.63. In July  2005, these options wereexercised to purchase a further 1,060,000 shares of common stock at aweighted average purchase price of $1.33 per share. In June2006, the remaining 264,000 options were exercised in conjunction withthe Company’s IPO at a weighted average exercise price of $1.20per share. 

The following assumptions were used in theoption-pricingmodel:

|                                                              |  |  |                    |
|--------------------------------------------------------------|--|--|--------------------|
|                                                         |  |  | 2003options        |
| Risk free interestrate                                       |  |  | 2.15%– 3.98% |
| Expected option life(years)                                  |  |  | 3-10               |
| Expected dividendyield                                       |  |  | —            |
| Volatilityfactor                                             |  |  | 0%,100%            |
| Weighted-average grant date fair valueof options (per share) |  |  | $1.46              |
|                                                              |

TheCompany’s capital stock was not publicly traded on the date ofgrant. Volatility of the stock price for non-employees was made basedon management’s consideration of other companies having similarcharacteristics, primarily emphasizing those companies operating inRussia. The fair values of employee stock options have been determinedusing the minimum value method.

In January  1999, theCompany granted an option to purchase 2,100 shares of Super Seniorpreferred stock at an exercise price of $426 per share to one if itsdirectors. The option became fully vested on June  30,2000. In August  2004, this option was fullyexercised.

F-26

----

Executive Officer and ManagementOptions

In May  2006, the Company’s Board ofDirectors approved the grant of options to purchase an aggregate of4,918,556 shares of Company’s common stock to executive officersand other members of management upon the closing of the IPO; 410,000 ofwhich were granted under the 1997 plan. The exercise price for theseoptions is $16.95 per share, equal to the average closing sales priceper share of the Company’s common stock for the first twentytrading days on the NASDAQ Global Market. These stock options vest on aquarterly basis over three- to four-year periods and have a maximumterm of ten years from the grant date.

In September  2006,the Company’s Board of Directors approved the grant of optionsto purchase an aggregate of 50,000 shares of Company’s commonstock to another member of management under the 1997 plan. The exerciseprice for these options is $21.53 per share, equal to the closing salesprice per share on the date of grant. These stock options vest on aquarterly basis over four years and have a maximum term of ten yearsfrom the grant date.

The following assumptions were used in theoption-pricingmodel:

|                                                             |  |  |                 |   |         |                      |  |  |  |   |         |   |
|-------------------------------------------------------------|--|--|-----------------|---|---------|----------------------|--|--|--|---|---------|---|
|                                                        |  |  | May2006 options |   |         | September2006options |
| Risk free interestrate                                      |  |  |                 |   | 5.24    | %                    |  |  |  |   | 4.75    | % |
| Expectedoption life (years)                                 |  |  |                 |   | 5.9     |                      |  |  |  |   | 6.0     |   |
| Expecteddividendyield                                       |  |  |                 |   | — |                      |  |  |  |   | — |   |
| Volatilityfactor                                            |  |  |                 |   | 46      | %                    |  |  |  |   | 46      | % |
| Weighted-averagegrant date fair value of options (pershare) |  |  |                 | $ | 8.42    |                      |  |  |  | $ | 10.95   |   |
|                                                             |

The followingtable summarizes options and SAR activity for theCompany:

|                                                            |  |  |                     |  |            |                                    |  |  |          |   |         |                              |  |  |          |  |         |                              |  |  |  |   |         |  |  |  |  |  |            |   |  |  |  |   |         |  |
|------------------------------------------------------------|--|--|---------------------|--|------------|------------------------------------|--|--|----------|---|---------|------------------------------|--|--|----------|--|---------|------------------------------|--|--|--|---|---------|--|--|--|--|--|------------|---|--|--|--|---|---------|--|
|                                                       |  |  | CommonStock Options |  |            | Super Senior PreferredStockOptions |  |  | SAR      |
|                                                       |  |  | Quantity            |  |            | WeightedAverageExercisePrice       |  |  | Quantity |   |         | WeightedAverageExercisePrice |  |  | Quantity |  |         | WeightedAverageExercisePrice |
| Outstanding as ofDecember31,2003                           |  |  |                     |  | 11,444,000 |                                    |  |  |          | $ | 0.93    |                              |  |  |          |  | 2,100   |                              |  |  |  | $ | 426     |  |  |  |  |  | 9,326,400  |   |  |  |  | $ | 1.49    |  |
| Granted                                                    |  |  |                     |  | 376,604    |                                    |  |  |          |   | 3.98    |                              |  |  |          |  | — |                              |  |  |  |   | — |  |  |  |  |  | —    |   |  |  |  |   | — |  |
| Exercised                                                  |  |  |                     |  | (4,906,400 | )                                  |  |  |          |   | 0.47    |                              |  |  |          |  | (2,100  | )                            |  |  |  |   | 426     |  |  |  |  |  | —    |   |  |  |  |   | — |  |
| Cancelled                                                  |  |  |                     |  | —    |                                    |  |  |          |   | — |                              |  |  |          |  | — |                              |  |  |  |   | — |  |  |  |  |  | —    |   |  |  |  |   | — |  |
| Expired                                                    |  |  |                     |  | (3,587,200 | )                                  |  |  |          |   | 1.52    |                              |  |  |          |  | — |                              |  |  |  |   | — |  |  |  |  |  | —    |   |  |  |  |   | — |  |
| Outstandingas of     December  31,2004 |  |  |                     |  | 3,327,004  |                                    |  |  |          |   | 1.30    |                              |  |  |          |  | — |                              |  |  |  |   | — |  |  |  |  |  | 9,326,400  |   |  |  |  |   | 1.49    |  |
| Granted                                                    |  |  |                     |  | 376,604    |                                    |  |  |          |   | 3.98    |                              |  |  |          |  | — |                              |  |  |  |   | — |  |  |  |  |  | —    |   |  |  |  |   | — |  |
| Exercised                                                  |  |  |                     |  | (1,827,200 | )                                  |  |  |          |   | 1.00    |                              |  |  |          |  | — |                              |  |  |  |   | — |  |  |  |  |  | —    |   |  |  |  |   | — |  |
| Cancelled                                                  |  |  |                     |  | —    |                                    |  |  |          |   | — |                              |  |  |          |  | — |                              |  |  |  |   | — |  |  |  |  |  | —    |   |  |  |  |   | — |  |
| Expired                                                    |  |  |                     |  | (103,200   | )                                  |  |  |          |   | 0.79    |                              |  |  |          |  | — |                              |  |  |  |   | — |  |  |  |  |  | —    |   |  |  |  |   | — |  |
| Outstandingas of     December  31,2005 |  |  |                     |  | 1,773,208  |                                    |  |  |          |   | 2.19    |                              |  |  |          |  | — |                              |  |  |  |   | — |  |  |  |  |  | 9,326,400  |   |  |  |  |   | 1.49    |  |
| Granted                                                    |  |  |                     |  | 4,968,556  |                                    |  |  |          |   | 17.00   |                              |  |  |          |  | — |                              |  |  |  |   | — |  |  |  |  |  |       |   |  |  |  |   |    |  |
| Exercised                                                  |  |  |                     |  | (1,301,524 | )                                  |  |  |          |   | 1.66    |                              |  |  |          |  | — |                              |  |  |  |   | — |  |  |  |  |  | (3,108,800 | ) |  |  |  |   | 1.19    |  |
| Cancelled                                                  |  |  |                     |  | —    |                                    |  |  |          |   | — |                              |  |  |          |  | — |                              |  |  |  |   | — |  |  |  |  |  | —    |   |  |  |  |   | — |  |
| Expired                                                    |  |  |                     |  | —    |                                    |  |  |          |   | — |                              |  |  |          |  | — |                              |  |  |  |   | — |  |  |  |  |  | —    |   |  |  |  |   | — |  |
| Outstandingas of     December  31,2006 |  |  |                     |  | 5,440,240  |                                    |  |  |          | $ | 15.84   |                              |  |  |          |  | — |                              |  |  |  |   | — |  |  |  |  |  | 6,217,600  |   |  |  |  | $ | 1.64    |  |
|                                                            |

