CONSOLIDATED STATEMENTS OF FINA
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (USD $) | |||||||||||||||||||
In Thousands | 12 Months Ended
Dec. 31, 2009 | 12 Months Ended
Dec. 31, 2008 | |||||||||||||||||
CURRENT ASSETS: | |||||||||||||||||||
Cash and cash equivalents (Note 4) | $2,522,831 | $1,121,669 | [1] | ||||||||||||||||
Short-term investments, including related party amounts of $13,413 and $339,396 (Note 5) | 217,210 | 360,117 | [1] | ||||||||||||||||
Trade receivables, net (Note 6) | 593,102 | 443,184 | [1] | ||||||||||||||||
Accounts receivable, related parties (Note 25) | 19,973 | 70,620 | [1] | ||||||||||||||||
Inventory and spare parts (Note 7) | 238,693 | 141,113 | [1] | ||||||||||||||||
Prepaid expenses, including related party amounts of $1,146 and $12,883 | 356,530 | 346,399 | [1] | ||||||||||||||||
Deferred tax assets (Note 23) | 212,687 | 213,091 | [1] | ||||||||||||||||
VAT receivable | 109,928 | 129,598 | [1] | ||||||||||||||||
Other current assets, including assets held for sale of $18,519 and $46,426 (Note 2) | 124,002 | 196,632 | [1] | ||||||||||||||||
Total current assets | 4,394,956 | 3,022,423 | [1] | ||||||||||||||||
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of $5,095,168 and $4,038,053 (Note 8), including advances given to related parties of $30,667 and $22,485 | 7,745,331 | 7,758,220 | [1] | ||||||||||||||||
LICENSES, net of accumulated amortization of $341,421 and $295,056 (Notes 3 and 10) | 364,722 | 488,381 | [1] | ||||||||||||||||
GOODWILL (Notes 3 and 11) | 803,773 | 469,471 | [1] | ||||||||||||||||
OTHER INTANGIBLE ASSETS, net of accumulated amortization of $ 1,277,417 and $971,106 (Notes 3 and 12) | 1,067,336 | 1,230,643 | [1] | ||||||||||||||||
DEBT ISSUANCE COSTS, net of accumulated amortization of $114,251 and $83,360 | 127,069 | 37,737 | [1] | ||||||||||||||||
INVESTMENTS IN AND ADVANCES TO ASSOCIATES (Note 13) | 220,450 | 249,887 | [1] | ||||||||||||||||
INVESTMENTS IN SHARES OF SVYAZINVEST (Note 14) | 859,669 | 1,240,977 | [1] | ||||||||||||||||
OTHER INVESTMENTS, including related party amounts of $73,987 and $85,720 (Note 15) | 78,893 | 111,559 | [1] | ||||||||||||||||
OTHER NON-CURRENT ASSETS, including restricted cash of $6,389 and $23,572 (Note 16), deferred tax assets of $97,355 and $63,507 (Note 23) and related party amounts of $1,615 and $1,006 | 118,546 | 107,881 | [1] | ||||||||||||||||
Total assets | 15,780,745 | 14,717,179 | [1] | ||||||||||||||||
CURRENT LIABILITIES: | |||||||||||||||||||
Accounts payable, related parties (Note 25) | 87,403 | 226,482 | [1] | ||||||||||||||||
Trade accounts payable | 504,967 | 875,428 | [1] | ||||||||||||||||
Deferred connection fees, current portion (Note 19) | 46,930 | 55,012 | [1] | ||||||||||||||||
Subscriber prepayments and deposits | 501,351 | 438,723 | [1] | ||||||||||||||||
Debt, current portion (Note 17), including related party amounts of $10,278 and $76,710 (Note 25) | 780,514 | 1,677,529 | [1] | ||||||||||||||||
Notes payable, current portion (Note 17) | 1,218,084 | 10,435 | [1] | ||||||||||||||||
Capital lease obligation, current portion, including related party amounts of $1,344 and $5,693 (Note 9) | 3,173 | 8,253 | [1] | ||||||||||||||||
Income tax payable | 16,136 | 23,102 | [1] | ||||||||||||||||
Accrued liabilities (Note 22) | 825,413 | 563,317 | [1] | ||||||||||||||||
Bitel liability (Note 30) | 170,000 | 170,000 | [1] | ||||||||||||||||
Other payables | 103,962 | 74,760 | [1] | ||||||||||||||||
Total current liabilities | 4,257,933 | 4,123,041 | [1] | ||||||||||||||||
LONG-TERM LIABILITIES: | |||||||||||||||||||
Notes payable, net of current portion (Note 17) | 1,391,549 | 1,578,540 | [1] | ||||||||||||||||
Debt, net of current portion (Note 17), including related party amounts of $15,929 and $18,066 (Note 25) | 4,935,275 | 2,089,488 | [1] | ||||||||||||||||
Capital lease obligation, net of current portion, including related party amounts of $146 and $1,352 (Note 25) | 921 | 4,030 | [1] | ||||||||||||||||
Deferred connection fees, net of current portion (Note 19) | 116,168 | 119,213 | [1] | ||||||||||||||||
Deferred taxes (Note 23) | 298,453 | 190,712 | [1] | ||||||||||||||||
Retirement and post-retirement obligations (Note 27) | 25,537 | 29,250 | [1] | ||||||||||||||||
Property, plant and equipment contributions (Note 20) | 90,349 | 93,197 | [1] | ||||||||||||||||
Long term accounts payable, related parties (Note 25) | 38,273 | 36,807 | [1] | ||||||||||||||||
Other long-term liabilities | 140,957 | 87,246 | [1] | ||||||||||||||||
Total long-term liabilities | 7,037,482 | 4,228,483 | [1] | ||||||||||||||||
Total liabilities | 11,295,415 | 8,351,524 | [1] | ||||||||||||||||
COMMITMENTS AND CONTINGENCIES (Note 30) | |||||||||||||||||||
Redeemable noncontrolling interests | 82,261 | 145,748 | [1] | ||||||||||||||||
SHAREHOLDERS' EQUITY: | |||||||||||||||||||
Common stock (2,096,975,792 shares with a par value of 0.1 rubles authorized and 1,993,326,138 shares issued as of December 31, 2009 and 2008, 777,396,505 of which are in the form of ADS as of December 31, 2009 and 2008) (Note 26) | 50,558 | 50,558 | [1] | ||||||||||||||||
Treasury stock (76,456,876 and 108,273,338 common shares at cost as of December 31, 2009 and 2008) | (1,054,926) | (1,426,753) | [1] | ||||||||||||||||
Additional paid-in capital | 1,090,521 | [1] | |||||||||||||||||
Accumulated other comprehensive loss | (754,524) | (451,264) | [1] | ||||||||||||||||
Retained earnings | 5,135,842 | 5,642,856 | [1] | ||||||||||||||||
Nonredeemable noncontrolling interest | 1,026,119 | 1,313,989 | [1] | ||||||||||||||||
Total shareholders' equity | 4,403,069 | 6,219,907 | [1] | ||||||||||||||||
Total liabilities and shareholders' equity | $15,780,745 | $14,717,179 | [1] | ||||||||||||||||
[1](restated-see Note 2) |
1_CONSOLIDATED STATEMENTS OF FI
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Parenthetical) (USD $) | ||
In Thousands, except Share data | Dec. 31, 2009
| Dec. 31, 2008
|
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION | ||
Short-term investments, related party | $13,413 | $339,396 |
Prepaid expenses, related party | 1,146 | 12,883 |
Other current assets, assets held for sale | 18,519 | 46,426 |
PROPERTY, PLANT AND EQUIPMENT, accumulated depreciation | 5,095,168 | 4,038,053 |
PROPERTY, PLANT AND EQUIPMENT, advances given to related parties | 30,667 | 22,485 |
LICENSES, accumulated amortization | 341,421 | 295,056 |
OTHER INTANGIBLE ASSETS, accumulated amortization | 1,277,417 | 971,106 |
DEBT ISSUANCE COSTS, accumulated amortization | 114,251 | 83,360 |
OTHER INVESTMENTS, related party | 73,987 | 85,720 |
OTHER NON-CURRENT ASSETS, restricted cash | 6,389 | 23,572 |
OTHER NON-CURRENT ASSETS, deferred tax assets | 97,355 | 63,507 |
OTHER NON-CURRENT ASSETS, related party | 1,615 | 1,006 |
Debt, current portion, related party | 10,278 | 76,710 |
Capital lease obligation, current portion, related party | 1,344 | 5,693 |
Debt, net of current portion, related party | 15,929 | 18,066 |
Capital lease obligation, net of current portion, related party | $146 | $1,352 |
Common stock, shares authorized (in shares) | 2,096,975,792 | 2,096,975,792 |
Common stock, par value (in rubles per share) | 0.1 | 0.1 |
Common stock, shares issued (in shares) | 1,993,326,138 | 1,993,326,138 |
Common stock, in the form of ADS (in shares) | 777,396,505 | 777,396,505 |
Treasury stock, common shares at cost (in shares) | 76,456,876 | 108,273,338 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) | |||||||||||||||||||
In Thousands, except Share data | 12 Months Ended
Dec. 31, 2009 | 12 Months Ended
Dec. 31, 2008 | 12 Months Ended
Dec. 31, 2007 | ||||||||||||||||
NET OPERATING REVENUE | |||||||||||||||||||
Services revenue and connection fees (including related party amounts of $72,149, $209,990 and $178,312, respectively) | $9,505,837 | $11,822,006 | [1] | $9,634,698 | [1] | ||||||||||||||
Sales of handsets and accessories (including related party amounts of $20,689, $1,500 and $nil, respectively) | 317,705 | 78,928 | [1] | 89,208 | [1] | ||||||||||||||
Total services revenue, connection fees, and sales of handsets and accessories | 9,823,542 | 11,900,934 | [1] | 9,723,906 | [1] | ||||||||||||||
Cost of services, excluding depreciation and amortization shown separately below (including related party amounts of $50,389, $232,689 and $161,500, respectively) | 2,004,690 | 2,447,210 | [1] | 1,863,797 | [1] | ||||||||||||||
Cost of handsets and accessories | 349,304 | 169,925 | [1] | 158,848 | [1] | ||||||||||||||
General and administrative expenses (including related party amounts of $68,903, $53,870 and $43,416, respectively) (Note 28) | 1,968,193 | 2,159,777 | [1] | 1,853,624 | [1] | ||||||||||||||
Provision for doubtful accounts | 109,632 | 154,782 | [1] | 67,720 | [1] | ||||||||||||||
Impairment of long-lived assets | 75,064 | 1,333 | [1] | 18,556 | [1] | ||||||||||||||
Impairment of goodwill | 49,891 | [1] | |||||||||||||||||
Other operating expenses (including related party amounts of $12,207, $12,008 and $8,349, respectively) | 173,622 | 188,310 | [1] | 126,308 | [1] | ||||||||||||||
Sales and marketing expenses (including related party amounts of $156,733, $241,814 and $200,600, respectively) | 755,902 | 931,245 | [1] | 775,240 | [1] | ||||||||||||||
Depreciation and amortization expenses | 1,839,568 | 2,151,125 | [1] | 1,674,885 | [1] | ||||||||||||||
Net operating income | 2,547,567 | 3,647,336 | [1] | 3,184,928 | [1] | ||||||||||||||
CURRENCY EXCHANGE AND TRANSACTION LOSS/(GAIN) | 252,945 | 565,663 | [1] | (161,856) | [1] | ||||||||||||||
OTHER EXPENSES/(INCOME) | |||||||||||||||||||
Interest income (including related party amounts of $53,940, $55,018 and $26,377) | (108,543) | (70,860) | [1] | (53,507) | [1] | ||||||||||||||
Interest expense, net of capitalized interest (including related party amounts of $3,613, $9,400 and $4,270) | 571,719 | 233,863 | [1] | 192,237 | [1] | ||||||||||||||
Equity in net income of associates (Note 13) | (60,313) | (75,688) | [1] | (71,116) | [1] | ||||||||||||||
Change in fair value of derivatives (Note 21) | 5,420 | 41,554 | [1] | 145,860 | [1] | ||||||||||||||
Impairment of investments (including related party amounts of $349,370, $nil and $21,814) (Notes 14,15) | 368,355 | 22,691 | [1] | ||||||||||||||||
Other expenses, net (including related party amounts of $nil, $2,967 gain and $5,919 loss) | 23,254 | 22,745 | [1] | 38,781 | [1] | ||||||||||||||
Total other expenses, net | 799,892 | 151,614 | [1] | 274,946 | [1] | ||||||||||||||
Income before provision for income taxes and noncontrolling interests | 1,494,730 | 2,930,059 | [1] | 3,071,838 | [1] | ||||||||||||||
PROVISION FOR INCOME TAXES (Note 23) | 503,955 | 742,881 | [1] | 852,015 | [1] | ||||||||||||||
NET INCOME | 990,775 | 2,187,178 | [1] | 2,219,823 | [1] | ||||||||||||||
NET (LOSS)/INCOME ATTRIBUTABLE TO THE NONCONTROLLING INTEREST | (13,704) | 187,059 | [1] | 132,408 | [1] | ||||||||||||||
NET INCOME ATTRIBUTABLE TO THE GROUP | $1,004,479 | $2,000,119 | [1] | $2,087,415 | [1] | ||||||||||||||
Weighted average number of common shares outstanding - basic (Note 2) (in shares) | 1,885,750,147 | 1,921,934,091 | [1] | 1,973,354,348 | [1] | ||||||||||||||
Weighted average number of common shares outstanding - diluted (Note 2) (in shares) | 1,885,750,147 | 1,921,934,091 | [1] | 1,974,074,908 | [1] | ||||||||||||||
Earnings per share, basic (Note 2) (in dollars per share) | 0.53 | 1.04 | [1] | 1.06 | [1] | ||||||||||||||
Earnings per share, diluted (Note 2) (in dollars per share) | 0.53 | 1.04 | [1] | 1.06 | [1] | ||||||||||||||
