Beeline AR 2005 - VimpelCom

Notes to Consolidated Financial Statements
100 VimpelCom
Notes to Consolidated Financial Statements
ВымпелКом
Annual Report 2005 Годовой отчет 2005 101
19. Valuation and Qualifying Accounts
The following summarizes the changes in the allowance for doubtful accounts for
the years ended December 31, 2005, 2004 and 2003:
Balance as of December 31, 2002 $ 12,916
Provision for bad debts 11,074
Accounts receivable written off (16,032)
Balance as of December 31, 2003 7,958
Provision for bad debts 9,636
Accounts receivable written off (4,710)
Balance as of December 31, 2004 12,884
Provision for bad debts 13,668
Accounts receivable written off (10,085)
Balance as of December 31, 2005 $ 16,467
The provision for bad debts included in the accompanying consolidated statements
of income is net of related value-added taxes of US$2,085, US$1,470 and US$1,846
for the years ended December 31, 2005, 2004 and 2003, respectively.
20. Related Party Transactions
Transactions between VimpelCom and its related parties, except for the transactions
described below, consist primarily of services from the related parties and
loans to them, which are not material to the financial results of VimpelCom.
Balances due to related parties consisted of the following as of December 31:
2005 2004
Telenor Russia AS $709 $ 2,255
Eco Telecom and Alfa-Eco M - 4,130
Other - 905
$ 709 $ 7,290
On April 1, 1999, VimpelCom and Telenor Russia AS signed a Service Obligation
Agreement (“Telenor Service Obligation Agreement”). Total expense in respect of
management fees under the Telenor Service Obligation Agreement included in selling,
general and administrative expenses in the accompanying consolidated statements
of income for the years ended December 31, 2005, 2004 and 2003 amounted
to US$0, US$966 and US$1,041, respectively. As of December 31, 2005 and 2004, the
liability to Telenor Russia AS amounted to US$0 and US$918, respectively.
On October 1, 2003, VimpelCom and Telenor Russia AS signed a General Services
Agreement (the “General Services Agreement”). Total expense in respect of
management fees under this General Services Agreement included in selling,
general and administrative expenses in the accompanying consolidated statements
of income for the years ended December 31, 2005, 2004 and 2003 amounted to
US$2,625, US$3,500 and US$1,167, respectively. As of December 31, 2005 and 2004,
the liability to Telenor Russia AS amounted to US$709 and US$1,337 respectively.
In February 2006, the Board approved a General Agreement with Telenor Russia AS
for provision of personnel and a General Services Agreement with Telenor Russia AS
which came into force as of September 1, 2005 in substitution of the General Services
Agreement. Between September 1, 2005 and January 1, 2006, VimpelCom was
obligated to pay approximately US$472 for provision of personnel under the General
Agreement for provision of personnel and a US$167 fixed fee for the services
rendered under the new General Services Agreement (exclusive of VAT 18%).
On August 28, 2003, VimpelCom and Eco Telecom and Limited Liability Company
Alfa-Eco M (“Alfa-Eco M”), a part of the Alfa Group of companies in Russia, signed
a Services Agreement. In accordance with the Services Agreement, Eco Telecom
and Alfa-Eco M provided advising and consulting services to VimpelCom in connection
with the merger between VimpelCom and VimpelCom-Region (Note 5). The
total cost in respect of the Services Agreement as of December 31, 2003 amounted
to US$3,500 and was included in telecommunications licenses and allocations of
frequencies in the accompanying consolidated financial statements. This amount
was paid in 2005. As of December 31, 2005 and 2004, the liability to Eco Telecom and
Alfa-Eco M amounted to US$0, and US$4,130, respectively.
On October 1, 2003, VimpelCom and Limited Liability Company Alfa-Eco Telecom, a
part of the Alfa Group of companies in Russia, signed a General Service Agreement.
Total expense in respect of management fees under this General Service Agreement
included in selling, general and administrative expenses in the accompanying consolidated
statements of income for the years ended December 31, 2005, 2004 and
2003 amounted to US$0, US$2,333 and US$1,167, respectively.
On November 10, 2005, VimpelCom acquired 100% of the issued and outstanding
stock of each of Crayola Properties Limited, Cradel Investments Limited, Wintop
Management Limited, Crisden Holdings Limited and Cellcroft Holdings Limited,
which together own 100% interest in URS, for a total cash purchase price of
approximately US$231,200. We also assumed approximately US$22,800 in URS debt
(Note 4). One of the members of Company’s board of directors was on the board of
directors of one of the sellers, Karino Trading Limited, at the time of the acquisition.
