SSA.L Regulatory News (SSA)

5 Oct 2006 15:00

FINANCIAL RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2006 Sistema (LSE: SSA), the largest private sector consumer services company inRussia and the CIS, today announced its unaudited consolidated US GAAP financialresults for the six months ended June 30, 2006. HIGHLIGHTS -- Consolidated revenues up 37% year on year to US$ 4.6 billion -- OIBDA(1) up 16% year on year to US$ 1.7 billion -- Operating income up 10% year on year to US$ 1.04 billion -- Net income up 36% year on year to US$ 310.1 million -- Total consolidated assets up 49% year on year to US$ 17.3 billion -- Earnings per share up 31% year on year to US$ 0.64 Alexander Goncharuk, President and Chief Executive Officer of Sistema,commented: •The company has demonstrated impressive results in the first half of2006, and we are happy to see all of our target strategic goals for the periodbeing met. This relates both to the financial results presented today, and tothe key operational performance indicators£. FINANCIAL SUMMARY \* T (US$ millions) 1H 2006 1H 2005 Year-on-year FY 2005 GrowthRevenues 4,598.0 3,360.1 37% 7,593.5Operating income 1,038.6 941.3 1,957.4Margin 23% 28% 10% 26%Net Income 310.1 227.7 534.4Margin 7% 7% 36% 7%OIBDA 1,653.1 1,421.9 2,982.0Margin 36% 42% 16% 39%\* T OPERATING REVIEW Sistema•s consolidated revenues increased by 37% year on year, which reflected asolid performance by the Group•s Telecommunications businesses and the rapiddevelopment of the Group•s non-telecommunications operations. Thenon-telecommunications businesses accounted for 28% of Group consolidatedrevenues for the first half of the year, compared to 21% for the same period of2005. The organic year on year and like for like growth was 29% and amounted toUS$ 4,252.9 million in the first half of 2006, excluding businesses acquired ordivested since the end of the first half of 2005. Group OIBDA increased by 16% year on year for the first six months ended June30, 2006 with the lower OIBDA margin impacted by relative margin pressures inthe wireless telecommunications business. The non-telecom segments showed lowermargins compared to the Telecommunications segment due to their comparativelyearly stages of development. Consolidated depreciation and amortization expense was up by 28% year on yearfollowing the increase in depreciation in the Group•s telecommunication segment.Selling,General and Administrative expenses rose by 61%, from US$ 574.4 millionto US$ 924.9 million in the first half of 2006, as a result of the strong growthin the existing and newly acquired businesses. US$ 94 million, included in S,G&Aexpense, reflects the fair value of non-cash compensation to employees. Group operating income was up 10% year on year and included the net gain of US$121.6 million on the disposal of interest in certain subsidiaries, including 5%of SITRONICS stock. The effective tax rate increased from 30.9% to 37.2% year on year as a result offoreign exchange gains on non-ruble denominated long-term debt, which aretaxable under Russian statutory law. The marginal decrease in minority interest reflects further consolidation ofminority shares in the telecommunication segment, as well as the acquisition ofan additional 2.3% of the outstanding shares of MTS in December 2005, offset bythe decline of the Group•s ownership in Comstar UTS to 59% following its IPO. Net income for the first half of the year was up 36% year on year to US$ 310.1million, from US$ 227.7 million. The weighted average number of shares outstanding increased year on year from464,944,750 in 2005 to 481,342,813 in 2006, and the Group reported a 31% year onyear increase in basic and diluted earnings per share from US$ 0.49 to US$ 0.64. Telecommunications(2) \* T(US$ millions) 1H 2006 1H 2005---------------------------------------------------- ----------------- -------------------Revenues 3,297.4 2,680.0OIBDA 1,551.1 1,383.0Operating Income 954.0 920.5Net Income 570.9 620.8\* T The Telecommunications segment reported 23% year on year revenue growth andaccounted for 72% of Group consolidated revenues for the first half of 2006,compared to 79% for the first half of 2005. The growth was primarily organicwith neither MTS or Comstar UTS having made any scale acquisitions since the endof the first half of 2005. MTS continued to be the main contributor andaccounted for 78% of the segment•s year on year growth. MTS added 5.9 million subscribers during the first six months of 2006, of whichthe majority were in the Russian and Ukrainian markets, and reported 21% year onyear revenue growth for the period from US$ 2.3 billion to US$ 2.8 billion. MTSresults for the second quarter of 2006 showed an increase in ARPU to US$ 7.5from US$ 6.6 in the first quarter of 2006. Comstar UTS generated 28% year onyear revenue growth from US$ 419.4 million to US$ 536.3 million, followingcontinued increases in traditional fixed-line regulated revenues, as well asincreasing demand for the ADSL and pay-TV offerings.