MOSCOW -- 11/08/07 --
Golden Telecom, Inc. (NASDAQ: GLDN)
3Q07 versus 3Q06:
53% year-on-year revenue growth
25% increase in operating income
38% increase in operating income (excluding cost of equity based
compensation (1))
207% increase in net income
211% increase in net income (excluding cost of equity based compensation
(1))
3Q07 versus 2Q07:
18% increase in revenues
6% decrease in operating income
6% increase in operating income (excluding cost of equity based
compensation (1))
130% increase in net income
142% increase in net income (excluding cost of equity based compensation
(1))
Key corporate events:
-- First quarter with full consolidation of Corbina Telecom results
-- Doubling the speed of our fiber-optic networks deployment ("Triple 65
Project")
-- with construction works commenced in 24 cities
-- 394,900 residential broadband subscribers of which 254,900 added in
the first
-- ten months of the year, capturing 50% of incremental subscribers in
Moscow
-- Ongoing deployment of zonal networks in Russia. We are the largest
zonal operator in Russia with networks in 21 regions
Golden Telecom, Inc. ("Golden Telecom" or the "Company") (NASDAQ: GLDN), a
leading facilities-based provider of integrated telecommunications and
Internet services in major population centers throughout Russia and other
countries of the Commonwealth of Independent States ("CIS"), today
announced its financial and operating results for the third quarter of
2007.
Commenting on today's announcement, Jean-Pierre Vandromme, Chief Executive
Officer of Golden Telecom, said, "In the third quarter of 2007, Golden
Telecom continued to demonstrate excellent financial performance. Our
revenues grew 53% year-on-year, with net income up 207% when compared to
the third quarter of 2006. Major corporate developments of this quarter
include the following:
-- We significantly sped up deployment of the metropolitan fiber-optic
networks as part of our "Triple 65 project" announced previously. We
increased our targets and started construction works in 24 cities. To put
this progress into perspective, according to some estimates, by 2010 the 25
countries of the EU together with Iceland, Norway and Switzerland will have
less than 10 million households passed by FTTx technology, while Golden
Telecom's Fiber To The Building ("FTTB") networks in Russia will connect at
least 15.6 million households;
-- Overall, in the first ten months of 2007 we added more than 254,900
residential broadband customers. We estimate that more than 50% of all new
broadband customers in Moscow joined our networks. Throughout Russia we
have 394,900 broadband subscribers with the average blended ARPU at
approximately $17, net of VAT;
-- The overall uptake of our broadband services by residential customers
is 9% on average. In buildings that are operational for more than two
years, the take up rate is 28%, which demonstrates the strength of our
product offering based on superior technology compared to the incumbents;
-- We continue deployment of our zonal networks in Russia. We are the
largest zonal operator with presence in 21 regions, home to more than 50
million people, where almost 55% of the total Russian long-distance traffic
is originated or terminated. Deployment of zonal networks results in
significant cost of revenues reduction;
-- During the third quarter of 2007, 1.8 billion of billable long-
distance minutes passed though our network. We estimate that our market
share of the long-distance traffic in Russia has reached 25%, well above
our 2010 target of 20%.
We have made a substantial progress towards our goal of making Golden
Telecom the leading fixed-line communication operator in Russia and the
CIS."
FINANCIAL OVERVIEW
Financial performance
The table below illustrates the consolidated results for the third quarter
of 2007 compared to previous periods.