[1](restated-see Note 2) |
2_CONSOLIDATED STATEMENTS OF OP
CONSOLIDATED STATEMENTS OF OPERATIONS (Parenthetical) (USD $) | |||
In Thousands | 12 Months Ended
Dec. 31, 2009 | 12 Months Ended
Dec. 31, 2008 | 12 Months Ended
Dec. 31, 2007 |
CONSOLIDATED STATEMENTS OF OPERATIONS | |||
Services revenue and connection fees, related party | $72,149 | $209,990 | $178,312 |
Sales of handsets and accessories, related party | 20,689 | 1,500 | 0 |
Cost of services, excluding depreciation and amortization, related party | 50,389 | 232,689 | 161,500 |
General and administrative expenses, related party | 68,903 | 53,870 | 43,416 |
Other operating expenses, related party | 12,207 | 12,008 | 8,349 |
Sales and marketing expenses, related party | 156,733 | 241,814 | 200,600 |
Interest income, related party | 53,940 | 55,018 | 26,377 |
Interest expense, net of capitalized interest, related party | 3,613 | 9,400 | 4,270 |
Impairment of investments, related party | 349,370 | 0 | 21,814 |
Other expenses, net, related party | $0 | $2,967 | ($5,919) |
CONSOLIDATED STATEMENTS OF CHAN
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (USD $) | |||||||||||||||||||
In Thousands, except Share data | Total equity attributable to the Group
| Common stock
| Treasury stock
| Additional paid-in capital
| Accumulated other comprehensive income/(loss)
| Retained earnings
| Nonredeemable noncontrolling interest
| Redeemable noncontrolling interest
| Total
| ||||||||||
Balances at Dec. 31, 2006 | $4,739,156 | $50,558 | ($114,778) | $1,148,074 | $76,515 | $3,578,787 | $1,231,058 | $5,970,214 | |||||||||||
Balances (in shares) at Dec. 31, 2006 | 1,993,326,138 | (15,922,128) | |||||||||||||||||
Comprehensive income/(loss): | |||||||||||||||||||
Net income/(loss) | 2,087,416 | 2,087,416 | 127,869 | 4,539 | 2,215,285 | ||||||||||||||
Currency translation adjustment, net of tax of $7,910, $nil and $14,513 for 2009, 2008 and 2007, respectively | 360,049 | (214) | 360,263 | 90,621 | 450,670 | ||||||||||||||
Effect of change in functional currency | 358,997 | 358,997 | 358,997 | ||||||||||||||||
Change in fair value of derivatives, net of tax of $5,895, $3,826 and $352 for 2009, 2008 and 2007, respectively (Note 21) | (1,114) | (1,114) | (1,114) | ||||||||||||||||
Unrecognized actuarial gains (losses), net of tax of $nil, for 2009, 2008 and 2007, respectively (Note 27) | (4,781) | (4,781) | (4,308) | (9,089) | |||||||||||||||
Total comprehensive income/(loss) | 2,800,567 | 214,182 | 3,014,749 | ||||||||||||||||
Dividends declared | (742,475) | (742,475) | (35,993) | (778,468) | |||||||||||||||
Stock options of MTS exercised (Note 24) | 6,057 | 869 | 5,188 | 6,057 | |||||||||||||||
Stock options of MTS exercised (Note 24) (in shares) | 848,126 | ||||||||||||||||||
Call option of Comstar-UTS exercised (Note 21) | 66,908 | (1,756) | (4,169) | 72,833 | 478,774 | 545,682 | |||||||||||||
Acquisition of K-Telecom, net of tax (Note 3) | (76,069) | (76,069) | 85,232 | (76,069) | |||||||||||||||
Accrued compensation costs (Note 24) | 2,486 | 2,486 | (309) | 2,177 | |||||||||||||||
Repurchase of common stock of MTS (Note 26) | (254,443) | (254,443) | (254,443) | ||||||||||||||||
Repurchase of common stock of MTS (Note 26) (in shares) | (17,402,835) | ||||||||||||||||||
Increase in ownership in subsidiaries (Note 3) | 1,450 | 1,450 | (63,071) | (61,621) | |||||||||||||||
Distribution to the controlling shareholder of Stream-TV | (8,473) | (8,473) | (7,635) | (16,108) | |||||||||||||||
Effect of FIN No. 48 implementation | (9,683) | (9,683) | (2,929) | (12,612) | |||||||||||||||
Balances at Dec. 31, 2007 | 6,525,481 | 50,558 | (368,352) | 1,146,755 | 785,711 | 4,910,809 | 1,814,077 | 89,771 | 8,339,558 | ||||||||||
Balances (in shares) at Dec. 31, 2007 | 1,993,326,138 | (32,476,837) | |||||||||||||||||
Comprehensive income/(loss): | |||||||||||||||||||
Net income/(loss) | 2,000,119 | 2,000,119 | 177,261 | 9,798 | 2,177,380 | ||||||||||||||
Currency translation adjustment, net of tax of $7,910, $nil and $14,513 for 2009, 2008 and 2007, respectively | (1,233,846) | (1,233,846) | (303,866) | (1,537,712) | |||||||||||||||
Change in fair value of derivatives, net of tax of $5,895, $3,826 and $352 for 2009, 2008 and 2007, respectively (Note 21) | (16,359) | (16,359) | (16,359) | ||||||||||||||||
Unrecognized actuarial gains (losses), net of tax of $nil, for 2009, 2008 and 2007, respectively (Note 27) | 536 | 536 | 1,085 | 1,621 | |||||||||||||||
Total comprehensive income/(loss) | 750,450 | (125,520) | 624,930 | ||||||||||||||||
Dividends declared | (1,221,893) | (1,221,893) | (38,196) | (1,260,089) | |||||||||||||||
Stock options of MTS exercised (Note 24) | 9,183 | 1,432 | 7,751 | 9,183 | |||||||||||||||
Stock options of MTS exercised (Note 24) (in shares) | 1,397,256 | ||||||||||||||||||
Put option of Comstar-UTS exercised (Note 21) | 3,336 | (9,358) | 12,694 | (274,472) | (271,136) | ||||||||||||||
Accrued compensation costs (Note 24) | 3,489 | 3,489 | 3,489 | ||||||||||||||||
Repurchase of common stock of MTS (Note 26) | (1,059,833) | (1,059,833) | (1,059,833) | ||||||||||||||||
Repurchase of common stock of MTS (Note 26) (in shares) | (77,193,757) | ||||||||||||||||||
Reorganization of Comstar Direct (Note 3) | (6,539) | (6,539) | (20,283) | (26,822) | |||||||||||||||
Change in fair value of noncontrolling interest of K-Telecom | (2,730) | (2,730) | 2,730 | (2,730) | |||||||||||||||
Change in fair value of noncontrolling interest of Dagtelecom | (43,449) | (43,449) | 43,449 | (43,449) | |||||||||||||||
Increase in ownership in subsidiaries (Note 3) | (6,352) | (6,352) | |||||||||||||||||
Cash paid by Comstar-UTS for the acquisition of Stream TV | (51,577) | (51,577) | (35,265) | (86,842) | |||||||||||||||
Balances at Dec. 31, 2008 | 4,905,918 | 50,558 | (1,426,753) | 1,090,521 | (451,264) | 5,642,856 | 1,313,989 | 145,748 | 6,219,907 | [1] | |||||||||
Balances (in shares) at Dec. 31, 2008 | 1,993,326,138 | (108,273,338) | |||||||||||||||||
Comprehensive income/(loss): | |||||||||||||||||||
Net income/(loss) | 1,004,479 | 1,004,479 | (18,063) | 4,359 | 986,416 | ||||||||||||||
Currency translation adjustment, net of tax of $7,910, $nil and $14,513 for 2009, 2008 and 2007, respectively | (197,429) | (197,429) | (30,240) | (4,399) | (227,669) | ||||||||||||||
Change in fair value of derivatives, net of tax of $5,895, $3,826 and $352 for 2009, 2008 and 2007, respectively (Note 21) | (23,579) | (23,579) | (23,579) | ||||||||||||||||
Unrecognized actuarial gains (losses), net of tax of $nil, for 2009, 2008 and 2007, respectively (Note 27) | 1,003 | 1,003 | 1,808 | 2,811 | |||||||||||||||
Total comprehensive income/(loss) | 784,474 | (46,495) | 737,979 | ||||||||||||||||
Dividends declared | (1,221,381) | (1,221,381) | (1,005) | (1,222,386) | |||||||||||||||
Accrued compensation costs (Note 24) | 1,173 | 1,173 | 1,173 | ||||||||||||||||
Acquisition of Comstar-UTS | (1,322,258) | (1,079,559) | (242,699) | (1,322,258) | |||||||||||||||
Legal acquisition of Stream-TV (Note 3) | (1,573) | (1,616) | 43 | (1,470) | (3,043) | ||||||||||||||
Change in fair value of noncontrolling interest of K-Telecom | 7,495 | 7,495 | (7,495) | 7,495 | |||||||||||||||
Dividends paid to noncontrolling interest of K-Telecom | (12,503) | ||||||||||||||||||
Increase in ownership in subsidiaries (Note 3) | 223,102 | 371,827 | (10,519) | (83,298) | (54,908) | (238,900) | (43,449) | (15,798) | |||||||||||
Increase in ownership in subsidiaries (Note 3) (in shares) | 31,816,462 | ||||||||||||||||||
Balances at Dec. 31, 2009 | $3,376,950 | $50,558 | ($1,054,926) | ($754,524) | $5,135,842 | $1,026,119 | $82,261 | $4,403,069 | |||||||||||
Balances (in shares) at Dec. 31, 2009 | 1,993,326,138 | (76,456,876) | |||||||||||||||||
[1](restated-see Note 2) |
3_CONSOLIDATED STATEMENTS OF CH
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Parenthetical) (USD $) | |||
In Thousands | 12 Months Ended
Dec. 31, 2009 | 12 Months Ended
Dec. 31, 2008 | 12 Months Ended
Dec. 31, 2007 |
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY | |||
Currency translation adjustment, tax | $7,910 | $0 | $14,513 |
Change in fair value of derivatives, tax | 5,895 | 3,826 | 352 |
Unrecognized actuarial gains (losses), tax | $0 | $0 | $0 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) | |||||||||||||||||||
In Thousands | 12 Months Ended
Dec. 31, 2009 | 12 Months Ended
Dec. 31, 2008 | 12 Months Ended
Dec. 31, 2007 | ||||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||||||||||
Net income | $990,775 | $2,187,178 | [1] | $2,219,823 | [1] | ||||||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||||
Depreciation and amortization | 1,839,568 | 2,151,125 | [1] | 1,674,885 | [1] | ||||||||||||||
Currency exchange and transaction loss/(gain) | 212,761 | 578,643 | [1] | (168,083) | [1] | ||||||||||||||
Impairment of investments | 368,355 | 22,691 | [1] | ||||||||||||||||
Impairment of long-lived assets | 75,064 | 1,333 | [1] | 18,556 | [1] | ||||||||||||||
Impairment of goodwill | 49,891 | [1] | |||||||||||||||||
Debt issuance cost amortization | 36,892 | 22,087 | [1] | 26,425 | [1] | ||||||||||||||
Amortization of deferred connection fees | (67,057) | (95,080) | [1] | (122,707) | [1] | ||||||||||||||
Equity in net income of associates (Note 13) | (60,313) | (75,688) | [1] | (71,116) | [1] | ||||||||||||||
Provision for doubtful accounts | 109,632 | 154,782 | [1] | 67,720 | [1] | ||||||||||||||
Inventory obsolescence expense and other provisions | 12,225 | 3,599 | [1] | 4,932 | [1] | ||||||||||||||
Deferred taxes | 101,444 | (206,102) | [1] | (85,021) | [1] | ||||||||||||||
Gain from deconsolidation of a subsidiary | (8,874) | [1] | |||||||||||||||||
Write-off of not recoverable VAT receivable | 9,652 | 48,374 | [1] | 17,516 | [1] | ||||||||||||||
Change in fair value of derivatives (Note 21) | 5,420 | 41,554 | [1] | 145,860 | [1] | ||||||||||||||
Other non-cash items | 6,153 | (10,367) | [1] | 16,787 | [1] | ||||||||||||||
Changes in operating assets and liabilities: | |||||||||||||||||||
Increase in accounts receivable | (216,654) | (162,908) | [1] | (173,621) | [1] | ||||||||||||||
(Increase) / decrease in inventory | (111,998) | 7,273 | [1] | 67,262 | [1] | ||||||||||||||
Decrease / (increase) in prepaid expenses and other current assets | 14,676 | (257,682) | [1] | 49,840 | [1] | ||||||||||||||
Decrease in VAT receivable | 8,914 | 128,335 | [1] | 12,567 | [1] | ||||||||||||||
Increase in trade accounts payable, accrued liabilities and other current liabilities | 235,244 | 436,915 | [1] | 131,030 | [1] | ||||||||||||||
Dividends received | 25,355 | 26,692 | [1] | 4,900 | [1] | ||||||||||||||
Net cash provided by operating activities | 3,596,108 | 5,029,954 | [1] | 3,851,372 | [1] | ||||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||||||||||
Acquisition of subsidiaries, net of cash acquired | (270,540) | (86,951) | [1] | (1,087,031) | [1] | ||||||||||||||
Purchases of property, plant and equipment | (1,942,402) | (2,207,861) | [1] | (1,633,942) | [1] | ||||||||||||||
Purchases of intangible assets | (385,907) | (404,964) | [1] | (265,030) | [1] | ||||||||||||||
Proceeds from sale of property, plant and equipment and assets held for sale | 28,606 | 35,636 | [1] | 26,710 | [1] | ||||||||||||||
Purchases of short-term investments | (519,129) | (569,377) | [1] | (670,360) | [1] | ||||||||||||||
Proceeds from sale of short-term investments | 642,164 | 590,579 | [1] | 364,440 | [1] | ||||||||||||||
Purchase of a derivative financial instrument | (19,422) | [1] | |||||||||||||||||
Purchase of other investments | (613) | (49,922) | [1] | (18,574) | [1] | ||||||||||||||
