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VimpelCom announces third quarter and nine months 2004 financial and operating results

  • 59% year-on-year increase in net operating revenues
  • 42% year-on-year increase in net income
  • 66% year-on-year increase in OIBDA
  • approximately 22.3 million subscribers as of today
  • commercial operations in 72 regions of Russia and in Kazakhstan

Moscow and New York (November 18, 2004) — Open Joint Stock Company "Vimpel-Communications" ("VimpelCom" or the "Company") (NYSE: VIP), a leading provider of wireless telecommunications services in Russia and Kazakhstan, today announced its financial and operating results for the quarter and nine months ended September 30, 2004. During the third quarter of 2004, VimpelCom showed strong subscriber growth in the regions of Russia and continued improvement in net operating revenues, OIBDA and net income. As reported earlier, VimpelCom completed the acquisition of KaR-Tel, a GSM operator in Kazakhstan, on September 3, 2004 and the results of operations of KaR-Tel were included in the consolidated financial statements of VimpelCom from that date.

Commenting on today's announcement, Alexander Izosimov, Chief Executive Officer of VimpelCom, said, "Our strategy is focused on rapid subscriber growth in Russia and expansion into the CIS. We took great strides in meeting these objectives in the third quarter. We launched eight new networks in the regions of Russia and took control of operations in our newly acquired company in Kazakhstan. We added more than 4.2 million new subscribers in the third quarter, including almost 3.6 million new subscribers in Russia, which gave us a gain of approximately 1% of Russia's national market share. These successes were translated into strong financial results with our quarterly OIBDA reaching almost $300 million."

The principal results of operations with comments are presented in the following tables. All definitions as well as condensed consolidated financial statements of VimpelCom and condensed consolidated financial statements of VimpelCom-Region, VimpelCom's subsidiary for regional development, are presented in Attachments A, B and C, respectively. Reconciliation of each of OIBDA, OIBDA margin, ARPU and SAC to the most directly comparable U.S. GAAP financial measures follows the financial statements in the attachments. Reconciliation tables for non-U.S. GAAP measures relating to geographical areas including Kazakhstan are presented in Attachment D.

Key Subscriber Statistics

 

  As of
Sept. 30, 2004
As of
Sept. 30, 2003
Change,
Y-on-Y
(%)
As of
June 30, 2004
Change
Q-on-Q
(%)
Moscow license area 6,645,700 5,076,200 30.9% 6,183,400 7.5%
Contract 867,100a) 799,000 8.5% 843,900 2.8%
Prepaid 5,778,600 4,277,200 35.1% 5,339,500 8.2%
Regions 13,223,400 4,183,000 216.1% 10,120,500 30.7%
Contract 1,417,700b) 670,900 111.3% 1,315,700 7.8%
Prepaid 11,805,700 3,512,100 236.1% 8,804,800 34.1%
Kazakhstan 676,300 n/a   n/a  
Contract 580,600 n/a   n/a  
Prepaid 95,700 n/a   n/a  
Total 20,545,400 9,259,200 121.9% 16,303,900 26.0%
 
Churn (quarterly) 7.2% 9.6% - 9.4% -

a)
Including approximately 99% of postpaid (credit) and 1% of advance payment subscribers.
b) Including approximately 15% of postpaid (credit) and 85% of advance payment subscribers.

The Company reported a new record subscriber growth in the third quarter of 2004 due to the acceleration in subscriber growth in the regions, the commercial launch of eight new networks, and the acquisition of Kar-Tel, a cellular operator in Kazakhstan. The acquisition was closed on September 3, 2004, as a result of which VimpelCom obtained approximately 645,000 additional subscribers as of the date of acquisition.

Using independent sources to estimate the number of subscribers of the Company's competitors, VimpelCom estimates its market share in Russia at 33.7% at the end of the third quarter of 2004, compared to 31.0% estimated at the end of the third quarter of 2003. VimpelCom's market share in the Moscow license area was 45.0% at the end of the third quarter of 2004, compared to the Company's estimated market share of 49.0% reported at the end of the third quarter of 2003.

Churn management remains one of the Company's priority tasks. The Company's quarterly churn rate in the third quarter of 2004 was 7.2%, compared to the Company's churn rate of 9.6% reported for the same period in 2003. A decrease in churn rate as compared with the 9.4% reported for the second quarter of 2004 was primarily caused by an acceleration in subscriber growth and positive results from churn-reducing activities implemented earlier this year.