(In Millions, Except Per Share Data)
3Q07 3Q06 y-o-y 2Q07 q-o-q
------- ------- ------- ------- -------
Consolidated revenues $ 350.4 $ 228.7 +53% $ 297.7 +18%
EBITDA2 $ 85.1 $ 63.1 +35% $ 81.2 +5%
EBITDA Margin 24% 28% - 27% -
EBITDA (without cost of EBC) $ 93.0 $ 65.4 +42% $ 83.3 +12%
EBITDA Margin (without cost of
EBC) 27% 29% - 28% -
Operating income $ 45.9 $ 36.7 +25% $ 48.8 -6%
Operating margin 13% 16% - 16% -
Operating income (without cost
of EBC) $ 53.8 $ 39.0 +38% $ 50.9 +6%
Operating margin (without cost
of EBC) 15% 17% - 17% -
Net income $ 74.4 $ 24.2 +207% $ 32.3 +130%
Net income per share - basic $ 1.85 $ 0.66 +180% $ 0.85 +118%
Net income (without cost of
EBC) $ 81.9 $ 26.3 +211% $ 33.8 +142%
Net income per share - basic
(without cost of EBC) $ 2.04 $ 0.72 +183% $ 0.89 +129%
------- ------- ------- ------- -------
Remarking on the third quarter 2007 results, Boris Svetlichny, Chief
Financial Officer, noted:
-- "The full consolidation of Corbina Telecom improved our financial
performance in the third quarter. Corbina demonstrated solid growth rates
contributing approximately $30 million to our consolidated revenues. We
continue to work on the improvement of accounting, reporting and risk
management practices at Corbina Telecom bringing it in line with the
standards of Golden Telecom;
-- Our quarterly operating results were influenced by approximately $3.5
million in consulting and professional fees incurred during the third
quarter. The Company does not expect consulting and professional fees at
this level beyond 2007. The quarterly operating loss in our Consumer
Internet line of business increased by $1.1 million compared to the
previous quarter due to accelerated build-out of our FTTB networks;
-- In July 2007, Golden Telecom divested its minority stake in MCT, a
company operating mobile networks in Uzbekistan, Tajikistan and
Afghanistan. Without operational control over MCT, Golden Telecom was not
in a position to align business development strategies of the companies.
Golden Telecom's approximately 23% stake in MCT was sold to TeliaSonera for
a cash consideration of up to $48 million. Golden Telecom's investment in
MCT had a carrying value of zero and consequently the full $41.3 million
consideration received so far is reflected in our third quarter results;
-- We also received $20.4 million in cash from Rostelecom which exercised
its non dilution rights under the existing shareholders agreement and
acquired 392,988 newly issued, but unregistered shares of Golden Telecom's
common stock. The transaction closed on July 17, 2007;
-- These two transactions added more than $61 million of cash and helped
us to finance our ongoing projects, including the "Triple-65 project,"
while maintaining a low debt level, with a Debt to Equity ratio of 0.21."
Operational results per line of business
The following table presents our consolidated segment information for our
various lines of business.
(In Millions)
Revenues: 3Q07 3Q06 y-o-y 2Q07 q-o-q
------- ------- ------- ------- -------
Business and Corporate $ 190.9 $ 129.5 +47% $ 167.2 +14%
Carrier and Operator 129.2 85.5 +51% 113.3 +14%
Consumer Internet 22.8 11.3 +102% 13.5 +69%
Mobile 7.5 2.4 +213% 3.7 +103%
------- ------- ------- ------- -------
Total consolidated revenue $ 350.4 $ 228.7 +53% $ 297.7 +18%
======= ======= ======= ======= =======
Operating Income:
Business and Corporate $ 51.9 $ 35.5 +46% $ 47.5 +9%
Carrier and Operator 12.2 8.9 +37% 12.1 +1%
Consumer Internet (5.6) (2.7) -107% (4.5) -24%
Mobile (0.7) 0.2 -450% (0.3) -133%
Corporate and Eliminations (11.9) (5.2) -129% (6.0) -98%
------- ------- ------- ------- -------
Total consolidated operating
income $ 45.9 $ 36.7 +25% $ 48.8 -6%
======= ======= ======= ======= =======
The third quarter operating loss in the item "Corporate and Eliminations"
reflects higher cost of equity based compensation. In the third quarter of
2007 equity based compensation expense amounted to $7.9 million compared to
$2.1 million in the second quarter of 2007 or $2.3 million in the third
quarter of 2006.
Business and Corporate Services
In Business and Corporate Services ("BCS"), the Company's largest line of
business, revenues, inclusive of Corbina's, increased by $61.4 million to
$190.9 million in the third quarter of 2007 over the same period last year
and increased by $23.7 million over the second quarter of 2007.
Operating income in BCS increased by $16.4 million from $35.5 million in
the third quarter 2006 to $51.9 million in the third quarter 2007, and
increased by 9% from the second quarter 2007 to the third quarter of 2007.
During the third quarter Golden Telecom introduced the national "800" free
phone numbers to its corporate client base and quickly established a 15%
market share in Russia only after a couple of weeks.
Golden Telecom continued its dominance in the high-end corporate and luxury
hotel segment of the telecommunication market in Moscow with the addition
of the Ritz Carlton hotel which opened in July 2007.
Carrier and Operator Services
In the Carrier and Operator Services ("COS") line of business, the third
quarter revenues increased by $43.7 million over the same period last year
to $129.2 million. When compared to the second quarter of 2007, revenue
improved by 14% from $113.3 million.