Proceeds from sales of other investments | 44,003 | 425 | [1] | 38,745 | [1] | ||||||||||||||
Investments in and advances to associates | 1,950 | (3,654) | [1] | ||||||||||||||||
Decrease / (increase) in restricted cash | 17,182 | 7,522 | [1] | (2,278) | [1] | ||||||||||||||
Net cash used in investing activities | (2,384,686) | (2,707,989) | [1] | (3,247,320) | [1] | ||||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||||||||||
Proceeds from stock options exercised | 9,183 | [1] | 6,057 | [1] | |||||||||||||||
Cash payments for the acquisition of Comstar-UTS, Stream TV and non-controlling interests (Note 3) | (1,333,418) | (109,442) | [1] | ||||||||||||||||
Repurchase of Comstar-UTS shares (Note 3) | (100,000) | [1] | (32) | [1] | |||||||||||||||
Disposal of Comstar-UTS shares (Note 3) | 322,237 | [1] | |||||||||||||||||
Contributions from SMM, related party | 4,439 | [1] | |||||||||||||||||
Proceeds from issuance of notes | 1,003,226 | 986,004 | [1] | ||||||||||||||||
Repurchase of common stock | (1,059,833) | [1] | (254,443) | [1] | |||||||||||||||
Repayment of notes | (9,182) | (565,074) | [1] | ||||||||||||||||
Notes and debt issuance cost | (105,137) | (6,693) | [1] | (1,863) | [1] | ||||||||||||||
Capital lease obligation principal paid | (15,592) | (14,785) | [1] | (22,146) | [1] | ||||||||||||||
Dividends paid | (1,261,728) | (1,144,719) | [1] | (794,311) | [1] | ||||||||||||||
Proceeds from loans | 3,598,100 | 894,803 | [1] | 1,362,695 | [1] | ||||||||||||||
Loan principal paid | (1,728,544) | (572,425) | [1] | (876,263) | [1] | ||||||||||||||
Net cash provided by/ (used in) financing activities | 147,725 | (1,678,542) | [1] | (258,069) | [1] | ||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | 42,015 | (342,338) | [1] | 112,717 | [1] | ||||||||||||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 1,401,162 | 301,085 | [1] | 458,700 | [1] | ||||||||||||||
CASH AND CASH EQUIVALENTS, beginning of the year | 1,121,669 | [1] | 820,584 | [1] | 361,884 | [1] | |||||||||||||
CASH AND CASH EQUIVALENTS, end of the year | 2,522,831 | 1,121,669 | [1] | 820,584 | [1] | ||||||||||||||
SUPPLEMENTAL INFORMATION: | |||||||||||||||||||
Income taxes paid | 432,066 | 1,035,095 | [1] | 937,448 | [1] | ||||||||||||||
Interest paid | 510,784 | 285,212 | [1] | 265,054 | [1] | ||||||||||||||
Non-cash investing and financing activities: | |||||||||||||||||||
Contributed property, plant and equipment | 3,213 | 3,194 | [1] | 6,299 | [1] | ||||||||||||||
Building contributed in the share capital of Sistema Mass Media | 4,751 | [1] | |||||||||||||||||
Additions to network equipment and software under capital lease | 830 | 5,673 | [1] | 6,037 | [1] | ||||||||||||||
Purchase of Comstar-UTS' shares funded by issuing of the promissory note | 365,552 | [1] | |||||||||||||||||
Equipment acquired through vendor financing | 27,983 | 13,198 | [1] | 2,770 | [1] | ||||||||||||||
Amounts owed for capital expenditures | 236,364 | 604,641 | [1] | 383,834 | [1] | ||||||||||||||
Payable related to business acquisitions | $37,985 | $31,719 | [1] | $14,639 | [1] | ||||||||||||||
[1](restated-see Note 2) |
DESCRIPTION OF BUSINESS
DESCRIPTION OF BUSINESS | |
12 Months Ended
Dec. 31, 2009 | |
DESCRIPTION OF BUSINESS | |
DESCRIPTION OF BUSINESS | 1.DESCRIPTION OF BUSINESS Business of the GroupOpen Joint-Stock Company Mobile TeleSystems ("MTS OJSC", or "the Company") was incorporated on March1, 2000, through the merger of MTS CJSC and RTC CJSC, its wholly-owned subsidiary. MTS CJSC started its operations in the Moscow license area in 1994 and then began expanding through Russia and the CIS. In these notes, "MTS" or the "Group" refers to Mobile TeleSystems OJSC and its subsidiaries. The Group provides a wide range of telecommunications services, including voice and data transmission, internet access, various value added services through wireless and fixed lines as well as selling equipment and accessories. Group's principal operations are located in Russia, Ukraine, Uzbekistan, Turkmenistan and Armenia. MTS completed its initial public offering in 2000 and listed its shares of common stock, represented by American Depositary Shares, or ADSs, on the New York Stock Exchange under the symbol "MBT". Since 2003 common shares of MTS OJSC have been traded on the Moscow Interbank Currency Exchange ("MICEX"). During the year ended December31, 2009 through a series of transactions the Group acquired a 61.97% stake in Open Joint-Stock Company ComstarUnited TeleSystems ("Comstar-UTS"), a provider of fixed line telecommunication services in Russia and the CIS, from Joint-Stock Financial Corporation Sistema ("Sistema") (Note3). Acquisition of Comstar-UTS provided access to important growth markets in commercial and residential broadband which gives rise to the development of convergent telecommunication services. During the year ended December31, 2009, the Group started to expand its own retail network, operated by Russian Telephone Company CJSC, a wholly owned subsidiary of MTS OJSC. During 2009 following this strategy the Group acquired a number of Russian federal and regional mobile retailer operators (Note3). OwnershipAs of December31, 2009 and 2008, MTS' shareholders of record and their respective percentage direct interests in outstanding shares were as follows: December31, 2009 2008 Joint-Stock Financial Corporation Sistema 33.2 % 33.7 % Sistema Holding Limited ("Sistema Holding"), a subsidiary of Sistema 10.1 % 10.3 % Invest-Svyaz CJSC ("Invest-Svyaz"), a subsidiary of Sistema 8.4 % 8.5 % VAST, Limited Liability Company ("VAST"), a subsidiary of Sistema 3.1 % 3.2 % ADS Holders 40.6 % 41.2 % Free float, GDR Holders and others 4.6 % 3.1 % 100.0 % 100.0 % The effective ownership of Sistema in MTS was 54.8% and 55.7% as of December31, 2009 and 2008, respectively. |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NEW ACCOUNTING PRONOUNCEMENTS | |
12 Months Ended
Dec. 31, 2009 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NEW ACCOUNTING PRONOUNCEMENTS | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NEW ACCOUNTING PRONOUNCEMENTS | 2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NEW ACCOUNTING PRONOUNCEMENTS Accounting principlesThe Group's entities maintain accounting books and records in local currencies of their domicile in accordance with the requirements of respective accounting and tax legislations. The accompanying consolidated financial statements have been prepared in order to present MTS financial position and its results of operations and cash flows in accordance with accounting principles generally accepted in the United States ("U.S.GAAP") and are expressed in terms of U.S. Dollars. The accompanying consolidated financial statements differ from the financial statements used for statutory purposes in that they reflect certain adjustments, not recorded on the entities' books, which are appropriate to present the financial position, results of operations and cash flows in accordance with U.S.GAAP. The principal adjustments are related to revenue recognition, foreign currency translation, deferred taxation, consolidation, acquisition accounting, depreciation and valuation of property, plant and equipment, intangible assets and investments. Basis of consolidationWholly-owned and majority-owned subsidiaries where the Group has operating and financial control are consolidated. All intercompany accounts and transactions are eliminated upon consolidation. Those ventures where the Group exercises significant influence but does not have operating and financial control are accounted for using the equity method. Investments in which the Group does not have the ability to exercise significant influence over operating and financial policies are accounted for under the cost method and included in other investments in the consolidated statements of financial position. The Group's share in the net income of unconsolidated associates is included in other income in the accompanying consolidated statements of operations and disclosed in Note13. Results of operations of subsidiaries acquired are included in the consolidated statements of operations from the date of their acquisition. The acquisition of Comstar-UTS, an entity under common control, in the fourth quarter of 2009 (Note3) has resulted in change in the reporting entity. The consolidated financial statements presented for the periods subsequent to the acquisition include the accounts of MTS OJSC and its subsidiaries, in which MTS OJSC exercises control through the ownership of majority voting interest. As the Group and Comstar-UTS are under the common control of Sistema, the assets and liabilities acquired were recorded at the historical carrying value and the consolidated financial statements were retroactively restated to reflect the Group as if Comstar-UTS had been owned since the beginning of the earliest period presented. The following table presents the significant effects of this restatement. As previously reported Comstar-UTS Eliminations and other* As restated As of December31, 2008: Total current assets $ 2,368,734 $ 673,577 $ (19,888 ) $ 3,022,423 Goodwill 377,982 91,489 469,471 Property, plant a |
BUSINESS ACQUISITIONS AND DISPO
BUSINESS ACQUISITIONS AND DISPOSALS | |
12 Months Ended
Dec. 31, 2009 | |
BUSINESS ACQUISITIONS AND DISPOSALS | |
BUSINESS ACQUISITIONS AND DISPOSALS | 3.BUSINESS ACQUISITIONS AND DISPOSALS Acquisitions of certain retail chainsIn 2009, in conjunction with the development of its own retail network, MTS acquired controlling interests in the number of retail chains in Russia. The acquisitions were accounted for using the purchase method of accounting. The following table summarizes the purchase price allocation of the retail chains acquired as of the acquisition date: Telefon.ru Eldorado Teleforum Total Month of acquisition February March October Ownership interest acquired 100 % 100 % 100 % Current assets $ 48,979 $ 2,467 $ 2,953 $ 54,399 Non-current assets 2,315 911 745 3,971 Brand 374 374 Goodwill 123,333 29,875 9,050 162,258 Current liabilities (108,701 ) (12,248 ) (3,614 ) (124,563 ) Non-current liabilities (5,926 ) (115 ) (6,041 ) Fair value of contingent consideration (3,414 ) (6,934 ) (10,348 ) Consideration paid $ 60,000 $ 17,850 $ 2,200 $ 80,050 The Group's financial statements reflect the allocation of the purchase price based on a fair value assessment of the assets acquired and liabilities assumed. Goodwill was mainly attributable to the synergies from the Group's ability to optimize the dealers' compensation structure and to maintain its subscriber market share in Russia. Goodwill is not deductible for income tax purposes and was assigned to "Russia Mobile" operating segment. Brand components are amortized over the periods of 6months. Under the terms of the individual purchase agreements, the Group may have to pay additional consideration as follows: up to $25million during the period from 12 to 18months for Telefon.ru; up to $5million in 12months for Eldorado; and up to $8.8million in 12months for Teleforum. The additional consideration may be reduced by the amount of tax liability related to the activities prior to the acquisition dates. The Group may also deduct amounts of any potential losses arising from the loss of control on any of Teleforum's outlets from the amount of contingent consideration. The financial statements reflect management's estimate of the fair value of the contingent consideration at the acquisition date. Eurotel acquisitionIn December 2009, MTS acquired a 100% stake in Eurotel OJSC ("Eurotel"), a Russian federal back bone network operator, from a third party. The consideration paid comprised $90million. Under the terms of agreement the Group shall pay contigent consideration of up to $20million by the end of February 2011 should Eurotel complete the construction of certain fibre-optic lines and the Group retain control over the technical support agreements in relation to the optic cable lines. At the acquisition date the estimated fair value of this contingent consideration was $20million. The acquisition was accounted for using the purchase method. The purchase price allocation for the acquisition has not been finalized as of the date of these financial statements, a |
CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS | |
12 Months Ended
Dec. 31, 2009 | |
CASH AND CASH EQUIVALENTS | |
CASH AND CASH EQUIVALENTS | 4.CASH AND CASH EQUIVALENTS Cash and cash equivalents as of December31, 2009 and 2008 comprised the following: December31, 2009 2008 Ruble current accounts 571,424 140,045 Ruble deposit accounts 1,059,105 142,272 U.S. Dollar current accounts 217,586 108,935 U.S. Dollar deposit accounts 12,000 35 Euro current accounts 602,825 5,940 Euro deposit accounts 4,161 423,150 Hryvna current accounts 1,260 1,462 Hryvna deposit accounts 2,768 1,948 Uzbek som current accounts 26,922 229,904 Uzbek som deposint accounts 662 57,430 Turkmenian manat current accounts 21,020 1,496 Armenian dram current accounts 2,683 Armenian dram accounts 4,162 Other 415 4,890 Total cash and cash equivalents 2,522,831 1,121,669 |
SHORT-TERM INVESTMENTS
SHORT-TERM INVESTMENTS | |
12 Months Ended
Dec. 31, 2009 | |
SHORT-TERM INVESTMENTS | |
SHORT-TERM INVESTMENTS | 5.SHORT-TERM INVESTMENTS Short-term investments as of December31, 2009 comprised the following: Type of investment Contractor Annual interest rate Maturity date Amount Promissory notes Sberbank (Note17) 6.0% March June 2010 $ 143,300 Funds in trust management Gazprombank 9.0% October 2010 20,077 Deposit VTB 8.8% March 2010 16,532 Loan agreement TS-Retail (Note25) 13.0% August 2010 12,421 Deposit VTB 8.5% March 2010 9,919 Deposit UniBank 7.0%9.0% January June 2010 7,666 Deposit Converse Bank 8.0%8.5% January July 2010 1,600 Deposit AreximBank 9.0% January 2010 1,000 Other 4,695 Total $ 217,210 Short-term investments as of December31, 2008 comprised the following: Type of investment Contractor Annual interest rate Maturity date Amount Deposit MBRD (Note25) 10.3 % July 2009 $ 30,000 Deposit MBRD (Note25) 7.5 % June 2009 15,000 Promissory notes Alt (Note25) 18.0 % January 2009 85,091 Promissory notes Delfa (Note25) 18.0 % January 2009 68,073 Promissory notes Finexcort (Note25) 16.5 % January 2009 68,073 Funds in trust management MBRD (Note25) 16.0 % March 2009 45,949 Loan agreement Sistema-Hals (Note25) 11.0 % December 2009 16,688 Funds transferred to the investment broker IFC Metropol 0.0 % March 2009 11,981 Loan agreement Sky Link and subsidiaries (Note25) 11.0 % Various 10,522 Other 8,740 Total $ 360,117 Beta LinkDuring the year ended December31, 2008 the Group granted a short-term loan in the amount of $28.2million to Beta Link with a maturity date of December2, 2009 and related interest of 9.0%. The Group had 49.0% of shares of Beta Link assigned as collateral pursuant to the loan agreement. As of December31, 2008, the Group's management became aware of the deteriorated financial position of Beta Link. Further, in March 2009, Beta Link filed a bankruptcy petition to the Arbitration Court of Moscow. The Group's management believes that a probable risk exists that such loan may not be recovered. Accordingly, an allowance for the entire loan amount was recorded in the provision for doubtful accounts in the accompanying statement of operations for the year ended December31, 2008. |
TRADE RECEIVABLES, NET
TRADE RECEIVABLES, NET | |
12 Months Ended
Dec. 31, 2009 | |
TRADE RECEIVABLES, NET | |
TRADE RECEIVABLES, NET | 6.TRADE RECEIVABLES, NET Trade receivables as of December31, 2009 and 2008 comprised the following: December31, 2009 2008 Subscribers 323,135 239,782 Interconnect 108,376 105,430 Dealers 61,827 86,821 Roaming 159,119 33,958 Other 37,982 46,247 Allowance for doubtful accounts (97,337 ) (69,054 ) Trade receivables, net 593,102 443,184 The following table summarizes the changes in the allowance for doubtful accounts receivable for the years ended December31, 2009, 2008 and 2007: 2009 2008 2007 Balance, beginning of year 69,054 69,716 67,708 Provision for doubtful accounts 104,125 97,459 63,966 Accounts receivable written off (75,280 ) (84,363 ) (66,096 ) Currency translation adjustment (562 ) (13,758 ) 4,138 Balance, end of year 97,337 69,054 69,716 |
INVENTORY AND SPARE PARTS
INVENTORY AND SPARE PARTS | |
12 Months Ended
Dec. 31, 2009 | |
INVENTORY AND SPARE PARTS | |
INVENTORY AND SPARE PARTS | 7.INVENTORY AND SPARE PARTS Inventory and spare parts as of December31, 2009 and 2008, comprised the following: December31, 2009 2008 Spare parts for telecommunication equipment $ 26,928 $ 69,008 SIM cards and prepaid phone cards 23,821 24,026 Equipment for resale 164,974 36,694 Advertising materials 2,195 2,966 Other materials 20,775 8,419 Total inventory and spare parts $ 238,693 $ 141,113 Obsolescence expense for the years ended December31, 2009, 2008 and 2007, amounted to $4.1million, $3.9million and $4.9million, respectively, and was included in general and administrative expenses in the accompanying consolidated statements of operations. |
PROPERTY, PLANT AND EQUIPMENT
PROPERTY, PLANT AND EQUIPMENT | |
12 Months Ended
Dec. 31, 2009 | |
PROPERTY, PLANT AND EQUIPMENT | |
PROPERTY, PLANT AND EQUIPMENT | 8.PROPERTY, PLANT AND EQUIPMENT The net book value of property, plant and equipment as of December31, 2009 and 2008, was as follows: December31, 2009 2008 Network, base station equipment and related leasehold improvements $ 9,391,656 $ 8,080,872 Office equipment, computers and other 1,047,753 881,580 Buildings and related leasehold improvements 890,913 802,655 Vehicles 54,105 54,855 Property, plant and equipment, at cost 11,384,427 9,819,962 Accumulated depreciation (5,095,168 ) (4,038,053 ) Construction in progress and equipment for installation 1,456,072 1,976,311 Property, plant and equipment, net $ 7,745,331 $ 7,758,220 Depreciation expenses during the years ended December31, 2009, 2008 and 2007, amounted to $1,387.0million, $1,537.1million and $1,145.7million, respectively. |
CAPITAL LEASE OBLIGATIONS
CAPITAL LEASE OBLIGATIONS | |
12 Months Ended
Dec. 31, 2009 | |
CAPITAL LEASE OBLIGATIONS | |
CAPITAL LEASE OBLIGATIONS | 9.CAPITAL LEASE OBLIGATIONS MGTS entered into several agreements for the lease of telecommunication equipment with InvestSvyazHolding, a subsidiary of Sistema. The agreements expire on various dates in 2008-2010 and provide for transfer of ownership of the equipment to the Group after the last lease payment is made. The interest rate implicit in the leases varies from 10% to 14%. Respective obligations are denominated in Euro. In addition to the agreements with InvestSvyazHolding, the Group has certain other leasing agreements with third parties; assets capitalized under these agreements and respective liabilities are not material. The following is a summary of leased assets and respective depreciation as of December31, 2009 and 2008: 2009 2008 Telecommunication equipment $ 68,547 $ 70,563 Vehicles 9,995 12,114 Buildings 171 171 Improvement 1,096 Leased assets, at cost $ 79,809 $ 82,848 Accumulated depreciation (36,380 ) (28,377 ) Leased assets, net $ 43,429 $ 54,471 Depreciation of the assets recorded under capital leases is included in depreciation and amortization in the accompanying consolidated statements of operations. Interest expense accrued on capital lease obligations for the years ended December31, 2009, 2008 and 2007 amounted to $1.5million, $ 2.0 and $ 3.3million, respectively. The following table presents future minimum lease payments under capital leases together with the present value of the net minimum lease payments: Payments due in the period ended December31, 2010 $ 3,598 2011 1,066 2012 173 2013 172 2014 172 After 2014 241 Total minimum lease payments (undiscounted) 5,422 Less amount representing interest (1,328 ) Present value of net minimum lease payments 4,094 Less current portion of lease obligations (3,173 ) Non-current portion of lease obligations $ 921 |
LICENSES
LICENSES | |
12 Months Ended
Dec. 31, 2009 | |
LICENSES | |
LICENSES | 10.LICENSES In connection with providing telecommunication services, the Group has been issued various GSM operating licenses by the Russian Ministry of Information Technologies and Communications. In addition to the licenses received directly from the Russian Ministry of Information Technologies and Communications, the Group has been granted access to various telecommunication licenses through acquisitions. In foreign subsidiaries, the licenses are granted by the local communication authorities. As of December31, 2009 and 2008, the recorded values of the Group's telecommunication licenses were as follows: December31, 2009 2008 Russia $ 264,387 $ 275,883 Uzbekistan 196,517 196,517 Armenia 196,193 241,710 Ukraine 49,046 50,642 Turkmenistan 18,685 Licenses, at cost 706,143 783,437 Accumulated amortization (341,421 ) (295,056 ) Licenses, net $ 364,722 $ 488,381 Amortization expense for the years ended December31, 2009, 2008 and 2007, amounted to $78.7million, $154.7million and $200.5million, respectively. As of December31, 2009, operating license related to Turkmenistan was fully amortized and its respective cost and accumulated amortization was written off from the consolidated statement of financial position. Based on the cost of amortizable operating licenses existing at December31, 2009, the estimated future amortization expenses are $70.2million during 2010, $51.3million during 2011, $35.2million during 2012, $30.6million during 2013, $29.8million during 2014 and $147.6million thereafter. The actual amortization expense reported in future periods could differ from these estimates as a result of new intangible assets acquisitions, changes in useful lives and other relevant factors. Operating licenses contain a number of requirements and conditions specified by legislation. The requirements generally include the targets for start date of service, territorial coverage and expiration date. Management believes that the Group is in compliance with all material terms of its licenses. Licenses that expired during the year ended December31, 2009 and 2008 were renewed, however their carrying value in accompanying consolidated statements of financial position is immaterial due to low cost of renewal. Management does not presently assume renewals in its determination of the useful lives of its licenses as the Group has limited experience with renewal of licenses. |
GOODWILL
GOODWILL | |
12 Months Ended
Dec. 31, 2009 | |
GOODWILL | |
