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VimpelCom announces third quarter financial results and first and second quarter revisions

  • Net Loss of $2.6 million for the Third Quarter of 1999
  • Revised Net Loss of $5.7 million for the Second Quarter of 1999 as Compared to $8.4 million Net Loss Previously Reported
  • Revised Net Loss of $5.1 million for the First Quarter of 1999 as Compared to $0.1 million Net Income Previously Reported

142% Increase in subscribers since beginning of year

Moscow and New York (December 15, 1999) - Open Joint Stock Company "Vimpel-Communications" ("VimpelCom" or the "Company") (NYSE: VIP) today announced financial results for the third quarter and nine months ended September 30, 1999. The Company also reported that as of today, its Moscow GSM and D-AMPS subscriber base is approximately 300,000, representing a growth of approximately 142% since the beginning of the year.

The Company also reported that it has revised its previously issued unaudited interim financial statements for the first and second quarters of 1999. The revisions are being made as a result of a management review of the Company's reporting procedures which identified that: (i) certain modifications made to the Company's billing system subsequent to the commencement of the Russian financial crisis were not appropriately reflected in the reports used in the preparation of the Company's U.S. GAAP financial statements, and (ii) certain customer advances and deposits were incorrectly grouped together when offset against accounts receivable in certain reports used in the preparation of the U.S. GAAP financial statements. These financial reporting issues impeded the Company's ability to accurately determine the extent to which it had experienced a deterioration in the aging of outstanding accounts receivable, and, as a result of correcting them, the provisions for doubtful accounts for the first and second quarters of 1999 now exceed the amounts previously reported by the Company. In addition, certain other reclassifications and adjustments were made in connection with the review completed at management's request by Ernst & Young, the Company's independent accountants, for the first three quarters of 1999.

The Company has developed reconciliation and other procedures in order to prevent these financial reporting issues from recurring in the future. "It is unfortunate that these issues arose, but I want to reassure our shareholders that we are implementing corrective measures. Transparency and the integrity of our financial statements has always been, and will continue to be, one of our highest priorities," said Dmitri Zimin, President and Chief Executive Officer of VimpelCom.

The Company has reviewed with its independent accountants the revisions to be made to its unaudited interim financial statements for the first and second quarters of 1999. The revisions result in the Company now reporting (i) a net loss of $5.1 million or $0.26 per share ($0.20 per ADS) for the first quarter of 1999, as compared with previously reported net income of $0.1 million or $0.01 per share ($0.01 per ADS); and (ii) a smaller net loss of $5.7 million or $0.27 per share ($0.20 per ADS) for the second quarter of 1999, as compared to a net loss of $8.4 million or $0.40 per share ($0.30 per ADS) as previously reported. The total effect of the revisions is that the Company's net loss for the six months ended June 30, 1999 is increased by $2.5 million. Copies of the Company's revised financial statements are attached to this press release.

As of September 30, 1999, VimpelCom had over 197,300 subscribers on its Moscow GSM and D-AMPS networks. This represents a growth of approximately 39% over the 141,600 subscribers reported at the end of the third quarter of 1998 and a growth of approximately 59% over the 124,000 subscribers reported at the end of 1998. As of September 30, 1999, the Company's Moscow GSM subscriber base was approximately 56,100, an increase of 167% from the 21,000 GSM subscribers reported as of December 31, 1998. As of September 30, 1999, prepaid subscribers constituted approximately 54% of VimpelCom's Moscow subscriber base. Management believes that the number of prepaid subscribers as a percentage of the Company's overall Moscow subscriber base will continue to increase in the future. Average monthly airtime usage per subscriber was approximately 130 minutes in the third quarter of 1999, and average revenue per user (ARPU) was approximately $95 in the same period.