We estimate the total size of the long-distance market in Russia in 2007 at
approximately 29 billion billable minutes. In the third quarter of 2007,
more than 1.8 billion minutes of long-distance traffic passed through our
networks, which represents a market share of approximately 25%.
COS operating income in the third quarter of 2007 was $12.2 million, which
is $3.3 million more than in the third quarter of 2006 and slightly higher
than reported in the second quarter of 2007.
Consumer Internet
In line with our strategy, we continue to develop our retail broadband
offering. Presently the Company's broadband customer base includes 394,900
subscribers of which more than 254,900 signed up during the first ten
months of 2007. Our policy is to recognize a broadband subscriber only if
the subscriber paid for our services in the last three months. The
following table summarizes these results:
Pro-Forma with Corbina
Golden Telecom Telecom
-------------------------- --------------------------
Dec Dec Dec Dec
Broadband access 2005 2006 Presently 2005 2006 Presently
======= ======= ========== ======= ======= ==========
FTTB - - 286,200 25,000 113,100 286,200
Wireless (WiFi) - - 51,900 - - 51,900
xDSL 14,600 26,900 56,800 14,600 26,900 56,800
------- ------- ---------- ------- ------- ----------
TOTAL SUBSCRIBERS 14,600 26,900 394,900 39,600 140,000 394,900
======= ======= ========== ======= ======= ==========
Golden Telecom signed a number of co-marketing agreements with major global
corporations such as McDonalds and Starbucks to provide Golden WiFi
internet access in their retail locations.
We continue to provide dial-up internet access in the areas where broadband
is not available yet. The number of dial-up customers has decreased
significantly from 393,260 reported a year ago to approximately 233,983.
The Company expects that most of its dial-up customers will continue to
migrate to broadband.
In the third quarter revenues from this line of business, inclusive of
Corbina, increased by $11.5 million over the same period last year. When
compared to the second quarter of 2007, revenue improved by 69% from $13.5
million to $22.8 million. The total operating loss in the third quarter of
2007 increased by $1.1 million compared to the previous quarter due to
accelerated build-out of our FTTB networks.
Mobile
During the third quarter of 2007, revenues were $7.5 million and the
operating loss was $0.7 million. Corbina plans to switch all of its DAMPS
clients to GSM before the end of November 2007. For provision of services
to its customers, Corbina will be using the network of Vimpelcom. As a
result, the revenue recognition for the mobile services in Corbina is
changing as we only recognize as our revenues the commission we receive
from Vimpelcom and not the amount customers pay for the service.
The table below summarizes the mobile customer statistics:
Pro-Forma with Corbina
Golden Telecom Telecom
------------------------ ------------------------
Dec Dec Dec Dec
Mobile access 2005 2006 Presently 2005 2006 Presently
====== ====== ========== ====== ====== ==========
Corbina (DAMPS) - - 16,394 33,640 29,619 16,394
Corbina (GSM) - - 15,779 - - 15,779
Golden Telecom Ukraine
(GSM) 47,502 48,488 42,512 47,502 48,488 42,512
------ ------ ---------- ------ ------ ----------
TOTAL SUBSCRIBERS 47,502 48,488 74,685 81,142 78,107 74,685
====== ====== ========== ====== ====== ==========
Consolidated revenue by geographic regions
We estimate that the fixed-line segment of the Russian telecom market will
grow at 26% annually between 2006 and 2010 reaching $25 billion in nominal
terms by 2010. The growth of the regional markets, estimated at 25-35%,
will outpace Moscow where the market grows at 10-15% annually.
In the third quarter of 2007, our revenues in Moscow grew by 66% compared
to the same period last year. In St. Petersburg and the Northwest region of
Russia it grew by 52% year-on-year. Our market share here increased to 15%
from 11% reported a year ago. In other regions of Russia and the CIS our
revenues grew by 26%. In the third quarter of 2007, 33% of total revenues
came from outside of Moscow compared to 38% a year ago. The results are
summarized below:
(In Millions)
Revenue 3Q07 3Q06 y-o-y 2Q07 q-o-q
------- ------- ------- ------- -------
Moscow $ 235.5 $ 142.2 +66% $ 191.8 +23%
Regions 114.9 86.5 +33% 105.9 +8%
Northwest region of Russia 29.0 19.1 +52% 26.8 +8%
Ukraine 28.1 21.5 +31% 25.2 +12%
Other regions of Russia and
CIS 57.8 45.9 +26% 53.9 +7%
------- ------- ------- ------- -------
TOTAL REVENUE $ 350.4 $ 228.7 +53% $ 297.7 +18%
======= ======= ======= ======= =======
Moscow 67% 62% - 64% -
Regions 33% 38% - 36% -
------- ------- ------- ------- -------
TOTAL REVENUE $ 350.4 $ 228.7 +53% $ 297.7 +18%
======= ======= ======= ======= =======
GOLDEN TELECOM'S BUSINESS OVERVIEW
Golden Telecom's strategy
In late 2005, Golden Telecom embarked on a new strategy to transform the
Company from a B2B niche player into the leading communication services
provider in Russia and the CIS. Our strategy is focused on:
1. Deepening and widening of our corporate customer base in Moscow and St.
Petersburg;
2. Acceleration of our regional expansion to become a national market
player;
3. Becoming a leading provider of broadband access in Russia and the CIS.
The results of the first nine months of 2007 clearly indicate that Golden
Telecom is exceeding expectations in implementing its strategy across all
market segments.
Business market segment in Moscow and St. Petersburg
The top-end of the corporate market in Moscow and St. Petersburg was
identified as the key segment for Golden Telecom a number of years ago. The
solutions created and offered to large corporate clients, including major
multinational corporations and Russian businesses trading with foreign
partners, helped the Company to create a solid foundation which included
up-to-date fiber networks, skilled technicians and a savvy sales force as
well as product capabilities and a reputation for excellent levels of
services.
As a result, in Moscow in the large corporate business segment (with
monthly ARPU of $2,000 and higher) we enjoy a high level of customer
loyalty with a low churn level and an estimated market share in this
segment at 43%, up from 34% reported a year ago. In St. Petersburg our
market share in this segment increased to 24% from 18% a year ago.
The acquisition of Corbina considerably increased our presence in the small
and medium segment of the corporate market in Moscow, increasing our market
share in this segment from 15% to 18%. We will continue to maintain two
distinctive approaches to corporate customers, focusing on innovation,
quality and customer service in the large corporate segment; and promoting
price and efficiency in the small and medium enterprises ("SME") segment.
Our business in Moscow also benefits greatly from ongoing regional
expansion of our clients who continue to invest in operations outside of
Moscow. In helping our customers to establish and expand their presence in
the regions we not only deepen our client relationships but also capture
incremental demand for communication services in Moscow where our revenues
grew at 66% when compared to the third quarter of 2006.
Regional expansion of B2C businesses in Russia and the CIS
Russia has experienced unprecedented economic growth in recent years. We
estimate that between 2001 and 2007 the economy has been growing at
approximately 26% annually if measured in nominal US dollar terms. We are
of the opinion that going forward the growth rates will decline slightly to
approximately 20% per annum mainly as a result of lower inflation.
In recent years the bulk of growth in Russia came from the domestic market
driven by increasing disposable income and unsatisfied demand for goods and
services in the regions of Russia. Most of our clients who run successful
businesses in the B2C segment are expanding outside of Moscow establishing
retail shops and outlets, bank branches, hotels, restaurants and other
retail franchises.
Our experience shows that the pattern of regional expansion for B2C
business in Russia is as follows:
1. Going from Moscow into the Top-10 cities identified by size of the
population or proximity to Moscow;
2. Expansion from the Top-10 cities to the Top-50 driven by the local
demand and logistics;
3. Further expansion into smaller cities and towns.
Most of our key clients are only approaching the end of the first stage. We
cooperate closely helping them to grow quickly and efficiently by providing
the same level of communication services as we do in Moscow.
The infrastructure we deploy and operate in the Russian regions and
throughout the CIS is technologically superior to the existing telecom
lines operated by the incumbents. Our set of licenses, including the
long-distance license, allows us to offer different products and services
including corporate data networks, local and
long-distance voice services, internet, data and call centers. Our ability
to offer the whole range of services to all types of clients throughout the
country is one of our definitive competitive advantages.
Golden Telecom, together with Corbina, has a technical presence in 314
locations of which 159 are in Russia, 148 in the CIS and 7 in other
countries. Presently, Golden Telecom provides commercial services in more
than 80 cities including 18 out of the 20 largest Russian cities, which
represent approximately half of the total fixed-line telecom market in the
country. In 14 of these cities the Company has a market share of 10% or
higher. We estimate that our combined market share in the Top-20 cities in
Russia is approximately 17-18%. The size and quality of our nation-wide
network represent a significant barrier to entry for newcomers to the
Russian telecom market.