Key Consolidated Financial and Operating Indicators

  Three months ended Nine months ended
Sept.
30, 2004
Sept.
30, 2003
Change
Y-on-Y
(%)
Sept.
30, 2004
Sept.
30, 2003
Change
Y-on-Y
(%)
Net operating revenues (US$,000) 602,360 378,981 58.9% 1,510,958 927,858 62.8%
OIBDA (US$,000) 295,663 178,472 65.7% 742,382 426,337 74.1%
OIBDA margin 49.1% 47.1% - 49.1% 45.9% -
Gross margin (US$,000) 491,328 310,192 58.4% 1,239,686 755,784 64.0%
Gross margin percentage 81.6% 81.8% - 82.0% 81.5% -
Net income (US$,000) 102,185 72,190 41.6% 269,271 166,224 62.0%
Net income per share (US$) 2.54 1.89 34.4% 6.70 4.37 53.3%
Net income per ADS (US$) 1.91 1.42 34.5% 5.03 3.28 53.4%
ARPU (US$) 10.7 14.4 -25.7% 10.7 14.1 -24.1%
MOU (min) 99.4 92.7 7.3% 96.3 90.0 7.0%
SAC (US$) 14.2 18.8 -24.3% 14.8 20.0 -25.8%




Rapid subscriber growth, efficient cost control and lower acquisition costs per subscriber in the regions outside of Moscow enhanced by economies of scale led to significant improvements in VimpelCom's financial and operating results in the third quarter of 2004, as compared with the third quarter of 2003.

Selling, general and administrative ("SG&A") expenses, as a percentage of net operating revenues, continued to improve, reaching 32.0% reported in the third quarter of 2004 as compared with 33.5% in the third quarter of 2003. In part, it was caused by the decrease in SAC to $14.2 in the third quarter of 2004 from $18.8 reported for the same period of 2003. The decrease in SAC was primarily attributable to the increase in regional sales as a percentage of total sales, as SAC is lower in the regions due to the relatively lower dealer commissions and larger proportion of sales through the Company's own offices.

Strong growth in lower margin roaming revenue led to a slightly reduced OIBDA margin in the third quarter of 2004 as compared with the second quarter of 2004. Likewise, strong growth in the regions in the third quarter of 2004 resulted in a disproportional increase in minority interest which decelerated growth in consolidated net income. This effect will be eliminated upon completion of the merger of VimpelCom-Region into VimpelCom.

VimpelCom's capital expenditures for purchase of property and equipment for the third quarter of 2004 were approximately $346.5 million, and capital investments for the acquisition of shares were $12.9 million for the acquisition of the remaining 49% shares of our subsidiary, BeeLine-Samara, and $350.0 million for the acquisition of KaR-Tel, the Kazakh GSM operator.

MOU increased in the third quarter of 2004 to 99.4 minutes, compared to 92.7 minutes in the third quarter of 2003 and 96.3 minutes in the second quarter of 2004. This is a positive development, notably in light of the significant increase in the number of our regional subscribers. ARPU decreased in the third quarter of 2004 by approximately 25.7% to $10.7, compared to $14.4 in the third quarter of 2003, due to the growing proportion of regional subscribers (who generate lower ARPU than Moscow subscribers) and a reduction in tariffs as a result of increased competition. Due to continued seasonal effects, ARPU in the third quarter of 2004 was higher both in Moscow and the regions as compared with the second quarter of 2004. However, because of the growing proportion of regional subscribers in the network, the blended ARPU showed a slight decrease compared with ARPU of $10.8 reported for the second quarter of 2004. Kazakhstan's contribution to variations of ARPU and MOU in the third quarter of 2004 was insignificant.

The Company's consolidated financial results include the activities in the Moscow license area, in the regions of Russia and, beginning from September 3, 2004, in Kazakhstan.

3Q2004 Selective Financial and Operating Indicators for Geographical Areas

 

  Moscow license area Regions of Russia Kazakhstand)
Total operating revenuesc) (US$,000) 313,765 277,836 10,759
Net income (US$,000) 55,896f) 75,175e) 2,284
ARPU (US$) 16.0 8.4 16.3
MOU (min) 123.7 86.7 71.8
SAC (US$) 25.4 10.8 25.2

c)
Excluding inter-company transactions.
d) September data only.
e) Including minority interest.
f) The lower net income in the Moscow license area (MLA) in the third quarter of 2004 as compared with $68.9 million reported for the second quarter of 2004 is driven primarily by two factors: (i) decrease in gross margin caused by seasonal growth in roaming revenue, particularly pronounced in Moscow, (ii) growth in debt interest expense for the VimpelCom Group which is primarily carried by the MLA.

The Company's management will discuss its third quarter 2004 results during a conference call and slide presentation on November 18, 2004 at 6:30 pm Moscow time (10:30 am ET in New York). The call and slide presentation may be accessed via webcast at the following URL address http://www.vimpelcom.com. The conference call replay and the slide presentation webcast will be available through November 25, 2004 and December 20, 2004, respectively. The slide presentation will also be available for download on VimpelCom's website http://www.vimpelcom.com.

