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2009
Creatingmore...
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4 LETTER TO SHAREHOLDERS
8 KEY FINANCIAL HIGHLIGHTS
11 BACKGROUND AND HISTORY
14 FOCUS ON INVESTOR RETURNS
17 LEVERAGING STRENGTHS IN RUSSIA
AND THE CIS
19 UKRAINE A PLATFORM FOR SERVICES
INTEGRATION AND MARKET SUCCESS
22 SUCCESS BEYOND OUR CORE MARKETS
24 THE LEGACY OF VIMPELCOM FOUNDERS
PIONEERING SPIRIT
26 BOARD OF DIRECTORS
28 SENIOR MANAGEMENT
30 CORPORATE INFORMATION
31 OJSC VIMPELCOM AND KYIVSTAR
UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
4
8
11
14
17
19
22
24 :
26
28 -
30
31
CONTENTS
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VimpelCom Ltd. . 2009
innovativesolutions
Creating more
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32
I n April 2010, a new entity, VimpelCom Limited, completeda tender offer to exchange ownership of OJSC VimpelCom andUkraines Kyivstar for shares in V impelCom Limited, lis ted on theNew York Stock Exchange under the ticker symbol VIP previouslyheld by OJSC VimpelCom. With VimpelCom Ltd.s headquarters nowin Amsterdam, Netherlands, this transaction paves the way forthe transformation of two market leading companies into a globaltelecommunications player.
Today, we are the leading mobile operator in Russia, Ukra ine and
major countries of the Commonwealth of Independent States (CIS),with a solid footprint in South-East Asia as well. We have a combinedsubscriber base of nearly 90 million active mobile subscribers
and a strong fi nancial profile, including net operating revenues
of about US$10.1 billion and operating income of approximately
US$2.8 billion, on a combined 2009 pro forma basis.In the near-term, VimpelCom will focus on optimizing and
further strengthening its st rategic position, pursuing operationalimprovements and ef ficiencies in our core markets, and developingour recently launched or newly-acquired operations. Over the
medium and longer term, we will leverage our financial strength
and combined expertise to explore expansion opportunities in
other markets where we see significant value creation potential.Among others, we believe that the core benefits of this
transformational merger were as follows:
Creation of a leading emerging markets mobile operator withimproved positioning in existing markets and attractiveopportunities for in-market consolidation;
Enhancement of VimpelComs strategic profile;
Alignment of the interests of all shareholders; and
Establishment of a basis for a strong corporate structure.By building on this enhanced platform, our overall goal is to focus
on efficiency and to maximize total sha reholder returns through:
a commitment to a dividend payment of 50% of the annual freecash flows from Russian and Ukrain ian operations;
a business strategy of operating companies to maximize returnon capital employed; and
a disciplined approach to potential expansion opportunities.
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VimpelCom Ltd. . 2009
Jo Lunder,Chairman of the Board, VimpelCom Ltd.
, , .
Alexander V. Izosimov,President and Chief Executive Officer, VimpelCom Ltd.
, , .
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W elcome to the new VimpelCom!This new entity, VimpelCom Limited, represents a new and
dynamic chapter in the histories of two highly successful
companies: OJSC VimpelCom and Kyivstar.
Today, we are one. But we are more we are a new platform
for shareholder value creation with an at tractive strategic profileand a strong financ ial position not simply a combination of two
market leaders that are highly complementary.
VimpelCom plans to deliver substantial shareholder value
by seizing both immediate opportunities and those that will
develop over time. As we move forward, our focus will be on
preserving the most valued features of OJSC VimpelCom and
Kyivstar, leveraging these strengths across the business, and
cementing our position as a stronger Company with greater
opportunities for sustainable growth and aiming to achieve
superior returns through operational excellence. We have
established clear short-term strategic objectives, which includesuccessfully integrating the ex isting businesses and achieving
operational synergies.
In the longer term, we are focused on pursuing value creation
by exploring geographical expansion into new emerging markets
through either controlling stakes in local operations, or substa ntial
stakes with a clear view to control. We will also continue to focus
on developing geographic clusters in those markets where we can
best apply our tested operational experience. At the core of our
strategic goals is a philosophy of responsible growth. We are going
to play fast, and smart, growing our top-line while maintaining
profitability.Today is definitely a new and dynamic chapter in our history
and one that will be marked by significant growth opportunities as
LETTER TO SHAREHOLDERS
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VimpelCom Ltd. . 2009
,
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the global economy turns round. Our core markets provide us with
the opportunity to continue expanding our business. We expect
growth from mobile voice usage and data services, as well as f rom
our B2B and wholesale fixed-line businesses, as local economies
improve. We are also optimis tic about the fast growing broadband
market and the opportunity to capture incremental demand inthis area going forward.
The Companys broader CIS business now encompasses the
leading market position and best-in-class operating expertise in
Ukraine. The CIS countries and Georgia will also continue to be
sources of growth as these telecom markets development repeats
the Russian story in the mobile voice, data and fixed broadband
arenas.
Our strategy is clear enhanced return on capital. To achieve
this we plan to:
Insulate operating companies from potentially competing
shareholder objectives; Focus operating companies on execution of business plans
with overall strategic direction provided by management team
of VimpelCom;
Enhance scale, taking advantage of selected value-accretive
growth opportunities and operational efficiencies, both within
and outside the c urrent geographical footprint area;
Maintain strategic flexibility to re-prioritise objectives in
response to rapidly changing industry and macroeconomic
conditions; and
Generate sustainable cash flows in Russia, Ukraine and other
CIS countries and develop our operations in South-East Asia.We will differentiate ourselves among EMEA telecom players
by delivering the highest level of sustainable profitability and by
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being the only integrated EMEA operator providing a full spectrum
of telecom services.
We have maintained our listing on the New York Stock Exchange
under the ticker VIP, continuing a long and unique history. We
continue to focus on maintaining our sound balance sheet and
strong cash flows in support of our dividend policy, proposingto distribute at least 50% of free cash flow from Ukrainian and
Russian operations. Finally, we are committed to the highest level
of communications with the investment community through
leading levels of transparency and corporate governance.
In closing, we are very pleased to have t he opportunity to lead
VimpelCom at this important time in its history. We believe that
the outlook for the Company is bright and feel confident that we
will successfully take it to the next level.
We thank you for your support throughout this exciting
transformation and look forward to delivering on our commitment
to grow our business and deliver enhanced shareholder value inthe coming years.
Sincerely,
Jo Lunder, Alexander Izosimov,
Chairman of the Board President and Chief Executive Officer
, ,
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* Net income attr ibutable to VimpelCom, Kyivstar and VimpelCom Ltd. respectively.
VimpelCom
Kyivstar
Vimpelom Ltd.
KEY FINANCIAL HIGHLIGHTS
Net Income*, US $, mln , .
546
811
1,317467
1,122524
1,463
697968
2006 2007 2008 2009 2009 Pro-forma
Revenue, US $, mln, .