21. Earnings per Share
Net income per common share for all periods presented has been determined in
accordance with SFAS No. 128, “Earnings per Share”, by dividing income available
to common shareholders by the weighted-average number of common shares outstanding
during the period. Net income per share of common stock has been
adjusted by a factor of four to determine net income per ADS equivalent as each
ADS is equivalent to one-quarter of one share of common stock (Note 16). In 2003
and 2004 the Company included the preferred shares in the computation of the
diluted net income per common share which were assessed as having a dilutive
effect. In 2005 the Company revised the computation of diluted net income per
common share to consider the assumed repurchases of common stock using the
proceeds from the conversion (i.e. in accordance with the “treasury stock
method”). Accordingly the computation of diluted net income per common share
has been amended for 2003 (from US$ 5.11 to US$ 5.67) and for 2004 (from US$ 7.35
to US$ 8.49).
The following table sets forth the computation of basic and diluted earnings per share:
Years ended December 31,
2005 2004 2003
(In thousands, except per share amounts)
Numerator:
Net income $615,131 $ 350,396 $ 228,809
Denominator:
Denominator for basic earnings
per share – weighted average shares 51,066 41,224 38,241
Effect of dilutive securities:
Senior convertible notes – – 2,076
Employee stock options 19 48 27
Denominator for diluted earnings
per share – assumed conversions 51,085 41,272 40,344
Basic net income per common share $ 12.05 $ 8.50 $ 5.98
Diluted net income per common share $ 12.04 $ 8.49 $ 5.67
22. Segment Information
SFAS No. 131, “Disclosures about Segments of an Enterprise and Related
Information”, requires companies to provide certain information about their operating
segments. In past periods VimpelCom had two reportable segments: the
Moscow license area and the regions outside of the Moscow license area (the
“Regions”). As of September 30, 2004, a new reportable segment, Kazakhstan, was
identified due to the acquisition of KaR-Tel (Note 4). The Moscow license area
included the city of Moscow and the Moscow region. The Regions included all other
regions of the Russian Federation.
Beginning January 1, 2005, management began analyzing only two reportable segments,
the Russian Federation and Kazakhstan, by combining the Moscow license
area and the Regions reportable segments. One of the reasons for management’s
decision to concentrate on the Russian Federation segment was the merger of
VimpelCom and VimpelCom-Region on November 26, 2004. The corresponding items
of segment information for previous periods have been restated.
As of December 31, 2005, new reportable segments, Ukraine and Tajikistan, were
identified due to the acquisition of URS and Tacom, respectively.
Management decided to organize the enterprise based on geographical areas.
Management analyzes the reportable segments separately because of different
economic environments and stages of development of markets of wireless telecommunications
services in different geographical areas, requiring different investment
and marketing strategies.
The Board of Directors and management utilize more than one measurement and
multiple views of data to measure segment performance. However, the dominant
measurements are consistent with VimpelCom’s consolidated financial
statements and, accordingly, are reported on the same basis herein. Management
evaluates the performance of its segments primarily based on revenue, operating
income, income before income taxes and net income along with cash flows and
overall economic returns. Intersegment revenues are eliminated in
consolidation. Intersegment revenues may be accounted for at amounts
different from sales to unaffiliated companies. The accounting policies of the
segments are the same as those described in the summary of significant
accounting policies, as discussed in Note 2.
Year ended December 31, 2005: Russia Kazakhstan Ukraine Tajikistan Total
Total operating revenues from external customers $ 3,032,976 $ 176,172 $ 1,970 $ - $ 3,211,118
Total intersegment revenues 291 752 - - 1,043
Depreciation and amortization 535,372 55,079 2,827 - 593,278
Operating income 972,673 9,586 (4,227) - 978,032
Interest income 11,260 5 40 - 11,305
Interest expense 140,565 9,503 - - 150,068
Income before income taxes and minority interest 847,074 (2,126) (4,518) - 840,430
Income tax expense 226,753 (4,381) (471) - 221,901
Net income 620,321 2,255 (4,047) - 618,529
Segment assets 5,383,139 668,443 296,643 16,467 6,364,692
Goodwill 230,851 155,948 81,999 8,697 477,495
Expenditures for long-lived assets $ 1,498,807 $ 136,538 $ - $ - $ 1,635,345