VimpelCom's subscriber base has increased in 1999 largely as a result of an influx of prepaid card subscribers who have been attracted to VimpelCom's innovative marketing and promotions campaigns. The Company recently experienced a surge in subscriber growth through its prepaid "phone in a box" program, which allows customers to buy an activated phone "off the shelf." At the same time, VimpelCom has continued to target traditional post paid subscribers that have historically used more airtime and generated higher revenues for the Company as compared to prepaid users.

VimpelCom's total operating revenues for the third quarter of 1999 were $56.9 million, a decrease of 45% from $103.9 million reported in the same period in 1998. Total net operating revenues (net of revenue-based taxes) were $53.0 million in the third quarter of 1999, a decrease of 47% from the $100.6 million reported in the third quarter last year. The Company's operating loss for the third quarter of 1999 was $1.7 million, a decrease of $32.5 million from operating income of $30.8 million reported in the same period a year ago.

EBITDA for the third quarter of 1999 was $11.7 million, a decrease of 72% from $41.7 million reported in the same period in 1998. The Company's EBITDA margin for the third quarter of 1999 was approximately 22%, a decrease from the approximately 42% EBITDA margin reported in the same period in 1998.

For the third quarter of 1999, the Company reported a net loss of $2.6 million, or $0.10 per share ($0.08 per ADS), compared to a net loss of $43.9 million, or $2.28 per share ($1.71 per ADS), reported in the same period in 1998. Each ADS represents 0.75 of one share of common stock.

Total operating revenues for the nine months ended September 30, 1999 were $172.5 million, a decrease of 42% from the $299.9 million reported in the same period in 1998. Total net operating revenues (net of revenue-based taxes) were $163.2 million for the nine months ended September 30, 1999, a decrease of 44% from the $288.9 million reported in the same period in 1998. The Company's operating loss for the first nine months of 1999 was $9.7 million compared to operating income of $89.6 million reported for the first nine months of 1998. The Company's net loss for the nine months ended September 30, 1999 was $13.3 million, or $0.61 per share ($0.46 per ADS), compared to net loss of $13.7 million, or $0.71 per share ($0.53 per ADS), reported in the same period in 1998.

During the third quarter and the first nine months of 1999, the Company experienced a decrease in operating revenues and EBITDA as compared with the same periods in 1998. Prepaid subscribers as a percentage of the Company's overall subscriber base continued to increase, causing a further decline in the Company's ARPU, as prepaid subscribers tend to use significantly less airtime as compared to the Company's traditional post paid subscribers. In addition, the number of new prepaid subscribers was still not large enough to offset the loss of high revenue generating subscribers. Other factors contributing to the decreases in operating revenues and EBITDA, as well as the net loss, include reduced subscription fees, moderate tariff reductions, fixed service costs of unused leased lines with direct Moscow telephone numbers and higher depreciation costs.

Selling, general and administrative expenses for the third quarter of 1999 decreased 30% to $18.3 million compared to $26.0 million reported in the same period in 1998. The absolute decrease in selling, general and administrative expenses in the third quarter of 1999 was due primarily to a decrease in personnel-related costs as well as an overall decrease in business activity.

For the third quarter of 1999, the Company recorded a $1.7 million provision for doubtful accounts receivable (representing 3.1% of net operating revenues) compared to $6.2 million (representing 6.2% of net operating revenues) in the same period in 1998 during which the Russian financial crisis commenced. This 73% decrease in provision for doubtful accounts receivable was due to an improvement in the quality of the Company's customer base as compared to the third quarter of 1998. To a lesser extent, this was due to an increase in the number of the Company's prepaid subscribers, an increase in the proportion of revenues from roaming and a general decrease in the Company's operating revenues. The Company believes that its provision for doubtful accounts receivable is conservative and adequate.

Depreciation and amortization expense was $13.5 million for the third quarter of 1999, a 24% increase compared to the $10.9 million reported in the same period of 1998. The increase was largely due to the increased depreciable asset base resulting from the Company's continuing capital investments, primarily in its GSM-900/1800 network.