1,711
4,868
10,071
1,489
8,703
10,117
7,171
2,163
2,444
2006 2007 2008 2009 2009 Pro-forma
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768
1,397
2,792
577
2,5782,536
2,206
962
1,106
Operating income, US $, mln , .
2006 2007 2008 2009 2009 Pro-forma
Mobile Subscribers (mln) ()
21,5
45,5
86,622,0
64,661,0
51,7
23,6
23,5
2006 2007 2008 2009 2009 Pro-forma
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VimpelCom Ltd. . 2009
benefits to customers
Creating more
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1110
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V impelCom Ltd. combines the rich histories of two marketleading telecommunications companies into a new, strengthened
and transformed global player.
VimpelCom grew from a small start-up mobile operator in
Moscow, founded 18 years ago by a Russian scientist, Dmitry
B. Zimin and an American entrepreneur, Augie K. Fabela II, intothe leading integrated telecommunications operator it is today,
providing voice and data ser vices through a range of mobile, fixed
and broadband technologies across Russia, Ukrai ne, the rest of the
CIS countries of operation and South-East Asia.
Kyivstar was founded in 1994 and developed as a closed joined
stock company. It became the undisputed leader in Ukrainian
mobile communications, being number one on any operational and
financial criteria. Kyivstars excellent achievements has made it
a prominent operator in the telecom business of emerging markets.
VimpelCom was the first Russian company to list shares on the
New York Stock Exchange in 1996, which was a ground breakingevent that defined our future development as a transparent
Company with strong corporate governance.
Through the acquisition of Golden Telecom in February 2008,
VimpelCom became one of the leading companies in providing
fixed-line services in Russia a nd the CIS as well. And the Company
continued to expand its foothold in the fast-growing residential
broadband market in Russia, with its f ixed and mobile broadband
subscriber base reaching almost 2.3 million at 2009 year end.
The total number of active mobile subscribers of VimpelCom
Ltd. at the end of 2009 was about 90 million across the Companys
markets in Kazakhstan, Ukraine, Uzbekistan, Tajikistan, Georgia,
Armenia, Vietnam and Cambodia, including its core markets of
Russia and Ukraine.
The Beeline Brand is one of the most recognized names
in Russia and the CIS. The Beeline trademark has topped the
BACKGROUND AND HISTORY
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VimpelCom Ltd. . 2009
,
Brandz.
Millward Brown Optimor
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rankings of the most valuable Russian brands each year since
2005 and was included into Top 10 Global Telecom Brands list by
BrandZ. Beeline is also in the prestigious Top 100 Most Valuable
Global Brands ranking with an estimated value of $8.16 billion
according to Millward Brown Opt imor research.
Commitment to Corporate GovernanceVimpelCom has been always well-recognized by independent
analysts, agencies, and professional organizations as a leading
company in terms of transparency and corporate governance.
These areas are essential to our core values going forward as well,
and VimpelCom is continuing our established tradition of meeting
the highest standards of corporate governance.
The corporate and governance structure we have created aligns
the interest of all shareholders. The board structure is balanced
and includes three unaffil iated board members, three designated
by each of our strategic shareholders, Telenor and Altimo. Nosingle shareholder has any veto rights and our unaff iliated board
members hold any potential swing vote at the board of directors.
To ensure that management is equally aligned with the
interests of all shareholders, the Chairman of the Board and
Chief Executive Officer are unaffiliated with any strategic
shareholder. Finally, strong safeguard mechanisms are in place to
protect minority shareholders, including the requirement for a n
affirmative majority of non-related shareholders for the board to
take certain actions.
Social ResponsibilityVimpelCom has historically had a strong and ongoing
commitment to practicing the principles of social responsibility
and social partnership. Over the years, the Company developed
numerous programs aimed at improving the quality of life and
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1312
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helping to build and foster a strong and healthy society in its
markets, and will continue t his focus going forward.
The Social Outreach Policy of VimpelCom is just one example
of the Companys corporate citizenship. This program provides
educational support to children and youth to reach their full
potential, including New Technologies for Children throughwhich the Company provides access to the Internet for schools
located in remote areas. Today children of 63 rural schools in Russia
enjoy the services t hat earlier had been considered impossible.
VimpelCom also continues to actively participate in the
solutions to the most critical problems facing Ukrainian society
through its For the people, for the country programs. These
activities focus on providing concrete support to underprivileged
people, as well as the support of culture, sport and art.
Transformational LeadershipVimpelCom is led by President and Chief Executive Officer Alexander
Izosimov and the Chairman of the Board of Directors Jo Lunder, who
are both highly exper ienced professionals in the telecommunications
industry and very familiar with the underlying businesses.
Alexander was Chief Executive Officer and General Director of
OJSC VimpelCom from 2003 to April 2, 2009 and Jo served as Chief
Executive Officer and General Director of OJSC VimpelCom from
2001 to 2003, Chairman from 2003 to 2005 and has served on the
Board of Directors since 2002.
The executive management teams in the core operations
of VimpelCom are Boris Nemsic, Chief Executive Officer of OJSC
VimpelCom, Alexander Torbakhov, General Director of OJSC
VimpelCom, and Igor Lytovchenko, President of Kyivstar. They each
have already proven their ability to profitably manage and grow
operations through periods of explosive growth, macroeconomic
uncertainty and high volatility.
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VimpelCom Ltd. . 2009
, 90 -
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V impelCom is a leading global telecom operator, witha combined active mobile subscriber base of nearly 90 million
customers. The strength of our legacy businesses in Russia,
Ukraine, the CIS and South-East Asia provides a st ronger platform
for future growth internally and externally.
The strategy for VimpelCom is clearly focused on return oncapital defined by the following key principles:
Maintaining a dominant market position in all markets where
we operate;
Providing a footing for expansion into new high-growth
geographies by pursuing a cluster development model; and
Focusing on return on capital employed.
In order to most effectively capitalize on immediate
opportunities and those that we will explore in the future,
VimpelCom will be managed on a unified basis, sharing marketing,
technical, and operational expertise. These synergies will
be captured in the near-term as we integrate the businesses.
Additionally, as we move forward, there will be opportunities
to leverage our unified management for ongoing operational
improvements and ef ficiencies.
Russia, Ukraine and the broader CIS are VimpelComs largest
markets with the greatest strategic focus in the near term. Our
operations in South-East Asia are very promising in the longer
term and there will be opportunities for expansion both in existing
markets and in new geographies.
In terms of new geographical expansion, the Company is
focused on markets where it sees the greatest potential for value
creation. This includes other areas in Asia, Afr ica, and the Middle
East. The strategy will focus on taking substantial stakes in
local assets w ith a clear path to control, as well a s on developing
geographic clusters in attractive regions.
FOCUS ON INVESTOR RETURNS
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1514
VimpelCom will also have greater access to capital markets as
a result of its strengthened balance sheet and cash generation
capacity. These factors, together with a highly experienced
management team, create a flexible and enhanced platform for
successful growth.
As return on capital will be our key focus, the Companysstrategic approach will remain disciplined, management will
pursue only high-return opportunities and we w ill return value to
shareholders as a matter of policy.