During the third quarter of 2007, 33% year-on-year growth of the Company's
revenues from markets outside of Moscow demonstrated the effectiveness of
our business development strategy. We believe that ongoing expansion of B2C
businesses in Russia will continue for the next 4-5 years, thus giving us a
unique growth opportunity.
Implementation of the broadband strategy
In order to meet the growing demand for broadband, Golden Telecom will
construct FTTB networks in the Top-65 cities of Russia and Ukraine with a
combined population of 65 million people of which an estimated 65% live in
high rise apartment blocks. The acquisition of Corbina Telecom was a
pivotal step in our broadband strategy. Corbina Telecom pioneered the
construction of large scale metropolitan FTTB networks.
Golden Telecom together with Corbina Telecom started the deployment of
fiber in 24 cities of Russia. Normally, the commercial operations start 3
months after deployment of the network. This is a significant increase from
the initial business plan which foresaw fiber deployment in only 12 cities
by the year end. Such an increase in deployment pace is a result of the
following factors:
-- Corbina's access to Golden Telecom's resources including networks,
technical and management expertise and funding;
-- Faster than expected licensing process. For the whole project we
estimate that we require permissions for approximately 16,000 individual
construction projects. We have already secured permissions for all cities
where fiber deployment is scheduled for 2008. Once the permission is
obtained, the construction works are usually completed within six months;
-- Significant acceleration of construction works by local branches of
Golden Telecom fueled by the example of Corbina.
Golden Telecom also provides broadband access to residential customers in
the fast growing Moscow broadband market using wireless WiFi technology.
The GoldenWiFi network consists of more than 12,700 indoor and outdoor WiFi
nodes. Golden WiFi won the Global Telecoms 2007 Innovation award in
September gaining global recognition for its service.
The status of the broadband strategy execution is presented below:
Moscow Outside of Moscow Total
-------------------------- ----------------------- ---------
Network
characterist-
ics FTTB WiFi xDSL FTTB WiFi xDSL
========= ========= ====== ========= ===== ======= =========
Buildings/WiFi
nodes 15,694 12,565 415 10,682 163 3,111 -
Households
passed 2,142,105 753,900 - 1,250,025 - - 4,146,030
Broadband
subscribers 241,394 47,817 13,275 44,656 4,158 43,600 394,900
--------- --------- ------ --------- ----- ------- ---------
Note: Presently, WiFi outside of Moscow (St. Petersburg mainly) is
installed only in 'indoor' areas.
As a result, our broadband market share in Moscow grew to 16% from 3%
reported a year ago. We estimate that Golden Telecom has approximately 8%
of the total broadband market in Russia.
The Company launched IPTV service in trial mode using the infrastructure of
Corbina. The IPTV technology is based on a Microsoft platform and allows
greater flexibility and interactivity enabling Video-on-Demand ("VoD"),
Pay-per-View and other value added services.
OUTLOOK FOR 2007 AND BEYOND
Our revenues are expected to grow in percentage terms in the high-40s. The
EBITDA growth (without equity based compensation expense), is expected at
around 40%. We expect our revenues to grow in percentage terms in the
mid-30s during 2008 over those achieved for 2007. The growth in our EBITDA
in 2008 over 2007, without equity based compensation expense, is expected
to be in the mid 40s in percentage terms.
We reiterate our guidance on CAPEX planning to spend approximately 20% of
our revenues annually in the next three years.
Additional financial information regarding Golden Telecom, including
non-GAAP to GAAP reconciliation, is contained in Attachments A through E.
EARNINGS CONFERENCE CALL
The Company's management will discuss its third quarter 2007 results during
a conference call on November 8, 2007 at 4:00 pm Moscow time (8:00 am U.S.
Eastern Time Zone). For U.S. Callers, please call +1 (866) 238-1645, for
International callers; please call +1 (703) 639-1163. No access code is
needed to call-in for the conference call. Additionally, the call may be
accessed via a live webcast at the following URL address
http://www.goldentelecom.com/webcast_en. The slide presentation may be
accessed via webcast at the following URL:
http://www.visualwebcaster.com/event.asp?id=43777.
The conference call replay will be available at (800) 475-6701 for US
Callers and +1 (320) 365-3844 for International Callers, and the access
code for both U.S. and International callers is 893142. The conference
call replay will be available from November 8, 2007 at 4:45 pm through
November 15, 11:59 pm (U.S. Eastern Time Zone).