F-27

----

The following table summarizesinformation about nonvested common stock options andSAR:

|                                  |  |  |                    |  |            |                                    |  |  |          |   |         |                                    |  |  |  |  |            |   |  |  |  |   |         |  |
|----------------------------------|--|--|--------------------|--|------------|------------------------------------|--|--|----------|---|---------|------------------------------------|--|--|--|--|------------|---|--|--|--|---|---------|--|
|                             |  |  | CommonStockOptions |  |            | SAR                                |
|                             |  |  | Quantity           |  |            | WeightedAverageGrant-dateFairValue |  |  | Quantity |   |         | WeightedAverageGrant-dateFairValue |
| Nonvested as of December31,2005  |  |  |                    |  | 509,988    |                                    |  |  |          | $ | 0.43    |                                    |  |  |  |  | 1,137,600  |   |  |  |  | $ | 0.31    |  |
| Granted                          |  |  |                    |  | 4,968,556  |                                    |  |  |          |   | 8.45    |                                    |  |  |  |  | —    |   |  |  |  |   | — |  |
| Vested                           |  |  |                    |  | (1,043,426 | )                                  |  |  |          |   | 6.74    |                                    |  |  |  |  | (1,137,600 | ) |  |  |  |   | 0.31    |  |
| Forfeited                        |  |  |                    |  | —    |                                    |  |  |          |   | — |                                    |  |  |  |  | —    |   |  |  |  |   | — |  |
| Nonvestedas of December  31,2006 |  |  |                    |  | 4,435,118  |                                    |  |  |          | $ | 7.93    |                                    |  |  |  |  | —    |   |  |  |  |   | — |  |
|                                  |

Thefollowing table summarizes information about exercisable common stockoptions andSAR:

|                   |  |  |                    |  |           |                                |  |  |                                           |   |       |          |  |  |                                |  |  |                                            |  |           |  |  |  |  |   |      |  |  |  |          |
|-------------------|--|--|--------------------|--|-----------|--------------------------------|--|--|-------------------------------------------|---|-------|----------|--|--|--------------------------------|--|--|--------------------------------------------|--|-----------|--|--|--|--|---|------|--|--|--|----------|
|              |  |  | CommonStockOptions |  |           | SAR                            |
|              |  |  | Quantity           |  |           | WeightedAverage Exercise Price |  |  | Weighted AverageRemaining ContractualTerm |   |       | Quantity |  |  | Weighted Average ExercisePrice |  |  | Weighted Average RemainingContractual Term |
| December  31,2006 |  |  |                    |  | 1,005,122 |                                |  |  |                                           | $ | 14.47 |          |  |  | 8.8years                       |  |  |                                            |  | 6,217,600 |  |  |  |  | $ | 1.64 |  |  |  | 6.7years |
|                   |

The following table summarizes informationabout the intrinsic value of Company’s common stock options andSAR as of December  31,  2006 and for the year thenended:

|                                                 |  |  |                    |   |        |     |  |  |  |   |         |  |
|-------------------------------------------------|--|--|--------------------|---|--------|-----|--|--|--|---|---------|--|
|                                            |  |  | CommonStockOptions |   |        | SAR |
| Total intrinsic valueof options/SARexercised    |  |  |                    | $ | 16,065 |     |  |  |  | $ | 39,824  |  |
| Totalintrinsic value of options/SARvested       |  |  |                    |   | 10,197 |     |  |  |  |   | 25,619  |  |
| Total intrinsicvalue of options/SAR outstanding |  |  |                    |   | 44,459 |     |  |  |  |   | 139,088 |  |
| Total intrinsicvalue of options/SAR exercisable |  |  |                    |   | 9,592  |     |  |  |  |   | 139,088 |  |
|                                                 |

The Companyrecognized stock-based compensation expense of $1,082, $599 and $7,155for the years ended December  31,  2004, 2005 and 2006,respectively. As of December  31,  2006, the totalcompensation cost related to unvested awards not yet recognized is$35,020 to be recognized over a weighted average period of 2.93years.

|           |                           |
|-----------|---------------------------|
| 15.  | RELATED-PARTYTRANSACTIONS |

Transactions with PrincipalStockholders

In 2004 and 2005, the Company entered into termloan and credit line arrangements with Alfa Bank, as described inNote 12.

The Company has entered into a series of letteragreements with Alfa Group for consulting services provided when theCompany engages in tenders for new broadcasting licenses or negotiatesto acquire a new owned-and-operated affiliate television station. Underthese agreements, the Company incurred and capitalized as part of thepurchase price of the related television stations success fees in thetotal amount of nil, $350 and nil in 2004, 2005 and 2006,respectively.

In 2004, 2005 and 2006 the Company licensed $1,273,nil and nil, respectively, in Russian-produced television programmingfrom OOO Gamma Film, an affiliate of Alfa Group. In 2006 the Companyrecognized sublicensing revenue of $547 in relation to programming soldto Gamma.

The Company received advertising revenue from AlfaGroup and its group companies of nil, $247 and $896 in 2004, 2005 and2006, respectively.

F-28

----

Alfa Bank has opened three unsecuredletters of credit in favor of a programming distributor to guaranteethe Company’s obligations under licensing agreements. AlfaBank’s commissions and fees in respect of these letters ofcredit amounted to $198, $244 and $163 in 2004, 2005 and 2006,respectively.

The Company maintains certain of its cash balanceswith Alfa Bank. Alfa Bank charged commissions for banking services of$62, $163 and $194 in 2004, 2005 and 2006, respectively. Interestincome paid to the Company by Alfa Bank amounted to $129, $128 and $199in 2004, 2005 and 2006, respectively.

The Company previouslyengaged Shared Value Limited to provide investor relations andcorporate public relations services. The engagement of Shared ValueLimited was terminated in 2005. The beneficial owners of a company thatowns a significant stake in Shared Value Limited also holds interestsin companies that own significant stakes in Modern Times Group MTG AB,an affiliate of one of the Company’s principal stockholders. Thefees paid to Shared Value Limited amounted to $118 and $52 in 2004 and2005, respectively.

Directors

In each of 2004,2005 and 2006 two members of the Board of Directors were paid forconsulting services provided to the Company and recharged the Companyfor certain expenses they incurred in connection with the provision ofthese consulting services. The aggregated consulting fees incurredamounted to $522, $471 and $100, respectively.

In 2006, theCompany acquired from one of the directors programming rights fordocumentary films amounted to $270.

Chief ExecutiveOfficer

The Company’s CEO has an interest in anentity to which the Company sells programming and from which theCompany acquires programming. In 2004, 2005 and 2006, the Company soldprogramming to this entity in the amounts of $141, $2,599 and $7,694,respectively. Deferred revenue relating to cash received for thisprogramming amounted to $922 and nil as of December 31, 2005 and 2006,respectively. Accounts receivable for such programming amounted to niland $1,372, respectively, in 2005 and 2006. In 2004, 2005 and 2006, theCompany acquired programming in the amounts of $756, $667 and $815,respectively, from this entity. Accounts payable for the programmingamounted to nil and $514, respectively, in 2005 and 2006.

In 2004and 2005, the Company obtained design services from a subsidiary of anentity in which the CEO has an interest. The aggregate fees amounted to$131.

The Company’s CEO has an interest in another entitywhich places advertising on the Company’s networks and fromwhich the Company acquires programming. In 2005 and 2006 the Companyacquired programming in the amounts of $178 and $144, respectively. TheCompany received advertising revenue from the entity of nil, $734 and$843 in 2004, 2005 and 2006, respectively. Accounts receivable foradvertising were nil and $96 as of December  31,  2005 and2006, respectively.

The CEO has served as one of the producers ofa number of cinema releases, for which the Company has acquired rightsto broadcast. The CEO has not received compensation for his services asproducer of such films.

Other

An employee of theCompany has an interest in an entity from which the Company acquiresprogramming. In 2004, 2005 and 2006 programming acquired amounted tonil, nil and $4,046, respectively. Prepayments to the entity amountedto nil and $365 as of December  31,  2005 and 2006,respectively.

|           |                              |
|-----------|------------------------------|
| 16.  | COMMITMENTS ANDCONTINGENCIES |

Purchase commitments

The Company hascommitments to purchase programming rights, for which the licenseperiod has not started or the underlying program is not yet available.As of December  31,  2006, such commitments 

F-29

----

amounted to $52,430. The Company is to pay$44,812, $6,722 and $896 in 2007, 2008 and 2009, respectively, underthese commitments.

The Company has commitments to purchaseproperty and equipment. As of December  31,  2006, suchcommitments amounted to $541 and are required to be paid in 2007.