-
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VimpelCom Ltd. . 2009
financialstrengths
Creating
more
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1716
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A lthough telecom markets in Russia, Ukraine and Kazakhstanhave matured with a very strong mobile penetration of more than
100% and penetration in Armenia and Georgia of about 90%,
significant opportunities for further development and growth
remain in VimpelComs core business.
The Company will focus less on subscriber market share and
more on revenue market share growth in each of these markets.
The key components of our strategy in these markets will be to
increase share of the high value subscriber market, stimulate
usage of value added services and improve subscriber loyalty.
Management sees increase in usage as the key revenue driver
going forward. As the global economy improves and disposable
income recovers, the Company should see a corresponding pick-up
in demand for mobile voice usage and data services.
Other local mobile markets, in which VimpelCom operates,
particularly Uzbekistan and Tajikistan, are s till in a phase of rapid
subscriber growth with penetration rates substantially lower than
in Russia. In these markets, man agement expects revenue growth
to come primarily from new subscribers in the short term and
increasing usage of voice and data traff ic in the longer term.
Improvement in the macro-economic environment will
also reinvigorate the regional development of national and
multinational corporations, driving the expansion of the
Companys B2B and wholesale fixed-line businesses. Throughout
the downturn, Vi mpelCom remained client-focused and, as a result,
retained the majority of large corporate clients by offering an
integrated combination of services.
VimpelCom also remains highly competitive in the small
and medium enterprise segment by providing a diverse range of
communication solutions at competitive prices. These positions
LEVERAGING STRENGTHSIN RUSSIA AND THE CIS
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VimpelCom Ltd. . 2009
. -
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(FTTB)
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bode well for the Companys growth as the macro economy
improves.
We see a significant opportunity in the fast-growing
residential broadband market in Russia and the CIS. Broadband
penetration is still low and we will capture incremental demand
going forward by leveraging our technological and marketing
strength and expertise. Throughout 2009, VimpelCom continued
to add residential broadband subscribers, including FTTB (fiber to
the building) and mobile broadband. Total broadband subscribers
exceeded 2.1 million in Russia, an increase of nearly 80% year-
over-year, and 145,000 in the CIS, representing an increase of about
274% y ear-over-year.
In 2009, all current 3G license requirements were fulfilled and
VimpelCom rolled out a 3G network in all regions of Russia. In 2010,
we will invest in 3G roll-out (especially in Moscow), fixed-line
broadband and transport infrastructure. We are confident that we
have enough capacity to accommodate the current demand and
maintain the high quality of our service.
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1918UKRAINE A PLATFORMFOR SERVICES INTEGRATIONAND MARKET SUCCESS
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The long-term attractiveness of the Ukrainian market re-mains intact. Many leading research houses and market experts
believe Ukraine has seen the bottom of the cycle and will demon-
strate a gradual recovery going forward.
In terms of the macroeconomic environment, Ukraine is
expected to rebound significantly in 2010, providing positive
impetus for the telecom market in particular.
This recovery is expected to be driven by:
Political stability;
Increase in domestic demand;
Reduction in inflation; and
Strengthening of the commodity markets.
Within Ukraine the telecom sector has shown stronger
resilience than other industries. His torically, the telecom market
in Ukraine has grown in line with the nominal GDP. Based on EIU
macro-economic research, nominal GDP in Ukraine is expected
to grow in the range of 8% to 21% from 2010 until 2014, driving
strong growth in t he telecom sector.
VimpelCom is the number one operator in Ukraine with
24 million subscribers and a market share of nearly 40% and is
perceived as the premium operator in terms of brand awareness,
quality of serv ice and network coverage. Through its multi-brand
strategy the Company has maintained its leadership with high
value subscribers, while still competing effectively in the mass
market and youth segments.
VimpelCom is well-positioned to capture future growth
opportunities in Ukraine based on a number of factors:
The leading position and proven track record of good
performance in highly competitive and volatile environment;
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VimpelCom Ltd. . 2009
shareholdervalue
Creating
more
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2120
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The potential synergies from integration of VimpelComs
Ukraine existing operations and from future investments in
fixed-line and 3G roll-out; and
The financial strength, profitability and ca sh flow generation
of the combined Company.
VimpelCom aims to deliver profitable growth and shareholder
value by pursuing the following operational goals:
Building and maintaining strong relationships with our
customers;
Maintaining our strong position in network technology, service
quality and operational efficiency; and
Increasing revenues from value added services.
Future incremental growth is ex pected to come from broadband,
aided by our fixed-line operations. With a broadband household
penetration of around 10%, the Ukrainian market represents
a significant upside potential.
Going forward, the Company intends to focus on data
applications and products, and especially broadband, via both
fixed and mobile networks. We have already started to expand our
mobile broadband services by increasing capacity to provide EDGE
services throughout our Ukrainian GSM network. Additionally,
we are keenly monitoring regulatory developments regarding
a potential 3G license auction in Ukraine.
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VimpelCom Ltd. . 2009
2008 - - , -
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2009 -
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70% , -
370 .
2009
GTEL-Mobile. -
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2009
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In 2008, VimpelCom expanded its reach beyond its traditionalCIS markets for the first t ime to include businesses in South-East
Asia, a region with fast growing populations, burgeoning economies
and rapidly growing telecom markets. Vietnam, Cambodia a nd Laos
have relatively lower penetration rates and are st ill in a phase of
subscriber growth.
VimpelCom began developing a cluster in South-East Asia
and building networks through a joint venture in Vietnam and
a subsidiary in Cambodia.
In May 2009, commercial operations were launched in Cambodia
and, by the end of 2009, the network covered almost 70% of the
total population and had nearly 370,000 mobile subscribers.
In July 2009, operations were launched in Vietnam via GTEL-
Mobile and quickly achieved first results with almost 2,000 base
stations on air, coverage of 32% of population and more than
20,000 points of sales. Beeline brand awareness in the Vietnamese
capital was at 86% as of year-end 2009.
In September 2009, VimpelCom signed an agreement for the
acquisition of a 78% stake in Millicom Lao., a mobile telecom
operator in Laos. Completion of the aquisition is subject to the
satisfaction or waiver of certain conditions, including the receipt
of regulatory approvals. The growth potential in Laos is highly
attractive, with a population of 6.5 million people and low mobile
penetration estimated at about 23%.
Laos is complementary to the operations in Vietnam and
Cambodia and the entry into this high-growth economy was the
next logical step of building a solid South-East Asian cluster.
We continue to focus on deploying our network and developing
sales and distributions channels in South-East Asia. Whiledevelopment is still in its early days, management is optimistic
about our operations in this region. With a very young population
SUCCESS BEYONDOUR CORE MARKETS
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base and a high demand for mobile services, VimpelCom is fully
prepared to deliver quality products to its customers.
Emergence of the highly profitable corporate segment is rapidly
developing due to the improved investment profile of the region
and rising disposable income. Additionally, the growing economies
of the region were not as severely affected by the global economic
crisis and we see strong grounds for expanding data transmission
and Internet connection services, which are i ncreasingly gaining
popularity.