Commenting on today's announcement, Dmitri Zimin, President and Chief Executive Officer of VimpelCom said, "We are committed to a strategy and business model which calls for much greater dynamism and more aggressive targeting of the mass consumer market. The enthusiastic and positive response of the Moscow market to our recent promotions and marketing campaigns has given us confidence in the continuing growth of the mass market in Moscow. With the potential of strong growth in wireless data traffic in 2000 and beyond, commanding a large subscriber base is an important advantage for future revenue and earnings potential."

VimpelCom expects to report a net loss for the fiscal year ended December 31, 1999 and for the first half of 2000 due to the implementation of its new strategy which, in the short-term, brings increased expenses and continued falling ARPU associated with the increase in prepaid subscribers.

VimpelCom is a leading provider of cellular telecommunications in Russia, marketing its services under the brand name "Bee Line." The VimpelCom Group operates GSM-900/1800 and Digital-AMPS cellular networks in the Moscow License Area, which includes the City of Moscow and the Moscow Region. The Group is also building cellular networks in its other licensed territories. The VimpelCom Group holds cellular licenses covering a total population of approximately 100 million (70% of Russia's population). VimpelCom was the first Russian company listed on the New York Stock Exchange (November 1996), and its ADSs trade under the symbol "VIP."

 

This press release contains forward-looking statements related to the development of the Company's business which involve risks and uncertainties. These statements are based on Management's best assessment of future market conditions and trends. The actual outcome may differ materially from these statements as a result of unforeseen developments from competition, governmental regulations of the wireless telecommunications industry, general political uncertainties in Russia and general economic developments in Russia and other factors, all of which may be aggravated by the current economic and political crisis. No assurance can be given that the economic crisis will abate in the foreseeable future or that the full impact of the economic crisis on the VimpelCom Group can be assessed at this time. As a result of such uncertainties, there can be no assurance that current or future changes in the political, economic and social environment or current or future regulation of the Russian 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, 1998 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)
7(095) 974-5888
vgoldin@vimpelcom.com

Glenn Wiener
Edelman Financial Worldwide
1 (212) 704 8174
glenn_wiener@edelman.com

Open Joint Stock Company "Vimpel-Communications"

Unaudited Consolidated Condensed Statements of Operations

   

Three months ended

 

Nine months ended

   

September 30,

 

September 30,

   

1999

1998

 

1999

1998

   

(In thousands, except per share (ADS) amounts)

Operating revenues:

         
 

Service revenues and connection fees

US$49,832

US$95,516

 

US$154,483

US$273,061

 

Sales of handsets and accessories

6,877

8,303

 

17,581

26,082

 

Installation and equipment contracts

203

122

 

467

708

Total operating revenues

56,912

103,941

 

172,531

299,851

 

Less revenue based taxes

3,894

3,365

 

9,300

10,929

Net operating revenues

53,018

100,576

 

163,231

288,922

             

Operating expenses:

         
 

Service costs

14,074

19,842

 

43,190

56,133

 

Cost of handsets and accessories sold

7,212

6,810

 

18,789

20,372

 

Cost of installation and equipment contracts

86

39

 

175

394

 

Selling, general and administrative expenses

18,258

25,964

 

54,570

74,410

 

Depreciation and amortization

13,463

10,946

 

41,073

29,974

 

Provision for doubtful accounts

1,669

6,192

 

15,103

18,076

Total operating expenses

54,762

69,793

 

172,900

199,359

             

Operating income (loss)

(1,744)

30,783

 

(9,669)

89,563

             

Other income and expenses:

         
 

Other income

950

324

 

1,337

1,046

 

Gain (loss) on trading in securities

201

(28,162)

 

1,283

(28,243)

 

Interest expense

(3,519)

(4,002)

 

(12,184)

(10,018)

 

Net foreign exchange gain / (loss)

(370)

(35,557)

 

(1,505)

(38,039)

Total other income and expenses

(2,738)

(67,397)