About Golden Telecom (www.goldentelecom.com)
Golden Telecom, Inc., (NASDAQ: GLDN) is a leading facilities-based provider
of integrated telecommunications and Internet services in major population
centers throughout Russia and other countries of the CIS. The Company
offers voice, data and Internet services to corporations, operators and
consumers using its metropolitan overlay network in major cities including
Moscow, Kiev, St. Petersburg, Nizhny Novgorod, Samara, Kaliningrad,
Krasnoyarsk, Almaty, and Tashkent, and via leased channels and intercity
fiber-optic and satellite-based networks, including approximately 314
combined access points in Russia and other countries of the CIS.
Forward-looking statements
Statements made in this press release are forward looking and are made
pursuant to the safe harbor provisions of the Securities Litigation Reform
Act of 1995. Such statements include those on our broadband strategy
including fiber and FTTB rollouts and the expected number of customers,
future costs for consulting services, our future service offerings, the
expected reach of our networks, our acquisition and regional expansion
strategies, macroeconomic factors in the markets in which we operate
including market size, financial forecasts, including expected revenue
growth, expected capital expenditures, and market share estimates, plans
for Corbina to offer services over Vimpelcom's network, our future use of
cash, and future customer numbers. It is important to note that such
statements involve risks and uncertainties, which may cause outcomes to
differ materially from those set forth in these statements. Such risks and
uncertainties include, but are not limited to, that we are not able to
develop our broadband networks as we anticipate, that we are not able to
develop or implement service offerings as we anticipate, that our networks
and services do not reach the expected number of customers, that we incur
additional costs for consulting services, that we are not able to acquire
companies as anticipate, that we are not able to realize upon the synergies
of acquisitions or integrate the acquired companies well, that we are not
able develop our regional expansion strategy as we anticipate, that
macroeconomic factors in the markets in which we operate change, that
Corbina is not able to offer services over Vimpelcom's network, that our
service offering will not be as competitive as those of our competitors,
and that our investment strategy does not bring the expected benefits or
that we do not use our cash as we currently anticipate. Additional
information concerning factors that could cause results to differ
materially from those in the forward looking statements is contained in the
Company's filings with the U.S. Securities and Exchange Commission
including the Company's current reports on Form 8-K filed during 2007, and
the Company's annual report on Form 10-K for the year ended December 31,
2006.
Non-GAAP Measures
In addition to the results reported in accordance with accounting
principles generally accepted in the United States ("GAAP") included
throughout this press release, the Company has provided information
regarding income from continuing operations, EBITDA, operating income,
operating margins, net income and net income per share, all without costs
associated with SARs and Stock Options, which are non-GAAP financial
measures.
Management believes that the non-GAAP financial measures used in this press
release are useful to both management and investors in their analysis of
the company's financial position and results of operations. Management
uses EBITDA as the primary basis to evaluate the performance of each of its
reportable segments. Further, management uses EBITDA for planning and
forecasting in future periods.
Management believes EBITDA is a meaningful measure of performance as it is
commonly utilized by investors to analyze operating performance and entity
valuations. Management, the investment community and the banking
institutions routinely use EBITDA, together with other measures, to measure
operating performance in our industry.
EBITDA should not be considered a substitute for the reported results
prepared in accordance with GAAP and should not be considered as an
alternative to net income as an indicator of our operating performance or
to cash flows as a measure of liquidity. These non-GAAP measures should
not be considered as a substitute for reported results prepared in
accordance with GAAP. These non-GAAP financial measures, as determined and
presented by the Company, many not be comparable to related or similarly
titled measures reported by other companies.
Set forth in the following pages are attachments that reconcile these
non-GAAP financial measures, if applicable, to the most directly comparable
financial measures calculated and presented in accordance with GAAP.
ATTACHMENT A
Golden Telecom, Inc.