We expect that VimpelComs enhanced scale and financial
strength will allow us to effectively grow our position in these
markets. This part of the world has the key components to become
another source of growth for the Companys operations.
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VimpelCom Ltd. . 2009
Co-Founder and Chairman Emeritus
Augie K. Fabela II
- . II
VimpelComs Founder
and Honorary President
Dr. Dmitri B. Zimin
-
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- . . - - . . II -
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1992 1996 ,
, -
1903 . - -
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V impelComs Founder and Honorary President Dr. DmitriB. Zimin and Co-Founder and Chairman Emeritus Augie K.
Fabela II have inspired the Companys transparency, strong
corporate governance, quality, innovation and a pioneering
spirit values and characteristics that have made VimpelCom
unique in Russia and a leader in the industry. They led VimpelCom
from its inception in 1992, to its history-making step of becoming
the first Russian company to be listed on the New York Stock
Exchange in 1996. Messrs. Zimin and Fabela laid the foundation
that has made VimpelCom one of the leading global telecom players
operating in emerging markets.
THE LEGACY OF VIMPELCOMFOUNDERS PIONEERING SPIRIT :
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VimpelCom Ltd. . 2009
BOARD OF DIRECTORS
Mikhail M. FridmanChairman of the Supervisory Board,Alfa Group ConsortiumChairman of the Board of Directors,TNK-BP
, - ,TNK-BP
Jon Fredrik BaksaasPresident and Chief Executive Officer,Telenor Group
, Telenor Group
Jo LunderChairman of the Board, VimpelCom Ltd.Executive Vice President, Ferd ASChairman of the Board: Swix Sport AS
, . -,Ferd AS : SwixSport AS
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2726
Alexey M. ReznikovichChief Executive Officer, Altimo
,Altimo
Jan Edvard ThygesenExecutive Vice President, Telenor ASAHead of Central and Eastern Europeanoperations, Telenor
-,Telenor ASA
,
Leonid R. NovoselskyGeneral Director, OOO GK Gradient
,
Ole Bjorn SjulstadHead of Telenor, Russia
Oleg A. MalisSenior Vice President, Altimo
-, Altimo
Hans Peter KohlhammerChief Executive Officer,Kohlhammer Consulting
Kohlhammer Consulting
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VimpelCom Ltd. . 2009
Alexander V. IzosimovPresident and Chief ExecutiveOfficer, VimpelCom Ltd. , .
Andrew SimmonsChief Financial Officer, Kyivstar
,
Elena A. ShmatovaExecutive Vice President,Chief Financial Officer, OJSCVimpelCom -, ,
Alexander Yu. TorbakhovGeneral Director, OJSC VimpelCom
,
Boris NemsicChief Executive Officer,OJSC VimpelCom
Igor V. LytovchenkoPresident, Kyivstar
,
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2928SENIOR MANAGEMENT-
Alexander V. IzosimovPresident and Chief Executive Officer,VimpelCom Ltd.
Boris NemsicChief Executive Officer, OJSC VimpelCom
Alexander Yu. TorbakhovGeneral Director, OJSC VimpelCom
Elena A. ShmatovaExecutive Vice President,Chief Financial Officer, OJSC VimpelCom
Igor V. LytovchenkoPresident, Kyivstar
Andrew SimmonsChief Financial Officer, Kyivstar
, .
,
,
-, ,
,
,
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VimpelCom Ltd. . 2009
CORPORATE INFO
Legal Advisers
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
Independent Auditors
Ernst & Young
Depositary Bank
The Bank of New York Mellon
CUSIP #92719A106
Custodian Bank
The Bank of New York Mellon (London)
Primary Trading Information
NYSE: VIP (ADS)
Requests for Corporate Information:
VimpelCom Ltd.
Strawinskylaan 3051,
1077ZX Amsterdam,the Netherlands
www.vimpelcom.com
FD
Wall Street Plaza, 88 Pine Street, 32nd Floor
New York, N.Y. 10005
USA
Tel.: +1 (212) 850-5600
Fax: +1 (212) 850-5790
www.fd.com
, , , ...
-
-
CUSIP #92719A106
-
- ()
- : VIP ()
:
.
3051,
1077ZX ,
www.vimpelcom.com
88 , 32-
-, - 10005
Te.: +1 (212) 850-5600
: +1 (212) 850-5790
www.fd.com
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3130OJSC VIMPELCOM AND KYIVSTAR UNAUDITEDPRO FORMA CONDENSED COMBINED FINANCIALINFORMATION
, , ( ) .
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VimpelCom Ltd. . 2009
The following unaudited pro forma condensed combined financial information of VimpelCom Ltd. is being provided to give a better understanding
of what VimpelCom Ltd.s results of operations and financial position might have looked like had the pro forma adjustment transactions occurred
on an earlier date. This information does not purport to indicate the results that actually would have been obtained had the pro forma adjustment
transactions been completed on the dates indicated, nor does thi s information purport to indicate the results which may be realized i n the future.
You should not rely on the following information as being indicative of the historical results that OJSC VimpelCom and Kyivstar would have had or
the future results that we w ill experience after actual completion of the Transactions.
The unaudited pro forma condensed combined financial information presents the combined statements of income of OJSC VimpelCom and
Kyivstar (as further discussed below in Note 1 to the unaudited pro forma condensed combined financial information) as if the pro forma adjustment
transactions had occurred as of January 1, 2009. The information is presented as if the Transactions closed on December 31, 2009, for purposes of
the unaudited pro forma condensed combined balance sheet.
The unaudited pro forma condensed combined financial information does not include any historical data for VimpelCom Ltd. because it has not
conducted any business during the periods presented.
The unaudited pro forma condensed combined financial information gives effect to the Transact ions as transactions to be accounted for under
the acquisition method of accounting in accordance with ASC 805, under which OJSC VimpelCom is deemed to acquire VimpelCom Ltd. for accounting
purposes, and VimpelCom Ltd., as accounting successor to OJSC VimpelCom, is deemed to acquire Kyivstar. The unaudited pro forma condensed
combined financial information is prepared in accordance with U.S. GAAP, is presented in U.S. dollars and has been derived from and should be read
in conjunction with the OJSC VimpelCom Financial Statements, prepared in accordance with U.S. GAAP, the Kyivstar Financial Statements, prepared
in accordance with IFRS, as issued by the IASB, and presented in Ukrainian hr yvnia. The historical Kyivstar amounts reflected in the unaudited
pro forma condensed combined financial information have been derived from the Kyivstar Financial Statements prepared under IFRS, as issued by
the IASB, and reconciled to U.S. GAAP, as further discussed below in Note 1 to the unaudited pro forma condensed combined financial information.