Office space

The Company has entered into agreements inregard to the future 10-year lease of approximately 12,000 squaremeters of office space in a building currently under construction inMoscow. Pursuant to Russian law and market practice, these agreementsare structured as preliminary agreements which allow the Company to fixcertain key terms of a final lease agreement that will be signed in thefuture. Under these preliminary agreements, the Company is obligated toenter into final lease agreements if the building is completedaccording to certain specifications and the state registration of titleto the building is granted within the required timeframe. The Companycan however cancel the preliminary agreements prior to signing thefinal lease agreements, in which case the Company would forfeit thesecurity deposit paid of $1.7  million (at exchange rates as ofDecember 31, 2006) and be required to pay certain other expensesincurred by the landlord on the Company’s behalf.

Thebuilding is scheduled to be available for occupancy by July2008. If the Company consummates the final lease agreement under thecurrently agreed terms, the Company will pay a base annual rentcommencing as of the occupancy date of approximately $8.6million ($716 per square meter at exchange rates as of December31,  2006). The rent is payable in rubles, but the rate willfluctuate based on the exchange rate between the ruble and the dollarand the ruble and the Euro, with annual increases after the second yearof between 3% and 6% based on inflation rates in theUnited States. For the first twelve months of the lease, the annualrent will be reduced to approximately $6.2  million ($519 persquare meter at exchange rates as of December  31,  2006)to compensate the Company for a portion of its fit-out costs. The finallease agreements would require us to pay an annual fee for propertymanagement and utilities of approximately $1.3  million (atexchange rates as of December 31, 2006) with increases starting in thesecond year of occupancy indexed to the Russian rate of inflation. Oncethe Company enters into the final lease, it may terminate the lease forany reason during the first five years upon twenty months’written notice, the payment of $3.5  million (at exchange ratesas of December  31,  2006) and the forfeiture of thesecurity deposit. The Company may terminate the lease during theremaining five years of the final lease agreement for any reason upontwelve months’ written notice.

If the final lease isentered into, the Company estimates at December  31,  2006,that future minimum lease payments under the final lease agreement areasfollows:

|                               |  |  |  |   |         |  |
|-------------------------------|--|--|--|---|---------|--|
| Forthe year ended December31, |  |  |  |   |    |  |
| 2007                          |  |  |  | $ | — |  |
| 2008                          |  |  |  |   | 3,411   |  |
| 2009                          |  |  |  |   | 8,015   |  |
| 2010                          |  |  |  |   | 9,338   |  |
| 2011andthereafter             |  |  |  |   | 78,981  |  |
|                          |  |  |  | $ | 99,745  |  |
|                               |

Operatingleases

The Company has several cancelable operating leases forsatellite transponders and office space with terms ranging from one toeleven years.

F-30

----

Future minimum lease payments due underthese leases at December 31, 2006 are asfollows:

|                               |  |  |  |   |        |  |
|-------------------------------|--|--|--|---|--------|--|
| Forthe year ended December31, |  |  |  |   |   |  |
| 2007                          |  |  |  | $ | 1,808  |  |
| 2008                          |  |  |  |   | 1,602  |  |
| 2009                          |  |  |  |   | 439    |  |
| 2010                          |  |  |  |   | 470    |  |
| 2011andthereafter             |  |  |  |   | 3,413  |  |
|                          |  |  |  | $ | 7,732  |  |
|                               |

Totaloperating lease expense was $3,105, $3,946 and $4,727 in 2004, 2005 and2006,respectively.

Concentrations

Revenues

Nationaltelevision advertising in Russia is generally not placed directly withchannels or networks. Instead, two ‘‘saleshouses,’’ Video International and a sales houseaffiliated with a competitor control the placement of virtually allnational television advertising in Russia. The Company has agreementswith Video International under which Video International serves as theCompany’s exclusive sales house for the placement of nationaladvertising on the Networks. Effective January  1,  2006,Video International also began acting as the exclusive sales house forthe placement of regional television advertising for substantially allof the stations in the Television Station Groups.

TheCompany’s agreements with Video International extend throughDecember  2007 and December  2009 for CTC Networkand Domashny Network, respectively and 2010 for the TelevisionStation Group. These agreements are generally terminable upon 180days’ notice by either party. A disruption in therelationship with Video International or early termination of theagreements could have a material adverse effect on the Company’sbusiness, financial condition and results of operations. Managementbelieves the likelihood of the agreements being terminated isremote.

The Company’s revenues sold through VideoInternational account for 72% of total operating revenues of$155,567 in 2004, 71% of total operating revenues of $237,477 in2005 and 95% of total operating revenues of $370,834 in2006.

Acquisitions of programming rights

TheCompany’s acquisitions of programming rights and sublicensingrights from its single largest supplier account for 22%,23% and 22%, respectively, of total programming rightsacquired in 2004, 2005 and 2006.

Tax Matters

TheCompany’s policy is to accrue for contingencies in the accountingperiod in which a liability is deemed probable and the amount isreasonably determinable. In this regard, because of the uncertaintiesassociated with the Russian tax system, the Company’s finalRussian taxes may be in excess of the estimated amount expensed to dateand accrued at December  31,  2005 and 2006. This is due toa combination of the evolving tax legislation, varying approaches byregional and local tax inspectors, and inconsistent rulings ontechnical matters at the judicial level. The tax authorities have alsoaggressively assessed material tax assessments on Russian businesses,at times without a clear legislative basis. As of December31,  2005 and 2006, the Company included accruals for taxcontingencies totaling $2,019 and $876 as a component of accruedliabilities. The main part of the amounts reversed during 2005 and 2006relates to the reversal of $768 and $1,023, respectively, of taxcontingency accrual recorded in the initial purchase price allocationfor the acquisition of OAO Teleexpress (Moscow) which was accounted foras a reduction of goodwill.

The following table summarizes thechanges in the accrual for tax contingencies for the years endedDecember  31,  2004, 2005 and 2006:

F-31

----

|                                       |  |  |      |   |         |      |  |  |      |   |         |   |  |  |  |   |        |   |
|---------------------------------------|--|--|------|---|---------|------|--|--|------|---|---------|---|--|--|--|---|--------|---|
|                                  |  |  | 2004 |   |         | 2005 |  |  | 2006 |
| Balance,beginning ofperiod            |  |  |      | $ | 338     |      |  |  |      | $ | 3,206   |   |  |  |  | $ | 2,019  |   |
| Additions                             |  |  |      |   | 2,868   |      |  |  |      |   | 234     |   |  |  |  |   | 35     |   |
| Amountsused                           |  |  |      |   | — |      |  |  |      |   | (345    | ) |  |  |  |   | (123   | ) |
| Amountsreversed                       |  |  |      |   | — |      |  |  |      |   | (1,076  | ) |  |  |  |   | (1,213 | ) |
| Foreigncurrency translationadjustment |  |  |      |   | — |      |  |  |      |   | — |   |  |  |  |   | 158    |   |
| Balance,end ofperiod                  |  |  |      | $ | 3,206   |      |  |  |      | $ | 2,019   |   |  |  |  | $ | 876    |   |
|                                       |

Theamounts included in the accompanying consolidated statements of incomefor the years ended December  31,  2004, 2005 and 2006 were$155 expense, $8 expense and $152 income, respectively. The remainingamounts included in additions and amounts reversed relate toacquisitions and accordingly were included as part of the purchaseprice allocations. Additionally, the Company has identified possibletax contingences, which are not accrued. Such possible taxcontingencies could materialize and require the Company to payadditional amounts of tax. As of December 31, 2006management estimates such tax contingencies to be up to approximately$4.5  million.

It is the opinion of management thatultimate resolution of the Company’s tax liabilities, to theextent not previously provided for, will not have a material effect onthe financial condition of the Company. However, depending on theamount and timing of an unfavorable resolution of any contingenciesassociated with taxes, it is possible that the Company’s futureoperations or cash flows could be materially affected in a particularperiod.

Broadcast Licenses

All of the Company’saffiliate television stations, including those that areowned-and-operated, are required to have broadcast and other operatinglicenses. Only a limited number of such licenses are available in eachlocality. These licenses generally require renewal every fiveyears.

The broadcast licenses of affiliate stations containvarious restrictions and obligations, including requirements that atleast 50% of the programming shown constitute‘‘Russian content’’ and governmentalauthorities recently added an additional term to the broadcast licensesof some of CTC owned-and-operated stations requiring that 9% ofdaily broadcast time at these stations be devoted to‘‘local content’’. Certain affiliates maynot have always been in compliance with this requirement. If the termsof a license are not fulfilled, or if a television station violatesRussian legislation or regulations, the license may be suspended orterminated. Management believes that the probability of initiation ofaction against any material affiliate is remote.