Condensed, Consolidated Statements of Operations
(Amounts in millions of US $, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
------------------- ----------------
9/30/06 9/30/07 9/30/06 9/30/07
--------- -------- -------- --------
Revenues $ 228.7 $ 350.4 $ 603.8 $ 903.8
Operating costs and expenses:
Access and network services
(excluding depreciation and
amortization) 128.1 202.0 327.1 523.7
Selling, general and
administrative
(excluding depreciation and
amortization) 37.5 63.3 104.9 157.1
Depreciation and
amortization 26.3 39.2 73.0 100.2
--------- -------- -------- --------
Operating Income 36.7 45.9 98.8 122.8
Other income (expense):
Equity in earnings (losses)
of ventures 0.3 0.7 1.0 0.4
Gain on sale of MCT - 41.3 - 41.3
Foreign currency gain (loss) 0.1 10.9 1.7 12.5
Interest income, net 0.1 (1.4) 0.7 (3.0)
--------- -------- -------- --------
Total other income
(expense) 0.5 51.5 3.4 51.2
--------- -------- -------- --------
Income before income taxes and
minority interest 37.2 97.4 102.2 174.0
Income taxes 11.1 19.6 31.8 44.4
Minority interest 1.9 3.4 4.0 6.2
--------- -------- -------- --------
Income before cumulative
effect of a change
in accounting principle --------- -------- -------- --------
24.2 74.4 66.4 123.4
--------- -------- -------- --------
Cumulative effect of a change
in accounting principle,
net of tax - - (0.7) -
========= ======== ======== ========
Net Income $ 24.2 $ 74.4 $ 65.7 $ 123.4
========= ======== ======== ========
Basic earnings per share of
common stock:
Income before cumulative
effect of a change
in accounting principle $ 0.66 $ 1.85 $ 1.82 $ 3.22
Cumulative effect of a change
in accounting principle (0.02)
--------- -------- -------- --------
Basic earnings per share $ 0.66 $ 1.85 $ 1.80 $ 3.22
========= ======== ======== ========
Weighted average common
shares - basic 36.6 40.2 36.6 38.3
========= ======== ======== ========
Diluted earnings per share of
common stock:
Income before cumulative
effect of a change
in accounting principle $ 0.67 $ 1.84 $ 1.81 $ 3.21
Cumulative effect of a change
in accounting principle - - (0.02) -
--------- -------- -------- --------
Diluted earnings per share $ 0.67 $ 1.84 $ 1.79 $ 3.21
========= ======== ======== ========
Weighted-average common
shares - diluted 36.7 40.4 36.7 38.4
========= ======== ======== ========
Cash dividend per share of
common stock $ - $ - $ 0.40 $ -
========= ======== ======== ========
ATTACHMENT B
Reconciliation of consolidated EBITDA without cost of EBC
to consolidated net income
(Amounts in millions of US $)
(Unaudited)
Three Months Nine Months
Ended Ended
9/30/06 6/30/07 9/30/07 9/30/06 9/30/07
------- ------- ------- ------- -------
EBITDA, without costs of EBC 65.5 83.3 93.0 176.4 242.0
Cost of EBC 2.3 2.1 7.9 4.6 19.0
------- ------- ------- ------- -------
EBITDA 63.1 81.2 85.1 171.8 223.0
Depreciation and amortization 26.4 32.4 39.2 73.0 100.2
------- ------- ------- ------- -------
Operating Income 36.7 48.8 45.9 98.8 122.8
Other income (expense):
Equity in earnings (losses)
of ventures 0.3 0.1 0.7 1.0 0.4
Gain on sale of MCT - - 41.3 - 41.3
Foreign currency gain
(loss) 0.1 1.3 10.9 1.6 12.5
Interest income (expense),
net 0.1 (1.9) (1.4) 0.8 (3.0)
------- ------- ------- ------- -------
Total other income
(expense) 0.5 0.4 51.5 3.4 51.2
------- ------- ------- ------- -------
Income before income taxes
and minority interest 37.2 48.4 97.4 102.2 174.0
------- ------- ------- ------- -------
Income taxes 11.1 14.7 19.6 31.8 44.4
Minority interest 1.9 1.4 3.4 4.0 6.2
------- ------- ------- ------- -------
Income before cumulative
effect of a change in
accounting principle 24.2 32.3 74.4 66.4 123.4
------- ------- ------- ------- -------
Cumulative effect of a change
in accounting principle - - - (0.7) -
------- ------- ------- ------- -------
Net Income $ 24.2 $ 32.3 $ 74.4 $ 65.7 $ 123.4
======= ======= ======= ======= =======
ATTACHMENT C
Reconciliation of consolidated operating income without
cost of EBC to consolidated net income
(Amounts in millions of US $)
(Unaudited)
Three Months Nine Months
Ended Ended
9/30/06 6/30/07 9/30/07 9/30/06 9/30/07
------- ------- ------- ------- -------
Operating income, without cost
of EBC 39.0 50.9 53.8 103.4 141.2
Cost of EBC 2.3 2.1 7.9 4.6 19.0
------- ------- ------- ------- -------
Operating Income 36.7 48.8 45.9 98.8 122.8