The pro forma adjustments to the unaudited pro forma condensed combined financial information are limited to those that are (1) directly
attributable to the pro forma adjustment transactions, (2) factually supportable, and (3) with respect to the statements of income, expected to have
a continuing impact on the combined results. The unaudited pro forma condensed combined financial information does not reflect, for example:
any integration costs that may be incurred as a result of the implementation of our strategy;
any debt that may be incurred in connection with t he Squeeze-out;
any synergies, operating efficiencies and cost savings that may result from implementation of our strategy;
any benefits that may be derived from our growth prospects; or
changes in rates for services or exchange rates subsequent to the dates of the unaudited pro forma condensed combined financial information.
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
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We have not commenced or implemented any integration initiatives or actions with respect to either OJSC VimpelCom or Kyivstar. Accordingly,
additional liabilities may be incurred in connection with the implementation of our strategy for the combined companies or the completion of
the Transactions.
For purposes of the unaudited pro forma condensed combined financial information, we have assumed that all OJSC VimpelCom shareholders will
participate fully in the Offers and will elect to receive DRs. If less than 100% of OJSC VimpelCom shares are tendered into the Offers, we will commence
the Squeeze-out to acquire all remaining shares for cash, as described under The Offers Effects of the Offers and the Russian Squeeze-out Proceedings.
The total amount of cash required to acquire the remaining OJSC VimpelCom shares in the Squeeze-out could be approximately US$1,000.0 million,
based on the as sumptions and subject to the caveats discussed below in Note 3 to the unaudited pro forma condensed combined financial information.
Since the Kyivstar Share Exchange has not yet been completed, we have preliminarily estimated the fair value of Kyivstars identifiable assets and
liabilities and contingent liabilities as of December 31, 2009, based on information available to us on December 31, 2009. We are not aware of any assets
or liabilities t hat would need to be recognized in addition to those included in the unaudited pro forma balance sheet. The final estimated valuation
for all assets, liabil ities and contingent liabilities will be updated as of the Closing Date to reflect possible refinements in the valuation approach,
as well as to take into account relevant factors, such as the time elapsing between December 31, 2009 and the Closing Date, changes in market
conditions and new or additional information as it becomes available during this period.
Potential changes occurring between the date of this prospectus and the Closing Date that may impact the final es timates of the fair value ofthe identified assets, liabilities and contingent liabilities may relate, but are not limited, to t he following areas:
Changes in exchange rates, changes in interest rates, and/or volatility in financial markets;
Changes in market conditions that would impact revenues and/or margins, changes in future expectations in terms of revenue growth or changes
in margins, or new entrants to the market; and
Acquisitions and/or disposals of assets.
In the consolidated financial statements that will be prepared as of the Closing Date, Kyivstars identifiable assets, liabilities and contingent
liabilities will be recognized at fair value, and any excess of the cost of the acquisition over the net fai r value of the identifiable assets, l iabilities and
contingent liabilities will be recognized as goodwill.
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V mpelCom td. . 2009
VIMPELCOM LTD.
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF INCOME
For the Year Ended December 31, 2009
HistoricalOJSC VimpelCom
HistoricalKyivstar
Pro FormaAdjustments
Pro FormaCondensedCombined
Amounts in accordance with U.S. GAAP(US$ in thousands, except per share amounts)
Operating revenues 8,710,562 1,488,651 (120,786) [b],[c] 10,078,427
Revenue based tax (7,660) (7,660)
Net operating revenue 8,702,902 1,488,651 (120,786) 10,070,767
Operating expenses:
Ser vice costs 1,989,120 267,216 (86,707) [c] 2,169,629Selling, general and adminis trative expenses 2,389,998 390,104 2,780,102
Depreciation and amortization 1,694,167 225,370 327,630 [b] 2,247,167
Impairment loss 26,606 26,606
Provision for doubtful accounts 51,262 4,065 55,327
Total operating expenses 6,124,547 913,361 240,923 7,278,831
Operating income 2,578,355 575,290 (361,709) 2,791,936
Other income and expenses:
Interest income 51,714 68,624 120,338
Net foreign exchange (loss)/gain (411,300) (5,775) (417,075)
Interest expense (598,531) (4,976) (603,507)Other (expenses)/income, net (67,877) (7,269) (75,146)
Total other income and expenses (1,025,994) 50,604 (975,390)
Income before income taxes 1,552,361 625,894 (361,709) 1,816,546
Income tax expense (benefit) 435,030 159,325 (90,427) [b] 503,928
Net income 1,117,331 466,569 (271,282) 1,312,618
Net income attributable to noncontrolling interest (4,499) (4,499)
Net income (loss) attributable to VimpelCom Ltd. 1,121,830 466,569 (271,282) 1,317,117
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HistoricalOJSC VimpelCom
HistoricalKyivstar
Pro FormaAdjustments
Pro FormaCondensedCombined
Amounts in accordance with U.S. GAAP(US$ in thousands, except per share amounts)
Basic EPS: Net income attributable to VimpelCom Ltd. per share 21.71 19.70
Weighted average common shares outstanding (thousand) 50,647 15,083 65,730
Net income attributable to VimpelCom Ltd. per DR equivalent 1.09 0.98
Diluted EPS:Net income attributable to VimpelCom Ltd. per share 21.69 19.69
Weighted average diluted shares (thousand) 50,678 15,083 65,761
Net income attributable to VimpelCom Ltd. per DR equivalent 1.08 0.98
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. 2009
HistoricalOJSC VimpelCom
HistoricalKyivstar
Pro FormaAdjustments
Pro FormaCondensedCombined
Amounts in accordance with U.S. GAAP(US$ in thousands)
ASSETS
Current assets:
Cash and cash equivalents 1,446,949 151,678 1,598,627
Trade accounts receivable, net of allowance for doubtful accounts 392,365 64,742 457,107
Deferred income taxes 91,493 29,443 120,936Due from related parties 249,631 9,908 (5,531) [c] 254,008
Other current assets 786,170 131,928 918,098
Total current assets 2,966,608 387,699 (5,531) 3,348,776
Property and equipment, net 5,561,569 784,266 249,819 [a] 6,595,654
Goodwill 3,284,293 2,805,406 [a] 6,089,699
Other intangible assets, net 1,242,962 26,886 1,422,739 [a] 2,692,587
Software, net 448,255 108,524 83,582 [a] 640,361
Other assets 1,228,854 24,044 1,252,898
Total assets 14,732,541 1,331,419 4,556,015 20,619,975
Liabilities, redeemable noncontrolling interest and equityCurrent liabilities:
Accounts payable 545,690 69,208 614,898
Due to related parties 9,211 2,031 (5,531) [c] 5,711
Accrued liabilities 429,034 26,937 455,971
Taxes payable 212,767 16,860 229,627
Customer advances and deposits 404,507 94,075 (28,583) [a] 469,999
Short-term debt 1,813,141 87 1,813,228
Total current liabilities 3,414,350 209,198 (34,114) 3,589,434
Deferred income taxes 596,472 446,181 [a] 1,042,653
VIMPELCOM LTD.