VimpelCom is a leading provider of telecommunications services in Russia and Kazakhstan, operating under the "Bee Line GSM" brand in Russia and "K-mobile" and "EXCESS" brands in Kazakhstan. The VimpelCom Group's license portfolio covers approximately 94% of Russia's population (136 million people), including the City of Moscow, the Moscow Region and the City of St. Petersburg, as well as the entire territory of Kazakhstan. VimpelCom was the first Russian company to list its shares on the New York Stock Exchange ("NYSE"). VimpelCom's ADSs are listed on the NYSE under the symbol "VIP".

 

This press release contains "forward-looking statements", as the phrase is defined in Section 27A of the Securities Act and Section 21E of the Exchange Act. These statements relate to the Company's strategic and development plans and the completion of the merger of VimpelCom-Region into VimpelCom. These and other forward-looking statements are based on management's best assessment of the Company's strategic and financial position and of future market conditions and trends. These discussions involve risks and uncertainties. The actual outcome may differ materially from these statements as a result of unforeseen developments from competition, governmental regulation of the wireless telecommunications industry, general political uncertainties in Russia and Kazakhstan and general economic developments in Russia and Kazakhtsan, the Company's ability to continue to grow its overall subscriber base, continued volatility in the world economy and other factors. As a result of such risks and uncertainties, there can be no assurance that the effects of competition or current or future changes in the political, economic and social environment or current or future regulation of the Russian and Kazakh telecommunications industry will not have a material adverse effect on the VimpelCom Group. Certain factors that could cause actual results to differ materially from those discussed in any forward-looking statements include the risks described in the Company's Annual Report on Form 20-F for the year ended December 31, 2003 and other public filings made by the Company with the United States Securities and Exchange Commission, which risk factors are incorporated herein by reference. VimpelCom disclaims any obligation to update developments of these risk factors or to announce publicly any revision to any of the forward-looking statements contained in this release, or to make corrections to reflect future events or developments.

 

For more information, please contact:

 

Valery Goldin
VimpelCom (Moscow)
Tel: 7(095) 974-5888
vgoldin@vimpelcom.com
Christopher Mittendorf
Edelman Financial Worldwide
Tel: 1(212) 704-8134
christopher.mittendorf@edelman.com



Attachment A: Definitions

Subscriber is an authorized user of cellular services, using one SIM card (GSM) with one or several selective numbers or one handset (D-AMPS) with one selective number. The number of subscribers includes employees using cellular services and excludes guest roamers and users of test SIM cards (GSM) or handsets (D-AMPS).

Churn rate is defined as the total number of subscribers disconnected from our network within a given period of time expressed as a percentage of the midpoint of subscribers in our network at the beginning and end of that period. Contract subscribers are disconnected if they have not paid their bills for 2 months and prepaid subscribers are disconnected 6 months after their services have been blocked. We typically block a prepaid subscriber's service in two cases: (1) their balance drops to $0 or below, and (2) an account shows no chargeable activity within 6 months. The Company retains the right to change its disconnect policy to reflect changes in business or regulatory environment.

OIBDA is a non-U.S. GAAP financial measure. OIBDA, previously referred to as EBITDA by the Company, is defined as operating income before depreciation, amortization and the one-time write-down of AMPS/D-AMPS related assets in the Samara region of $7,354 thousand in the second quarter of 2004. The Company believes that OIBDA provides useful information to investors because it is an indicator of the strength and performance of our business operations, including our ability to finance capital expenditures, acquisitions and other investments and our ability to incur and service debt. While depreciation, amortization and the one-time write-down of AMPS/D-AMPS related assets in the Samara region of $7,354 thousand in the second quarter of 2004, are considered operating costs under U.S. GAAP, these expenses primarily represent the non-cash current period allocation of costs associated with long-lived assets acquired or constructed in prior periods. Our OIBDA calculations are commonly used as bases for some investors, analysts and credit rating agencies to evaluate and compare the periodic and future operating performance and value of companies within the wireless telecommunications industry. OIBDA should not be considered in isolation as an alternative to net income, operating income or any other measure of performance under U.S. GAAP. OIBDA does not include our need to replace our capital equipment over time. Reconciliation of OIBDA to operating income, the most directly comparable U.S. GAAP financial measure, is presented below in the tables section.

OIBDA margin is OIBDA expressed as a percentage of total operating revenues. Reconciliation of OIBDA margin to operating income as a percentage of total operating revenues, the most directly comparable U.S. GAAP financial measure, is presented below in the tables section.

Gross margin is defined as total operating revenues less service costs and cost of handsets and accessories sold.
Gross margin percentage is gross margin expressed as a percentage of total operating revenues.

Each ADS represents 0.75 of one share of common stock. As notified by the Bank of New York on November 9, 2004, VimpelCom's ADSs will be split effective November 22, 2004 so that each ADS will represent 0.25 of one share of common stock.