TerminationBenefits

In connection with engaging Video International to bethe exclusive advertising sales house for substantially all of theowned-and-operated stations in the Television Station Groups, theCompany decreased the headcount of the sales and support personnel inthe first quarter of 2006, resulting in $638 in severance costs thatwere accrued and expensed in the fourth quarter of 2005, in accordancewith SFAS No. 146, Accounting for Costs Associated with Exit orDisposal Activities. As of December  31,  2006, all ofthese accrued severance costs have been paid.

Net AssetsPosition in Accordance with Statutory Requirements

In accordancewith Russian legislation, joint stock companies must maintain a levelof equity (net assets) that is greater than the charter capital. In theevent that a company’s net assets, as determined under Russianaccounting legislation, fall below certain minimum levels, specificallybelow zero, the company can be forced to liquidate.

ZAO NewChannel, OAO Teleexpress and some other regional entities have had, andcontinue to have, negative equity as reported in each of their Russianstatutory financial statements. Management believes that the risk ofthe initiation of statutory liquidation procedures or other materialadverse actions is remote. However, if such actions were taken, itcould have a material adverse effect on the Company’s results ofoperations, financial position and operating plans.

F-32

----

Russian Environment and Current EconomicSituation

While there have been improvements in the Russianeconomic situation, such as an increase in gross domestic product and areduced rate of inflation, Russia continues economic reforms anddevelopment of its legal, tax and regulatory frameworks as required bya market economy. The future stability of the Russian economy islargely dependent on these reforms and developments and theeffectiveness of economic, financial and monetary measures undertakenby the government.

Legal and Tax Proceedings

In theordinary course of business, the Company may be party to various legaland tax proceedings, and subject to claims, certain of which relate tothe developing markets and evolving fiscal and regulatory environmentsin which the Company operates. In the opinion of management, theCompany’s liability, if any, in all pending litigation, otherlegal proceeding or other matters, will not have a material effect uponthe financial condition, results of operations or liquidity of theCompany.

In the fourth quarter of 2006, the Company’swholly-owned subsidiary, ZAO CTC Network, was engaged in litigationwith the Russian tax inspectorate in regard to a claim received inAugust  2006 for approximately $0.4  million at the USdollar/ruble exchange rate as of December  31,  2006relating to tax payments transferred in 1998 and 1999 from its bankaccounts that were allegedly not received by the government. InOctober  2006, the Company filed a lawsuit disputing the claim,and the court ruled in its favor in December  2006. While theCompany intends to defend its position vigorously, if the courts wereto rule in favor of the tax inspectorate upon appeal, it is possiblethat the tax inspectorate could also claim significant late paymentinterest. The Company does not believe an unfavorable outcome of thismatter to be probable at this time; therefore, no provision iscurrently recorded in the financial statements.

|           |                     |
|-----------|---------------------|
| 17.  | SEGMENT INFORMATION |

The Company operates in fourbusiness segments — CTC Network, Domashny Network, CTCTelevision Station Group, Domashny Television Station Group. TheCompany has presented its business segments consistent with theinformation used by the chief operating decision maker to manage theoperations for purposes of making operating decisions and allocatingresources. The Company evaluates performance based on the operatingincome of each segment, among other performancemeasures.

|                                   |  |  |                             |   |         |                 |  |  |                 |  |         |                      |  |  |                        |   |         |                      |  |  |                     |   |         |   |  |  |  |   |         |   |  |  |  |   |         |   |  |  |  |   |         |   |
|-----------------------------------|--|--|-----------------------------|---|---------|-----------------|--|--|-----------------|--|---------|----------------------|--|--|------------------------|---|---------|----------------------|--|--|---------------------|---|---------|---|--|--|--|---|---------|---|--|--|--|---|---------|---|--|--|--|---|---------|---|
|                              |  |  | YearEnded December  31,2004 |
|                              |  |  | CTC Network                 |   |         | DomashnyNetwork |  |  | CTCStationGroup |  |         | DomashnyStationGroup |  |  | Businesssegmentresults |   |         | Eliminationsandother |  |  | Consolidatedresults |
| Operatingrevenue                  |  |  |                             | $ | 115,288 |                 |  |  |                 |  | — |                      |  |  |                        | $ | 37,712  |                      |  |  |                     | $ | 2,955   |   |  |  |  | $ | 155,955 |   |  |  |  | $ | (388    | ) |  |  |  | $ | 155,567 |   |
| Operatingincome/(loss)            |  |  |                             |   | 57,041  |                 |  |  |                 |  | — |                      |  |  |                        |   | 16,484  |                      |  |  |                     |   | (1,799  | ) |  |  |  |   | 71,726  |   |  |  |  |   | (9,167  | ) |  |  |  |   | 62,559  |   |
| Identifiableassets                |  |  |                             |   | 136,721 |                 |  |  |                 |  | 17,858  |                      |  |  |                        |   | 34,454  |                      |  |  |                     |   | 49,522  |   |  |  |  |   | 238,555 |   |  |  |  |   | 54,666  |   |  |  |  |   | 293,221 |   |
| Capitalexpenditures               |  |  |                             |   | (2,170  | )               |  |  |                 |  | — |                      |  |  |                        |   | (4,048  | )                    |  |  |                     |   | (485    | ) |  |  |  |   | (6,703  | ) |  |  |  |   | 984     |   |  |  |  |   | (5,719  | ) |
| Depreciationandamortization       |  |  |                             |   | (786    | )               |  |  |                 |  | — |                      |  |  |                        |   | (2,948  | )                    |  |  |                     |   | (2,059  | ) |  |  |  |   | (5,793  | ) |  |  |  |   | (2,169  | ) |  |  |  |   | (7,962  | ) |
| Amortizationof programmingrights  |  |  |                             |   | (41,647 | )               |  |  |                 |  | — |                      |  |  |                        |   | (2,249  | )                    |  |  |                     |   | (798    | ) |  |  |  |   | (44,694 | ) |  |  |  |   | (521    | ) |  |  |  |   | (45,215 | ) |
| Amortizationof sublicensingrights |  |  |                             |   | — |                 |  |  |                 |  | — |                      |  |  |                        |   | — |                      |  |  |                     |   | — |   |  |  |  |   | — |   |  |  |  |   | — |   |  |  |  |   | — |   |
|                                   |

F-33

----

|                                   |  |  |                             |   |         |                 |  |  |                 |   |         |                      |  |  |                        |   |         |                      |  |  |                     |   |         |   |  |  |  |   |         |   |  |  |  |   |         |   |  |  |  |   |         |   |
|-----------------------------------|--|--|-----------------------------|---|---------|-----------------|--|--|-----------------|---|---------|----------------------|--|--|------------------------|---|---------|----------------------|--|--|---------------------|---|---------|---|--|--|--|---|---------|---|--|--|--|---|---------|---|--|--|--|---|---------|---|
|                              |  |  | YearEnded December  31,2005 |
|                              |  |  | CTC Network                 |   |         | DomashnyNetwork |  |  | CTCStationGroup |   |         | DomashnyStationGroup |  |  | Businesssegmentresults |   |         | Eliminationsandother |  |  | Consolidatedresults |
| Operatingrevenue                  |  |  |                             | $ | 168,669 |                 |  |  |                 | $ | 9,346   |                      |  |  |                        | $ | 51,741  |                      |  |  |                     | $ | 7,761   |   |  |  |  | $ | 237,517 |   |  |  |  | $ | (40     | ) |  |  |  | $ | 237,477 |   |
| Operatingincome/(loss)            |  |  |                             |   | 83,841  |                 |  |  |                 |   | (7,248  | )                    |  |  |                        |   | 27,962  |                      |  |  |                     |   | (6,403  | ) |  |  |  |   | 98,152  |   |  |  |  |   | (7,965  | ) |  |  |  |   | 90,187  |   |
| Identifiableassets                |  |  |                             |   | 184,841 |                 |  |  |                 |   | 23,471  |                      |  |  |                        |   | 40,998  |                      |  |  |                     |   | 46,029  |   |  |  |  |   | 295,339 |   |  |  |  |   | (21,642 | ) |  |  |  |   | 273,697 |   |
| Capitalexpenditures               |  |  |                             |   | (1,857  | )               |  |  |                 |   | (569    | )                    |  |  |                        |   | (2,042  | )                    |  |  |                     |   | (1,544  | ) |  |  |  |   | (6,012  | ) |  |  |  |   | (91     | ) |  |  |  |   | (6,103  | ) |
| Depreciationandamortization       |  |  |                             |   | (1,111  | )               |  |  |                 |   | (370    | )                    |  |  |                        |   | (3,865  | )                    |  |  |                     |   | (6,455  | ) |  |  |  |   | (11,801 | ) |  |  |  |   | (2,119  | ) |  |  |  |   | (13,920 | ) |
| Amortizationof programmingrights  |  |  |                             |   | (64,768 | )               |  |  |                 |   | (9,291  | )                    |  |  |                        |   | (2,643  | )                    |  |  |                     |   | (440    | ) |  |  |  |   | (77,142 | ) |  |  |  |   | (209    | ) |  |  |  |   | (77,351 | ) |
| Amortizationof sublicensingrights |  |  |                             |   | (2,043  | )               |  |  |                 |   | — |                      |  |  |                        |   | — |                      |  |  |                     |   | — |   |  |  |  |   | (2,043  | ) |  |  |  |   | — |   |  |  |  |   | (2,043  | ) |
|                                   |