UNAUDITED PRO FORMA CONDENSED COMBINED
BALANCE SHEET
As of December 31, 2009
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HistoricalOJSC VimpelCom
HistoricalKyivstar
Pro FormaAdjustments
Pro Forma
CondensedCombined
Amounts in accordance with U.S. GAAP(US$ in thousands)
Long-term debt 5,539,906 6,415 5,546,321
Other non-current liabilities 164,636 6,320 170,956
Commitments, contingencies and uncertainties
Redeemable noncontrolling interest 508,668 508,668
Shareholders equityShare capital 920,328 82,268 (82,268) [a] 6,173,762
5,253,434 [a]
Retained earnings and accumulated other comprehensive income 3,586,215 1,027,218 (1,027,218) [a] 3,586,215
Total VimpelCom Ltd. shareholders equity 4,506,543 1,109,486 4,143,948 9,759,977
Noncontrolling interest 1,966 1,966
Total equity 4,508,509 1,109,486 4,143,948 9,761,943
Total liabilities, redeemable noncontrolling interest and equity 14,732,541 1,331,419 4,556,015 20,619,975
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. 2009
Note 1 Basis of Pro Forma PresentationThe unaudited pro forma condensed combined statement of income for VimpelCom Ltd. is presented for the year ended December 31, 2009. An
unaudited pro forma condensed combined balance sheet for VimpelCom Ltd. is presented as of December 31, 2009. The unaudited pro forma condensed
combined financial information does not include any data for VimpelCom Ltd. because it has not conducted any business during the period presented.
The unaudited pro forma condensed combined financial information is presented in accordance with U.S. GAAP. The historical fi nancial
statements of OJSC VimpelCom are prepared in accordance with U.S. GAAP and presented in U.S. dollars, while the historical fina ncial statements
of Kyivstar are prepared in accordance with IFRS, as is sued by the IASB, a nd presented in Ukrainian hry vnia. For the purpose of the unaudited
pro forma condensed combined financial information, Kyivstar s financial statements have been reconciled to U.S. GAAP and a U.S. dollar
presentation. This reconciliation has not been audited. The differences between Kyivstars historical f inancial statements and the Kyivstar column
in the unaudited pro forma condensed combined financial information relate to:
(a) The change in the reporting currency from Ukrainian hryvnia to U.S. dollars (Kyivstars historical statement of income has been translatedinto U.S. dollars using average exchange rates and Kyivstars balance sheet as of December 31, 2009, has been translated into U.S. dollars using
the exchange rate prevailing on the balance sheet date (UAH 7.98 per US$1.00));
(b) Cer tain reclassifications to align the classification of assets and liabilities with U.S. GAAP requirements, including reclassification from non-
current to current liabilities and assets; and
(c) Differences between U.S. GAAP and IFRS associated with t he reversal of impairment losses, the determination of discount rates for pension plans,
the treatment of certain costs, and the t ax effects associated w ith these differences. The impact of these differences on the unaudited pro forma
condensed combined statements of income and balance sheet are as follows (amounts in thousands of U.S. dollars):
Historical Captions Year Ended December 31, 2009 Pro Forma Captions
Cost of materials and traffic charges (1,400) Service costs
Salaries and personnel costs 461
Selling, general and
administrative expenses
Impair ment loss reversal (increase in expense) 11,630 Impair ment loss
Income tax expense (decrease) (2,673) Income tax expense (benefit)
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Historical Captions As of December 31, 2009 Pro Forma Captions
Deferred expenses (decrease) (8,528) Other current assets
Employee benefit l iabi li ty current (decrease) 6 Due to related parties
Employee benefit liability increase (1,028) Other non-current liabilities
Property and equipment, net (decrease) (11,352) Property and equipment, net
Deferred tax decrease 5,226
Deferred income taxes current
and non-current
Net equity (decrease) 15,676
The unaudited pro forma condensed combined financial information gives effect to the Kyivstar Share Exchange using the acquisition method of
accounting in accordance with ASC 805, which OJSC VimpelCom adopted on January 1, 2009. For accounting purposes, VimpelCom Ltd., as accountingsuccessor to OJSC VimpelCom, is deemed to acquire Kyivstar. In a transaction in which the consideration is not in the form of cash, the acquisition
consideration (which is equivalent to the purchase price) is measured based on the fair value of the consideration given or the fair value of the assets
(or net assets) acquired, whichever is more clearly evident and, thus, more reliably measurable. The acquisition method of accounting uses the fair
value concepts defined in ASC 820, Fair Value Measurements and Disclosures, which OJSC VimpelCom adopted on Janua ry 1, 2009. ASC 805 requires,
among other things, that most assets acquired and liabilit ies assumed be recognized at their acquisition date fair values and that the fair value
of intangibles are recognized regardless of their intended use. In addition, ASC 805 establishes that the consideration transferred be measured at
the closing date of the acquisit ion at the then-current market price. This part icular requirement may result in the final consideration being valued
differently from the amount reflected in these unaudited pro forma condensed combined financial statements. See Note 2 to the unaudited pro forma
condensed combined financial information for the est imate of the value of t he consideration expected to be transferred in t he Transactions.
Since the Kyivstar Share Exchange has not yet been completed, we have preliminarily estimated the fair value of Kyivstars identifiable assets
and liabilities and contingent liabilities of Kyivstar as of December 31, 2009, based on information available to us on December 31, 2009. We are not
aware of any assets or liabilities that would need to be recognized in addition to those included in the unaudited pro forma balance sheet. The final
estimated valuation for all assets, liabilities and contingent liabilities w ill be updated as of the Closing Date to reflect possible refinements in
the valuation approach, as well as to take into account relevant factors, such as the time elapsing between December 31, 2009 and the Closing Date,
changes in market conditions and new or additional information as it becomes available during this period.
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Potential changes occurring between the date of this prospectus and the Closing Date that may impact the final es timates of the fair value of
the identified assets, liabilities and contingent liabilities may relate, but are not limited, to t he following areas:
Changes in exchange rates, changes in i nterest rates, and/or volatility in financial markets;
Changes in market conditions that would impact revenues and/or margins, changes in future expectations in terms of revenue growth or changes
in margins, or new entrants to the market; and
Acquisitions and/or disposals of assets.
In the consolidated financial statements that will be prepared as of the Closing Date, Kyivstars identifiable assets, liabilities and contingent
liabilities will be recognized at fair value, and any excess of the cost of the acquisition over the net fai r value of the identifiable assets, l iabilities and
contingent liabilities will be recognized as goodwill.
No amounts have been included in the pro forma purchase price allocation for estimated costs to be incurred to achieve savings or other benefits
of the Transactions. Similarly, the u naudited pro forma condensed combined financial information does not reflect any cost savings or other benefitsthat may be obtained through synergies among the operations of OJSC VimpelCom and Kyivstar.
No acquisition related transaction costs, including advisory and legal fees, which are directly attributable to t he pending transaction have been
recognized in the unaudited pro forma condensed combined financial information.