(3). These broadband dataand video services accounted for 18% of Comstar UTS•s total alternativefixed-line revenues for the period, compared to only 11% a year ago. Segment OIBDA was up 12% year on year, with the lower year on year OIBDA marginof 47% (52%) resulting from the decrease in margin in the wirelesstelecommunications business. MTS•s OIBDA for the period increased by 10% year onyear from US$ 1.2 billion to US$ 1.3 billion. Comstar UTS reported a 26% year onyear increase in OIBDA from US$ 173.5 million to US$ 218.7 million. The year on year fall in segment net income was due to the lower contributionfrom MTS of US$ 479.1 million (US$ 536.3 million), which was impacted byincreasing service costs in the Company and, as a result, a declining netmargin. Comstar UTS meanwhile reported almost doubling net income year on year,from US$ 49.6 million to US$ 97.4 million. Technology \* T(US$ millions) 1H 2006 1H 2005---------------------------------------------------- ----------------- -------------------Revenues 696.6 426.5OIBDA 80.6 115.4Operating Income 62.4 109.9Net Income 33.7 64.6\* T The Technology segment generated 63% year on year revenue growth for the periodand accounted for 12% of Group revenues, compared with 8% for the same period of2005. The growth was primarily driven by the Telecom Solutions business, whichaccounted for 51%, or US$ 352.2 million (US$ 166.1 million), of segment revenuesand included the newly acquired Intracom Telecom. Improved profitability levelsin the segment were distorted in the second quarter of 2006 as a result of theconsolidation of Intracom Telecom. Intracom Telecom was acquired on the last dayof the reporting period, with the resulting consolidation effect that thebusiness• revenues and expenses were consolidated for the entire first sixmonths of the year, whilst the earnings for the period prior to the acquisitionof the controlling interest are reported in minority interests and are nottherefore included in the operating income for the period. Thus, IntracomTelecom accounted for US$ 217.0 million of the increase in Technology segmentrevenues and for US$ 21.1 of the increase in its OIBDA. Real Estate \* T(US$ millions) 1H 2006 1H 2005---------------------------------------------------- ----------------- -------------------Revenues 106.5 33.7OIBDA 44.4 3.9Operating Income 42.7 3.2Net Income 9.3 3.5\* T Sistema Hals revenues have tripled year on year in the first half of 2006, whichwas primarily due to the sale of the Pokrovka 40, an office and hotel complex,for approximately US$ 75.0 million. OIBDA was up more than 10 times, from US$3.9 to US$ 44.4 million primarily due to the sale of the premises describedabove. The June 30, 2006, report from Cushman&Wakefield Styles&Riabokobylko valued 88properties/projects in the portfolio, with 100% share of freehold and leaseholdinterest held by Sistema Hals in each property, at US$ 1 865 403 000, andattributable value (excluding minority interest) at US$ 1 509 534 000. Insurance \* T(US$ millions) 1H 2006 1H 2005---------------------------------------------------- ----------------- -------------------Revenues 280.8 197.9Gross Premiums Written 411.0 317.9Net Premiums Earned 255.8 183.2Net Income 17.3 7.9 Key RatiosLoss ratio (53.5) (57.1)Expense Ratio (38.9) (36.8)Combined Ratio (92.3) (93.9)\* T Revenues for the Rosno insurance business increased by 42% year on year in thefirst half of 2006 and reflected the expansion of the client base and theoverall positive development in the Russian insurance market. Gross premiumswritten increased by 29% year on year with voluntary medical insurance premiumsup 72%, automotive insurance premiums up 74%, and non-life insurance premiums up59%. Allianz-Rosno Asset Management increased its assets under management from US$441.4 million to US$ 467.5 year on year, which included particularly stronggrowth in third party funds. The growth in premiums and investment returns resulted in a more than doublingof net income year on year. Banking \* T(US$ millions) 1H 2006 1H 2005---------------------------------------------------- ----------------- -------------------Revenues 87.8 45.8Operating Income 8.6 3.1Net Income 3.7 1.2\* T The Moscow Bank for Reconstruction and Development (MBRD) reported an almostdoubling of revenues year on year, following a doubling of the bank•s loanportfolio and increasing interest income from the retail banking operations. Theacquisition of Sistema•s leasing companies in March 2006 also contributed US$5.1 million to the year on year growth. The bank increased its interest incomefrom non-group clients following the expansion of the retail business to 12branches and 41 mini-offices. Both the operating and net income margins increased year on year. Retail \* T(US$ millions) 1H 2006 1H 2005---------------------------------------------------- ----------------- -------------------Revenues 117.9 45.2OIBDA (7.4) 4.6Operating Income (8.3) 3.8Net Income (9.8) 2.3\* T Detsky Mir, the specialist children•s goods retailer, more than doubled itsrevenues year on year following the opening of seven new retail stores duringthe first half of the year and the opening of 28 new outlets since the end ofthe first half of 2005. These 28 stores contributed US$ 21.4 million in newsales, or 18% of total revenues, while the wholesale company C-Toys accountedfor US$ 26.9 million or 23% of the Company•s total revenue for the period. The Company•s profitability was adversely affected during the period of rapidexpansion: Detsky Mir now has 48 stores in 19 Russian cities, compared to only20 a year ago. This additional scale will enable the company to benefit fromincreased purchasing and sales synergies and will allow it to secure thefootprint in the prime segment of the retail market. Media \* T(US$ millions) 1H 2006 1H 2005---------------------------------------------------- ----------------- -------------------Revenues 45.6 93.5OIBDA 9.9 3.9Operating Income 2.8 0.5Net Loss (0.2) (1.5)\* T Sistema Mass Media•s results reflected the transfer of the MTU-Intel and GoldenLine businesses to the Telecommunications segment. The two businessescontributed US$ 51.3 million of revenues in the first half of 2005. US$ 26.1million of the division•s revenues for the first half of 2006 were generated bycompanies acquired since the beginning of 2005, whilst US$ 68.6 million of thefirst half 2005 revenues were accounted for by companies that were subsequentlysold or transferred to other Group reporting segments. The division•s operating profitability however improved by US$ 2.3 million yearon year primarily due to the consolidation of the results of United CableNetwork acquired in February 2006 which contributed US$ 3.5 million to theSegment•s operating income. FINANCIAL HIGHLIGHTS Sistema generated a 16% year on year increase in cash flow from operations fromUS$ 584.8 million to US$ 677.8 million for the first half of the year. Theincrease was primarily related to organic business growth and increasedprofitability. Net cash used in investing activities was US$ 2.0 billion in the first half of2006 and reflected marginally increased capital expenditure of US$ 999.7billion, compared to US$ 981.5 million in the prior year, as well as thepurchase of businesses for a total combined consideration of US$ 394.9 million. Cash flow from financing activities amounted to US$ 2.0 billion in the firsthalf of 2006 and reflected US$ 977 million of net proceeds from the Comstar UTSinitial public offering, which took place in February 2006. The Group•s net debt amounted to US$ 4.5 billion at the end of the first half of2006, compared to US$ 2.5 billion as at June 30, 2005 and US$ 3.9 billion as atDecember 31, 2005. The Group•s increase in borrowings included US$ 285.0 millionof debt consolidated as a result of the acquisition of Intracom Telecom, US$160.0 million of proceeds from the MBRD bond offering in March and June 2006,and the US$ 200.0 million raised by the Sitronics Finance bond offering inFebruary 2006. ACQUISITIONS AND DIVESTITURES In Technology segment, Sitronics acquired 51% of voting stake of IntracomTelecom, a provider of telecommunications solutions and services in the EasternEurope and Middle East. The total cash consideration for the deal is US$150.6million, including US$ 43.9 million payable upon due diligence completion.Additionally, Sitronics entered into a put option agreement to acquire theremaining 49.0% of common shares of Intracom Telecom. Comstar UTS announced an unconditional purchase offer for MGTS ordinary sharesin December 2005. Comstar UTS acquired 3,363,332 MGTS shares during the firsttwo months of 2006, equivalent to 4.21% of the outstanding ordinary shares, fora total cash consideration of RUR 1,600 million (equivalent to US$ 59.1 millionas at June 30, 2006). Comstar UTS purchased an additional 3.82% of MGTS commonstock from minority