Monthly ARPU (Monthly Average Revenue per User), a non-U.S. GAAP financial measure, is calculated for each month in the relevant period by dividing the Company's service revenue during that month, including roaming revenue, but excluding revenue from connection fees, sales of handsets and accessories and other non-service revenue, by the average number of the Company's subscribers during the month. Reconciliation of ARPU to service revenues and connection fees, the most directly comparable U.S. GAAP financial measure, is presented below in the tables section. The Company believes that ARPU provides useful information to investors because it is an indicator of the performance of the Company's business operations and assists management in budgeting. The Company also believes that ARPU provides management with useful information concerning usage and acceptance of the Company's services. ARPU should not be viewed in isolation or an alternative to other figures reported under U.S. GAAP.

MOU (Monthly Average Minutes of Use per User) is calculated for each month of the relevant period by dividing the total number of minutes of usage for incoming and outgoing calls during that month (excluding guest roamers) by the average number of subscribers during the month.

SAC (Average Acquisition Cost Per User), a non-U.S. GAAP financial measure, is calculated as dealers' commissions, advertising expenses and handset subsidies for the relevant period divided by the number of new subscribers added during the relevant period. Reconciliation of SAC to selling, general and administrative expenses, the most directly comparable U.S. GAAP financial measure, is presented below in the tables section. The Company believes that SAC provides useful information to investors because it is an indicator of the performance of the Company's business operations and assists management in budgeting. The Company also believes that SAC assists management in quantifying the incremental costs to acquire a new subscriber. SAC should not be viewed in isolation or as an alternative to other figures reported under U.S. GAAP.

 

Attachment B: VimpelCom financial statements and pertinent reconciliation tables

 

Open Joint Stock Company "Vimpel-Communications"
Unaudited Condensed Consolidated Statements of Income

  Three months ended
Sept. 30,
Nine months ended
Sept. 30,
2004 2003 2004 2003
(In thousands of US dollars , except per share (ADS) amounts)
Operating revenues:  
  Service revenues and connection fees US$583,278 US$359,815 US$1,456,989 US$880,340
Sales of handsets and accessories 18,302 18,337 51,583 44,719
Other revenues 780 829 2,386 2,799
Total operating revenues 602,360 378,981 1,510,958 927,858
  Less revenue based taxes        
Net operating revenues 602,360 378,981 1,510,958 927,858
 
Operating expenses:  
  Service costs 94,854 54,304 226,546 134,244
Cost of handsets and accessories sold 16,178 14,485 44,726 37,830
Selling, general and administrative expenses 192,513 126,860 489,063 318,891
Depreciation 70,723 42,894 190,803 108,486
Amortization 14,962 8,871 33,618 24,981
Impairment of long-lived assets     7,354  
Provision for doubtful accounts 3,152 4,860 8,241 10,556
Total operating expenses 392,382 252,274 1,000,351 634,988
 
Operating income 209,978 126,707 510,607 292,870
 
Other income and expenses:  
  Interest income 2,225 1,590 4,088 5,866
Other income 737 439 1,625 1,099
Interest expense (24,946) (17,910) (51,706) (51,907)
Net foreign exchange gain (loss) 1,979 1,935 4,511 1,976
Other expenses (1,307) (913) (2,608) (2,291)
Total other income and expenses (21,312) (14,859) (44,090) (45,257)
 
Income before income taxes and minority interest 188,666 111,848 466,517 247,613
 
Income taxes expense 54,398 32,146 135,137 70,187
Minority interest in net earnings of subsidiaries 32,083 7,512 62,109 11,202
 
Net income US$102,185 US$72,190 US$269,271 US$166,224
 
Net income per common share US$2.54 US$1.89 US$6.70 US$4.37
Net income per ADS equivalent US$1.91 US$1.42 US$5.03 US$3.28
Weighted average common shares outstanding (thousands) 40,179 38,103 40,176 38,079
 

 

Open Joint Stock Company "Vimpel-Communications"
Unaudited Condensed Consolidated Balance Sheets
 
  September 30,
2004
December 31,
2003
(In thousands of US dollars)
Assets  
Current assets:
  Cash and cash equivalents US$189,044 US$157,611
Trade accounts receivable 100,766 113,092
Other current assets 348,583 255,540
Total current assets 638,393 526,243
 
Non-current assets:
  Property and equipment, net 1,990,951 1,460,542
Telecommunication licenses and allocation of frequencies, net 380,531 103,817
Other intangible assets, net 318,465 59,369
Other assets 278,675 152,261
Total non-current assets 2,968,622 1,775,989
 
Total assets US$ 3,607,015 US$ 2,302,232
 
Liabilities and shareholders' equity
Current liabilities:
  Accounts payable 223,699 158,467
Due to related parties 4,285 8,603
Customer advances and deposits 223,382 181,475
Deferred revenue 2,667 2,701
Ruble denominated bonds payable, current portion   101,852
Bank loans, current portion 399,943 35,343
Capital lease obligations, current portion 4,754 6,587
Equipment financing obligations, current portion 71,340 70,935
Accrued liabilities 121,878 127,689
Total current liabilities 1,051,948 693,652
 