|                                   |  |  |                             |   |         |                 |  |  |                 |   |         |                      |  |  |                        |   |         |                      |  |  |                     |   |         |   |  |  |  |   |          |   |  |  |  |   |         |   |  |  |  |   |          |   |
|-----------------------------------|--|--|-----------------------------|---|---------|-----------------|--|--|-----------------|---|---------|----------------------|--|--|------------------------|---|---------|----------------------|--|--|---------------------|---|---------|---|--|--|--|---|----------|---|--|--|--|---|---------|---|--|--|--|---|----------|---|
|                              |  |  | YearEnded December  31,2006 |
|                              |  |  | CTC Network                 |   |         | DomashnyNetwork |  |  | CTCStationGroup |   |         | DomashnyStationGroup |  |  | Businesssegmentresults |   |         | Eliminationsandother |  |  | Consolidatedresults |
| Operatingrevenue                  |  |  |                             | $ | 264,733 |                 |  |  |                 | $ | 20,649  |                      |  |  |                        | $ | 74,765  |                      |  |  |                     | $ | 11,566  |   |  |  |  | $ | 371,713  |   |  |  |  | $ | (879    | ) |  |  |  | $ | 370,834  |   |
| Operatingincome/(loss)            |  |  |                             |   | 139,712 |                 |  |  |                 |   | (4,627  | )                    |  |  |                        |   | 48,073  |                      |  |  |                     |   | (9,465  | ) |  |  |  |   | 173,693  |   |  |  |  |   | (19,380 | ) |  |  |  |   | 154,313  |   |
| Identifiableassets                |  |  |                             |   | 252,878 |                 |  |  |                 |   | 28,069  |                      |  |  |                        |   | 80,147  |                      |  |  |                     |   | 57,415  |   |  |  |  |   | 418,509  |   |  |  |  |   | 66,288  |   |  |  |  |   | 484,797  |   |
| Capitalexpenditures               |  |  |                             |   | (747    | )               |  |  |                 |   | (212    | )                    |  |  |                        |   | (1,338  | )                    |  |  |                     |   | (1,428  | ) |  |  |  |   | (3,725   | ) |  |  |  |   | (149    | ) |  |  |  |   | (3,874   | ) |
| Depreciationandamortization       |  |  |                             |   | (1,056  | )               |  |  |                 |   | (548    | )                    |  |  |                        |   | (4,945  | )                    |  |  |                     |   | (11,031 | ) |  |  |  |   | (17,580  | ) |  |  |  |   | (2,071  | ) |  |  |  |   | (19,651  | ) |
| Amortizationof programmingrights  |  |  |                             |   | (99,249 | )               |  |  |                 |   | (15,954 | )                    |  |  |                        |   | (2,932  | )                    |  |  |                     |   | (39     | ) |  |  |  |   | (118,174 | ) |  |  |  |   | 148     |   |  |  |  |   | (118,026 | ) |
| Amortizationof sublicensingrights |  |  |                             |   | (6,773  | )               |  |  |                 |   | — |                      |  |  |                        |   | — |                      |  |  |                     |   | — |   |  |  |  |   | (6,773   | ) |  |  |  |   | — |   |  |  |  |   | (6,773   | ) |
|                                   |

‘‘Eliminationsand other’’ column principally includes the activities ofthe corporate headquarters and eliminations of inter-companytransactions.

The Company operates within one geographic region— Russia and has substantially all revenues from televisionadvertising.

|           |                                     |
|-----------|-------------------------------------|
| 18.  | QUARTERLY FINANCIAL DATA(UNAUDITED) |

Summarized quarterly financial data is asfollows:

|                                    |  |  |                           |   |        |             |  |  |                   |   |        |                 |  |  |  |   |        |  |  |  |  |   |        |  |
|------------------------------------|--|--|---------------------------|---|--------|-------------|--|--|-------------------|---|--------|-----------------|--|--|--|---|--------|--|--|--|--|---|--------|--|
|                               |  |  | Forthe Three Months Ended |
|                               |  |  | March 31, 2005            |   |        | June30,2005 |  |  | September 30,2005 |   |        | December31,2005 |
| Operatingrevenue                   |  |  |                           | $ | 43,070 |             |  |  |                   | $ | 56,094 |                 |  |  |  | $ | 47,984 |  |  |  |  | $ | 90,329 |  |
| Operatingincome                    |  |  |                           |   | 13,669 |             |  |  |                   |   | 22,756 |                 |  |  |  |   | 5,997  |  |  |  |  |   | 47,765 |  |
| Netincome                          |  |  |                           |   | 7,902  |             |  |  |                   |   | 14,606 |                 |  |  |  |   | 1,885  |  |  |  |  |   | 32,902 |  |
| Netincome per share –basic   |  |  |                           | $ | 0.05   |             |  |  |                   | $ | 0.10   |                 |  |  |  | $ | 0.01   |  |  |  |  | $ | 0.24   |  |
| Netincome per share –diluted |  |  |                           | $ | 0.05   |             |  |  |                   | $ | 0.09   |                 |  |  |  | $ | 0.01   |  |  |  |  | $ | 0.22   |  |
|                                    |

F-34

----

|                                    |  |  |                           |   |        |              |  |  |                   |   |         |                 |  |  |  |   |        |  |  |  |  |   |         |  |
|------------------------------------|--|--|---------------------------|---|--------|--------------|--|--|-------------------|---|---------|-----------------|--|--|--|---|--------|--|--|--|--|---|---------|--|
|                               |  |  | Forthe Three Months Ended |
|                               |  |  | March 31,2006             |   |        | June30, 2006 |  |  | September 30,2006 |   |         | December31,2006 |
| Operatingrevenue                   |  |  |                           | $ | 79,224 |              |  |  |                   | $ | 102,758 |                 |  |  |  | $ | 70,919 |  |  |  |  | $ | 117,933 |  |
| Operatingincome                    |  |  |                           |   | 33,068 |              |  |  |                   |   | 49,209  |                 |  |  |  |   | 13,696 |  |  |  |  |   | 58,340  |  |
| Netincome                          |  |  |                           |   | 22,654 |              |  |  |                   |   | 34,110  |                 |  |  |  |   | 8,443  |  |  |  |  |   | 41,118  |  |
| Netincome per share –basic   |  |  |                           | $ | 0.16   |              |  |  |                   | $ | 0.24    |                 |  |  |  | $ | 0.06   |  |  |  |  | $ | 0.27    |  |
| Netincome per share –diluted |  |  |                           | $ | 0.15   |              |  |  |                   | $ | 0.23    |                 |  |  |  | $ | 0.05   |  |  |  |  | $ | 0.26    |  |
|                                    |

Thesum of the earnings per share for the four quarters will generally notequal earnings per share for the total year due to the changes in theaverage number of common sharesoutstanding.

|           |                   |
|-----------|-------------------|
| 19.  | SUBSEQUENT EVENTS |

InJanuary  2007, options to purchase 34,400 shares of common stockwere exercised at an exercise price of $0.56 per share.

InFebruary  2007, the Company acquired the remaining 49%interest in ZAO Radio-Volga TV (Samara), bringing its ownership in thisstation to 100%, for cash consideration of $4.6million.

In February  2007, the Company also acquired a100% interest in OOO Programma, Servis, Montazh (Rostov) for atotal purchase price of $2.7  million, consisting of $2.6million in cash consideration and $0.1  million in debtassumed.