GOODWILL | 11.GOODWILL The change in the net carrying amount of goodwill for 2009 and 2008 by reportable segments was as follows: Russia Mobile Ukraine Mobile Russia Fixed Other Total Balance at January1, 2008 $ 134,818 $ 8,000 $ 163,099 $ 216,632 $ 522,549 Acquisitions (Note3) 16,366 3,550 29,222 49,138 Impairment (49,891 ) (49,891 ) Currency translation adjustment (23,873 ) (2,492 ) (25,269 ) (691 ) (52,325 ) Balance at December31, 2008 127,311 5,508 91,489 245,163 469,471 Acquisitions (Note3) 189,842 104,439 34,283 328,564 Finalization of purchase accounting 41,835 41,835 Currency translation adjustment (3,636 ) (197 ) (1,397 ) (30,867 ) (36,097 ) Balance at December31, 2009 $ 313,517 $ 5,311 $ 236,366 $ 248,579 $ 803,773 Based on goodwill impairment testing, as of December31, 2008 the Group recorded an impairment loss of $49.9million included in other operating expenses in the accompanying statement of operations for the year ended December31, 2008 and related to the acquisition of United Cable Networks by Sistema Mass Media in 2006. United Cable Networks were acquired by the Group in 2009 as part of acquisition of Stream-TV (see Note3). The impairment loss was primarily caused by changes in management forecasts with respect to regional markets and increase in weighted average cost of capital due to the economic crisis. The fair value of the reporting units was measured using a combination of present value techniques, the Gordon model and earnings multiples. As of December31, 2009 no impairment of goodwill allocated to "Russia Fixed" reportable segment was recognized based on the goodwill impairment test. The fair value of the reporting unit was measured using a combination of present value techniques, the Gordon model and earnings multiples involving the assumptions that are based upon what management believes a hypothetical marketplace participant would use in estimating fair value on the measurement date. The most significant of these assumptions are as follows: (i) cost of capital was estimated at 14% based on internally calculated weighted average cost of capital and cost of capital estimated for Comstar-UTS by major market analysts; (ii) growth rate into perpetuity reflects the level of economic growth from the last forecasted period into perpetuity and reflects the long-term expectations for inflation. Management estimates these rates based on observable market data; (iii) operating expenses are forecasted with reference to the historic absolute and relative levels of expenses the Group has incurred in generating revenue in each reporting unit, operating strategies, specific forecasted operating expenses to be incurred and expectations on what these expenses would be like for an average market participant. Estimates of the forecasted operating expenses are developed from a number of internal and external sources, |
OTHER INTANGIBLE ASSETS
OTHER INTANGIBLE ASSETS | |
12 Months Ended
Dec. 31, 2009 | |
OTHER INTANGIBLE ASSETS | |
OTHER INTANGIBLE ASSETS | 12.OTHER INTANGIBLE ASSETS Intangible assets as of December31, 2009 and 2008 comprised the following: December31, 2009 December31, 2008 Useful lives, months Gross carrying value Accumulated amortization Net carrying value Gross carrying value Accumulated amortization Net carrying value Amortized intangible assets Billing and telecommunication software 13 to 240 $ 1,461,834 $ (896,243 ) $ 565,591 $ 1,293,005 $ (710,988 ) $ 582,017 Acquired customer base 20 to 240 221,536 (74,320 ) 147,216 381,054 (63,823 ) 317,231 Rights to use radio frequencies 24 to 180 239,475 (75,762 ) 163,713 205,923 (48,622 ) 157,301 Accounting software 13 to 60 134,292 (79,480 ) 54,812 94,026 (41,140 ) 52,886 Numbering capacity with finite contractual life 24 to 120 90,266 (80,822 ) 9,444 89,273 (76,727 ) 12,546 Office software 13 to 60 71,997 (41,110 ) 30,887 57,833 (20,366 ) 37,467 Other software 36 to 600 77,616 (29,680 ) 47,936 40,648 (9,440 ) 31,208 2,297,016 (1,277,417 ) 1,019,599 2,161,762 (971,106 ) 1,190,656 Numbering capacity with indefinite contractual life 47,737 47,737 39,987 39,987 Total other intangible assets $ 2,344,753 $ (1,277,417 ) $ 1,067,336 $ 2,201,749 $ (971,106 ) $ 1,230,643 As a result of the limited availability of local telephone numbering capacity in Moscow and the Moscow region, MTS has been required to enter into agreements for the use of telephone numbering capacity with several telecommunication operators in Moscow. The costs of acquired numbering capacity with a finite contractual life are amortized over a period of two to ten years in accordance with the terms of the contracts to acquire such capacity. Numbering capacity with an indefinite contractual life is not amortized. Amortization expense for the years ended December31, 2009, 2008 and 2007 amounted to $373.9million, $459.3million and $328.7million, respectively. Based on the amortizable intangible assets existing at December31, 2009, the estimated amortization expense is $370.0million for 2010, $248.5million for 2011, $149.4million for 2012, $85.0million for 2013, $36.4million for 2014 and $130.3million thereafter. The actual amortization expense reported in future periods could differ from these estimates as a result of new intangible asset acquisitions, changes in useful lives and other relevant factors. |
INVESTMENTS IN AND ADVANCES TO
INVESTMENTS IN AND ADVANCES TO ASSOCIATES | |
12 Months Ended
Dec. 31, 2009 | |
INVESTMENTS IN AND ADVANCES TO ASSOCIATES | |
INVESTMENTS IN AND ADVANCES TO ASSOCIATES | 13.INVESTMENTS IN AND ADVANCES TO ASSOCIATES As of December31, 2009 and 2008, the Group's investments in and advances to associates comprised the following: December31, 2009 2008 MTS Belarusequity investment $ 220,350 $ 237,427 MTS Belarusloan receivable 100 2,050 Coral/Sistema Strategic Fundequity investment 10,041 Receivables from other investee companies 369 Total investments in and advances to associates $ 220,450 $ 249,887 MTS BelarusIn April 2008 the Group entered into a credit facility agreement with MTS Belarus valid till March15, 2009. The facility allowed MTS Belarus borrowing up to $33.0million and bears an interest of 10.0%. In 2009 the maturity date was extended to March15, 2010 and the total allowable amount was increased to $46.0million. As of December31, 2009, the balance outstanding under the facility was $0.1million. After the statement of financial position date the agreement with MTS Belarus was prolonged till March15, 2011. The financial position and results of operations of MTS Belarus as of and for the year ended December31, 2009 were as follows: (unaudited) Total assets $ 498,278 Total liabilities 56,736 Net income 143,061 Coral/Sistema Strategic FundIn the years ended December31, 2007 and 2008, the Group purchased an equity interests in a limited partnership organized by Sistema. The purpose of the strategic fund was to invest in various projects in the telecommunications and high-technology area. The Group exercised significant influence over Coral and therefore the investment was accounted for using equity method. As of December31, 2009 the management of the Group determined that the investment was fully impaired, consequently the carrying value of the investment was written off in the amount of $7.4million and recorded in equity in net income/loss of associates in the accompanying consolidated statement of operations for the year then ended. As of December31, 2009 the Group did not have any further commitment to invest in Coral according to the restructuring agreement which was signed by the partners of the fund in September 2009. TS-RetailAs discussed in Note25, in the year ended December31, 2007 the Group invested in TS-Retail, an equity investee, $5.6million. As of December31, 2007 the investment was written off to $nil. The Group's share in the earnings or losses of associates was included in other income in the accompanying consolidated statements of operations. For the years ended December31, 2009, 2008 and 2007, this share amounted to $60.3million, $75.7million and $71.1million, respectively. |
INVESTMENT IN SHARES OF SVYAZIN
INVESTMENT IN SHARES OF SVYAZINVEST | |
12 Months Ended
Dec. 31, 2009 | |
INVESTMENT IN SHARES OF SVYAZINVEST | |
INVESTMENT IN SHARES OF SVYAZINVEST | 14.INVESTMENT IN SHARES OF SVYAZINVEST In December 2006, as a part of its program of regional expansion, Comstar-UTS acquired a 25% stake plus one share in Telecommunication Investment Joint Stock Company ("Svyazinvest") from Mustcom Limited for a total consideration of approximately $1,390.0million, including cash of $1,300.0million and the fair value of the call and put option of $90.0million. Comstar-UTS and MGTS FinanceS.A., a subsidiary of MGTS, have acquired 4,879,584,306 ordinary shares of Svyazinvest, with Comstar-UTS buying 3,378,173,750 shares, which represent 17.3% of total outstanding shares of Svyazinvest, and MGTS FinanceS.A. buying 1,501,410,556 shares, representing 7.7% of total outstanding shares of Svyazinvest. Svyazinvest is a holding company that holds controlling stakes in seven publicly traded fixed-line operators ("MRKs") based in seven federal districts of Russia. Based on the analysis of all relevant factors, the management determined that the acquisition of 25% plus one share of Svyazinvest does not allow the Group to exercise significant influence over this entity due to its legal structure and certain limitations imposed by Svyazinvest charter documents. Accordingly, the Group accounts for its investment in Svyazinvest under the cost method. In November 2009, the Group, Sistema and Svyazinvest ("the Parties") signed a non-binding memorandum of understanding ("MOU"), under which the Parties agreed to enter in the series of transactions which would ultimately result in (i)disposal of the Group's investment in Svyazinvest to a state-controlled enterprise; (ii)noncash extinguishment of the Group's indebtedness to Sberbank (see Note17); (iii)increase in Sistema's ownership in Sky Link Group (currently a 50% affiliate of Sistema, see also Note25) to 100% and disposal of this investment to a state-controlled enterprise; and (iv)disposal of 28% of MGTS' common stock owned by Svyazinvest to Sistema. In addition, certain cash consideration, the amount of which is yet to be negotiated between the parties, is to be paid to Svyazinvest under the MOU. The 28% stake in MGTS is then intended to be transferred to the Group. Based on the estimated fair values of the elements of the assets to be exchanged and liabilities to be extinguished under the MOU and other relevant factors, management believes that as of December31, 2009 there were indicators of potential impairment of the Group's investment in Svyazinvest. Svyazinvest is a non-public entity and the Group has no access to consolidated financial information of Svyazinvest at a level of detail necessary to perform a complete fair value assessment of the Svyazinvest business directly, based on estimated future cash flows or otherwise. As a result, management has determined that the best estimate of the fair value of the Group's investment in Svyazinvest is the amount determined based on the MOU. Based on the MOU, the estimated fair value of the investment, which included significant unobservable inputs (Level3 measurement), is approximately RUB 26.0billion ($859.7million as of December31, 2009). The following table represents carrying value of investment in |
OTHER INVESTMENTS
OTHER INVESTMENTS | |
12 Months Ended
Dec. 31, 2009 | |
OTHER INVESTMENTS | |
OTHER INVESTMENTS | 15.OTHER INVESTMENTS As of December31, 2009 and 2008, the Group's other investments comprised of the following: Annual interest rate Maturity date December31, 2009 December31, 2008 Loans receivable from TS-Retail (Note25) 11.0 - 15.0% August 2011 30,192 11,156 Investment in TammaronLtd on demand 21,230 Promissory notes of Sistema Telecom (Note25) 3.0-4.4% various in 2009 51,966 Investments in ordinary shares (Note25) 11,724 12,091 Loan receivable from Intellect Telecom (Note25) 7.0-11.0% July - August 2012 12,808 11,717 Promissory notes of Sistema (Note25) 0.0% 2017 20,449 Other 3,720 3,399 Total other investments 78,893 111,559 During the year ended December31, 2008, the Group deposited in TammaronLtd., a company incorporated under the laws of the British Virgin Islands, an amount of $21.2million for the a potential business acquisition. During 2009 based on the analysis of the current Russian and global financial markets situation management believes that a significant uncertainty exists with regard to the completion of such transaction and accordingly a reserve for the entire amount has been provided by the Group as an impairment of investments in the Group's consolidated statement of operations for the year ended December31, 2009. |