shareholders for US$ 71.5 million in March 2006. As aresult, Comstar UTS's voting and economic interests in MGTS have increased to53.0%. Comstar UTS also purchased 100% of Astelit, an alternative fixed-linetelecommunications company, for US$ 7.8 million in June 2006. Astelit holdslicences to provide integrated fixed-line services across 51 Russian regions tolarge corporate customers, and has over 200 km of its own fiber opticinfrastructure in city centres. Astelit has subsequently been rebranded asM-Telecom. ROSNO acquired a 51% stake in Medexpress, which is a provider of voluntarymedical insurance in the North-western region of the Russian Federation, for US$6.6 million in January 2006. The Group plans to further develop Medexpress'operations and use its distribution network as an additional sales channel forROSNO products. Sistema Mass Media and ECU GEST acquired 90% and 10% respectively of JIRBroadcast and JIR Inc., which are the owners of 100% of United Cable Networks("UCN"), for a total cash consideration of US$ 145.9 million in February 2006.UCN is a pay-TV and broadband service provider with 724,000 subscribers in17 metropolitan areas across the Russian Federation. Sistema Mass Media sold itsownership in Gazeta Metro in June 2006 for US$ 1.9 million in cash. Sistema MassMedia acquired GK Sendi, which is an internet provider in Nizhny Novgorod, andInformservis, which is a cable television operator in the same region, for US$6.3 million in January 2006. The Group intends to use these acquisitions tofurther develop its digital TV and broadband networks in the regions. Detsky Mir completed the acquisition of 99% of Tireks Development, which owns a30% stake in Group subsidiary Dom Igrushki, for a cash consideration of US$ 2.4million in March 2006. Intourist purchased a 20% equity interest in Cosmos Hotel for approximately US$20.8 million in March 2006, and now controls the Company with a 63.4%shareholding. Concern RTI acquired a 50% plus one share interest in UralEleketro, and a 100%stake in UralElektro-K, for a combined cash consideration of US$ 5.4 million inMarch 2006. Both companies manufacture electronic equipment. RECENT EVENTS FOLLOWING THE END OF THE REPORTING PERIOD In October 2006, Sistema acquired a 66% controlling stake through directed newshare issue in WaveCrest Group Enterprises Ltd. (•WaveCrest•). WaveCrest is aglobal communications service provider offering wholesale (operator) and retail(residential) telephony services, using conventional circuit-switched andInternet protocol (IP) telephony. MTS acquired a 75% controlling stake in Dagtelecom from Glaxen Corp. for$14.7 million in July 2006. Dagtelecom is the GSM-900 mobile services providerin the Republic of Dagestan, in the south of Russia, with a populationof 2.6 million, and has 1.7 million subscribers. Intourist Overseas Limited purchased a 51% stake in Tatilya Turizm SeyahatInsaat, a Turkish travel operator, for US$ 0.3 million in July 2006. The Group acquired a 81.25% share in ZAO Sahles, the owner of controlling stakesin the entities that together comprise the Perm Motors Group for US$ 122 millionin August 2006. Perm Motors is one of Russia•s largest manufacturers of jetaircraft engines and industrial turbines. In July 2006, the Group disposed of Glorely, a subsidiary holding 35% interestin Sistema-Invest, the owner of the Group•s energy companies in the Republic ofBashkortostan for a total cash consideration of $201.0 million. In July-September 2006, Sistema Mass Media acquired several cable televisionoperators in various Russian regions, namely 74% share in Smolensk-based•Teleradiotekhnika• for $1.2 million, 100% share in Voronezh-based•Elecom-service• for $1.0 million, 100% share in •Telesat• located in NizhnyTagil for $0.4 million, 74% share in a group of operators based in Ivanovo for$7.1 million, 55% share in •Electronica• in Balakovo for $0.8 million and 90%share in •Sallak• based in Krasnodar for $0.2 million. These acquisitionscontibuted to the Group•s expansion in the regional cable television market. In August 2006, the Group sold for $20.0 million its 8% interest in MTK(•KOMKOR•) together with additional 3% interest acquired from a related partyafter June 30, 2006. OTHER INFORMATION Conference call information The company will host a conference call today at 18.00 (Moscow local time),15.00 (London local time), 10.00 (New York local time). To participate in theconference call, please dial the following numbers: UK: +44 20 7138 0837US: +1 718 354 1172 A replay facility will also be made available and may be accessed by dialing thefollowing numbers and entering the replay access