 

(11,069)

(75,254)

             

Income before income taxes and minority interest

(4,482)

(36,614)

 

(20,738)

14,309

             

Income tax expense (benefit)

(1,502)

6,587

 

(8,914)

26,793

Minority interest in net earnings (losses)

of subsidiaries

 

(420)

 

702

 

 

1,481

 

1,218

             

Net income (loss)

US$(2,560)

US$(43,903)

 

US$(13,305)

US$(13,702)

             

Net income (loss) per common share

US$(0.10)

US$(2.28)

 

US$(0.61)

US$(0.71)

             

Net income (loss) per ADS equivalent

US$(0.08)

US$(1.71)

 

US$(0.46)

US$(0.53)

             

Weighted average common shares outstanding (thousands)

25,396

19,280

 

21,925

19,280

             

EBITDA

US$11,719

US$41,729

 

US$31,404

US$119,537

 

Open Joint Stock Company "Vimpel-Communications"

Consolidated Condensed Balance Sheets

     

September 30,

December 31,

     

1999

1998

     

(unaudited)

 
     

(In thousand US dollars)

Assets

       

Current assets:

   
 

Cash and cash equivalents

 

US$86,078

US$14,479

 

Short-term investments

380

2,167

 

Accounts receivable

21,012

34,354

 

Other current assets

34,477

21,377

Total current assets

141,947

72,377

         

Non-current assets

   
 

Property and equipment, net

413,114

416,036

 

Other assets

40,453

47,654

Total non-current assets

453,567

463,690

         

Total assets

 

US$595,514

US$536,067

         

Liabilities and shareholders' equity

   

Current liabilities:

   
 

Accounts payable

US$27,842

US$36,573

 

Customer deposits

32,311

46,214

 

Bank loans

0

10,754

 

Equipment financing, current portion

45,099

17,501

 

Other accrued liabilities

5,653

7,594

Total current liabilities

110,905

118,636

         

Deferred income taxes

37,602

41,151

Equipment financing, and other liabilities

119,301

164,075

         

Minority interest

10,750

9,269

         

Shareholders' equity

316,956

202,936

         

Total liabilities and shareholders' equity

US$595,514

US$536,067

         
 

Open Joint Stock Company "Vimpel-Communications"

Unaudited Consolidated Condensed Statements of Operations

 

Three months ended

June 30, 1999

 

Six months ended

June 30, 1999

 

Revised

Previously reported

 

Revised

Previously reported

 

(In thousands, except per share (ADS) amounts)

Operating revenues:

         

Service revenues and connection fees

US$ 51,135

US$ 51,211

 

US$ 104,651

US$104,663

Sales of handsets and accessories

6,392

6,392

 

10,704

10,704

Installation and equipment contracts

154

154

 

264

264

Total operating revenues

57,681

57,757

 

115,619

115,631

Less revenue based taxes

2,813

2,813

 

5,406

5,406

Net operating revenues

54,868

54,944

 

110,213

110,225

           

Operating expenses:

         

Service costs

14,507

14,347

 

29,116

28,956

Cost of handsets and accessories sold

6,7977

6,7977

 

11,577

11,577

Cost of installation and equipment contracts

50

50

 

89

89

Selling, general and administrative expenses

18,138

17,335

 

36,312

34,794

Depreciation and amortization

14,511

14,451

 

27,610

27,418

Provision for doubtful accounts

3,936

3,506

 

13,434

7,588

Total operating expenses

57,939

56,486

 

118,138

110,422

           

Operating income (loss)

(3,071)

(1,542)

 

(7,925)

(197)

           

Other income and expenses:

         

Other income

222

156

 

387

229

Gain (loss) on trading securities

516

0

 

1,082

658

Interest expense

(4,285)

(4,712)

 

(8,665)

(9,092)

Net foreign exchange gain / (loss)

460

(1,254)

 

(1,135)

(4,310)

Total other income and expenses

(3,087)