F-35

----

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of theSecurities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned, thereunto dulyauthorized.

|        |  |  |                                                                                                                                                                                                                                                    |
|--------|--|--|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |  |  | CTCMEDIA, INC.                                                                                                                                                                                                                                     |
|   |  |  |                                                                                                                                                                                                                                               |
|   |  |  | By: /s/AlexanderRodnyansky                                     |
|   |  |  |        AlexanderRodnyansky       Chief ExecutiveOfficer                                                                                                                      |
|        |

Pursuant to the requirements of theSecurities Exchange Act of 1934, this report has been signed by thefollowing persons on behalf of the registrant and in the capacities andon the dateindicated.

|                              |  |                                                        |  |                   |
|------------------------------|--|--------------------------------------------------------|--|-------------------|
| Signature                    |  | Title                                                  |  | Date              |
|                              |
| /s/ AlexanderRodnyansky |  | Chief ExecutiveOfficer (Principal Executive Officer)   |  | February 28,2007  |
|                              |
|          |
|                              |
| /s/ NileshLakhani       |  | Chief FinancialOfficer (Principal Financial Officer)   |  | February 28,2007  |
|                              |
|          |
|                              |
| /s/ JohnDowdy           |  | Chief AccountingOfficer (Principal Accounting Officer) |  | February 28,2007  |
|                              |
|          |
|                              |
| /s/ Hans-HolgerAlbrecht |  | Co-Chairman of the Boardof Directors                   |  | February 28, 2007 |
|                              |
|          |
|                              |
| /s/ PeterAven           |  | Co-Chairman of the Boardof Directors                   |  | February 28, 2007 |
|                              |
|          |
|                              |
| /s/ VaganAbgaryan       |  | Director                                               |  | February 28, 2007 |
|                              |
|          |
|                              |
| /s/ TamjidBasunia       |  | Director                                               |  | February 28, 2007 |
|                              |
|          |
|                              |
| /s/ MariaBrunell        |  | Director                                               |  | February28, 2007  |
|                              |
|          |
|                              |
| /s/ CharlesBurdick      |  | Director                                               |  | February28, 2007  |
|                              |
|          |
|                              |
| /s/ KajGradevik         |  | Director                                               |  | February28, 2007  |
|                              |
|          |
|                              |
| /s/ WernerKlatten       |  | Director                                               |  | February 28, 2007 |
|                              |
|          |
|                              |
| /s/ OlegSysuev          |  | Director                                               |  | February28, 2007  |
|                              |
|          |
|                              |

S-1

----

EXHIBITINDEX

|                        |    |      |             |  |  |                                                                                                                                                                                |  |  |                       |  |  |                               |  |  |               |  |  |            |
|------------------------|----|------|-------------|--|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|-----------------------|--|--|-------------------------------|--|--|---------------|--|--|------------|
| ExhibitNo.   |    |      | Description |  |  | Form onwhichOriginally Filed                                                                                                                                                   |  |  | OriginalExhibitNumber |  |  | Original Filing Date with SEC |  |  | SECFileNumber |
|                        | 3  | .4   |             |  |  | RestatedCertificate of Incorporation of CTCMedia                                                                                                                               |  |  | S-1                   |  |  | 3.4                           |  |  | April11,2006  |  |  | 333-132228 |
|                        | 3  | .6   |             |  |  | RestatedBylaws of CTC Media                                                                                                                                                    |  |  | S-1                   |  |  | 3.6                           |  |  | April11,2006  |  |  | 333-132228 |
|                        | 4  | .1   |             |  |  | SpecimenCertificate evidencing shares of commonstock                                                                                                                           |  |  | S-1                   |  |  | 4.1                           |  |  | May  12,2006  |  |  | 333-132228 |
|                        | 10 | .1++ |             |  |  | 1992 StockOption Plan                                                                                                                                                          |  |  | S-1                   |  |  | 10.1                          |  |  | March  6,2006 |  |  | 333-132228 |
|                        | 10 | .2++ |             |  |  | 1997 StockOption/Stock IssuancePlan                                                                                                                                            |  |  | S-1                   |  |  | 10.2                          |  |  | March  6,2006 |  |  | 333-132228 |
|                        | 10 | .3++ |             |  |  | Stock OptionAgreement, dated January  1,  2003, by and between CTCMedia (f/k/a StoryFirst Communications, Inc.) and John T. Healy (the‘‘HealyOption’’) |  |  | S-1                   |  |  | 10.3                          |  |  | March6,2006   |  |  | 333-132228 |
|                        | 10 | .4++ |             |  |  | LetterAgreement dated August  10,  2004 amending the HealyOption                                                                                                               |  |  | S-1                   |  |  | 10.4                          |  |  | March  6,2006 |  |  | 333-132228 |
|                        | 10 | .5++ |             |  |  | Stock OptionAgreement, dated April  17,  2003, by and between CTC Media(f/k/a StoryFirst Communications, Inc.) and International MediaVentures Incorporated                    |  |  | S-1                   |  |  | 10.5                          |  |  | March6,2006   |  |  | 333-132228 |
|                        | 10 | .6++ |             |  |  | Stock OptionAgreement, dated April  17,  2003, by and between CTC Media(f/k/a StoryFirst Communications, Inc.) and Myron A. WickIII                                            |  |  | S-1                   |  |  | 10.6                          |  |  | March  6,2006 |  |  | 333-132228 |
|                        | 10 | .7++ |             |  |  | Amended andRestated Stock Option Agreement, dated April  17,  2003, byand between CTC Media (f/k/a StoryFirst Communications, Inc.) and MyronA. Wick III                       |  |  | S-1                   |  |  | 10.7                          |  |  | March  6,2006 |  |  | 333-132228 |
|                        | 10 | .8++ |             |  |  | ShareAppreciation Rights Agreement, dated September  16,  2003,by and between CTC Media (f/k/a StoryFirst Communications, Inc.) andAlexander Rodnyansky                        |  |  | S-1                   |  |  | 10.8                          |  |  | March6,2006   |  |  | 333-132228 |
|                        | 10 | .9++ |             |  |  | Amended andRestated Notice of Grant of Stock Option dated January30,  2006 to Nilesh Lakhani (Non-Statutory Stock Option) andrelated Stock OptionAgreement                     |  |  | S-1                   |  |  | 10.9                          |  |  | March  6,2006 |  |  | 333-132228 |
|                        |

----

|                        |    |         |             |  |  |                                                                                                                                                                             |  |  |                       |  |  |                               |  |  |               |  |  |            |
|------------------------|----|---------|-------------|--|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|-----------------------|--|--|-------------------------------|--|--|---------------|--|--|------------|
| ExhibitNo.   |    |         | Description |  |  | Form onwhichOriginally Filed                                                                                                                                                |  |  | OriginalExhibitNumber |  |  | Original Filing Date with SEC |  |  | SECFileNumber |
|                        | 10 | .10++   |             |  |  | Amended and RestatedNotice of Stock Option Grant dated January  30,  2006 toNilesh Lakhani (Incentive Stock Option) and related Stock OptionAgreement                       |  |  | S-1                   |  |  | 10.10                         |  |  | March  6,2006 |  |  | 333-132228 |
|                        | 10 | .11++   |             |  |  | Noticeof Grant of Stock Option dated April  28,  2005 to VladimirKhanumyan and related Stock OptionAgreement                                                                |  |  | S-1                   |  |  | 10.11                         |  |  | March  6,2006 |  |  | 333-132228 |
|                        | 10 | .12++   |             |  |  | Amended andRestated Employment Agreement, dated as of January  31,2006, by and between CTC Media and NileshLakhani                                                          |  |  | S-1                   |  |  | 10.12                         |  |  | March  6,2006 |  |  | 333-132228 |
|                        | 10 | .13++   |             |  |  | EmploymentAgreement, dated April  13,  2006, by and between CTC Mediaand Vladimir SergeevichKhanumyan                                                                       |  |  | S-1                   |  |  | 10.13                         |  |  | May  1,2006   |  |  | 333-132228 |
|                        | 10 | .14++   |             |  |  | EmploymentAgreement, dated May  11,  2006, by and between CTC Mediaand Alexander Rodnyansky                                                                                 |  |  | S-1                   |  |  | 10.14                         |  |  | May12,2006    |  |  | 333-132228 |
|                        | 10 | .15++   |             |  |  | Amended andRestated Employment Agreement, dated November  28,  2005between CTC Media and LeighSprague                                                                       |  |  | S-1                   |  |  | 10.1                          |  |  | March  6,2006 |  |  | 333-132228 |
|                        | 10 | .16.1++ |             |  |  | EmploymentContract, dated May  10,  2006 by and between OOOMarathon-TV (CTC Moscow) and SergeyPetrov                                                                        |  |  | S-1                   |  |  | 10.16.1                       |  |  | May  12,2006  |  |  | 333-132228 |
|                        | 10 | .16.2++ |             |  |  | EmploymentContact, dated May  10,  2006 by and between ZAO CTC Regionand Sergey Petrov                                                                                      |  |  | S-1                   |  |  | 10.16.2                       |  |  | May12,2006    |  |  | 333-132228 |
|                        | 10 | .17++   |             |  |  | Amended andRestated Consulting Agreement dated July  1,  1999, by andbetween CTC Media, (f/k/a StoryFirst Communications, Inc.) andInternational Media VenturesIncorporated |  |  | S-1                   |  |  | 10.17                         |  |  | March  6,2006 |  |  | 333-132228 |
|                        | 10 | .18++   |             |  |  | Amended andRestated Consulting Agreement dated July  1,  2000, by andbetween CTC Media (f/k/a StoryFirst Communications, Inc.) and TheH.A.M. Media Group LLC                |  |  | S-1                   |  |  | 10.18                         |  |  | March6,  2006 |  |  | 333-132228 |
|                        |

