Beeline AR 2005 - VimpelCom

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Management’s Discussion and Analysis of Financial Condition 72 and Results of Operations VimpelCom Management’s Discussion and Analysis of Financial Condition ВымпелКом Annual Report 2005 and Results of Operations Годовой отчет 2005 73 Additional Reconciliations of Non-U.S. GAAP Financial Measures (Unaudited) ARPU and SAC are non-U.S. GAAP financial measures. ARPU is used to measure the average monthly services revenue on a per subscriber basis. ARPU is calculated as service revenue generated by subscribers, including roaming revenue, but excluding revenue from connection fees, sales of handsets and accessories and other nonservice revenue, divided by the average number of our subscribers for the period. SAC is used to measure the average cost of adding a new subscriber. SAC is calculated as dealers’ commissions, advertising expenses and handset subsidies for the relevant period divided by the number of new subscribers added in the period. Reconciliation of ARPU to Service Revenue and Connection Fees (Unaudited, in thousands of U.S. dollars, except for ARPU and subscriber amounts) We believe that ARPU and SAC provide useful information to investors because they are indicators of the performance of our business operations and assist management in budgeting. We believe that ARPU provides management with useful information concerning usage and acceptance of our services. We believe that SAC assists management in quantifying the incremental costs to acquire a new subscriber. Non-U.S. GAAP financial measures should not be viewed in isolation or as an alternative to other figures reported under U.S. GAAP. Reconciliation of ARPU to service revenue and connection fees and SAC to selling, general and administrative expenses, the most directly comparable U.S. GAAP financial measures, is presented below. Years Ended December 31, 2005 2004 2003 2002 2001 Total ARPU: Total service revenues $ 3,175,221 $ 2,070,720 $ 1,269,927 $ 728,729 $ 383,321 Less: Connection fees 876 720 1,279 1,962 2,079 Less: Revenue from rent of fiber optic channels 1,370 1,788 1,299 1,831 2,032 Service revenue used to calculate ARPU 3,172,975 2,068,212 1,267,349 724,936 379,210 Average number of subscribers (‘000) 35,393 16,986 7,749 3,305 1,208 Total average revenue per subscriber per month $ 7.5 $ 10.1 $ 13.6 $ 18.3 $ 26.2 Russia ARPU: Total service revenues $ 2,997,388 $ 2,025,638 $ 1,269,927 $ 728,729 $ 383,321 Less: Connection fees 876 720 1,279 1,962 2,079 Less: Revenue from rent of fiber optic channels 1,370 1,788 1,299 1,831 2,032 Service revenue used to calculate ARPU 2,995,142 2,023,130 1,267,349 724,936 379,210 Average number of subscribers (‘000) 33,958 16,734 7,749 3,305 1,208 Russia average revenue per subscriber per month $ 7.4 $ 10.1 $ 13.6 $ 18.3 $ 26.2 Kazakhstan ARPU: Total service revenues $ 176,924 $ 45,082 $ – $ – $ – Less: Connection fees – – – – – Service revenue used to calculate ARPU 176,924 45,082 – – – Average number of subscribers (‘000) 1,404 716 – – – Kazakhstan average revenue per subscriber per month $ 10.5 $ 15.7 $ – $ – $ – Ukraine ARPU: Total service revenues $ 1,952 $ – $ – $ – $ – Less: Connection fees – – – – – Service revenue used to calculate ARPU 1,952 – – – – Average number of subscribers (‘000) 239 – – – – Ukraine average revenue per subscriber per month $ 4.1 $ – $ – $ – $ – Reconciliation of SAC to Selling, General and Administrative Expenses (Unaudited, in thousands of U.S. dollars, except for SAC and subscriber amounts) Years Ended December 31, 2005 2004 2003 Total SAC: Revenues from sales of handsets and accessories $ 30,478 $ 38,711 $ 55,765 Less: Cost of handsets and accessories sold 28,294 30,583 36,447 Selling, general and administrative expenses 1,085,807 720,127 467,655 Less: General and administrative expenses 702,193 454,050 290,870 Sales and marketing expenses, including 383,614 266,077 176,785 advertising & marketing expenses 135,248 68,142 50,867 dealers’ commission expense 248,366 197,935 125,918 Customer acquisition costs 383,614 266,077 176,785 New gross subscribers (‘000) 29,246 19,204 9,144 Total Subscriber Acquisition Cost $ 13.1 $ 13.9 $ 19.3 Russia SAC: Revenues from sales of handsets and accessories $ 30,478 $ 38,711 $ 55,765 Less: Cost of handsets and accessories sold 28,234 30,583 36,447 Selling, general and administrative expenses 1,032,040 707,739 467,655 Less: General and administrative expenses 668,285 447,078 290,870 Sales and marketing expenses, including 363,755 260,661 176,785 advertising & marketing expenses 127,292 67,189 50,867 dealers’ commission expense 236,463 193,472 125,918 Customer acquisition costs 363,755 260,661 176,785 New gross subscribers (‘000) 27,591 18,945 9,144 Russia Subscriber Acquisition Cost $ 13.2 $ 13.8 $ 19.3 Kazakhstan SAC: Revenues from sales of handsets and accessories $ – $ – $ – Less: Cost of handsets and accessories sold – – – Handsets and accessories subsidies – – – Selling, general and administrative expenses 51,322 12,388 – Less: General and administrative expenses 31,822 6,972 – Sales and marketing expenses, including 19,500 5,416 – advertising & marketing expenses 7,626 953 – dealers’ commission expense 11,874 4,463 – Customer acquisition costs 19,500 5,416 – New gross subscribers (‘000) 1,616 259 – Kazakhstan Subscriber Acquisition Cost $ 12.1 $ 20.9 $ – Ukraine SAC: Revenues from sales of handsets and accessories $ – $ – $ – Less: Cost of handsets and accessories sold – – – Selling, general and administrative expenses 2,445 – – Less: General and administrative expenses 2,086 – – Sales and marketing expenses, including 359 – – advertising & marketing expenses 330 – – dealers’ commission expense 29 – – Customer acquisition costs 359 – – New gross subscribers (‘000) 39 – – Ukraine Subscriber Acquisition Cost $ 9.2 $ – $ –