When presenting earnings per share amounts in the unaudited pro forma condensed combined statements of income for the unaudited combined
results, we have assumed that all OJSC VimpelCom shareholders will participate fully in the Offers and will receive only DRs as consideration in order to
determine the esti mated total number of VimpelCom Ltd.s issued and outstanding shares.
Note 2 Description of the Pro Forma Adjustment Transactions
In the Share Exchange Agreement, the Telenor Parties and the Alfa Parties have agreed to restructure their ownership interests in Kyivstar
and OJSC VimpelCom by contributing such interests to VimpelCom Ltd., or to VimpelCom Holdings, which will become a wholly owned subsidiary of
VimpelCom Ltd. upon completion of the Transactions. The parties have agreed that immediately upon completion of the Offers, the parties will cause
the following actions to occur in furtherance of the Kyivstar Share Exchange:
the Alfa Parties will contribute to VimpelCom Holdings 99.99% of their ownership interests in Storm, which in turn owns 43.5% of Kyivstars
outstanding shares, in exchange for 6,557,635 VimpelComHoldings common shares, and to VimpelCom Ltd. 0.01% of their ownership interests in
Storm in exchange for 13,120 VimpelCom Ltd. common shares. The Alfa Parties will then transfer their VimpelCom Holdings common shares to
VimpelCom Ltd. in exchange for 131,152,700 VimpelCom Ltd. common shares; and
the Telenor Parties will contribute their Kyivstar shares to VimpelCom Holdings in exchange for 8,524,363 VimpelCom Holdings shares. The Telenor
Parties will then transfer their VimpelCom Holdings shares to VimpelCom Ltd. in exchange for 170,487,260 VimpelCom Ltd. common shares.
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VimpelCom Ltd. will own one share of OJSC VimpelCom, approximately 0.01% of Kyivstar (indirectly) and 100% of VimpelCom Amsterdam, which in
turn will own 100% of VimpelCom Holdings, which in turn will own 100% minus one share of OJSC VimpelCom and approximately 99.99% of Kyivstar.
Following the successful completion of the Offers and the Squeeze-out, the existing shareholders of Kyivstar and the e xisting shareholders of
OJSC VimpelCom who elect to receive DRs, including the Alfa Parties and the Telenor Parties, will own 100% of OJSC VimpelCom and Kyivstar through
their ownership of all of VimpelCom Ltd.s outstanding shares.
The preliminary fair value of the Kyivstar Share Exchange is estimated as the market capitalization of OJSC VimpelCom divided by an agreed upon
equity conversion ratio of 1:3.4. For the purpose of this pro forma adjustment, OJSC VimpelComs market capitalization is calculated as the number of
outstanding OJSC VimpelCom common shares as of December 31, 2009 (the most recent balance sheet date) multiplied by the ADS conversion factor
(20 OJSC VimpelCom ADSs to 1 OJSC VimpelCom common share) multiplied by the quoted market price of an OJSC VimpelCom ADS as of March 23, 2010
(the most recently available date for the pro forma adjustment calculation), which is US$17.61. The Kyivstar Share Exchange does not attribute any
value to the OJSC VimpelCom preferred shares in determining OJSC VimpelComs market capitalization for the purposes of this calculation.
The following is an example of the calculation of the consideration for Kyivstar (US$ and number of shares in thousands):
OJSC VimpelCom issued and outstanding common shares 50,715
Shares to ADS conversion ratio (20 to 1) 20
OJSC VimpelCom ADS outstanding 1,014,292
OJSC VimpelCom ADS price 17.61
17,861,675
OJSC VimpelCom to Kyivstar exchange ratio (1 to 3.4) 0.2941
Kyivstar Purchase Price US$5,253,434
The Kyivstar purchase price is sensitive to changes in the market price of OJSC VimpelCom ADSs. Each 10.0% change (increase or decrease) in
the OJSC VimpelCom market ADS price on the Closing Date (from US$17.61, the market price used above) would impact the Kyivstar consideration by
US$525,343.4 thousand.
For illustrative purposes only, we have prepared a sensitivity analysis using a hypothetical 40.0% change in the market price of
the OJSC VimpelCom ADSs from the price used in the calculation above. If the market price of the OJSC VimpelCom ADSs decreased by 40.0% to
US$10.57, the Kyivstar purchase price would be US$3,152,060.2 thousand. If the market price of the OJSC VimpelCom ADSs increased by 40.0% to
US$24.65, the Kyivstar purchase price would be US$7,354,807.2 thousand.
Based on these possible outcomes and the preliminary valuation of Kyivstars assets and liabilities, the differences between these outcomes and
the Kyivstar purchase price calculated above would be recorded as an adjustment to goodwill. The historical market price of the OJSC VimpelCom ADSs
is not indicative of t he future market price. The sensitiv ity analysis has been prepared for illustrative purposes only and actual results could differ
materially.
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Note 3 VimpelCom Ltd. Sensitivity Analysis of the OffersVimpelCom Ltd. is offering to acquire all, and in any event more than 95.0%, of OJSC VimpelComs outstanding shares, including OJSC VimpelCom
common shares represented by OJSC VimpelCom ADSs. For purposes of the unaudited pro forma condensed combined financial information, we have
assumed that all OJSC VimpelCom shareholders will participate fully in the Offers and will elect to receive DRs. If less than 100% of OJSC VimpelCom
shares are tendered into the Offers, we will commence the Squeeze-out to acquire all remaining shares for cash, as described under The Offers
Effects of the Offers and the Russian Squeeze-out Proceedings.If only 95.0% (plus one share) of the OJSC VimpelCom shares are tendered into
the Offers, the minimum amount possible to satisf y the minimum acceptance condition, we estimate that the total amount of cash required to acquire
the remaining 2,885,381 OJSC VimpelCom shares in the Squeeze-out would be US$1,016,231.2 thousand, based on the following assumptions:
the cash consideration paid to the remaining OJSC VimpelCom shareholders in the Squeeze-out is equal to US$17.61, the closing market price on
the NYSE of an OJSC VimpelCom ADS on March 23, 2010 (the most recently available date for the pro forma adjustment calculation); and
the total number of outstanding OJSC VimpelCom shares is equal to the number of shares outstanding on December 31, 2009, as reported by
OJSC VimpelCom.
This information is provided for illustrative purposes only. The actual shares tendered in the Offers could be between 95.0% (plus one share)
and 100% of OJSC VimpelComs outstanding shares. If VimpelCom Ltd. undertakes the Squeeze-out, the financial statements would be impacted by
the debt and related interest effect of any financing used to acquire the remaining s hares, and acquiring less than 100% of OJSC VimpelComs shares in
the Offers would reduce the total number of VimpelCom Ltd.s outstanding shares proportionally.
Note 4 Kyivstar Pro Forma Adjustments
[a] Preliminary purchase accounting has been applied to the pro forma condensed combined balance sheet as of December 31, 2009, as if
the Kyivstar Share Exchange occurred at t hat date. The pro forma adjustment represents preliminary fair value adjustments to the assets and
liabilities deemed acquired. The preliminary fair value allocation has been performed based on assessments of information available as of the date
of this prospectus. The assessment of fair value adjustments will be reassessed and updated as necessary, and recognized in our f inancial statements
as of the Closing Date in accordance with ASC 805.