RESTRICTED CASH
RESTRICTED CASH | |
12 Months Ended
Dec. 31, 2009 | |
RESTRICTED CASH | |
RESTRICTED CASH | 16.RESTRICTED CASH Restricted cash of $6.4million and $23.6million, as of December31, 2009 and 2008, respectively, consists of cash deposited by Uzdunrobita in a special bank account which was created to be in compliance with the government regulation for local currency conversion into foreign currencies. The cash deposited will be converted from Uzbek Som into U.S. Dollars and used for settlements with suppliers of equipment and software. |
BORROWINGS
BORROWINGS | |
12 Months Ended
Dec. 31, 2009 | |
BORROWINGS | |
BORROWINGS | 17.BORROWINGS NotesAs of December31, 2009 and 2008, the Group's notes consisted of the following: Currency Interest rate 2009 2008 MTS OJSC Notes due 2016 RUB 14.25 % $ 495,963 $ MTS OJSC Notes due 2014 RUB 16.75 % 495,963 MTS Finance Notes due 2012 USD 8.00 % 400,000 400,000 MTS Finance Notes due 2010 USD 8.38 % 400,000 400,000 MTS OJSC Notes due 2018 RUB 8.70 % 323,698 268,544 MTS OJSC Notes due 2015 RUB 14.01 % 248,213 255,272 MTS OJSC Notes due 2013 RUB 14.01 % 247,981 255,272 MGTS Notes due 2010 RUB 16.00 % 402 5,202 MGTS Notes due 2009 RUB 7.10 % 5,233 Less: unamortized discount (2,587 ) (548 ) Total notes $ 2,609,633 $ 1,588,975 Less: current portion (1,218,084 ) (10,435 ) Total notes, long-term $ 1,391,549 $ 1,578,540 The Group has an unconditional obligation to repurchase MTS OJSC Notes at par value if claimed by the noteholders subsequent to the announcement of the sequential coupon. The dates of the announcement for each particular note issue are as follows: MTS OJSC Notes due 2013 April 2010 MTS OJSC Notes due 2014 May 2011 MTS OJSC Notes due 2015 April 2010 MTS OJSC Notes due 2016 June 2012 MTS OJSC Notes due 2018 June 2010 The notes therefore can be defined as callable obligations under the FASB authoritative guidance on debt, as the holders have the unilateral right to demand repurchase of the notes at par value upon announcement of new coupons. The FASB authoritative guidance on debt requires callable obligations to be disclosed as maturing in the reporting period, when the demand for repurchase could be submitted disregarding the expectations of the Group about the intentions of the noteholders. The Group discloses the notes as maturing in 2010 (MTS OJSC Notes due 2013, 2015, 2018), in 2011 (MTS OJSC Notes due 2015) and in 2012 (MTS OJSC Notes due 2016) in the aggregated maturities schedule as these are the reporting periods when the noteholders will first have the unilateral right to demand repurchase. The fair values of notes based on the market quotes as of December31, 2009 at the stock exchanges where they are traded were as follows: Stock exchange % of par Fair value MTS OJSC Notes due 2016 MICEX 110.1 $ 546,055 MTS OJSC Notes due 2014 MICEX 108.3 537,127 MTS Finance Notes due 2012 Luxembourg stock exchange 104.6 418,400 MTS Finance Notes due 2010 Luxembourg stock exchange 103.3 413,200 MTS OJSC Notes due 2018 MICEX 99.9 323,375 MTS OJSC Notes due 2015 MICEX 101.7 252,432 MTS OJSC Notes due 2013 MICEX 102.0 252,941 MGTS Notes due 2010 MICEX 98.4 396 Total notes $ 2,743,926 Subject to certain exceptions and qualifications, the indentures governing MTS Finance Notes contai |
ASSET RETIREMENT OBLIGATIONS
ASSET RETIREMENT OBLIGATIONS | |
12 Months Ended
Dec. 31, 2009 | |
ASSET RETIREMENT OBLIGATIONS | |
ASSET RETIREMENT OBLIGATIONS | 18.ASSET RETIREMENT OBLIGATIONS As of December31, 2009 and 2008, the estimated present value of the Group's asset retirement obligations and change in liabilities were as follows: 2009 2008 Balance, beginning of the year $ 62,053 $ 59,527 Liabilities incurred in the current period 3,923 3,840 Accretion expense 6,518 6,026 Revisions in estimated cash flows 17,693 3,383 Currency translation adjustment (1,504 ) (10,723 ) Balance, end of the year $ 88,683 $ 62,053 Revisions in estimated cash flows are attributable to the change in the estimated future useful life of the assets. |
DEFERRED CONNECTION FEES
DEFERRED CONNECTION FEES | |
12 Months Ended
Dec. 31, 2009 | |
DEFERRED CONNECTION FEES | |
DEFERRED CONNECTION FEES | 19.DEFERRED CONNECTION FEES Deferred connection fees for the years ended December31, 2009 and 2008, were as follows: 2009 2008 Balance, beginning of the year $ 174,225 $ 216,511 Payments received and deferred during the year 60,590 89,195 Amounts amortized and recognized as revenue during the year (67,057 ) (95,080 ) Currency translation adjustment (4,660 ) (36,401 ) Balance, end of the year 163,098 174,225 Less: current portion (46,930 ) (55,012 ) Non-current portion $ 116,168 $ 119,213 MTS defers initial connection fees paid by subscribers for the activation of network service as well as one time activation fees received for connection to various value added services. These fees are recognized as revenue over the estimated average subscriber life (Note2). |
PROPERTY, PLANT AND EQUIPMENT C
PROPERTY, PLANT AND EQUIPMENT CONTRIBUTIONS | |
12 Months Ended
Dec. 31, 2009 | |
PROPERTY, PLANT AND EQUIPMENT CONTRIBUTIONS | |
PROPERTY, PLANT AND EQUIPMENT CONTRIBUTIONS | 20.PROPERTY, PLANT AND EQUIPMENT CONTRIBUTIONS MGTS receives telecommunication infrastructure which is intended to operate as an integral part of the Moscow city wire line network from the real estate constructors free of charge as provided by the regulations of the city government. Property, plant and equipment contributions received by MGTS during the years ended December31, 2009 and 2008 were as follows: 2009 2008 Unamortized property, plant and equipment contributions, beginning of the year $ 93,197 $ 112,779 Contributions received during the year 3,213 3,194 Amortization for the year (3,408 ) (4,381 ) Currency translation effect (2,653 ) (18,395 ) Unamortized property, plant and equipment contributions, end of the year $ 90,349 $ 93,197 |
DERIVATIVE FINANCIAL INSTRUMENT
DERIVATIVE FINANCIAL INSTRUMENTS | |
12 Months Ended
Dec. 31, 2009 | |
DERIVATIVE FINANCIAL INSTRUMENTS | |
DERIVATIVE FINANCIAL INSTRUMENTS | 21.DERIVATIVE FINANCIAL INSTRUMENTS Cash flow hedging In 2009, 2008 and 2007 the Group entered into variable-to-fixed interest rate swap agreements to manage the exposure of changes in variable interest rate related to its debt obligations. The instruments are qualified for cash flow hedge accounting under the U.S.GAAP requirements. Each interest rate swap matches the exact maturity dates of the underlying debt allowing for highly-effective hedges. Interest rate swap contracts outstanding as of December31, 2009 mature in 2012-2015. Further, in 2009 the Group entered into several cross-currency interest rate swap agreements. These contracts hedge the risk of both interest rate and currency fluctuations and assume periodical exchanges of both principal and interest payments from RUB-denominated amounts to USD- and Euro-denominated amounts to be exchanged at a specified rate. The rate was determined by the market spot rate upon issuance. These contracts also include an interest rate swap of a fixed USD- and Euro-denominated interest rate to a fixed RUB-denominated interest rate. The instruments are qualified for cash flow hedge accounting under the U.S.GAAP requirements. Each cross-currency interest swap matches the interest and principal payments of the underlying debt allowing for highly-effective hedges. Cross-currency interest rate swap contracts outstanding as of December31, 2009 mature in 2010-2011. The following table presents the fair value of Group's derivative instruments designated as hedges in the consolidated statements of financial position as of December31, 2009 and 2008. December31, Statement of financial position location 2009 2008 Asset derivatives Interest rate swaps Other non-current assets $ 3,391 Total $ 3,391 Liability derivatives Interest rate swaps Other long-term liabilities $ (32,636 ) $ (20,892 ) Cross-currency interest rate swaps Other payables (9,211 ) Cross-currency interest rate swaps Other long-term liabilities (17,348 ) Total $ (59,195 ) $ (20,892 ) The following table presents the effect of Group's derivative instruments designated as hedges on the consolidated statements of operations for the years ended December31, 2009, 2008 and 2007. Year ended December31, Location of loss recognised 2009 2008 2007 Interest rate swaps Interest expense $ (8,392 ) $ (2,002 ) Cross-currency interest rate swaps Currency exchange and transaction loss (24,299 ) Total $ (32,691 ) $ (2,002 ) The ineffective portion of interest rate swap arrangements in amount of $0.9million was included in interest expense in consolidated statement of operations for the year ended December31, 2009. The ineffective portion of cross-currency interest rate swap arrangements in amount of $4.5million was included in currency exchange and transaction loss in consolidated statement of operations for the year en |
ACCRUED LIABILITIES
ACCRUED LIABILITIES | |
12 Months Ended
Dec. 31, 2009 | |
ACCRUED LIABILITIES | |
ACCRUED LIABILITIES | 22.ACCRUED LIABILITIES December31, 2009 2008 Accruals for services $ 232,897 $ 224,803 Accrued payroll and vacation 210,329 146,698 Accruals for taxes 241,838 131,971 Accruals for payments to social funds 12,396 10,134 Interest payable on debt 127,953 49,711 Total accrued liabilities $ 825,413 $ 563,317 |
INCOME TAX
INCOME TAX | |
12 Months Ended
Dec. 31, 2009 | |
INCOME TAX | |
INCOME TAX | 23.INCOME TAX Provision for income taxes for the years ended December31, 2009, 2008 and 2007 was as follows: December31, 2009 2008 2007 Current provision for income taxes $ 402,511 $ 948,983 $ 937,036 Deferred income tax benefit 101,444 (206,102 ) (85,021 ) Total provision for income taxes $ 503,955 $ 742,881 $ 852,015 The statutory income tax rates in jurisdictions in which the Group operates for 2009 were as follows: Russia20.0%, Ukraine25.0%, Uzbekistan3.4%, Turkmenistan20.0%, and Armenia20.0%. The statutory income tax rate reconciled to the Group's effective income tax rate for the years ended December31, 2009, 2008 and 2007 was as follows: 2009 2008 2007 Statutory income tax rate for the year 20.0 % 24.0 % 24.0 % Adjustments: Expenses not deductible for tax purposes 4.9 2.1 2.1 Currency exchange and transaction loss 0.5 1.0 0.2 Income tax provision (0.2 ) 0.3 0.6 Settlements with tax authoroties on prior period income tax (2005 - 2008) (2.9 ) Revaluation of UMC tax base (1.8 ) Different tax rate of foreign subsidiaries (2.0 ) (1.2 ) 0.1 Earnings distribution from subsidiaries 6.8 Disposal of treasury stock (4.1 ) Impairment of goodwill 0.4 Change in fair value of derivative financial instruments (0.1 ) 0.3 1.1 Change in valuation allowance 10.3 (0.2 ) (0.2 ) Comstar corporate reorganization 0.4 Increase in deferred tax liability subject to registration (0.3 ) Other 0.1 0.5 0.1 Effective income tax rate 33.7 % 25.4 % 27.7 % Temporary differences between the tax and accounting bases of assets and liabilities gave rise to the following deferred tax assets and liabilities as of December31, 2009 and 2008: December31, 2009 2008 Assets/(liabilities) arising from tax effect of: Deferred tax assets Depreciation of property, plant and equipment $ 212,606 $ 197,879 Other intangible assets 12,770 8,967 Deferred connection fees 33,610 35,873 Subscriber prepayments 16,663 17,057 Accrued expenses 130,603 155,508 Provision for doubtful accounts 3,603 13,827 Inventory obsolescence 3,046 2,004 Loss carryforward 111,784 24,130 Impairment of property, plant and equipment 19,906 Valuation of investment in Svyazinvest 78,761 Other 23,147 13,365 Valuation allowance (182,308 ) (26,744 ) Total deferred tax assets 464,191 441,866 Deferred tax liabilities Licenses acquired $ (59,746 ) $ (104,443 ) Depreciation of property, plant and equipment (188,611 ) (127,616 ) Customer base (2,695 ) (1,773 ) Other intangible assets (59,227 ) (75,040 ) Debt issuance |