code • 5837451# UK: +44 20 7806 1970US: +1 718 354 1112 For further information, please visit www.sistema.com or contact: \* TSistema Investor Relations Shared Value LimitedVictor Kurilo Larisa Kogut-MillingsTel: +7 495 629 2741 Tel. +44 (0) 20 7321 5037kurilo@sistema.ru sistema@sharedvalue.net\* T Sistema is the largest private sector consumer services company in Russia andthe CIS, with over 50 million customers. Sistema develops and managesmarket-leading businesses in selected service-based industries, includingtelecommunications, technology, insurance, banking, real estate, retail andmedia. Founded in 1993, the company reported revenues of US$ 4.6 billion for thefirst half of 2006, and total assets of US$ 17.3 billion as at June 30, 2006.Sistema•s shares are listed under the symbol •SSA• on the London Stock Exchange,under the symbol •AFKS• on the Russian Trading System (RTS), and under thesymbol •SIST• on the Moscow Stock Exchange (MSE). Some of the information in this press release may contain projections or otherforward-looking statements regarding future events or the future financialperformance of Sistema. You can identify forward looking statements by termssuch as •expect,• •believe,• •anticipate,• •estimate,• •intend,• •will,••could,• •may• or •might• the negative of such terms or other similarexpressions. We wish to caution you that these statements are only predictionsand that actual events or results may differ materially. We do not intend toupdate these statements to reflect events and circumstances occurring after thedate hereof or to reflect the occurrence of unanticipated events. Many factorscould cause the actual results to differ materially from those contained in ourprojections or forward-looking statements, including, among others, generaleconomic conditions, our competitive environment, risks associated withoperating in Russia, rapid technological and market change in our industries, aswell as many other risks specifically related to Sistema and its operations. SISTEMA JSFC AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME(AMOUNTS IN THOUSANDS OF U.S. DOLLARS) \* T June 30, June 30, 2006 2005 ------------- ------------ Sales $ 4,262,297 $ 3,144,208Revenues from financial services 335,662 215,842 ------------- ------------TOTAL REVENUES 4,597,959 3,360,050 ------------- ------------ Cost of sales, exclusive of depreciation and amortization shown separately below (1,865,658) (1,217,934)Financial services related costs, exclusive of depreciation and amortization shown separately below (232,387) (166,238) ------------- ------------TOTAL COST OF SALES (2,098,045) (1,384,172) ------------- ------------ Selling, general and administrative expenses (924,914) (574,392)Depreciation and amortization (614,479) (480,590)Other operating expenses, net (87,375) (13,531)Equity in net income of investees 43,838 34,356Net gain/(loss) on disposal of interests in subsidiaries and affiliates 121,600 (452) ------------- ------------OPERATING INCOME 1,038,584 941,269 ------------- ------------ Interest income 30,381 35,712Interest expense, net of amounts capitalized (165,511) (122,491)Currency exchange and translation loss (788) (12,157) ------------- ------------Income before income tax, equity in net income of energy companies in the Republic of Bashkortostan and minority interests 902,666 842,333 ------------- ------------ Income tax expense (335,954) (260,626)Equity in net income of energy companies in the Republic of Bashkortostan, net of income tax effect of $27,618 87,461 - ------------- ------------Income before minority interests 654,173 581,707 ------------- ------------ Minority interests (344,095) (354,052) ------------- ------------NET INCOME $ 310,078 $ 227,655 ============= ============ Other comprehensive income/(loss):Unrealized gain on securities available for sale, net of income tax effect of $163 and nil, respectively 585 307Change in fair value of interest rate swaps, net of income taxeffect of $360 and $245, respectively 1,520 (776)Translation adjustment, net of minority interest of $36,157 and $4,530, respectively, and income tax effect of nil 50,576 (11,798) ------------- ------------Comprehensive income $ 362,759 $ 215,388 ------------- ------------ Weighted average number of common shares outstanding 481,342,813 464,944,750 Earnings per share, basic and diluted $ 0.64 $ 0.49\* T SISTEMA JSFC AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AMOUNTS) \* T June 30, December 31, 2006 2005 ------------- ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 1,214,368 $ 482,647 Short-term investments 952,738 594,196 Loans to