Deferred income taxes 189,184 34,380
Bank loans, less current portion 698,086 330,112
Capital lease obligations, less current portion 6,000 9,154
Ruble denominated bonds payable, less current portion 99,652 -
Accrued liabilities, less current portion 6,248 4,046
Equipment financing obligations, less current portion 44,645 53,008
 
Minority interest 237,553 179,664
 
Shareholders' equity 1,273,699 998,216
 
Total liabilities and shareholders' equity US$3,607,015 US$2,302,232
 
Unaudited Condensed Consolidated Statements of Cash Flows
 
  Nine months ended
Sept. 30,
2004 2003
(In thousands of US dollars)
 
Net cash provided by operating activities US$551,496 US$364,152
 
Proceeds from bank and other loans 716,534 144,800
Proceeds from bonds issue 90,470 97,119
Capital contribution by minority shareholders - 58,520
 
Payments of fees in respect of debt issue (10,791) (1,815)
Repayment of bank and other loans (27,148) (70,646)
Repayment of rouble denominated bonds (94,214)  
 
Repayment of equipment financing obligations (55,234) (182,468)
Repayment of capital lease obligations (401) (860)
Net cash provided by financing activities 619,216 44,650
 
Purchase of property and equipment (622,286) (341,512)
Proceeds from sale of property and equipment - 12,432
Purchase of Beeline-Samara stock (12,884)  
Purchase of Kar-Tel stock, net of cash acquired of US$6,543 (345,427)  
Purchase of DTI stock, net of cash acquired of US$382 (73,689)  
Purchase of StavTeleSot stock, net of cash acquired of US$658 - (42,455)
Purchase of intangible assets (6,541) (15,083)
Purchase of other assets (77,741) (18,774)
Net cash used in investing activities (1,138,568) (405,392)
 
Effect of exchange rate changes on cash (711) 5,883
 
Net increase in cash 31,433 9,293
Cash and cash equivalents at beginning of period 157,611 263,657
Cash and cash equivalents at end of period US$189,044 US$272,950
 
Supplemental cash flow information
 
Non-cash activities:
  Equipment acquired under financing and capital lease agreements US$4,517 US$89,562
Accounts payable for equipment and other long-lived assets 82,186 36,356
 
Operating activities financed by sale of treasury stock 1,546 3,171
Acquisitions:
  Fair value of assets acquired 484,287 73,290
Difference between the amount paid and the fair value of net assets acquired 174,771 (4,699)
Cash paid for the capital stock (426,041) (43,113)
  Liabilities assumed US$233,017 US$25,478


Reconciliation of VimpelCom OIBDA to operating income (Unaudited)

(In thousands of US dollars)

  Three months ended
September 30, 2004 June 30, 2004 September 30, 2003
OIBDA 295,663 244,694 178,472
Impairment loss - (7,354) -
Depreciation (70,723) (62,743) (42,894)
Amortization (14,962) (9,513) (8,871)
Operating income 209,978 165,084 126,707

Reconciliation of VimpelCom OIBDA margin to operating income as percentage of net operating revenues

(Unaudited)

  Three months ended
September 30, 2004 June 30, 2004 September 30, 2003
OIBDA margin 49.1% 49.8% 47.1%
Less: Impairment loss 0% (1.5%) 0%
Less: Depreciation as percentage of net operating revenues (11.7%) (12.8%) (11.3%)
Less: Amortization as percentage of net operating revenues (2.5%) (1.9%) (2.4%)
Operating income as percentage of net operating revenues 34.9% 33.6% 33.4%


Reconciliation of SAC to selling, general and administrative expenses(Unaudited)

(In thousands of US dollars, except for SAC and subscriber amounts)

  Three months ended
September 30, 2004 June 30, 2004 September 30, 2003
Selling, general and administrative expenses 192,513 158,537 126,860
Less: General and administrative expenses 122,913 102,247 77,220
Sales and marketing expenses, including 69,600 56,290 49,640
advertising & marketing expenses 16,780 16,468 11,668
dealers' commission expense 52,820 39,822 37,972
New gross subscribers,'000 4,894 3,987 2,641
Subscriber Acquisition Cost (SAC) (US$) 14.2 14.1 18.8

 

Reconciliation of ARPU to service revenue and connection fees (Unaudited)
(In thousands of US dollars, except for ARPU and subscriber amounts)

  Three months ended
September 30, 2004 June 30, 2004 September 30, 2003
Service revenue and connection fees 583,278 472,808 359,815
Less: Connection fees 191 151 361
Less: Revenue from rent of fiber-optic channels 408 304 308
Service revenue used to calculate ARPU 582,679 472,353 359,146
Average number of subscribers,'000 18,184 14,625 8,305
Average revenue per subscriber per month (US$) 10.7 10.8 14.4