Other income (expense):
Equity in earnings (losses)
of ventures 0.3 0.1 0.7 1.0 0.4
Gain on sale of MCT - - 41.3 - 41.3
Foreign currency gain
(loss) 0.1 1.3 10.9 1.6 12.5
Interest income (expense),
net 0.1 (1.9) (1.4) 0.8 (3.0)
------- ------- ------- ------- -------
Total other income
(expense) 0.5 0.4 51.5 3.4 51.2
------- ------- ------- ------- -------
Income before income taxes and
minority interest 37.2 48.4 97.4 102.2 174.0
------- ------- ------- ------- -------
Income taxes 11.1 14.7 19.6 31.8 44.4
Minority interest 1.9 1.4 3.4 4.0 6.2
------- ------- ------- ------- -------
Income before cumulative
effect of a change in
accounting principle 24.2 32.3 74.4 66.4 123.4
------- ------- ------- ------- -------
Cumulative effect of a change
in accounting principle - - - (0.7) -
------- ------- ------- ------- -------
Net Income $ 24.2 $ 32.3 $ 74.4 $ 65.7 $ 123.4
======= ======= ======= ======= =======
ATTACHMENT D
Reconciliation of consolidated net income without cost of EBC to
consolidated net income
(Amounts in millions of US $)
(Unaudited)
Three Months Nine Months
Ended Ended
----------------------- ---------------
9/30/06 6/30/07 9/30/07 9/30/06 9/30/07
------- ------- ------- ------- -------
Net income, without cost of EBCs $ 26.3 $ 33.8 $ 81.9 $ 69.7 $ 140.9
Cost of EBCs, net of tax 2.1 1.5 7.5 4.0 17.5
------- ------- ------- ------- -------
Net Income $ 24.2 $ 32.3 $ 74.4 $ 65.7 $ 123.4
ATTACHMENT E
Reconciliation of consolidated net income per share - basic without cost of
EBC to consolidated net income per share - basic
(Amounts in US $)
(Unaudited)
Three Months Ended Nine Months Ended
-------------------------- -----------------
9/30/06 6/30/07 9/30/07 9/30/06 9/30/07
-------- -------- -------- -------- --------
Net Income per share - basic
without cost of EBCs $ 0.72 $ 0.89 $ 2.04 1.90 3.68
Cost of EBCs, net of tax 0.06 0.04 0.19 0.10 0.46
-------- -------- -------- -------- --------
Net Income per share - basic $ 0.66 $ 0.85 $ 1.85 1.80 3.22
Note (1): Equity Based Compensation ("EBC") to employees includes the
residual costs of Stock Appreciation Rights ("SARs") plus the non-cash
costs of Stock Options as required under Accounting Standard 123R. The
Golden Telecom, Inc. 2005 Stock Appreciation Rights Plan were approved by
the Company's Board of Directors in September 2005. Seventy-five percent
of the SARs granted are subject to time vesting, twenty-five percent of
the SARs granted were subject to performance vesting upon the Company's
common stock achieving a closing trading price of at least $50.00 per
share for thirty consecutive days, which occurred in February, 2007. The
Company adopted SFAS No. 123R "Accounting for Stock-based Compensation -
Revised" as of January 1, 2006 using the modified prospective method in
its accounting for SARs and Stock Options. In accordance with this rule,
the consolidated financial statements for prior periods have not been
restated. The fair value of each SAR award is estimated at the end of each
reporting period using the Monte Carlo simulation-based valuation model.
In order to decrease volatility of the related expense the Board of the
Company approved the substitution of SARs with stock options. The necessary
changes to the Company's Equity Participation Plan were included in the
proxy statement for the Annual Meeting of Shareholders which took place in
Brussels on May 17, 2007. A reconciliation of all non-GAAP items to the
most directly comparable GAAP financial measures is included in this press
release as Attachment B through E.
Note (2): This press release presents measures not derived in accordance
with generally accepted accounting principles, including EBITDA and EBITDA
excluding cost of SARs and Stock Options. Such measures should not be
considered substitutes for any measures derived in accordance with
generally accepted accounting principles, and may also be inconsistent
with similar measures presented by other companies. Reconciliation of
these non-GAAP measures to the most nearly comparable GAAP measures, if
applicable, is presented in Attachments B through E.
For additional information please contact:
Investor Relations:
Alexey Subbotin
e-mail: Email Contact
tel.: +7-495-797-9300
fax: +7-495-797-9331
Public Relations:
Anastasia Borzova
e-mail: Email Contact
tel.: +7-495-797-9300
fax: +7-495-797-9332
www.goldentelecom.com