customers and banks, net 1,015,999 451,395 Insurance-related receivables 220,606 149,589 Accounts receivable, net 996,618 442,643 Other receivables and prepaid expenses, net 713,938 578,152 VAT receivable 398,830 495,191 Inventories 688,610 482,909 Deferred tax assets, current portion 162,267 123,681 ------------- ------------ Total current assets 6,363,974 3,800,403 ------------- ------------ PROPERTY, PLANT AND EQUIPMENT, NET 6,789,681 5,876,124Advance payments for non-current assets 319,885 233,761Investments in affiliates 1,047,057 914,203Other investments 150,000 150,000Goodwill 530,032 330,932Licenses, net 518,651 615,042Other intangible assets, net 954,352 886,272Loans to customers and banks, net of current portion 221,974 117,107Debt issuance costs, net 83,547 82,662Deferred tax assets, net of current portion 73,019 33,472Other non-current assets 240,559 50,872 ------------- ------------TOTAL ASSETS $ 17,292,731 $ 13,090,850 ============= ============\* T SISTEMA JSFC AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AMOUNTS) \* T June 30, December 31, 2006 2005 ------------- ------------ LIABILITIES AND SHAREHOLDERS• EQUITY CURRENT LIABILITIES: Accounts payable $ 828,412 $ 594,816 Bank deposits and notes issued 573,425 496,829 Insurance-related liabilities 606,079 412,328 Taxes payable 186,628 125,474 Deferred tax liabilities, current portion 48,475 28,149 Subscriber prepayments, current portion 497,937 472,673 Accrued expenses and other current liabilities 1,143,844 520,671 Short-term notes payable 314,925 637,769 Current portion of long-term debt 536,091 520,310 ------------- ------------ Total current liabilities 4,735,816 3,809,019 ------------- ------------ LONG-TERM LIABILITIES: Capital lease obligations 8,384 6,682 Long-term debt 4,837,823 3,202,629 Subscriber prepayments, net of current portion 161,424 163,897 Deferred tax liabilities 298,798 237,916 Postretirement benefit obligation 13,625 16,217 ------------- ------------ Total long-term liabilities 5,320,054 3,627,341 ------------- ------------ Deferred revenue 133,691 125,700 ------------- ------------TOTAL LIABILITIES 10,189,561 7,562,060 ------------- ------------ Minority interests in equity of subsidiaries 3,160,813 2,295,147 Commitments and contingencies - - SHAREHOLDERS• EQUITY: Share capital (482,500,000 and 9,650,000 shares issued as of June 30, 2006 and December 31, 2005, respectively, with par value of 1.8 ruble and 90 rubles, respectively) 30,057 30,057 Treasury stock (2,228,200 shares with par value of 1.8 ruble as of June 30, 2006) (50,892) - Additional paid-in capital 1,886,568 1,479,743 Retained earnings 1,996,376 1,696,276 Accumulated other comprehensive income 80,248 27,567 ------------- ------------TOTAL SHAREHOLDERS• EQUITY 3,942,357 3,233,643 ------------- ------------TOTAL LIABILITIES AND SHAREHOLDERS• EQUITY $ 17,292,731 $ 13,090,850 ============= ============\* T SISTEMA JSFC AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(AMOUNTS IN THOUSANDS OF U.S. DOLLARS) \* T June 30, June 30, 2006 2005 ------------- ------------ OPERATING ACTIVITIES: Net income $ 310,078 $ 227,655 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 614,479 480,590 Loss on disposal of property, plant and equipment 1,516 15 Gain on disposal of interests in subsidiaries (121,600) - Non-cash compensation to employees 90,778 - Minority interests 344,095 354,052 Equity in net income of investees (131,299) (34,356) Deferred income tax benefit (65,238) (41,873) Provision for doubtful accounts receivable 59,923 30,704 Allowance for loan losses 14,669 (444) Inventory obsolescence charge 6,361 1,752 Changes in operating assets and liabilities, net of effects from purchase of businesses: Trading securities (87,350) (353,315) Loans to banks (356,816) (89,839) Insurance-related receivables (62,295) (54,228) Accounts receivable (253,447) (106,221) VAT receivable 97,555 (37,490) Other receivables and prepaid expenses (111,106) (146,327) Inventories (69,847) (37,483) Accounts payable 110,640 132,664 Insurance-related liabilities 180,405 167,152 Subs£riber prepayments 22,791 37,916 Taxes payable 50,472 53,310 Accrued expenses and other liabilities 35,638 (269) Postretirement benefit obligation (2,592) 801 ------------- ------------ Net cash provided by operations 677,810 584,766 ------------- ------------ INVESTING ACTIVITIES: Purchases of property, plant and equipment (878,984) (836,849) Purchases of intangible assets (120,667) (136,276) Purchases of businesses, net of cash acquired (394,880) (55,405) Purchases of long-term investments (1,679) (64,304) Purchases of other non-current assets (60,878) (3,804) Purchases of short-term investments (410,336) (687,515) Proceeds from sale of short-term investments 124,910 54,909 Proceeds from sale of property, plant and equipment 2,281 2,500 Proceeds from disposal of interests in subsidiaries and affiliates 65,387 - Net increase in loans to customers (303,966) (40,094) ------------- ------------ Net cash used in investing activities (1,978,812) (1,766,838) ------------- ------------\* T SISTEMA JSFC AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(AMOUNTS IN THOUSANDS OF U.S. DOLLARS) \* T June 30, June 30, 2006 2005 FINANCING ACTIVITIES: Principal payments on short-term borrowings, net (451,171) (143,966) Net increase/(decrease) in deposits from customers 40,125 (16,257) Net increase in bank promissory notes issued 36,471 2,709 Proceeds from capital transactions of subsidiaries 979,343 - Purchase of treasury stock (50,892) - Proceeds from long-term borrowings, net of debt issuance costs 1,703,194 878,724 Principal payments on long-term borrowings (222,737) (236,494) Principal payments on capital lease obligations (1,610) (5,017) Proceeds from issuance of common stock - 1,284,649 ------------- ------------- Net cash provided by financing activities $ 2,032,723 $ 1,764,348 ------------- ------------- INCREASE IN CASH AND CASH EQUIVALENTS $ 731,721 $ 582,276 CASH AND CASH EQUIVALENTS, beginning of the period 482,647 503,747 ------------- ------------- CASH AND CASH EQUIVALENTS, end of the period $ 1,214,368 $ 1,086,023 ============= ============= CASH PAID DURING THE PERIOD FOR: Interest, net of amounts capitalized $ (165,335) $ (96,286) Income taxes (317,911) (274,969) NON-CASH INVESTING AND FINANCING ACTIVITIES: Property, plant and equipment contributed free of charge $ - $ 3,322 Equipment acquired through vendor financing 2,000 2,533 Equipment acquired under capital leases 5,214 2,568\* T SISTEMA JSFC AND SUBSIDIARIESSEGMENT NOTE(Amounts in thousands of U.S. dollars) \* TFor the six months ended Telecommu- Tech- Mass Real Corporate June 30, 2006 nications nology Insurance Banking Media Estate Retail and Other Total------------------------- ----------- ---------- --------- ---------- -------- -------- -------- ----------- ----------- Net sales to external customers (a) 3,292,847 547,520 262,542 73,120 33,397 102,765 117,903 167,865 4,597,959Intersegment sales 4,505 149,084 18,256 14,708 12,181 3,771 19 26,631 229,155Income from equity investees 43,686 16 176 - - - - 87,421 131,299Interest income 29,766 3,828 378 - 97 841 771 10,119 45,800Interest expense (100,807) (16,382) - - (1,422) (2,599) (3,104) (50,538) (174,852)Net interest revenue (b) - - 32,286 13,181 - - - - 45,467Depreciation and amortization (597,063) (18,192) (1,947) (1,130) (7,099) (1,735) (891) (7,218) (635,275)Operating income/(loss) 954,008 62,405 34,752 8,620 2,823 42,692 (8,321) 37,792 1,134,771Income tax expense (279,658) (13,515) (9,397) (4,894) (1,728) (5,294) 274 (29,391) (343,603)Income/(loss) before minority interests 628,216 37,064 17,555 3,726 (239) 30,662 (9,654) 72,518 779,848Investments in affiliates 258,019 - - 17,749 5,100 - - 766,189 1,047,057Segment assets 11,742,137 1,580,357 803,432 1,904,791 303,460 393,009 164,693 2,701,704 19,593,583Indebtedness (c) (3,417,379) (519,737) (1,523) (350,938) (30,956) (42,017) (55,089) (1,286,861) (5,704,500)Capital expenditures 881,182 41,266 4,670 3,354 20,642 42,540 8,953 4,258 1,006,865 (a) • Interest income and expenses of the Insurance and Banking segments are presented as revenues from financial services in the Group•s consolidated financial statements.(b) • The Banking segment derives a majority of its revenue from interest. In addition, management primarily relies on net interest revenue, not the gross revenue and expense amounts, in managing that segment. Therefore, only the net amount is disclosed.(c) • Represents the sum of short-term and long-term debt, including vendor financing, and capital lease obligations\* T \* TFor the six months ended Telecommu- Tech- Mass Real Corporate June 30, 2005 nications nology Insurance Banking Media Estate Retail and Other Total--------------------------- ----------- -------- --------- ---------- -------- -------- --------- ---------- ----------- Net sales to external customers(a) 2,652,866 265,612 182,800 33,048 71,344 32,647 45,143 76,590 3,360,050Intersegment sales 27,160 160,929 15,069 12,770 22,196 1,082 19 3,517 242,742Income from equity affiliates 31,493 - 307 - 384 - - 2,172 34,356Interest income 18,339 248 - - 30 338 5 21,753 40,713Interest expense (81,650) (5,177) - - (740) (2,793) (507) (43,716) (134,583)Net interest