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VimpelCom / Annual Report 2007
Management’s Discussion and Analysis
of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction with
our consolidated financial statements and the related notes included
elsewhere in this annual report. This discussion contains forward
looking statements that involve risks and uncertainties. Our actual
results could differ materially from those anticipated in the forward
looking statements as a result of numerous factors.
Unless otherwise indicated, historical information in this discussion and
analysis relates to VimpelCom, while forward looking statements made in this
discussion and analysis relate to our company, including Golden Telecom.
Overview
We are a telecommunications operator, providing voice and data services
through a range of wireless, fixed and broadband technologies. The
VimpelCom group of companies includes companies operating in Russia,
Kazakhstan, Ukraine, Uzbekistan, Armenia, Tajikistan and Georgia,
covering territory with a total population of approximately 250.0
million. On February 28, 2008, we completed the acquisition of 100.0%
of the outstanding shares of Golden Telecom, Inc., a leading provider of
fixed-line telecommunications and Internet services in major population
centers throughout Russia and other countries in the CIS. With our
acquisition of Golden Telecom, we plan to transform VimpelCom into a
leading integrated telecommunications provider in Russia and the CIS.
Our net operating revenues were US$7,171.1 million for the year ended
December 31, 2007, compared to US$4,868.0 million for the year ended
December 31, 2006. Our operating income was US$2,206.2 million for the
year ended December 31, 2007, compared to US$1,397.3 million for the
year ended December 31, 2006. Our net income was US$1,462.7 million
for the year ended December 31, 2007, compared to US$811.5 million for
the year ended December 31, 2006.
As of December 31, 2007, our total number of mobile subscribers in Russia
and the CIS was 51.7 million (including 42.2 million in Russia, 4.6 million
in Kazakhstan, 2.1 million in Uzbekistan, 1.9 million in Ukraine, 0.4
million in Armenia, 0.3 million in Tajikistan and 0.1 million in Georgia).
As of December 31, 2006, our total number of mobile subscribers in
Russia and the CIS was 45.5 million (including 39.8 million in Russia, 3.1
million in Kazakhstan, 0.7 million in Uzbekistan, 1.5 million in Ukraine,
0.4 million in Armenia and 0.07 million in Tajikistan). As of December 31,
2007, Golden Telecom’s Business and Corporate Services line of business
had 508,904 customer contracts and its Carrier and Operator Services
line of business had 4,251 customer contracts. As of December 31, 2007,
Golden Telecom had 467,560 broadband subscribers and approximately
36,500 mobile subscribers.
We currently operate our mobile telecommunications services in Russia,
Kazakhstan, Ukraine, Armenia, Tajikistan, Uzbekistan and Georgia
primarily under the «Beeline» brand name. In Russia and other countries
in the CIS, we offer many of our other fixed-line telecommunications and
related services and Internet services under the Golden Telecom brand
name, although, some recently acquired services still carry local brands.
Our selected financial data, consolidated financial statements and
related notes included elsewhere in this annual report and the following
discussion and analysis reflect the contribution of the operators we
acquired in the CIS countries from their respect dates of acquisition, and,
as a result, include only two months of operating results for Ukraine for
the fiscal year ended December 31, 2005, only 11 months of operating
results for Uzbekistan for the fiscal year ended December 31, 2006, less
than two months of operating results for Armenia for the fiscal year
ended December 31, 2006, and six months of operating results for Georgia
for fiscal year ended December 31, 2006.
Reportable Segments
As of December 31, 2007, our reportable segments were geographically
based and included: (1) Russia, which includes the operating results of
VimpelCom and all of our subsidiaries operating in Russia; (2) Kazakhstan,
which includes the operating results of KaR-Tel and all of its subsidiaries;
(3) Ukraine, which includes the operating results of URS; (4) Tajikistan,
which includes the operating results of Tacom; (5) Uzbekistan, which
includes the operating results of Unitel; (6) Georgia, which includes
the operating results of Mobitel; and (7) Armenia, which includes the
operating results of ArmenTel and its subsidiaries. Our management
analyzes the reportable segments separately because of the different
economic environments and the different stages of development of the
markets for mobile telecommunications services in Russia compared to
the CIS, which requires different investment and marketing strategies.
For more information on our reportable segments, please see Note 16
to our audited consolidated financial statements included elsewhere in
this annual report.
As of December 31, 2007, Golden Telecom’s reportable segments were: (1)
Business and Corporate Services; (2) Carrier and Operator Services; (3)
Consumer Internet Services; and (4) Mobile Services.
We are in the process of assessing our segment reporting as a result of our
acquisition of Golden Telecom.
Recent Developments
On December 21, 2007, two of our subsidiaries and Golden Telecom, a
facilities-based provider of integrated telecommunications and Internet
services in the Russian Federation, signed a definitive merger agreement
pursuant to which an indirect wholly-owned subsidiary of our company
commenced a tender offer on January 18, 2008, to acquire 100.0% of
the outstanding shares of Golden Telecom’s common stock at a price of
US$105.0 per share in cash. The initial tender offer period and subsequent
tender offer period closed on February 26, 2008 with 94.4% of the
outstanding shares of Golden Telecom’s common stock being tendered.
On February 28, 2008, our indirect wholly-owned subsidiary was merged
with and into Golden Telecom and Golden Telecom became our indirect