----

|                        |    |       |             |  |  |                                                                                                                                                                                                                                                  |  |  |                       |  |  |                               |  |  |                |  |  |            |
|------------------------|----|-------|-------------|--|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|-----------------------|--|--|-------------------------------|--|--|----------------|--|--|------------|
| ExhibitNo.   |    |       | Description |  |  | Form onwhichOriginally Filed                                                                                                                                                                                                                     |  |  | OriginalExhibitNumber |  |  | Original Filing Date with SEC |  |  | SECFileNumber  |
|                        | 10 | .19   |             |  |  | Advertising SalesAgreement (Agreement #TC-3/0100) dated as of December  31,2000, as amended December  21,  2004 by and between CTC andCJSC TSV (Video International) (Englishtranslation)                                                        |  |  | S-1                   |  |  | 10.19                         |  |  | March  6,2006  |  |  | 333-132228 |
|                        | 10 | .19.1 |             |  |  | SupplementaryAgreement dated as of April  26,  2006 to Advertising SalesAgreement (Agreement #TC-3/0100) dated as of December  31,2000, as amended December  21,  2004 by and between CTC andCJSC TSV (Video International) (Englishtranslation) |  |  | S-1                   |  |  | 10.19.1                       |  |  | May  12,2006   |  |  | 333-132228 |
|                        | 10 | .20   |             |  |  | AdvertisingSales Agreement (Agreement # EM-22/0205 dated as of February24,  2005 by and between Domashny and CJSC Ad Media (VideoInternational) (Englishtranslation)                                                                             |  |  | S-1                   |  |  | 10.20                         |  |  | March  6,2006  |  |  | 333-132228 |
|                        | 10 | .20.1 |             |  |  | SupplementaryAgreement dated as of April  26,  2006 to Advertising SalesAgreement (Agreement # EM-22/0205 dated as of February24,  2005 by and between Domashny and CJSC Ad Media (VideoInternational) (Englishtranslation)                      |  |  | S-1                   |  |  | 10.20.1                       |  |  | May  12,2006   |  |  | 333-132228 |
|                        | 10 | .21   |             |  |  | AdvertisingSales Agreement dated as of January  30,  2006, by andbetween CTC Media Video International and Video International Trend(English translation)                                                                                        |  |  | S-1                   |  |  | 10.21                         |  |  | April11,2006   |  |  | 333-132228 |
|                        | 10 | .21.1 |             |  |  | SupplementaryAgreement dated as of May  16,  2006 to the AdvertisingSales Agreement dated as of January  30,  2006, by andbetween CTC Media, VI and VI Trend (Englishtranslation)                                                                |  |  | 10-Q                  |  |  | 10.21.1                       |  |  | July31,  2006  |  |  | 000-52003  |
|                        | 10 | .22   |             |  |  | Formof Advertising Sales Agreement by and between Video International Trendand local owned-and-operated station (Englishtranslation)                                                                                                             |  |  | S-1                   |  |  | 10.22                         |  |  | April  11,2006 |  |  | 333-132228 |
|                        | 10 | .23   |             |  |  | Stock PurchaseAgreement dated July  29,  2003 by and between CTC Mediaand Alfa Capital Holdings (Cyprus)Limited                                                                                                                                  |  |  | S-1                   |  |  | 10.23                         |  |  | March  6,2006  |  |  | 333-132228 |
|                        |

----

|                        |    |     |             |  |  |                                                                                                                                                          |  |  |                       |  |  |                               |  |  |                |  |  |            |
|------------------------|----|-----|-------------|--|--|----------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|-----------------------|--|--|-------------------------------|--|--|----------------|--|--|------------|
| ExhibitNo.   |    |     | Description |  |  | Form onwhichOriginally Filed                                                                                                                             |  |  | OriginalExhibitNumber |  |  | Original Filing Date with SEC |  |  | SECFileNumber  |
|                        | 10 | .24 |             |  |  | Agreement datedJuly  29,  2003 by and among CTC Media, OJSC Alfa Bank andMerrow Ventures Limited                                                         |  |  | S-1                   |  |  | 10.24                         |  |  | March6,2006    |  |  | 333-132228 |
|                        | 10 | .25 |             |  |  | Assignmentof Indebtedness dated August  19,  2003 between CTC Mediaand Alfa Capital Holdings (Cyprus)Limited                                             |  |  | S-1                   |  |  | 10.25                         |  |  | March  6,2006  |  |  | 333-132228 |
|                        | 10 | .26 |             |  |  | LetterAgreement dated January  1,  2003 by and between CTC Media(f/k/a StoryFirst Communications, Inc.) and AlfaBank                                     |  |  | S-1                   |  |  | 10.26                         |  |  | March  6,2006  |  |  | 333-132228 |
|                        | 10 | .27 |             |  |  | Letteragreement, dated February  4,  2004, by and between CTCMedia (f/k/a StoryFirst Communications, Inc.) and AlfaBank                                  |  |  | S-1                   |  |  | 10.27                         |  |  | March  6,2006  |  |  | 333-132228 |
|                        | 10 | .28 |             |  |  | Loan Agreementdated July  22,  2005 by and between OJSC Alfa Bank and CTC(English translation)                                                           |  |  | S-1                   |  |  | 10.28                         |  |  | March6,  2006  |  |  | 333-132228 |
|                        | 10 | .29 |             |  |  | LoanAgreement dated July  29,  2005 by and between OJSC AlfaBank and CTC (Englishtranslation)                                                            |  |  | S-1                   |  |  | 10.29                         |  |  | March  6,2006  |  |  | 333-132228 |
|                        | 10 | .30 |             |  |  | PledgeAgreement No. 96073/z dated July  22,  2005 by and betweenCTC Media and Alfa Bank (Englishtranslation)                                             |  |  | S-1                   |  |  | 10.30                         |  |  | April  11,2006 |  |  | 333-132228 |
|                        | 10 | .31 |             |  |  | PledgeAgreement No. 96144/z dated July  29,  2005 by and betweenCTC Media and Alfa Bank (Englishtranslation)                                             |  |  | S-1                   |  |  | 10.31                         |  |  | April  11,2006 |  |  | 333-132228 |
|                        | 10 | .32 |             |  |  | Loan Agreementdated September  3,  2004 by and between OJSC Alfa Bank andCTC (Englishtranslation)                                                        |  |  | S-1                   |  |  | 10.32                         |  |  | April  11,2006 |  |  | 333-132228 |
|                        | 10 | .33 |             |  |  | PledgeAgreement No. 93227/z dated September  3,  2004 by andbetween CTC Media (f/k/a Story First Communications, Inc.) and AlfaBank (Englishtranslation) |  |  | S-1                   |  |  | 10.33                         |  |  | April  11,2006 |  |  | 333-132228 |
|                        | 10 | .34 |             |  |  | Stock PurchaseAgreement relating to shares of CTC Media dated as of July28,  2005 among CTC Media and certain of itsstockholders                         |  |  | S-1                   |  |  | 10.34                         |  |  | March  6,2006  |  |  | 333-132228 |
|                        |