revenue(b) - - - 4,146 - - - - 4,146Depreciation and amortization (462,515) (5,462) (1,871) (1,005) (3,436) (732) (819) (4,750) (480,590)Operating income/(loss) 920,523 109,942 13,640 3,141 463 3,215 3,811 (11,429) 1,043,306Income tax expense (222,354) (19,211) (6,435) (1,939) (1,442) (1,164) (892) (7,189) (260,626)Income/(loss)before minority interests, extraordinary gain and cumulative effect of a change in accounting principle 633,935 85,243 6,060 1,202 (1,536) 3,452 2,169 (48,282) 682,243Investments in affiliated companies 203,213 - - 16,518 808 103 - 44,179 264,821Segment assets 8,414,326 426,080 633,771 1,122,469 106,339 239,624 66,531 1,884,048 12,893,188Indebtedness (c) (2,552,221) (27,023) (517) (150,000) (26,596) (33,375) (183,866) (588,297) (3,561,895)Capital expenditures 880,712 15,469 4,575 2,145 5,982 16,093 703 55,869 981,548 (a) • Interest income and expenses of the Insurance and Banking segments are presented as revenues from financial services in the Group•s consolidated financial statements.(b) • The Banking segment derives a majority of its revenue from interest. In addition, management primarily relies on net interest revenue, not the gross revenue and expense amounts, in managing that segment. Therefore, only the net amount is disclosed.(c) • Represents the sum of short-term and long-term debt, including vendor financing, and capital lease obligations\* T Attachment A Non-GAAP financial measures. This press release includes financial informationprepared in accordance with accounting principles generally accepted in theUnited States of America, or US GAAP, as well as other financial measuresreferred to as non-GAAP. The non-GAAP financial measures should be considered inaddition to, but not as a substitute for, the information prepared in accordancewith US GAAP. Operating Income Before Depreciation and Amortization (OIBDA) and OIBDA margin.OIBDA represents operating income before depreciation and amortization. OIBDAmargin is defined as OIBDA as a percentage of our net revenues. Our OIBDA maynot be similar to OIBDA measures of other companies; is not a measurement underaccounting principles generally accepted in the United States and should beconsidered in addition to, but not as a substitute for, the informationcontained in our consolidated statement of operations. We believe that OIBDAprovides useful information to investors because it is an indicator of thestrength and performance of our ongoing business operations, including ourability to fund discretionary spending such as capital expenditures,acquisitions of mobile operators and other investments and our ability to incurand service debt. While depreciation and amortization are considered operatingcosts under generally accepted accounting principles, these expenses primarilyrepresent the non-cash current period allocation of costs associated withlong-lived assets acquired or constructed in prior periods. Our OIBDAcalculation is commonly used as one of the bases for investors, analysts andcredit rating agencies to evaluate and compare the periodic and future operatingperformance and value of companies within the wireless telecommunicationsindustry. OIBDA can be reconciled to our consolidated statements of operationsas follows: \* T June 30, June 30, 2006 2005---------------------------------------------------- ------------------ ------------------ Operating Income Before Depreciation and Amortization 1,038.6 941.3 ---------------------------------------------------- ------------------ ------------------ Depreciation and Amortization 614.5 480.6 ---------------------------------------------------- ------------------ ------------------ OIBDA 1,653.1 1,421.9\* T (1) OIBDA is defined as operating income before depreciation and amortization.See Attachment A for this statement for the whole definition of OIBDA and areconciliation of OIBDA to operating income. (2) Here and further, in the comparison of period to period results ofoperations, in order to analyze changes, developments and trends in revenues byreference to individual segment revenues, revenues are presented on anaggregated basis, which is revenues after elimination of intra-segment (betweenentities in the same segment) transactions, but before inter-segment (betweenentities in different segments) eliminations, unless accompanied by the word•consolidated•. Amounts attributable to individual companies, where appropriate,are shown prior to both intra-segment and inter-segment eliminations. (3) Here and further, in the comparison of period-to-period results, ComstarUTS•s results include the results of MGTS. Copyright Business Wire 2006