The following is a summary of the var ious methods used to value the Kyivstar assets purchased. Property and equipment and software have been
valued primarily by using the cost method. Mobile licenses have been valued using the Greenfield and market methods. Customer relationships have
been valued using the multi- period excess earnings method. Trademarks have been valued primarily using the relief-from-royalty method.
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Intangible Assets and Software
Preliminary fair values, fair value adjustments (amounts in thousands of U.S. dollars) as of December 31, 2009, and estimated remaining useful
lives (referred to in this section as RUL), in years, are est imated as follows:
Fair Value RUL
Mobile licenses 276,190 15
Trademarks 213,033 15
Customer relationships 960,401 7-15
Software 192,105 2-6
Total fair value intangible assets 1,641,729
Less total book value of intangible assets (135,409)
Adjustments to intangible assets including software 1,506,320
The deferred tax li ability effects related to the adjustments are est imated at US$376,580.0 thousand using a 25.0% statutory tax rate.
Property and Equipment
Preliminary fair values, fair value adjustments (amounts in thousands of U.S. dollars) as of December 31, 2009, and RUL, in years, a re estimated
as follows:
Total fair value of property and equipment 1,034,085 2-25
Less total book value of property and equipment (784,266)
Adjustment to property and equipment 249,819
The deferred tax li ability effect related to the adjustment is esti mated at US$62,454.8 thousand using a 25.0% statutory ta x rate.
Deferred Revenue
The estimated fa ir value of the contractual obligation to perform services in the future related to amounts recognized as customer advances
and deposits in the historical balance sheet of Kyivstar and is estimated to be US$48,424.2 thousand as of December 31, 2009. The performance
obligation relates to unused time on prepaid scratch cards. As of December 31, 2009, the amount recognized in customer advances and deposits in
Kyivstars historical balance sheet was US$77,007.4 thousand. This balance also included deferred connection and set-up services for which no future
service obligation exists. Therefore, a pro forma adjustment of US$28,583.2 thousand was made to the unaudited pro forma balance sheet to adjust
the recorded amount (US$77,007.4 thousand) to the estimated fair value (US$48,424.2 thousand) as of December 31, 2009. The deferred tax effect,
using a statutory tax rate of 25.0%, was US$7,145.8 thousand.
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Goodwill
The preliminary purchase price is allocated to the estimated fair value of identifiable assets, assumed liabil ities and goodwill as follows (amounts
in thousands of U.S. dollars):
Fair value of consideration of Kyivstar Share Exchange 5,253,434
Less book value of net assets as of December 31, 2009 (1,109,486)
4,143,948
Preliminary adjustments to the fair values of:
Property and equipment 249,819
Intangible assets 1,422,739
Software, net 83,582
Customer advances and deposits 28,583
Fair value adjustments applied to identified assets 1,784,723
Less non-current deferred tax applied at 25.0% (446,181)
Total fair value adjustments, net of tax effect (1,338,542)
Goodwill 2,805,406
The book value of net assets in the table above of US$1,109,486 thousand has been adjusted against Kyivstars share capital of US$82,268 thousand
and retained earnings and accumulated other comprehensive income of US$1,027,218.
[b] Preliminary purchase accounting has been applied to the unaudited pro forma condensed combined statement of income for the year ended
December 31, 2009, as if t he Kyivstar Share Exchange had occurred at January 1, 2009. Kyivstar financial information in Ukrainia n hryvnia has been
translated to U.S. dollars applying an average exchange rate of UAH 7.79 per U.S. dollar for the year ended December 31, 2009. As required by ASC 805related to the purchase accounting in connection with the Kyivstar Share Exchange, pro forma adjustments have been made to reflect additional
depreciation and amortization as follows (amounts in thousands of U.S. dollars):
Year Ended December 31, 2009
Depreciation (58,443)
Amortization (269,187)
Income tax benefit 81,908
The statutory income tax rate of 25.0% has been applied to the pro forma adjustments noted above. We did not identify intangibles with indefinite
useful life except for goodwill.
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A portion of the customer relationships will be amortized using the declining balance method over 9 and 8 years for contract and prepaid
customers, respectively. The estimated amortization charge for the next five years is as follows (amounts in thousands of U.S. dollars):
Year Amount
2010 135,387
2011 100,049
2012 74,030
2013 54,847
2014 40,687
As discussed in Note 1, the valuation of intangible assets and property a nd equipment is not finalized and the es timated fair value may change,
which would impact amortizat ion and depreciation expense in t he unaudited pro forma condensed combined statement of income. For illustrative
purposes only, a 10.0% change in the estimated fair value of the intangible assets would have an impact on the amortization expense of US$32,267.7
thousand for the year ended December 31, 2009. Additionally, a 10.0% change in the es timated fair value of the property and equ ipment would have
an impact on the depreciation expense of US$23,032.4 thousand for the year ended December 31, 2009.
The estimated remaining useful lives for intangible assets and equipment are based on a preliminary evaluation of the assets being acquired.
As furt her evaluation of the property and equipment acquired is performed, there could be changes in the estimated remaini ng useful lives.
To demonstrate the sensitivity of the pro forma depreciation and amortization expense to changes in the estimated remain ing useful lives, a nd/or
estimated amortiz ation rates, the following table shows the impact of a hypothetical 10.0% increase or decrease in the estimated remaining useful
life for property and equipment and estimated amorti zation rates for intangible assets for the year ended December 31, 2009 (amounts in thousands
of U.S. dollars):
Year Ended December 31, 2009
Property and Equipment
Increase (decrease) in depreciation expense
10.0% increase in estimated remaining useful lives (16,868)
10.0% decrease in estimated remaining useful lives 20,418
Intangible Assets
Increase (decrease) in amortization expense
10.0% increase in estimated amortization rates (28,669)
10.0% decrease in estimated amortization rates 30,864
This sensitivity a nalysis is provided for illustrative purposes only. The actual change in estimated remaining useful lives, if a ny, could be
materially different.
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The adjustment to operating revenue reflects the reversal of deferred revenue recognized by Kyivstar for which VimpelCom Ltd. has no further
contractual performance obligation as of January 1, 2009. These deferred amounts had been recognized in Kyivstars historical s tatements of income
for the year ended December 31, 2009. The following table shows the effects of reversing these amounts, including an applied statutory tax rate with
respect to the Kyivstar adjustments of 25.0% (amounts in thousands of U.S. dollars):
Year Ended December 31, 2009
Operating revenues (34,078)
Income tax benefit 8,520
[c] The pro forma adjustment reflects elimination of intercompany transactions between Kyivstar and OJSC VimpelCom (amounts in thousands of
U.S. dollars):
Statement of income, for the year ended December 31, 2009:
Operating revenues (86,707)
Service costs (86,707)
Balance sheet as of December 31, 2009:
Due from related parties (5,531)
Due to related parties (5,531)
Notes
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Notes
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