(5,810)

 

(8,331)

(12,515)

           

Income (loss) before income taxes and
minority interest

 

(6,158)

 

(7,352)

 

 

(16,256)

 

(12,712)

           

Income tax expense (benefit)

(1,378)

202

 

(7,412)

(6,319)

Minority interest in net earnings (losses)

of subsidiaries

 

888

 

890

 

 

1,901

 

1,903

           

Net income (loss)

US$(5,668)

US$(8,444)

 

US$(10,745)

US$(8,296)

           

Net income (loss) per common share

US$(0.27)

US$(0.40)

 

US$(0.53)

US$(0.41)

           

Net income (loss) per ADS equivalent

US$(0.20)

US$(0.30)

 

US$(0.40)

US$(0.31)

           

Weighted average common shares outstanding (thousands)

21,033

21,033

 

20,161

20,166

           

EBITDA

US$11,440

US$12,909

 

US$19,685

US$27,221

           
 

 


 

 

Open Joint Stock Company "Vimpel-Communications"

Unaudited Consolidated Condensed Statements of Operations

 

Three months ended

March 31, 1999

 
 

Revised

Previously

reported

 

(In thousands, except per share (ADS) amounts)

Operating revenues:

   

Service revenues and connection fees

US$53,516

US$53,562

Sales of handsets and accessories

4,422

4,312

Total operating revenues

57,938

57,874

Less revenue-based taxes

2,593

2,593

Net operating revenues

55,345

55,281

     

Operating expenses:

   

Service costs

14,609

14,609

Cost of handsets and accessories sold

4,8199

4,8199

Selling, general and administrative expenses

18,174

17,459

Depreciation and amortization

13,099

12,967

Provision for doubtful accounts

9,498

4,082

Total operating expenses

60,199

53,936

     

Operating (loss) income

(4,854)

1,345

     

Other income and expenses:

   

Other income

165

73

Gain (loss) on trading securities

566

658

Interest expense

(4,380)

(4,380)

Net foreign exchange gain / (loss)

(1,595)

(3,056)

Total other income and expense

(5,244)

(6,705)

     

Income before income taxes and minority interest

(10,098)

(5,360)

     

Income tax expense (benefit)

(6,034)

(6,521)

Minority interest in net earnings (losses) of subsidiaries

1,013

1,013

     

Net income (loss)

US$(5,077)

US$148

     

Net income (loss) per common share

US$(0.26)

US$0.01

     

Net income (loss) per ADS equivalent

US$(0.20)

US$0.01

     

Weighted average common shares outstanding (thousands)

19,280

19,280

     

EBITDA

US$8,245

US$14,312

     

 

 

 

Open Joint Stock Company "Vimpel-Communications"

Unaudited Consolidated Condensed Balance Sheet

 

 

 

March 31,1999

Revised

March 31, 1999

Previously Reported

 

(In thousand US Dollars)

Assets

   

Current assets:

   

Cash and cash equivalents

US$15,854

US$15,854

Short-term investments

1,495

1,495

Accounts receivable

25,264

25,956

Other current assets

22,763

22,095

Total current assets

65,376

65,400

     

Non-current assets

   

Property and equipment, net

412,196

411,706

Other assets

47,324

47,353

Total non-current assets

459,520

459,059

Total assets

US$524,896

US$524,459

     

Liabilities and shareholders' equity

   

Current liabilities:

   

Accounts payable

US$38,413

US$38,413

Customer deposits

42,007

36,889

Bank loans

11,000

11,000

Equipment financing, current portion

18,240

18,240

Other accrued liabilities

9,649

9,765

Total current liabilities

119,309

114,307

     

Deferred income taxes

36,036

35,376

Equipment financing, and other liabilities

161,410

161,410

     

Minority interest

10,282

10,282

     

Shareholders' equity

197,859

203,084

     

Total liabilities and shareholders' equity

US$524,896

US$524,459



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