 

Reconciliation of VimpelCom OIBDA to operating income (Unaudited)
(In thousands of US dollars)

  Nine months ended
September 30, 2004 September 30, 2003
OIBDA 742,382 426,337
Impairment loss (7,354) -
Depreciation (190,803) (108,486)
Amortization (33,618) (24,981)
Operating income 510,607 292,870

 

Reconciliation of VimpelCom OIBDA margin to operating income as percentage of net operating revenues
(Unaudited)

  Nine months ended
September 30, 2004 September 30, 2003
OIBDA margin 49.1% 45.9%
Less: Impairment loss (0.5%) 0%
Less: Depreciation as percentage of net operating revenues (12.6%) (11.6%)
Less: Amortization as percentage of net operating revenues (2.2%) (2.7%)
Operating income as percentage of net operating revenues 33.8% 31.6%


Reconciliation of SAC to selling, general and administrative expenses (Unaudited)

(In thousands of US dollars, except for SAC and subscriber amounts)

  Nine months ended
September 30, 2004 September 30, 2003
Selling, general and administrative expenses 489,063 318,891
Less: General and administrative expenses 313,025 199,337
Sales and marketing expenses, including 176,038 119,554
advertising & marketing expenses 46,493 34,631
dealers' commission expense 129,545 84,923
New gross subscribers,'000 11,861 5,974
Subscriber Acquisition Cost (SAC) (US$) 14.8 20.0


Reconciliation of ARPU to service revenue and connection fees (Unaudited)

(In thousands of US dollars, except for ARPU and subscriber amounts)

  Nine months ended
September 30, 2004 September 30, 2003
Service revenue and connection fees 1,456,989 880,340
Less: Connection fees 527 1,077
Less: Revenue from rent of fiber-optic channels 1,261 958
Service revenue used to calculate ARPU 1,455,201 878,305
Average number of subscribers,'000 15,042 6,906
Average revenue per subscriber per month (US$) 10.7 14.1

 

Attachment C: VimpelCom-Region financial statements and pertinent reconciliation tables

 

Open Joint Stock Company "VimpelCom-Region"
Unaudited Condensed Consolidated Statements of Income

  Three months ended
September 30,
2004 2003
(In thousands of US dollars, except per share (ADS) amounts)
Operating revenues:  
  Service revenues and connection fees 272,445 118,676
Sales of handsets and accessories 9,594 8,742
Other revenues 659 1,330
Total operating revenues 282,698 128,748
 
Operating expenses  
  Service costs 48,526 22,980
Cost of handsets and accessories sold 9,184 7,894
Equipment lease 2,724 2,445
Selling, general and administrative expenses 80,993 41,269
Network maintenance 5,472 3,139
Depreciation and amortization 28,609 18,681
Provision for doubtful accounts 767 1,233
Total operating expenses 176,275 97,641
 
Operating income 106,423 31,107
 
Other income and expenses:  
  Other income (358) (56)
Other expenses 571 332
Interest income (674) (393)
Interest expense 7,053 6,814
Net foreign exchange loss (gain) 110 (375)
Total other income and expenses 6,702 6,322
 
Income before income taxes and minority interest 99,721 24,785
 
Income taxes expense 28,167 6,904
Minority interest in net earnings of subsidiaries 98 331
 
Net income 71,456 17,550
 



*) Net income of VimpelCom-Region as a legal entity differs from the $75,175 million net income reported above in this press release for the regional segment for the third quarter of 2004. The difference is caused by the fact that the financial statements of BeeLine-Samara and DTI are included in the regions for segment reporting purposes, but are not included in the consolidated financial statements of VimpelCom-Region. BeeLine-Samara operates in the Samara region but, for historical reasons, is owned directly by VimpelCom. DTI, also owned by VimpelCom, operates in the Far East. The following table provides reconciliation between these figures (all numbers are in thousands of US$):

  Three months ended
September 30, 2004
Net income of VimpelCom-Region 71,456
Net income of BeeLine-Samara 396
Net income of DTI 3,315
Net effect of transactions between VimpelCom-Region, BeeLine-Samara and DTI 8
Net income of VimpelCom's regional segment 75,175

 

Operating revenue of VimpelCom-Region as a legal entity differs from the $277,837 million operating revenues for the regional segment excluding inter-company transactions, reported above in this press release for the second quarter of 2004. The following table provides reconciliation between these figures (all numbers are in thousands of US$):