74 VimpelCom Annual Report 2005 Report of Independent Registered Public Accounting Firm The Board of Directors and Shareholders Open Joint Stock Company “Vimpel-Communications” We have audited the accompanying consolidated balance sheets of Open Joint Stock Company “Vimpel-Communications” (“VimpelCom”) as of December 31, 2005 and 2004 and the related consolidated statements of income, shareholders’ equity and accumulated other comprehensive income and cash flows for each of the three years in the period ended December 31, 2005. These consolidated financial statements are the responsibility of VimpelCom's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of VimpelCom’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purposes of expressing an opinion on the effectiveness of VimpelCom’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Open Joint Stock Company “Vimpel-Communications” at December 31, 2005 and 2004, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles. April 12, 2006 Consolidated Balance Sheets Consolidated Balance Sheets ВымпелКом Годовой отчет 2005 December 31, 2005 2004 Assets Current assets: (In thousands of US dollars, except share amounts) Cash and cash equivalents (Note 6) $ 363,646 $ 305,857 Trade accounts receivable, net of allowance for doubtful accounts of US$16,467 in 2005 and US$12,884 in 2004 (Note 19) 144,197 119,566 Inventory 60,864 37,855 Deferred income taxes (Note 18) 85,968 64,706 Input value added tax (Note 2) 229,415 196,123 Other current assets (Note 7) 77,335 73,315 Total current assets 961,425 797,422 Property and equipment, net (Note 9) 3,211,112 2,314,405 Telecommunications licenses and allocations of frequencies, net of accumulated amortization of US$175,213 in 2005 and US$83,071 in 2004 (Note 11) 826,948 757,506 Goodwill (Note 11) 477,495 368,204 Other intangible assets, net (Note 11) 196,356 212,595 Software (Note 12) 538,703 224,998 Due from related parties (Note 20) 81 534 Deferred income taxes (Note 18) 2,070 1,714 Other assets (Note 12) 92,846 102,863 Total assets $ 6,307,036 $ 4,780,241 Liabilities and shareholders’ equity Current liabilities: Accounts payable $ 544,961 $ 345,187 Due to related parties (Note 20) 709 7,290 Due to employees 27,654 19,241 Accrued liabilities 31,445 21,429 Taxes payable 73,668 50,791 Deferred revenue 1,301 1,893 Deferred income taxes (Note 18) 644 11,785 Customer advances 286,970 242,064 Customer deposits 30,533 36,106 Capital lease obligations 2,913 2,851 Rouble denominated bonds payable (Note 14) 104,230 – Bank loans, current portion (Note 13) 278,537 115,111 Equipment financing obligations, current portion (Note 15) 35,787 71,577 Total current liabilities 1,419,352 925,325 Deferred income taxes (Note 18) 371,008 296,967 Rouble denominated bonds payable (Note 14) - 108,113 Bank loans, less current portion (Note 13) 1,540,043 1,240,199 Capital lease obligations, less current portion 751 5,004 Equipment financing obligations, less current portion (Note 15) 35,905 38,283 Accrued liabilities 10,802 6,837 Contingencies and Uncertainties (Note 24) – – Minority interest Shareholders’ equity (Note 16): Convertible voting preferred stock (.005 roubles nominal value per share), 10,000,000 shares authorized; 188,626 2,380 6,426,600 shares issued and outstanding Common stock (.005 roubles nominal value per share), 90,000,000 shares authorized; 51,281,022 shares issued – – (December 31, 2004: 51,281,022); 51,027,320 shares outstanding (December 31, 2004: 51,129,780) 92 92 Additional paid-in capital 1,370,654 1,365,978 Retained earnings 1,384,224 769,093 Accumulated other comprehensive income (Note 2) 6,536 25,212 Treasury stock, at cost, 253,702 shares of common stock (December 31, 2004: 151,242) (20,957) (3,242) Total shareholders’ equity 2,740,549 2,157,133 Total liabilities and shareholders’ equity $ 6,307,036 $ 4,780,241 The accompanying notes are an integral part of these consolidated financial statements. 75
Page 1 and 2: VimpelCom Annual Report Годов
Page 3 and 4: 1996 The Russian flag flying on Wal
Page 5 and 6: 1997 Sheremetyevo Airport makes a
Page 7 and 8: 1998 The financial crisis of August
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Page 21 and 22: The Legacy of VimpelCom Founders’
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Page 25 and 26: Selected Consolidated Financial Dat
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Page 41 and 42: Consolidated Statements of Sharehol
Page 43 and 44: Notes to Consolidated Financial Sta

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