SHARE BASED COMPENSATION
SHARE BASED COMPENSATION | |
12 Months Ended
Dec. 31, 2009 | |
SHARE BASED COMPENSATION | |
SHARE BASED COMPENSATION | 24.SHARE BASED COMPENSATION MTS The Stock Option Plan In 2000, MTS established a stock bonus plan and stock option plan ("the Stock Option Plan") for selected officers and key employees. During its initial public offering in 2000 MTS allotted 9,966,631 shares of its common stock to fund the Stock Option Plan. Since 2002, MTS has made several grants pursuant to its stock option plan to employees and directors of the Group. These options generally vest over a two year period from the date of the grant, contingent on continued employment of the grantee with MTS. The options are exercisable within two weeks after the vesting date, and, if not exercised, are forfeited. The exercise price of the options equaled the average market share price during the one hundred day period preceding the grant date. In April 2008, the Board of Directors allotted an additional 651,035 ADSs (or 3,255,175 shares) to fund a Stock Option award to MTS' chief executive officer. The award vesting period is up to two years contingent upon employment with MTS. The award will vest only if at the end of the vesting period MTS is among the top 20 mobile operators in the world and top mobile operator in Russia and the CIS, in each case in terms of revenue, and cumulative percentage of MTS' market capitalization growth since the grant date exceeds the predetermined threshold of 15%. A summary of the status of the Group's Stock Option Plan is presented below: Number of shares Weighted average exercise price (per share), U.S. Dollars Weighted average grant date fair value of options (per share), U.S. Dollars Aggregate intrinsic value Outstanding at December31, 2006 1,435,001 $ 6.89 $ 1.74 $ 743 Granted 1,778,694 6.31 5.95 Exercised (848,126 ) 6.89 1.74 Forfeited (968,313 ) 6.66 2.65 Outstanding at December31, 2007 1,397,256 $ 6.31 $ 4.05 $ 5,236 Granted 1,302,070 15.93 2.44 Exercised (1,397,256 ) 6.31 4.05 Forfeited Outstanding at December31, 2008 1,302,070 $ 15.93 $ 2.44 $ Granted Exercised Forfeited Outstanding at December31, 2009 1,302,070 $ 15.93 $ 2.44 $ The total intrinsic value of options exercised during the years ended December31, 2009, 2008 and 2007 was $nil, $7.4million and $0.4million, respectively. Stock options outstanding as of December31, 2009 will vest during the period ended July1, 2010. None of the stock options outstanding as of December31, 2009, 2008 were exercisable and therefore had a negative intrinsic value. None of the stock options outstanding as of December31, 2007 were exercisable. Compensation cost under Stock Option Plan of $1.2million, $3.5million and $2.8million was recognized in consolidated statements of operations during the years ended December31, 2009, 2008 and 2007 respectively. Related deferred tax benefit amounted to $0.2milli |
RELATED PARTIES
RELATED PARTIES | |
12 Months Ended
Dec. 31, 2009 | |
RELATED PARTIES | |
RELATED PARTIES | 25.RELATED PARTIES Related parties include entities under common ownership and control with the Group, affiliated companies and Svyazinvest, in which the Group owns 25% plus one share stake (see Note14) and which owns approximately 28% voting shares in MGTS, a subsidiary of Comstar-UTS. As of December31, 2009 and 2008, accounts receivable from and accounts payable to related parties were as follows: December31, 2009 2008 Accounts receivable: Sky Link and subsidiaries, an affiliate of Sistema $ 7,467 $ 4,319 Svyazinvest and subsidiaries 4,446 9,334 TS-Retail, a subsidiary of Sistema 3,278 16,271 Sitronics, a subsidiary of Sistema 1,933 Intellect Telecom, a subsidiary of Sistema 622 1,073 Sistema Mass Media, a subsidiary of Sistema 204 14,416 Glaxen, a minority shareholder of a subsidiary of the Group 12,215 Mezhregion Tranzit Telecom, an affiliate of Sistema 8,323 Other related parties 2,023 4,669 Total accounts receivable, related parties $ 19,973 $ 70,620 Accounts payable: Sitronics, a subsidiary of Sistema $ 68,296 $ 162,906 Maxima, a subsidiary of Sistema 6,511 15,168 TS-Retail, a subsidiary of Sistema 5,739 Svyazinvest and subsidiaries 2,299 6,387 Mezhregion Tranzit Telecom, an affiliate of Sistema 18,257 Mediaplanning, a subsidiary of Sistema 6,118 Sistema Telecom, a subsidiary of Sistema 861 2,697 Sistema Mass Media, a subsidiary of Sistema 7,675 Sky Link and subsidiaries, an affiliate of Sistema 488 Other related parties 3,209 7,274 Total accounts payable, related parties $ 87,403 $ 226,482 The Group does not have the intent and ability to offset the outstanding accounts payable and accounts receivable with related parties under the terms of existing agreements with them. Operating Transactions For the years ended December31, 2009, 2008 and 2007, operating transactions with related parties are as follows: 2009 2008 2007 Revenues from related parties: Svyazinvest and subsidiaries (interconnection, commission for provision of DLD/ILD services to the Group's subscribers and other) $ 43,174 $ 63,147 $ 69,094 TS-Retail, a subsidiary of Sistema (Sales of handsets and accessories) 20,689 1,500 Mezhregion Tranzit Telecom, an affiliate of Sistema (interconnection, line rental, commission for provision of DLD/ILD services to the Group's subscribers, and other) 11,465 128,560 93,224 Sky Link and subsidiaries, an affiliate of Sistema (interconnection and other) 9,857 7,977 9,857 Other related parties 7,653 10,306 6,137 Total revenues to related parties $ 92,838 $ 211,490 $ 178,312 Operating expenses incurred on transactions with related parties: RA Maxima, a subsidiary of Sistema (advertising) $ 102,005 $ 138,756 |
STOCKHOLDERS' EQUITY
STOCKHOLDERS' EQUITY | |
12 Months Ended
Dec. 31, 2009 | |
STOCKHOLDERS' EQUITY | |
STOCKHOLDERS' EQUITY | 26.STOCKHOLDERS' EQUITY Share capitalMTS' share capital comprises 1,916,869,262 and 1,885,052,800 of outstanding common shares, net of treasury shares, as of December31, 2009 and 2008. The total shares in treasury stock of the Group comprised 76,456,876 and 108,273,338 as of December31, 2009 and 2008, respectively. Each ADS initially represented 20 shares of common stock of the Company. Effective January 2005, the ratio was changed from 1 ADS per 20 ordinary shares to 1 ADS per 5 ordinary shares. The Company initially issued a total of 17,262,204 ADSs (69,048,816 ADSs recalculated using new ratio), representing 345,244,080 common shares. As of December31, 2009 MTS repurchased 13,599,067 ADSs. Noncontrolling interestMTS' equity was affected by changes in subsidiaries' ownership interests as follows: December31, 2009 2008 2007 Net income attributable to the Group $ 1,004,479 $ 2,000,119 $ 2,087,415 Transfers from the noncontrolling interest Increase in MTS equity due to acquisition of noncontrolling interest in Comstar-UTS 45,284 Decrease in MTS paid-in capital due to exercise of the put option on Comstar-UTS shares (9,358 ) Increase in MTS equity due to exercise of the call option on Comstar-UTS shares 71,060 Increase in MTS equity due to acquisition of noncontrolling interest in MGTS 269,281 Decrease in MTS paid-in capital due to acquisition of noncontrolling interest in Dagtelecom (7,679 ) Decrease in MTS paid-in capital due to reorganisation of Comstar-Direct (6,539 ) Increase in MTS paid-in capital due to acqisition of noncontrolling interest in Golden Line 1,467 Decrease in MTS paid-in capital due to acquisition of noncontrolling interest in other subsidiaries (487 ) Net transfers from the noncontrolling interest 306,399 (15,897 ) 72,527 Net income attributable to the Group and transfers from the noncontrolling interest: $ 1,310,878 $ 1,984,222 $ 2,159,942 DividendsIn 2007, the Board of Directors approved a dividend policy, whereby the Group shall aim to make dividend payments to shareholders in the amount of at least 50% of annual net income under U.S.GAAP. The dividend can vary depending on a number of factors, including the outlook for earnings growth, capital expenditure requirements, cash flow from operations, potential acquisition opportunities, as well as the Group's debt position. Annual dividend payments, if any, must be recommended by the Board of Directors and approved by the shareholders. In accordance with the Russian laws, earnings available for dividends are limited to profits determined in accordance with Russian statutory accounting regulations, denominated in rubles, after certain deductions. The net income of MTS OJSC for the years ended December31, 2009, 2008 and 2007 that is distributable under Russian legislation totaled RUB 33,480million ($1,055.4million), RUB40,554million ($1,631.6million) and RUB 37,696million ($1,473.8mi |
RETIREMENT AND POST RETIREMENT
RETIREMENT AND POST RETIREMENT OBLIGATIONS | |
12 Months Ended
Dec. 31, 2009 | |
RETIREMENT AND POST RETIREMENT OBLIGATIONS | |
RETIREMENT AND POST RETIREMENT OBLIGATIONS | 27.RETIREMENT AND POST RETIREMENT OBLIGATIONS MGTS has historically provided certain benefits to employees upon their retirement and afterwards, which include monthly regular pension, death-in-service payments, lump-sum upon retirement payments, death-while-pensioner payments and 50% monthly telephone subsidy for the pensioners who served more than 30years at MGTS. As of December31, 2009, there were 10,010 active employees eligible to the program. The pension plan is terminally funded, i.e.,upon retirement MGTS transfers all its obligations to a national pension fund "Sistema" (NPF "Sistema"), a subsidiary of Sistema, and from that moment onwards has no more obligations towards the pensioner regarding the pension plan. All other program benefits are financed on a pay-as-you-go basis. MGTS' pension obligations are measured as of December31. The following are the key assumptions used in determining the projected benefit obligation and net periodic pension expense: Discount rate 9.00% p.a. Expected return on plan assets 9.22% p.a. Projected salary growth 9.72% p.a. Discount rate used for annuity contracts calculation 7.00% p.a. Rate at which pension payment are assumed to be indexed 0.00% p.a. Long-term inflation 5.50% p.a. Staff turnover (for ages below 50) 5.00% p.a. The change in the projected benefit obligation and the change in plan assets for the years ended December31, 2009 and 2008 are presented in the following table: 2009 2008 Old age pension Other benefits Total Old age pension Other benefits Total Change in projected benefit obligation Projected benefit obligation, beginning of the year $ 11,924 $ 17,797 $ 29,721 $ 17,381 $ 20,909 $ 38,290 Service cost 491 737 1,228 807 794 1,601 Interest cost 914 1,371 2,285 1,102 1,083 2,185 Plan amendments losses 66 1,844 1,910 Actuarial (gains)/losses 17 (1,686 ) (1,669 ) (2,355 ) 265 (2,090 ) Benefit payment (3,043 ) (3,043 ) (5,701 ) (5,701 ) Settlement and curtailment gain (1,245 ) (1,245 ) (2,689 ) (2,689 ) Termination benefits 2,102 2,102 Foreign currency translation effect (332 ) (636 ) (968 ) (2,388 ) (3,499 ) (5,887 ) Projected benefit obligation, end of the year $ 11,769 $ 14,540 $ 26,309 $ 11,924 $ 17,797 $ 29,721 Change in fair value of plan asset Fair value of plan assets, beginning of the year $ 471 $ $ 471 $ 2,473 $ $ 2,473 Correction of asset value, beginning of year (188 ) (188 ) Actual return on plan assets 187 187 Employer contributions 1,733 3,044 4,777 604 5,701 6,305 Benefits paid (3,044 ) (3,044 ) (5,701 ) (5,701 ) Settlement (1,245 ) (1,245 ) (2,689 ) |