  Three months ended
September 30, 2004
Operating revenue of VimpelCom-Region 282,698
Operating revenue of BeeLine-Samara 7,795
Operating revenue of DTI 17,898
Net effect of transactions between VimpelCom-Region, BeeLine-Samara and DTI (3,997)
Operating revenue of VimpelCom's regional segment 304,394
Inter-company operating revenue of VimpelCom-Region, BeeLine-Samara and DTI (26,558)
Regional segment operating revenue excluding inter-company transactions 277,836



Open Joint Stock Company "VimpelCom-Region"
Unaudited Condensed Consolidated Balance Sheets
 
  September 30,
2004
December 31,
2003
(In thousands of US dollars)
Assets  
Current assets:
  Cash and cash equivalents US$71,102 US$42,729
Trade accounts receivable 17,121 22,726
Other current assets 321,401 137,529
Total current assets 409,624 202,984
 
Non-current assets:
  Property and equipment, net 983,358 624,306
Telecommunication licenses and allocation of frequencies, net 72,158 87,175
Other intangible assets, net 21,275 20,383
Other assets 137,458 62,995
Total non-current assets 1,214,249 794,859
 
Total assets US$1,623,873 US$997,843
 
Liabilities and shareholders' equity
Current liabilities:
  Accounts payable US$120,882 US$73,345
Due to related parties 139,003 71,420
Customer advances and deposits 77,947 41,916
Deferred revenue 1,367 713
Rouble denominated bonds payable, current portion   101,852
Bank loans, current portion 22,951 4,710
Capital lease obligation, current portion - -
Equipment financing obligations, current portion 10,356 17,078
Accrued liabilities 30,108 16,076
Total current liabilities 402,614 327,110
 
Deferred income taxes 19,217 24,713
Bank loans, less current portion 109,708 66,500
Long-term loans due to VimpelCom 455,363 176,231
Equipment financing obligations, less current portion 4,182 16,097
Rouble denominated bonds payable, less current portion 99,652 -
Accrued liabilities 4,093 2,718
 
Minority Interest 531 350
 
Shareholders' equity 528,513 384,124
 
Total liabilities and shareholders' equity US$1,623,873 US$997,843
 
Open Joint Stock Company "VimpelCom-Region"
Unaudited Condensed Consolidated Statements of Cash Flows
 
  Nine months ended
Sept. 30,
2004 2003
(In thousands of US dollars)
 
Net cash provided by (used in) operating activities US$275,365 US$73,883
 
Proceeds from bank and other loans 62,660 118,933
Proceeds from loans from VimpelCom 310,073 95,688
Proceeds from issuance of rouble denominated bonds (90,470) 97,119
Proceeds from sales of capital stock   58,520
Payment of fees in respect of debt issue (6,994)  
Repayment of loans from related parties (31,000)  
Repayment of bank and other loans (1,318) (35,925)
Repayment of equipment financing obligations (17,690) (141,015)
Repayment of rouble denominated bonds (94,214) -
Repayment of capital lease obligations   (119)
Net cash provided by financing activities 311,987 193,201
 
Loan issued to KBI (105,000)  
Purchase of property and equipment (392,095) (169,294)
Purchase of Orensot stock, net of cash acquired of US$344    
Purchase of StavTeleSot stock, net of cash acquired of US$658   (42,455)
Purchase of intangible assets (3,840) (11,161)
Purchase of other assets (57,644) (7,416)
Net cash used in investing activities (558,579) (230,326)
 
Effect of exchange rate changes on cash (400) 2,328
 
Net increase (decrease) in cash 28,373 39,086
Cash and cash equivalents at beginning of period 42,729 52,703
 
Cash and cash equivalents at end of period US$71,102 US$91,789
 
Supplemental cash flow information  
 
  Non-cash activities:  
  Equipment acquired under financing agreements US$1,659 US$31,238
  Accounts payable for equipment and other long-lived assets 69,464 17,217
  Accrued debt costs    
 
  Acquisitions:  
  Fair value of assets acquired   73,290
  Difference between the amount paid and the fair value of net assets acquired   (4,699)
  Cash paid for the capital stock   (43,113)
    Liabilities assumed   US$25,478




Reconciliation of VimpelCom-Region OIBDA to operating income (Unaudited)

(In thousands of US dollars)

  Three months ended
September 30, 2004 June 30, 2004 September 30, 2003
OIBDA 135,032 92,863 49,788
Depreciation (22,899) (19,616) (12,893)
Amortization (5,710) (6,606) (5,788)
Operating income 106,423 66,641 31,107





Reconciliation of VimpelCom-Region OIBDA margin to operating income as percentage of net operating revenues (Unaudited)

  Three months ended
September 30, 2004 June 30, 2004 September 30, 2003
OIBDA margin 47.8% 42.5% 38.7%
Less: Depreciation as percentage of net operating revenues (8.1%) (9.0%) (10.0%)
Less: Amortization as percentage of net operating revenues (2.0%) (3.0%) (4.5%)
Operating income as percentage of net operating revenues 37.7% 30.5% 24.2%