----

|                        |    |       |             |  |  |                                                                                                                                                                                                   |  |  |                       |  |  |                               |  |  |                |  |  |            |
|------------------------|----|-------|-------------|--|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|-----------------------|--|--|-------------------------------|--|--|----------------|--|--|------------|
| ExhibitNo.   |    |       | Description |  |  | Form onwhichOriginally Filed                                                                                                                                                                      |  |  | OriginalExhibitNumber |  |  | Original Filing Date with SEC |  |  | SECFileNumber  |
|                        | 10 | .35   |             |  |  | Share PurchaseAgreement dated September  7,  2004 by and between HaywoodCapital Limited and CTC (Englishtranslation)                                                                              |  |  | S-1                   |  |  | 10.35                         |  |  | March  6,2006  |  |  | 333-132228 |
|                        | 10 | .36   |             |  |  | SharePurchase Agreement dated September  15,  2004 by andbetween Haywood Capital Limited and CTC (Englishtranslation)                                                                             |  |  | S-1                   |  |  | 10.36                         |  |  | March  6,2006  |  |  | 333-132228 |
|                        | 10 | .37   |             |  |  | Share PurchaseAgreement dated September  9,  2004 by and between HaywoodCapital Limited and CTC Media (Englishtranslation)                                                                        |  |  | S-1                   |  |  | 10.37                         |  |  | March  6,2006  |  |  | 333-132228 |
|                        | 10 | .38   |             |  |  | Share PurchaseAgreement dated September  2,  2004 by and between AZORocT.s. and ZAO CTC Region (Englishtranslation)                                                                               |  |  | S-1                   |  |  | 10.38                         |  |  | April  11,2006 |  |  | 333-132228 |
|                        | 10 | .39   |             |  |  | Form ofStockholders Agreement dated May  12,  2006 by and amongCTC Media, MTG Broadcasting AB, Alfa Capital Holdings (Cyprus) Ltd,Cavendish Nominees and Sector Investment Holding CompanyLimited |  |  | S-1                   |  |  | 10.39                         |  |  | May  12,2006   |  |  | 333-132228 |
|                        | 10 | .40   |             |  |  | Form ofRegistration Rights Agreement, dated May  1,  2006 by andamong CTC Media and certain of itsstockholders                                                                                    |  |  | S-1                   |  |  | 10.40                         |  |  | May  1,2006    |  |  | 333-132228 |
|                        | 10 | .41++ |             |  |  | Form ofindemnification agreement between CTC Media and each of its directorsand executive officers                                                                                                |  |  | S-1                   |  |  | 10.41++                       |  |  | March6,2006    |  |  | 333-132228 |
|                        | 10 | .42   |             |  |  | Non-ResidentialPremises Lease Agreement between All-Russian Scientific and ResearchingInstitute of TV and Broadcasting and CTC (Englishtranslation)                                               |  |  | S-1                   |  |  | 10.42                         |  |  | March  6,2006  |  |  | 333-132228 |
|                        | 10 | .43   |             |  |  | Form ofRegistration Rights Agreement between CTC and certain of itsstockholders                                                                                                                   |  |  | S-1                   |  |  | 10.43                         |  |  | April  11,2006 |  |  | 333-132228 |
|                        | 10 | .44++ |             |  |  | Stock OptionAgreement dated as of July  14,  2006 between CTC Media andAlexander Rodnyansky                                                                                                       |  |  | 10-Q                  |  |  | 10.44++                       |  |  | July31,2006    |  |  | 000-52003  |
|                        | 10 | .45++ |             |  |  | Stock OptionAgreement dated as of July  14,  2006 between CTC Media andVladimir Khanumyan                                                                                                         |  |  | 10-Q                  |  |  | 10.45++                       |  |  | July31,  2006  |  |  | 000-52003  |
|                        |

----

|                        |    |       |             |  |  |                                                                                                                                             |  |  |                       |  |  |                               |  |  |               |  |  |            |
|------------------------|----|-------|-------------|--|--|---------------------------------------------------------------------------------------------------------------------------------------------|--|--|-----------------------|--|--|-------------------------------|--|--|---------------|--|--|------------|
| ExhibitNo.   |    |       | Description |  |  | Form onwhichOriginally Filed                                                                                                                |  |  | OriginalExhibitNumber |  |  | Original Filing Date with SEC |  |  | SECFileNumber |
|                        | 10 | .46++ |             |  |  | Stock OptionAgreement dated as of July  12,  2006 between CTC Media andNilesh Lakhani                                                       |  |  | 10-Q                  |  |  | 10.46++                       |  |  | July31,2006   |  |  | 000-52003  |
|                        | 10 | .47++ |             |  |  | Noticeof Grant of Stock Option dated July  19,  2006 to LeighSprague (Incentive Stock Option) and related Stock OptionAgreement             |  |  | 10-Q                  |  |  | 10.47++                       |  |  | July  31,2006 |  |  | 000-52003  |
|                        | 10 | .48++ |             |  |  | Notice ofGrant of Stock Option dated July  19,  2006 to LeighSprague (Non-Statutory Option) and related Stock OptionAgreement               |  |  | 10-Q                  |  |  | 10.48++                       |  |  | July  31,2006 |  |  | 000-52003  |
|                        | 10 | .49++ |             |  |  | Notice ofGrant of Stock Option dated July  19,  2006 to SergeyPetrov (Non-Statutory Stock Option) and related Stock OptionAgreement         |  |  | 10-Q                  |  |  | 10.49++                       |  |  | July  31,2006 |  |  | 000-52003  |
|                        | 10 | .50   |             |  |  | PreliminaryLease Agreement dated November  10,  2006, between ZAO CTCand OOO Promyshlenno-Finansovaya Kompania (Englishtranslation)         |  |  | Filedherewith         |  |  |                          |  |  |          |  |  |       |
|                        | 10 | .51   |             |  |  | PreliminaryLease Agreement dated November  10,  2006, between CTCMedia, Inc. and OOO Promyshlenno-Finansovaya Kompania (Englishtranslation) |  |  | Filedherewith         |  |  |                          |  |  |          |  |  |       |
|                        | 10 | .52++ |             |  |  | Noticeof Grant of Stock Option dated July 19, 2006 to John Dowdy (IncentiveStock Option) and related Stock Option Agreement                 |  |  | Filedherewith         |  |  |                          |  |  |          |  |  |       |
|                        | 10 | .53++ |             |  |  | Noticeof Grant of Stock Option dated July 19, 2006 to John Dowdy(Non-Statutory Stock Option) and related Stock OptionAgreement              |  |  | Filedherewith         |  |  |                          |  |  |          |  |  |       |
|                        | 10 | .54++ |             |  |  | EmploymentAgreement between CTC Media and John Dowdy                                                                                        |  |  | Filedherewith         |  |  |                          |  |  |          |  |  |       |
|                        | 14 | .1    |             |  |  | Codeof Business Conduct and Ethics                                                                                                          |  |  | Filedherewith         |  |  |                          |  |  |          |  |  |       |
|                        | 21 | .1    |             |  |  | Subsidiariesof CTC Media                                                                                                                    |  |  | S-1                   |  |  |                          |  |  | March  6,2006 |  |  | 333-132228 |
|                        | 23 | .1    |             |  |  | Consentof Independent Registered Public Accounting Firm                                                                                     |  |  | Filedherewith         |  |  |                          |  |  |          |  |  |       |
|                        | 31 | .1    |             |  |  | Rule13a-14(a)/15d-14(a) Certification of Chief ExecutiveOfficer                                                                             |  |  | Filedherewith         |  |  |                          |  |  |          |  |  |       |
|                        |

----

|                        |    |    |             |  |  |                                                                 |  |  |                       |  |  |                               |  |  |               |  |  |        |
|------------------------|----|----|-------------|--|--|-----------------------------------------------------------------|--|--|-----------------------|--|--|-------------------------------|--|--|---------------|--|--|--------|
| ExhibitNo.   |    |    | Description |  |  | Form onwhichOriginally Filed                                    |  |  | OriginalExhibitNumber |  |  | Original Filing Date with SEC |  |  | SECFileNumber |
|                        | 31 | .2 |             |  |  | Rule13a-14(a)/15d-14(a) Certification of Chief FinancialOfficer |  |  | Filedherewith         |  |  |                          |  |  |          |  |  |   |
|                        | 32 | .1 |             |  |  | Section1350 Certification of Chief Executive Officer            |  |  | Filedherewith         |  |  |                          |  |  |          |  |  |   |
|                        | 32 | .2 |             |  |  | Section1350 Certification of Chief Financial Officer            |  |  | Filedherewith         |  |  |                          |  |  |          |  |  |   |
|                        |

|    |                                                                                  |
|----|----------------------------------------------------------------------------------|
| ++ | Indicatesa management contract or any compensatory plan, contract orarrangement. |

----