GENERAL AND ADMINISTRATIVE EXPE
GENERAL AND ADMINISTRATIVE EXPENSES | |
12 Months Ended
Dec. 31, 2009 | |
GENERAL AND ADMINISTRATIVE EXPENSES | |
GENERAL AND ADMINISTRATIVE EXPENSES | 28.GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses for the years ended December31, 2009, 2008 and 2007, comprised the following: 2009 2008 2007 Salaries and social contributions 991,568 1,094,148 922,652 Rent 278,536 243,837 190,690 General and administrative 213,255 256,731 239,250 Taxes other than income 180,775 215,570 172,684 Repair and maintenance 157,932 221,192 218,824 Billing and data processing 64,169 62,203 45,097 Consulting expenses 58,931 50,774 40,157 Business acquisitions related costs 11,353 Insurance 7,561 11,452 19,339 Provision for obsolescence 4,113 3,870 4,931 Total 1,968,193 2,159,777 1,853,624 |
SEGMENT INFORMATION
SEGMENT INFORMATION | |
12 Months Ended
Dec. 31, 2009 | |
SEGMENT INFORMATION | |
SEGMENT INFORMATION | 29.SEGMENT INFORMATION Historically, the Group has reflected its reportable segments on a geographical basis. Management has taken this approach as this was effectively how the business was managed. In 2009, since the acquisition of Comstar-UTS the Group's management determined a new operating segment and identified three reportable segments: Russia Mobile, Russia Fixed and Ukraine Mobile. These segments have been determined based on different geographical areas of business activities and the nature of their operations: mobile includes activities for the providing of wireless telecommunication services to the Group's subscribers and distribution of mobile handsets and accessories; fixed line includes all activities for providing wireline telecommunication services, broadband and consumer Internet. Information about other business activities and operating segments that are not reportable due to non materiality of business activity was combined and disclosed in the "Other" category separately from other reconciling items. Also, historically, the Group included corporate headquarters expenses to "Russia" reportable segment as the chief operating decision maker assessed the performance of the segments on such basis. In 2009, since the acquisition of Comstar-UTS, the chief operating decision maker has changed the approach to the allocation of corporate headquarters expenses and such changes have been reflected in the financial information the chief operating decision maker now reviews. According to the new approach corporate headquarters expenses which are not directly attributable to the reportable segments are included into "Other" category. The accompanying consolidated financial statements reflect these changes for all periods presented. Intercompany eliminations presented below consist primarily of sales transactions between segments conducted under the normal course of operations. Financial information by reportable segment is presented below: December31, 2009 2008 2007 Revenue: Russia Mobile $ 6,636,568 $ 7,840,225 $ 6,181,023 Russia Fixed 1,485,590 1,765,226 1,562,291 Ukraine Mobile 1,048,751 1,661,951 1,608,021 Other 787,543 779,520 483,499 Intercompany eliminations (134,910 ) (145,988 ) (110,928 ) Total revenue $ 9,823,542 $ 11,900,934 $ 9,723,906 Depreciation and amortization: Russia Mobile $ 1,107,593 $ 1,312,406 $ 1,076,586 Russia Fixed 193,357 214,288 185,337 Ukraine Mobile 352,037 437,988 324,976 Other 186,581 186,443 87,986 Total depreciation and amortization $ 1,839,568 $ 2,151,125 $ 1,674,885 Operating income: Russia Mobile $ 1,941,174 $ 2,836,660 $ 2,251,259 Russia Fixed 406,995 440,441 450,907 Ukraine Mobile 120,248 321,328 456,778 Other 82,257 45,503 25,808 Intercompany eliminations (3,107 ) 3,404 176 Net operating income $ |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | |
12 Months Ended
Dec. 31, 2009 | |
COMMITMENTS AND CONTINGENCIES | |
COMMITMENTS AND CONTINGENCIES | 30.COMMITMENTS AND CONTINGENCIES Recent volatility in global and Russian financial marketsDuring 2009, a number of major economies around the world continued to experience volatile capital and credit markets. A number of major global financial institutions have been placed into bankruptcy, taken over by other financial institutions and/or supported by government funding. As at the date these consolidated financial statements are authorized for issue as a consequence of the market turmoil in capital and credit markets both globally and in Russia, notwithstanding any potential economic stabilization measures that may be put into place by the Russian Government, there exists economic uncertainties surrounding the continual availability, and cost, of credit facilities, the potential for economic uncertainties to continue in the foreseeable future. The crisis may also damage purchasing power of the Group's customers mainly in business sector and thus lead to decline in revenue streams and cash generation. While management believes it is taking appropriate measures to support the sustainability of the Group's business in the current circumstances, unexpected further deterioration in the areas described above could negatively affect the Group's results and financial position in a manner not currently determinable. Operating environmentThe economies in Russia and the CIS countries, while deemed to be market economies, continue to display certain traits consistent with that of an emerging market. These characteristics have in the past included higher than normal inflation, insufficient liquidity of the capital markets, and the existence of currency controls. The further development of the Russian and CIS countries' economies will be subject to their government's continued actions with regard to supervisory, legal and economic reforms. Capital commitmentsAs of December31, 2009, the Group had executed purchase agreements of approximately $200.2million to acquire property, plant and equipment, and intangible assets and costs related thereto. Agreement with AppleIn August 2008, the Group entered into an unconditional purchase agreement with Apple Sales International to buy 1.5million iPhone handsets at list prices at the dates of respective purchases over the three year period. Pursuant to the agreement the Group shall also incur certain iPhone promotion costs. In 2009 and 2008, the Group made 0.4% and 7.2% of its total purchase installment contemplated by the agreement, respectively. Total amount paid for handsets purchased under the agreement for the years ended December31, 2009 and 2008 amounted to $3.4million and $65.4million, respectively. MGTS long-term investment programIn December 2003, MGTS announced its long-term investment program for the period from 2004 to 2012, providing for extensive capital expenditures, including expansion and full digitalization of the Moscow telephone network. The program was approved by the resolution of the Moscow City Government on December16, 2003. At the inception of the investment program, capital expenditures were estimated to be approximately $1,600.0million and included reconstruction of |
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS | |
12 Months Ended
Dec. 31, 2009 | |
SUBSEQUENT EVENTS | |
SUBSEQUENT EVENTS | 31.SUBSEQUENT EVENTS For the purpose of the accompanying consolidated financial statements, subsequent events have been evaluated through April29, 2010, which is the date these financial statements were available to be issued. Increase in MGTS TariffsIn January 2010, the Federal Tariff Service approved new tariffs for MGTS residential and corporate subscribers effective February1, 2010. The tariffs for subscribers increased at an average rate of 10.3% in RUB. Non-controlling interest in EuroTelIn February 2010, the Group completed the cash acquisitions of the outstanding 20% minority stake in Yekaterinburg-based cable-TV and communications operator EuroTelLLC and a 25% minority stake in Management and LeasingLLC, which owns communication infrastructure in Yekaterinburg. The Group now owns 100% of the issued share capital in both companies. The total cash consideration for the two related acquisitions is RUB 100million ($3.3million at the date of acquisition). Acquisition of Tenzor TelecomIn February 2010, the Group acquired 100% in Tenzor Telecom, an alternative telecommunications operator based in Yaroslavl in Central Russia, for RUB 220million ($7.3million as of the date of acquisition). The acquisition was made in frame of regional expansion program of the Group. Decrease in interest rates GazprombankIn February 2010 MTS reached an agreement with Gazprombank to reduce the interest rates on the outstanding loans. The interest rate on the EURO 100.0million credit facility with original maturity in September 2012 was reduced from an annual rate of 8% to 7%. The interest rate on the facility of RUB 6.46billion with maturity in September 2012 was reduced from an annual rate of 13% to 10.95%. MTS also reduced the interest rate on the revolving credit line in the amount of 100.0million with maturity in September 2012 from 8% to 7%. Raising of financing from Credit Agricole Corporate and Investment Bank and BNP Paribas On February18, 2010 the Group entered into a credit facility agreement in amount of up to $97.0million with Credit Agricole Corporate and Investment Bank and BNP Paribas backed by Hermes. $55.1million of the facility is available till April15, 2010, the rest $41.9million - till March30, 2011. The funds are to be used for purchase of telecommunication software and equipment from Alcatel Lucent Deutschland. The facility matures in 2017 and bears an interest of EURIBOR+1.65%. The related commitment fee is set at 0.825% on undrawn balance of the facility. Legal proceedings by anti-monopoly authoritiesIn March 2010, the Federal Anti-Monopoly Service of Russia ("FAS") started legal proceedings against MTS, VimpelCom OJSC and Megafon OJSC about their alleged violation of antimonopoly legislation by charging artificially high prices for roaming services. The Group does not possess information related to the date that this case will be considered by the FAS. In case roaming tariffs of the Group are found to be in violation of applicable legislation, the Group may face certain fines of up to 15% of the revenue from the services provided in violation of the legislation. Management believes that there was no violation of |
Document and Entity Information
Document and Entity Information | ||
12 Months Ended
Dec. 31, 2009 | Dec. 31, 2009
| |
Document and Entity Information | ||
Entity Registrant Name | MOBILE TELESYSTEMS OJSC | |
Entity Central Index Key | 0001115837 | |
Document Type | 20-F | |
Document Period End Date | 2009-12-31 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Well-known Seasoned Issuer | Yes | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 1,916,869,262 | |
Document Fiscal Year Focus | 2,009 | |
Document Fiscal Period Focus | FY |