Reconciliation of VimpelCom-Region OIBDA to operating income

(Unaudited)
(In thousands of US dollars)

  Nine months ended
September 30, 2004 September 30, 2003
OIBDA 297,818 98,421
Depreciation (60,709) (28,177)
Amortization (18,482) (15,975)
Operating income 218,627 54,269



Reconciliation of VimpelCom-Region OIBDA margin to operating income as percentage of net operating revenues (Unaudited)

  Nine months ended
September 30, 2004 September 30, 2003
OIBDA margin 44.1% 34.4%
Less: Depreciation as percentage of net operating revenues (9.0%) (9.9%)
Less: Amortization as percentage of net operating revenues (2.7%) (5.6%)
Operating income as percentage of net operating revenues 32.4% 19.0%



Attachement D: Reconciliation tables for non-U.S. GAAP measures related to geographical areas

Reconciliation of SAC to selling, general and administrative expenses in Moscow license area (Unaudited)
(In thousands of US dollars, except for SAC and subscriber amounts)

  Three months ended
September 30, 2004 June 30, 2004 September 30, 2003
Selling, general and administrative expenses 96,665 83,185 81,976
Less: General and administrative expenses 68,139 60,022 50,334
Sales and marketing expenses,
including
28,526 23,163 31,642
advertising & marketing expenses 10,345 10,937 6,282
dealers' commission expense 18,181 12,226 25,360
New gross subscribers,'000 1,121 989 1,172
Subscriber Acquisition Cost (SAC) (US$) 25.4 23.4 27.0



Reconciliation of ARPU to service revenue and connection fees in Moscow license area (Unaudited)

(In thousands of US dollars, except for ARPU and subscriber amounts)

  Three months ended
September 30, 2004 June 30, 2004 September 30, 2003
Total operating revenues 344,868 315,736 275,205
Less: Revenues from sales of handsets and accessories and other revenues 39,912 35,629 25,103
Less: Connection fees 70 123 208
Less: Revenue from rent of fiber-optic channels 408 304 308
Service revenue used to calculate ARPU 304,478 279,680 249,586
Average number of subscribers,'000 6,349 6,129 4,752
Average revenue per subscriber per month (US$) 16.0 15.2 17.5



Reconciliation of SAC to selling, general and administrative expenses in regions (Unaudited)

(In thousands of US dollars, except for SAC and subscriber amounts)

  Three months ended
September 30, 2004 June 30, 2004 September 30, 2003
Selling, general and administrative expenses 96,766 78,193 48,346
Less: General and administrative expenses 56,751 45,065 30,348
Sales and marketing expenses,
including
40,015 33,127 17,998
advertising & marketing expenses 6,188 5,531 5,385
dealers' commission expense 33,827 27,596 12,613
New gross subscribers,'000 3,731 2,998 1,469
Subscriber Acquisition Cost (SAC) (US$) 10.8 11.0 12.3



Reconciliation of ARPU to service revenue and connection fees in regions (Unaudited)

(In thousands of US dollars, except for ARPU and subscriber amounts)

  Three months ended
September 30, 2004 June 30, 2004 September 30, 2003
Total operating revenues 304,394 222,429 133,376
Less: Revenues from sales of handsets and accessories and other revenues 11,155 10,033 10,714
Less: Connection fees 123 102 147
Service revenue used to calculate ARPU 293,116 213,506 122,515
Average number of subscribers,'000 11,615 212,294 3,552
Average revenue per subscriber per month (US$) 8.4 8.3 11.5

 

Reconciliation of SAC to selling, general and administrative expenses in Kazakhstan (Unaudited)
(In thousands of US dollars, except for SAC and subscriber amounts)

  Three months ended
September 30, 2004a) June 30, 2004 September 30, 2003
Selling, general and administrative expenses 1,944 n/a n/a
Less: General and administrative expenses 886 n/a n/a
Sales and marketing expenses,
including
1,058 n/a n/a
advertising & marketing expenses 247 n/a n/a
dealers' commission expense 811 n/a n/a
New gross subscribers,'000 42 n/a n/a
Subscriber Acquisition Cost (SAC) (US$) 25.2 n/a n/a

 

a) September data only

Reconciliation of ARPU to service revenue and connection fees in Kazakhstan (Unaudited)
(In thousands of US dollars, except for ARPU and subscriber amounts)

  Three months ended
September 30, 2004a) June 30, 2004 September 30, 2003
Total operating revenues 10,759 n/a n/a
Less: Revenues from sales of handsets and accessories and other revenues 0 n/a n/a
Less: Connection fees 0 n/a n/a
Service revenue used to calculate ARPU 10,759 n/a n/a
Average number of subscribers,'000 661 n/a n/a
Average revenue per subscriber per month (US$) 16.3 n/a n/a

 

a) September data only
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